Note: The Labor Department responded the morning of Dec. 1 to questions sent to it the day before; we've updated this article to include its responses throughout.

The Labor Department's new $27.6 million (and counting) core financial system prevented the department from producing an auditable financial statement for fiscal 2010. This marks the first time in 13 years that the department has failed to earn a "clean" audit opinion for its financials.

Since January, when Labor turned on the New Core Financial Management System, the department has experienced "significant transaction and reporting errors" in its financial reporting processing primarily caused by NCFMS data migration problems, subsystem interfaces not operating as intended and some processes not functioning well, such as the account for property, plant and equipment, department officials acknowledge in their fiscal 2010 financial report.

KPMG, the department's outside auditors, warned (.pdf) Labor in late 2009 about issues related to the system, but many identified risks were not rectified prior the system's initiation. Labor awarded Reston, Va.-based Global Computer Enterprises a contract in 2008 worth up to $50 million to provide the system, support its implementation and migrate data from the old system.

"Even though significant testing occurred, the data migration effort was a huge challenge," said Labor spokeswoman Suzy Bohnert. "The disclaimer occurred because the priority was to work around those problems to ensure the department continued to meet its mission." GCE did not respond to requests for comment.

 "The department is currently unable to produce auditable financial statements on a timely basis," KPMG auditors said in their independent auditors' report. Day-to-day financial transaction processing is unaffected by NCFMS's problems, they say.

Among the errors identified by auditors in an initial draft of year-end financial statements is a $4.1 billion discrepancy of liability in $12.1 billion compensation fund for nuclear weapons workers. In order to compensate for NCFMS problems the office of chief financial officer has to hire additional contractors. Bonhert said the additional contractors will cost $10 million and GCE's contract has been raised to $60 million as a result. 

"The original contract, signed in July 2008, did not adequately fund current requirements," she said. "The main reason is that the number of users was significantly underestimated." The legacy system relied on batch processing, so Labor lacked a baseline to make an estimate, she added. "The estimate provided to bidders in early 2008 was for 300 users.  At the end of 2010, there were more than 1,500 users."  

A former senior Labor official from the Bush administration--who spoke on condition of anonymity--said Labor should have kept its legacy system running in parallel until NCFMS was ready to process day-to-day transactions and produce auditable statements. "I don't see this as a technology system problem. This is a let down by the political leadership," the former official said.

Bohnert said keeping the two systems online "was not an option. The resources in doing so would have been prohibitive." Labor did delay NCFMS implementation by three months, she added, moving back its original Oct. 1, 2009 go-live date to Jan. 14, 2010 in order to "mitigate some of the early problems."

The IT Dashboard, however, shows the system in apparent good health, with a score of 7.5 out of 10, meaning the project also rates "green" on a traffic-light grading system. It has met more "measurement indicator" goals than not, according to information last updated on Sept. 16, 2010 (see graph below).

In a preface to the KPMG report, Labor Chief Financial Officer James L. Taylor said NCFMS "is clearly aligned with the Obama administration's push for modernizing government through technology."

The system, he also said "marked the first implementation of a secure, cloud computing-based financial management solution by a cabinet-level agency."

NOTE:

For more:
- download the Labor fiscal 2010 financial report (document contains the KPMG report) (.pdf)
- go to the NCFMS page on the IT Dashboard

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