Audit Says DMV Ignored Warning : Finances: State officials knew about computer system’s problems in 1990, yet spent $50 million on doomed project. Safeguards were bypassed, auditor says.

Top state administrators wasted $50 million on a doomed computer project at the Department of Motor Vehicles by violating contracting laws, repeatedly ignoring signs of trouble in the system and bypassing state cost control safeguards, according to a state audit released Wednesday.

Reconstructing the seven-year history of a project that the Pete Wilson Administration abandoned this year, state Auditor Kurt R. Sjoberg said officials were provided with ample evidence of serious trouble as early as 1990, when only $14.8 million had been spent on the project.

Yet administrators in three state agencies, he said, ignored the warnings and pushed ahead with a first-of-its-kind project that would merge the state’s massive driver’s license database and its motor vehicle registration information into a single system.

As the years passed and more aspects of the system failed, Sjoberg said officials continued to pour money into the project, often circumventing rules and regulations designed to curb runaway government costs.

“The DMV continued its efforts . . . despite continued failures in critical aspects of its development, and, as a result, spent an additional $34.6 million on a project that ultimately failed,” the state auditor wrote.

Administrators were so determined to proceed at all costs, he reported, that at one point bureaucrats allegedly violated state criminal laws by falsifying $46,000 in invoices to pay project consultants.

A DMV spokesman said four lower-level bureaucrats have been disciplined as a result of the findings, but he declined to give their names, citing privacy laws. He would say only that in disciplining the employees, the department had taken into consideration that their actions had not been for personal gain.

Democratic lawmakers responded quickly to the audit’s findings, calling for better scrutiny of computer contracts and faulting the Wilson Administration for not stopping the DMV project sooner.

“The DMV ignored unresolved problems every step of the way and stuck the taxpayers with a $50-million white elephant,” said Assemblywoman Debra Bowen (D-Marina del Rey).

Assembly Transportation Committee Chairman Richard Katz (D-Sylmar) demanded that Wilson immediately fire two of his top administrators, whose names were not mentioned in the audit but whose actions were documented in detail.

Katz said the audit showed clearly that state Lottery Director A.A. (Del) Pierce, who headed the DMV during the early critical phases of the project, and Steve Kolodeny, director of the Office of Information Technology, had “major roles in the scandal.”

“It seems to me there are two choices here for what happened,” Katz said. “Either there were conflicts of interest or gross incompetence, either one of which are grounds for termination.”

Neither Kolodeny, who has removed himself from the day-to-day operations of the Office of Information Technology, nor Pierce was available for comment. Kolodeny was on vacation. A spokesman for the lottery said Pierce, who is gravely ill with cancer, has been on medical leave for six weeks.

Gov. Pete Wilson moved immediately to distance himself from the debacle and his DMV director, Frank Zolin, who made the decision to abandon the project.

Emphasizing that he had inherited the DMV computer problems, Wilson criticized the Administration of his Republican predecessor, Gov. George Deukmejian, saying it was “outrageous that this project was implemented in such a slipshod fashion.”

While praising Zolin for “doing the right thing” in canceling the project, the governor said he was nevertheless “disappointed the department was not more aggressive in surfacing the issue.”

DMV spokesman Evan Nossoff said that when Zolin took over the department, $34 million had been spent on the computer system. He said Zolin pumped millions more into the project in a desperate but futile attempt to revive it and save the state’s investment.

In hindsight, he said Zolin now wishes that he had moved with greater speed to kill the project, though the documents available to him at the time did not reveal the enormity of the problems.

“Frank Zolin from the start has said the whole story needs to be put before the public and it is a cautionary tale for all government agencies,” Nossoff said.

Administration officials said they had no plans to fire anybody but the audit would be turned over to Business, Transportation and Housing Secretary Dean Dunphy to “review the findings for possible disciplinary action.”

As a result of the audit, Wilson said he would issue an order prohibiting agencies from awarding non-competitive contracts--a problem found in the audit--except in emergency situations. He said he would also direct all department heads to follow contracting rules and regulations “to the letter of the law,” threatening them with disciplinary action if they did not.

In the DMV report released Wednesday, the auditor traced the actions of the DMV back to 1987 to show how officials repeatedly altered customary procedures to push the project forward. The findings showed that:

* The department initially decided to use Tandem Corp. computers for its new data system even though they did not pass a key element in the tests that the DMV was using to analyze their capabilities. That flaw--an inability to process transactions in less than a second--was ultimately a factor in the decision to abandon the project.

* The department, despite promising to do so, failed to develop a working model for the project.

* The department, based on other data gathered while developing the system, had enough documented evidence by 1990 “to indicate that the project’s feasibility was in doubt.” But instead of re-evaluating the project, the auditor said officials moved to fully implement it.

* Despite new reports in 1991 and 1992 showing more evidence of “serious problems with the project,” department officials pushed on.

* Much of the documented evidence of problems with the project were forwarded to the Office of Information Technology. But OIT continued to approve funding.

If OIT had done its job, the auditor said, the project would have been halted and the state would have saved millions of dollars.

In addition, the audit found that the DMV awarded at least four contracts without competitive bidding, in violation of state contracting law, and that the department falsified a purchase order.