Controller’s office bears some blame for payroll flop, report says

SACRAMENTO -- California officials failed to adequately oversee a stalled $373-million upgrade to the state’s outdated payroll system, according to a report released by a Senate office on Monday.

The report is critical of the state controller’s office, which was responsible for the project, and said officials withheld evidence of problems from lawmakers.

The upgrade, known as the 21st Century Project, was halted in February, and the contractor, SAP Public Services, was fired after testing revealed serious problems. The state had already spent $254 million on the project, and it was five years overdue.

“The project suffered from lapses in due diligence, a failure to resolve core issues raised early and often, chronic turnover in leadership and what may have been unrealistic expectations,” the report said.

Monday’s report was prepared for a Senate budget subcommittee chaired by Sen. Richard Roth (D-Riverside), who has called a hearing to review the project on Thursday.

There were signs the upgrade would be problematic years earlier. The Los Angeles Community College District and the Los Angeles Unified School District both tried to overhaul their payroll systems with SAP software, with catastrophic results.

Although officials at the controller’s office said they reviewed both districts’ experiences, they could not locate any memos summarizing their findings, the report said.

The 21st Century Project ran into more trouble when the first primary contractor, BearingPoint, was fired in 2009. SAP replaced BearingPoint the following year, and lawmakers requested regular updates on the upgrade.

However, “the quarterly reports often lacked candor, sugar-coating some problems and ignoring others,” the report said. “This failure to be transparent compromised legislative oversight and stymied accountability.”

State officials are now trying to recoup up to $135 million from SAP, saying the company botched the project, the report said. SAP has defended itself, and the matter is expected to be settled in court.

California’s government payroll system is decades old, and replacing it is considered a priority for the state.

“I think everyone knows that at some point, that payroll system is going to blow up for good,” a former top official in the controller’s office, Vince Brown, told the report’s authors.

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Twitter: @chrismegerian