By Los Angeles Times
Oct. 23, 2013
Problems are growing worse for the state’s Employment Development Department after a new computer system backfired, leaving some Californians without much-needed benefit checks for weeks.
The agency initially said 80,000 unemployment claims were stalled when the software went online over Labor Day weekend. But internal emails obtained by The Times show the system was riddled with glitches that stopped payment to as many as 300,000 claimants.
Now lawmakers want answers. The Assembly is setting up a hearing to determine what went wrong with a system that cost taxpayers $110 million, almost double the original estimate.
Some blame the EDD’s slow response to the problem that created the massive backlog of claims. Others are pointing fingers at a familiar name around the halls of Sacramento: Deloitte Consulting.
The New York firm is one of the state’s biggest contractors and has a history of delivering projects over budget and with problematic results. Deloitte also has been blamed for similar troubles with upgrades to unemployment software in Massachusetts, Pennsylvania and Florida.
“We keep hiring the same company, and they keep having the same issues,” said Sen. Anthony Cannella (R-Ceres). “At some point, it’s on us for hiring the same company. It’s faulty logic, and we’ve got to get better.”
Cannella and another state senator are calling on the Senate’s Labor and Industrial Relations Committee, which oversees the EDD, to investigate the contract. The Assembly Insurance Committee, which oversees California’s unemployment benefits program, has pledged a hearing before the end of the year.
Massachusetts’ state Senate next week will hold a hearing about similar problems with that state’s system. Deloitte is blamed there for a $46-million system that was two years behind schedule, $6 million over budget and plagued with many of the same problems California is experiencing.
In 2003, California estimated it would pay $58 million to upgrade its 30-year-old unemployment benefits system. By the time the state awarded Deloitte the contract in 2010, the cost estimate had grown by more than $30 million.
The EDD handles the largest unemployment insurance program in the country, having doled out $6.6 billion to about 1 million unemployed Californians in 2012. The software was expected to ease the agency’s ability to verify who was eligible to receive benefits.
But problems began when the EDD transferred old unemployment data to the new system. The software flagged claims for review — requiring state workers to manually process them.
Officials initially thought the workload would be manageable, but internal emails showed the agency was quickly overwhelmed. Phone lines were jammed with frustrated people seeking answers. For weeks, EDD employees have been working overtime hours to clear the backlog.
Loree Levy, an EDD spokeswoman, said the system is working, processing 80% of claims on time. As for the troubles, she said, “There is a period of transition or adjustment with any large infrastructure upgrade like this one.”
Deloitte LLP is one of America’s big four accounting firms, and has evolved into a large player in management and information technology consulting. It’s one of the big IT contractors involved in deploying the Affordable Care Act and provides tech services to the Internal Revenue Service.
In California, Deloitte has racked up more than $540 million in tech work over the last 10 years, making it the state’s third-highest-paid IT contractor. Over the last two years, the company has spent more on lobbying legislators than any other competing firm in its field.
But some of its work with the state has had problems.
Less than a year ago, the EDD launched an upgrade to another program it operates: the state’s disability insurance. Deloitte was the contractor hired for that $86-million upgrade intended to make it easier for those temporarily disabled or on maternity leave to file online claims.
But the software malfunctioned and delayed thousands of disability checks for weeks. It took six months to clear the backlog.
Deloitte turned down several requests for in an interview with company officials. In an e-mail, spokeswoman Courtney Flaherty said the new California system is working and that problems are not the result of a “breakdown or flaw in the software Deloitte developed.”
She also said they welcomed the “opportunity to have a dialogue with legislators about the launch of this new system.”
Assemblyman Henry T. Perea (D-Fresno) said he was prompted to set up a hearing after his office was flooded with complaints from affected residents.
“We’re going to look at the entire picture — the EDD, the contractors and others — to really see how the system broke down so we can avoid this in the future,” said Perea, who chairs the Assembly Insurance Committee.
Lawmakers plan to scrutinize the contract, which one software expert said was structured in a way that led to cost overruns.
Michael Krigsman, a software consultant, reviewed the 2010 contract and 17 subsequent contract amendments for The Times and found some parts unusual.
In the last contract amendment, signed Aug. 30, the state agreed to pay Deloitte $3.5 million for five months of maintenance and operations costs. Those costs should have been figured out in the beginning, Krigsman said.
“It’s a striking oversight that maintenance was not anticipated at the beginning of the contract when the state was at a much stronger negotiation position,” said Krigsman, a consultant with expertise in state IT contracts.
By the time the middle of a project is reached, the state has no choice but to stick with Deloitte to work out bugs that arise when the system goes live, he said.
IT experts said it’s not unusual for big system upgrades to run into problems.
Howard Anderson, a senior lecturer at MIT and founder of technology research group the Yankee Group, said 20% of such upgrades end up becoming what he calls a “runaway project.” He said they are contracts plagued by big delays, large cost overruns and problems working correctly.
“They start one way and are budgeted at $8 million, and all of a sudden it’s $12 million and it ain’t working right,” Anderson said. “Then the politicians start screaming at the consulting firm.”