Summary

Our audit disclosed that, in general, the Department and Accenture have made substantial progress in installing the On-Line Licensing System and Call Center infrastructure and in reorganizing the Department to facilitate the use of the new technology.  However, our audit did disclose the following issues:

Finding No. 1:  A substantial portion of the contractor’s compensation under the Agreement is projected to come from share-in-savings (SIS) payments.  With respect to the methodology used to determine the amounts of the SIS payments, our audit disclosed:

• The contract signed by the Department, Accenture, and the State Technology Office on February 2, 2001, required that “real dollar cost savings” be calculated and shared by the Department and Accenture.  The term “real dollar cost savings” is not defined by the contract, nor does the contract contain any specification of the baseline that would be used in making “real dollar cost savings” calculations.  On June 6, 2003, an updated Business Case was issued containing the baseline.  Absent a clear definition of “real dollar cost savings” and agreement on the specifics of a baseline prior to the signing of a contract with SIS provisions, the contractor and client may find themselves bound by a contract for which a mutually acceptable and objective baseline cannot be identified.

• The benefit sharing methodology used to calculate SIS payments made for the fiscal years ending June 30, 2002, and June 30, 2003, did not incorporate output levels during the baseline period for comparison to output levels produced subsequent to project implementation.  The calculation of changes in cost, absent a consideration of post-implementation changes in output levels, may not provide an adequate reflection of the value of Project benefits.  It is our understanding that efforts are in process to incorporate output level comparisons in future savings calculations.

• The benefit sharing methodology used to calculate project savings did not include as a cost all of the amounts paid to Accenture.  The inclusion of all such costs in the savings calculations would, based on the latest estimate of total Project savings, reduce Accenture’s share of Project savings by approximately $13 million and total project savings by as much as $37 million.

• The business case, which documents the baseline, was signed by the Department’s Secretary, Chief of Staff, Business Manager, and an Accenture Partner, but the signatures appear below a statement that provides “By signing this Deliverable Approval Form, the party listed below agrees that they have reviewed the document and have provided issues they have with the document.”  It was not clear that signatures following the above-described statement would constitute the approval of the contents of the document, in this instance, the Project baseline.

Finding No. 2:  SIS payments to Accenture are initially made based on estimates of savings.  The Agreement has no provision for the payment of interest by Accenture in the event that SIS estimates and related payments are more than subsequently calculated actual savings, or for the payment of interest by the Department in the event that SIS estimates and related payments are less than actual savings.  We also noted that the Agreement contains no provision defining a mechanism for resolving SIS-related disputes and no provision establishing a cap on the amount of compensation to be paid under the SIS component of the Agreement.

Finding No. 3:  The Application Management Services component of the Agreement provides for payments to Accenture that are projected to total $30 million over the 8-year term of the Agreement.  Total payments under this component totaled $4,905,327 as of July 15, 2003.  Our review of the Department’s processing of these payments disclosed a lack of procedures that could be relied upon to assure that the application management services payments were appropriate in amount.

The Secretary's complete response to the audit findings and recommendations in audit report No. 02-112 may be viewed in its entirety on the Auditor General Web site.