An Audit Report on the Department of Information Resources and the Consolidation of the State's Data Centers

June 2008

Report Number 08-038

Overall Conclusion

The transfer of state agency employees to IBM could have been improved with strong requirements.

The Department of Information Resources (Department) did not develop and require agencies to follow employee transfer criteria, which contributed to gaps in knowledge and skills that have negatively affected the data center consolidation project. During the project, the transfer of knowledge and skills to IBM could have been improved if the Department had developed and enforced transfer requirements for agencies to follow in selecting the specific employees to be transferred to IBM. IBM agreed to employ agency staff who formerly supported systems at 27 agencies as part of its $145 million annual contract with the Department.

Auditors determined that a knowledge and skills gap existed based on the following:

- Of the 560 employee positions that agencies transferred to IBM, 231 (41 percent) were vacant positions. Therefore, in those cases, the agencies did not transfer actual employees who had knowledge of agency systems to IBM. For example, six agencies transferred less than 20 percent of the actual employees they should have transferred to IBM, and they transferred vacant positions for the remainder of their obligation. It is important to note that the agencies that transferred less than 20 percent of their actual employees included five large agencies. The vacant positions at these five agencies accounted for a total of 119 vacant positions, or 21 percent of the total positions involved in the data center consolidation project.

- Of 443 employees who had the most experience and knowledge to support agency systems, agencies transferred only 230 (52 percent) to IBM.

- After beginning operations under its contract with the Department, IBM had to contract with agencies and reimburse them for the use of state employees' time in order to support agency systems. In April 2008, one year after the data center consolidation project began, IBM still needed to rely on state employees to provide some support services. In addition, some agencies are still relying on state employees to perform functions that have been outsourced to IBM. The need for this approach might have been reduced if agencies had transferred more actual employees with knowledge about agency systems to IBM.

Because agency employees ultimately have the option of pursuing other employment opportunities, auditors recognize that it is difficult, and sometimes impossible, to ensure an effective transfer of employees under a project such as the data center consolidation project. The lack of employee transfer criteria developed and enforced by the Department allowed each of the 27 agencies involved in the project to use different employee transfer criteria that did not always consider the data center consolidation project's requirements for success. Although some agencies appropriately transferred employees who had knowledge of agency systems to IBM, auditors' survey of the 27 agencies determined that:

- Some agencies accommodated employees who should have been transferred to IBM by making internal positions available to the employees.

- Other agencies retained employees with the most valuable skills and transferred employees with less experience or knowledge to IBM.

- As discussed above, other agencies transferred vacant positions to IBM instead of actual employees who had knowledge of agency systems.

These examples indicate that some agencies may have made decisions that allowed employees to continue state employment, while putting their agency systems, other state agencies' systems, and the data center consolidation project at risk.

Despite the issues discussed above, it is important to note that the Department implemented several other critical processes and controls that improved the transfer of agency employees to IBM. For example, the Department provided data collection training to the information technology directors at all 27 agencies, developed requirements for retaining certain critical agency personnel, and hired an independent consultant to validate employee time data submitted by agencies.

Invoicing for the data center consolidation project should be improved.

Auditors identified errors and inconsistencies in an IBM database that is the basis for generating monthly invoices that IBM sends to the Department. (After it receives these invoices, the Department then sends invoices to agencies for the services they receive.) Auditors tested five of the highest risk invoices at five agencies and reviewed the accuracy of the number of application servers each agency was using. That testing identified errors that had a financial impact of only $19,734 (4.24 percent of the total value of items tested). While none of the errors auditors identified would have a significant financial impact on the agencies tested, the potential exists for significant errors because neither IBM nor the Department has performed an accurate reconciliation of this database to the physical resources that IBM manages since commencement of the data center consolidation project on March 31, 2007.

IBM has not submitted invoices or resolved agency invoicing disputes within the timeframes specified in its contract with the Department. From April 2007 through December 2007, the Department received 8 of 9 (89 percent) invoices from IBM after the timeframes specified in the contract. On average, these eight invoices were 44 business days late when compared to contractual requirements. Additionally, as of March 26, 2008, IBM had resolved only 37 of 109 (34 percent) agency invoicing disputes. IBM took an average of 81 days to resolve each dispute, but its contract requires resolution of those disputes within 3 days. Eighty-four percent of resolved disputes were resolved in the agencies' favor.

Although IBM's database contains some errors, the Department has implemented processes and controls that help it correctly process the invoices that the Department sends to agencies. After the Department becomes able to rely on IBM's invoice data, these processes and controls will provide some assurance that agency invoices are accurate. Auditors verified that the Department correctly tracks credits, correctly calculates its cost recovery fees, and performs trend analysis on agency invoices. Auditors also verified that invoices the Department submits to agencies are consistent with the invoices it receives from IBM.

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