operating budget data - maryland general...

NA.01Administration

Department of Human Resources

Note: Numbers may not sum to total due to rounding.For further information contact: Suzanne P. Freed Phone: (410) 946-5530

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Operating Budget Data($ in Thousands)

FY 01 FY 02 FY 03 % ChangeActual Working Allowance Change Prior Year

General Fund $79,062 $66,876 $78,808 $11,931 17.8%

Special Fund 3,040 4,565 4,103 (461) (10.1%)

Federal Fund 126,280 68,204 69,705 1,501 2.2%

Total Funds $208,383 $139,645 $152,616 $12,971 9.3%

� The Governor’s allowance includes a $1.6 million fiscal 2002 deficiency to relocate the BaltimoreCounty Department of Social Services. Of this amount, $1.1 million is general funds and $0.5 millionis special funds taken from the Dedicated Purpose Account.

� The fiscal 2003 allowance grows approximately $13.0 million, or 9.3% over the fiscal 2002 workingappropriation. The largest increase, $10.1 million, occurs in major information technologydevelopment.

Personnel DataFY 01 FY 02 FY 03Actual Working Allowance Change

Regular Positions 1,097.50 1,200.30 1,200.30 0.00

Contractual FTEs 67.93 5.58 6.91 1.33

Total Personnel 1,165.43 1,205.88 1,207.21 1.33

Vacancy Data: Regular Positions

Budgeted Turnover: FY 03 68.30 5.69%

Positions Vacant as of 12/31/01 115.50 10.01%

� The fiscal 2003 appropriation budgets a 5.69% turnover rate. However, due to cost containmentmeasures, specifically the hiring freeze, the Department of Human Resources (DHR) administrativeunits will actually have to hold vacant twice that amount to work within its budget.

� The allowance includes funding for a new student intern to work with the commissions in theCommunity Services Administration.

NA.01 - DHR - Administration

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Analysis in Brief

Issues

Gartner Consulting Report Outlines Technology Needs: In November 2001 Gartner Consultingpresented its findings on DHR’s information technology structure and systems. Hired to provide a majorarchitectural study of all information technology systems, Gartner found that DHR's changing programrequirements and technical innovations have "jointly contributed to the increasing heterogeneity of DHR’sinformation systems (IS) portfolio." DHR should discuss the impact of the current budget constraintson its strategic plan for computer systems, including the consideration of Gartner’srecommendations and where its stakeholders believe the department should be moving.

DHR Helps IBM/Global Services Data Processing Move to Gaithersburg: Committee narrative fromthe 2001 legislative session requested DHR to provide an update on the data processing contract, currentlyheld by IBM/Global Services. In its report, DHR explained the cost savings incurred by renegotiating thecurrent contract to a two-year extension and moving IBM/GS's data processing from Southbury,Connecticut to Gaithersburg, Maryland. DHR should explain how it will ensure cost savings beyondthe current contract term. Moreover, DHR should explain how it can ensure a fair, competitiverebidding process, given that it helped subsidize the incumbent contractor’s move to Maryland.

Recommended Actions

Funds Positions

1. Add budget language to limit the number of contractual positions to160.14.

2. Reduce funding for student interns given the tight fiscal conditionof the State. $ 35,573

3. Reduce new computer equipment funding related to MD CHESSIEdue to high turnover expectancy for new positions. 225,318

4. Delete funding for planning of an integrated managementinformation system due to tight fiscal conditions in the State. 450,000

5. Defer funding for development of MD CHESSIE until the State'sChief Information Office reviews the project. 14,488,807

12.0

6. Reduce travel expenses to reflect actual history plus inflation forfiscal 2002 and 2003. 430,454

7. Delete funding for an independent verification and validationcontract related to services that the State’s Chief Information Officeis responsible for conducting. 1,368,291


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8. Delete positions that have been vacant more than one year prior tothe hiring freeze. 30.0

9. Delete funding for equipment replacement in the new BaltimoreCounty office. 500,000

Total Reductions to Fiscal 2002 Deficiency Appropriation $ 500,000

Total Reductions to Allowance $ 16,998,443 42.0

Updates

Office of Legislative Audits Finds Significant Deficiencies in Office of the Secretary: The Office ofLegislative Audits (OLA) produced a report for the Office of the Secretary and other related units for theperiod beginning July 1, 1997, and ending June 30, 2001. The audit found significant deficiencies withregard to the awarding and monitoring of a computer consultant contract with a potential cost of $110million over five years. Also, OLA found the department did not take timely action to obtain $10.4 millionin federal fund authorizations. DHR concurred with all findings and is in the process of implementingOLA’s recommendations.


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NA.01Administration

Department of Human Resources

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Operating Budget Analysis

Program Description

The Department of Human Resources (DHR) administers its programs through a State-supervised andlocally administered system. DHR’s State Administration provides overall departmental direction. StateAdministration consists of three major units: the Office of the Secretary, the Office of Technology forHuman Services (OTHS), and the Operations Office. Local departments of social services are situatedin each county and Baltimore City. The Secretary of Human Resources and local government officialsjointly appoint local directors. Administrative activities of the 24 local departments are combined into alocal general administration unit for budgetary purposes.

Office of the Secretary

The Office of the Secretary provides overall direction and coordination for DHR programs andactivities. The Office of the Secretary includes the independent Citizen's Review Board for Children. Theboard reviews the cases of children who have been in foster care for at least six months and reports to thejuvenile courts on the status of efforts to secure permanent homes for these children.

Operations Office

The Operations Office consists of the Division of Administrative Service and the Division of Budget,Finance, and Personnel (DBFP). The Division of Administrative Services manages DHR facilities;enforces parking; oversees DHR’s vehicles, mail room, warehouse operations, print shop, and inventory;and manages DHR’s records. DBFP provides fiscal and personnel support to the other units of thedepartment.

Office of Technology for Human Services

Formerly the Office of Information Management, OTHS develops, designs, implements, and operatesautomated systems to support departmental activities. The office is responsible for computer applications,systems, equipment, support, and maintenance. Also, OTHS is responsible for telephone systems andother communication equipment. The principal tasks of the office are to ensure production support,maintenance, and enhancements of DHR’s electronic information systems. Major initiatives include theClient’s Automated Resource and Eligibility System, the Child Support Enforcement System, and theChild Care Automated Management Information System, which is now in the process of being updatedto include all new child care initiatives. OTHS also oversees the operation of the Electronic BenefitsTransfer System (EBTS). EBTS provides electronic distribution of cash assistance, food stamp benefits,and child support for public assistance recipients.


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Local General Administration

Local general administration consists of the administrative staff and related expenses at the 24 localdepartments of social services. Administrative staff include personnel responsible for local management,maintenance, finance, statistics, and general record keeping. Related expenses include local rent,equipment, utilities, and supplies.

Fiscal 2002 Actions

Proposed Deficiency

The Governor’s allowance includes a $1.6 million fiscal 2002 deficiency to relocate the BaltimoreCounty Department of Social Services. Of this amount, $1.1 million is general funds and $0.5 million isspecial funds taken from the Dedicated Purpose Account. The original office was designated a "sickbuilding." Funds will be used for moving expenses ($600,000), equipment replacement ($500,000), andincreased rent in the new location ($500,000). The Department of Legislative Services notes that the useof funds reserved for future Family Investment Program costs to pay for office relocation is suspect.

Cost Containment Reductions and Relief

The Governor implemented several cost containment measures. A hiring freeze and a departmental1.5% across-the-board cut were implemented for fiscal 2002 and 2003. DHR’s administrative units werereduced approximately $2.0 million in general funds. The hiring freeze resulted in a reduction of $1.7million, primarily in the local offices. The remaining $0.3 million was distributed throughout theadministrative units.

The fiscal 2003 allowance includes cost containment relief through a fiscal 2002 deficiency forpositions that were in the process of being filled when the Governor initiated the hiring freeze. Althoughthis relief is budgeted in other administrations (Family Investment and Social Services), a portion of thisrelief is dedicated for DHR’s administrative units. These units will receive $904,284, of whichapproximately two-thirds is general funds and the remainder federal funds. This relief is related to 36.5positions, the majority of which were located in OTHS and DBFP.

Forty-seven Transferred Positions Offset by One Abolished Position

Approximately 47 positions were transferred to the fiscal 2002 working appropriation from otheradministrations. These positions are offset by one abolished position in the Citizens’ Review Board forChildren. The newly transferred positions are located in the following areas:

� Office of the Secretary -- 3

� Division of Budget, Finance, and Personnel -- 11


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� Division of Administrative Services -- 2

� Office of Technology for Human Services/Major IT Development -- 31

Governor’s Proposed Budget

As Exhibit 1 demonstrates, the fiscal 2003 allowance grows approximately $13.0 million, or 9.3%over the fiscal 2002 working appropriation. The largest increase, $10.1 million, occurs in majorinformation technology development, which is discussed below in more detail. Other large changes occurin OTHS’s budget. There is over a $4.0 million increase in costs relating to DHR's IS and softwaremaintenance agreements. This is offset by savings achieved by modifications to the IBM/GS dataprocessing ($3.0 million) and Accenture technical services ($0.9 million) contracts.

The fiscal 2003 allowance includes no new positions. However, there is $29,606 in general and federalfunds for a new student intern. This intern would assist the commissions located in the CommunityServices Administration.

Major Information Technology Development Highlighted in Budget

Pursuant to fiscal 2002 budget language, all agencies were required to highlight the major informationtechnology developments in a separate budget. DHR included in this new budget three major computersystems:

� Maryland Children’s Electronic Social Services Information Exchange (MD CHESSIE) --Increases by $9.0 million to begin the development and implementation phase of the statewideautomated child welfare case management information system.

� Child Care Administration Management Information System II (CCAMIS II) -- Increases by$3.0 million for upgrade development and implementation for the current child care provider trackingand Purchase of Care subsidy system.

� Electric Universal Service Program/Maryland Energy Assistance Program (EUSP/MEAP) --Decreases by $1.89 million to reflect reductions in contractual services. This system, which sufferedmajor problems in fiscal 2001, is funded at $2.1 million in fiscal 2002 for operating system redesignand development.


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Exhibit 1

Governor’s Proposed BudgetAdministration($ in Thousands)

How Much It Grows:General

FundSpecialFund

FederalFund

Reimb.Fund Total

2002 Working Appropriation $66,876 $4,565 $68,204 - $139,645

2003 Governor’s Allowance 78,808 4,103 69,705 - 152,616

Amount Change $11,932 ($462) $1,501 $0 $12,971

Percent Change 17.8% (10.1)% 2.2% 0.0% 9.3%Where It Goes:

Personnel Expenses

Employee and retiree health insurance and retirement contribution increases . . . . . . . . $1,326

Annualize fiscal 2002 general salary increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949

Fiscal 2003 increments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574

Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Net fiscal 2003 cost containment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,477)

Major Information Technology Development and Ongoing Systems Support

Second of five-year development and implementation of the statewide automated childwelfare information system, MD CHESSIE, plus an integrated management informationsystem for the Community Services Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 5,437

Continued development and implementation of the child care provider managementinformation system, CCAMIS II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,001

Contractual monitoring services for the MD CHESSIE project, including qualityassurance and control, deliverable assessments, and ten associated personnel . . . . . . . 2,513

Independent verification and validation contractual services for DHRIS management 2,737

New software maintenance required by Maryland Licensing Agreement with specificvendors after original software is purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,295

Decreased contract costs for IBM/GS data processing and Annapolis Data Center . . . . (2,895)

Decreased computer systems development in OTHS for EUSP . . . . . . . . . . . . . . . . . . (1,884)

Decreased costs for Accenture technical services contractor . . . . . . . . . . . . . . . . . . . . . (900)

Headquarters and Local Operational Expenses

Increased rent in the local departments and headquarters . . . . . . . . . . . . . . . . . . . . . . . 1,251

Increased telephone costs in the Secretary’s office and local departments . . . . . . . . . . . 911


Where It Goes:

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Other reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44)

Total $12,971

Note: Numbers may not sum to total due to rounding.

Cost Containment Requires Higher Turnover Expectancy

The fiscal 2003 appropriation budgets a 5.69% turnover rate. Historically, vacancy rates have rangedon average between 6% and 9%. However, due to cost containment measures, specifically the hiringfreeze, DHR administrative units will actually have to hold 11.4% positions vacant in fiscal 2003. Thereis $1.5 million more in cost containment reductions in fiscal 2003 than fiscal 2002, as shown in Exhibit1.

Performance Analysis: Managing for Results

Exhibit 2 shows a sample of performance measurement data for the administration and operation ofDHR’s services.

Exhibit 2

Program Measurement DataAdministration

Fiscal 1999 through 2003

Actual1999

Actual2000

Est.2001

Actual2001

Est.2002

Est.2003

Ann.Chg.99-01

Ann.Chg.01-03

Office of the Secretary: Resolve critical agency-wide issues

Audit Findings 29 29 n/a 16 None n/a -25.7%

n/a

Repeat Audit Findings 15 15 n/a 4 None n/a -48.4%

n/a

Satisfactory Evaluation n/a Yes n/a Yes n/a n/a n/a n/a

Office of Technology for Human Services: Plan and implement technology that meets the strategic needs of theorganization and serves our customers

Scheduled time all systemsavailable 98.0% 99% 99.0% 99.0% 99.0% 99.0% 0.5% 0.0%

Key milestones achievedwithin 30 days of target date 90% 100% 100% 100% 100% 100% 5.4% 0.0%

Operations Office: Secure, allocate, expend, and report fiscal resources accurately and timely

Authorized federal fundssubmitted for approval n/a 98.8% n/a 99.6% 95% 95% n/a -2.3%

Fiscal estimates submitted ontime to legislature 88% 87% 95% 87% 95% 95% -0.6% 4.5%


Actual1999

Actual2000

Est.2001

Actual2001

Est.2002

Est.2003

Ann.Chg.99-01

Ann.Chg.01-03

10

Requested general funds linkedto approved MFR n/a 99.7% 99% 99.9% 99% 99% n/a -0.5%

Vacant positions filled withinsix months n/a 33% 70% 45% 70% 70% n/a 24.7%

Note: n/a denotes not available or not applicable

Source: Department of Human Resources

DHR Faces Mixed Results with Audits

One of the objectives of the Office of the Secretary is to achieve a satisfactory performance evaluationfor financial accountability and compliance audits. As Exhibit 2 demonstrates, between fiscal 2001 and2002, there was a 50% decrease in the number of audit findings. Of this amount, only four were repeatfindings. While these indicators demonstrate performance improvement, they do not paint a true pictureof whether critical agency-wide issues have been resolved. For example, several administrations outsidethe Office of the Secretary have had significant audit issues but are not reflected in the MFR submissionbecause they do not fall within the Office of the Secretary. In 2002, the Office of Legislative Auditsreleased reports for three administrations: Child Care Administration, Child Support EnforcementAdministration, and the Community Services Administration’s energy assistance programs.

Other Performance Measures Indicate Sustained Improvement Despite Problems

Both OTHS and the Operations Office demonstrate sustained improvement even though programmaticproblems are known. Between fiscal 1999 and 2001, OTHS met its standard to provide reliabletechnology to customers by ensuring all systems are available as scheduled 95% of the time. Yet, in fiscal2001 the department faced major computer problems under the Electric Universal Service Program(EUSP). The department explains that because this issue occurred early in 2001 and significantimprovements have been made, its impact on the entire system was minimal. Additionally, an OLA auditfound several deficiencies within OTHS, such as not obtaining an independent audit since September 1997of the data processing contractor, to ensure the integrity of its systems and applications. The fiscal 2003allowance does include funding for an independent audit of the contractor.

The Operations Office demonstrates success in meeting its goals to secure, allocate, expend, and reportfiscal resources accurately and timely. Despite this success, the OLA audit found that the department hadnot recovered federal funds in a timely and accurate manner. Although these findings were for 1996 to1999, the final MFR submission does not include a measure of this, even though the original MFRsubmission did. The department should discuss to what extent internal computer or accountingproblems are affecting its performance in reaching stated goals. Additionally, the departmentshould explain whether these indicators are indicative of actual experience within the agency.


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Issues

1. Gartner Consulting Report Outlines Technology Needs

In November 2001 Gartner Consulting (Gartner) presented its findings on DHR’s informationtechnology structure and systems. Hired to provide a major architectural study of all informationtechnology systems, Gartner found that changing program requirements and technical innovations “jointlycontributed to the increasing heterogeneity of DHR’s information systems (IS) portfolio.” Given the weakfiscal condition of the State, the department plans to implement recommendations gradually in line withpriority projects.

Enterprise-Wide Information Technology Architecture Study Findings

Gartner conducted an architectural survey of DHR’s information technology system and recommendeda new architecture that could be planned and implemented over several years. The Enterprise-WideTechnical Architecture study is the first piece of three forming the overall Strategic Information Systemsand Technology Plan for DHR. The next two pieces are a Migration Plan and Strategic Framework forOrganizational Effectiveness.

In its report, Gartner identified many external and internal factors driving DHR service delivery:

Internal Driver External Driver

Cost Efficiency Federal/State program requirements and funding

Managing for Results Federal/State legislation

Personnel Judicial rulings

Quality service delivery E-Government requirements

Protection of vulnerable citizens Requests of Information

Customer self-help philosophy Demographic/economic changes

Partnerships with business and communitygroups

Cross-department collaboration

The report focused on eleven major areas of the computer information system at DHR. This analysiswill briefly review three of these: conceptual architecture; data; and systems management.

� Conceptual Architecture -- Similar to other public and private sector organizations, DHR’scomputing environment is a “patchwork of disparate applications” built at different times by differentgroups that are operating without knowledge of the others’ tools and designs. Described as“integration spaghetti,” the current system was designed without central planning for applications


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across administrations and programs. Gartner recommends a new system that allows independentlydesigned systems to work together.

� Data -- There is a mix of many different Database Management Systems (DBMS) and other datastores located at a variety of platforms. The CIS environment that includes the CARES and CSESapplications are centralized with the IBM S/390 mainframe. However, mid-range applications andtheir related databases are hosted elsewhere. Departmental information is hosted by a separate MSAccess database; while the Annapolis Data Center hosts many small applications used for DHRpersonnel. Gartner recommends an integrated architecture for shared customer databases.

� Systems Management -- Systems management tools and processes have not kept pace with thegrowth of IT service delivery. Staff and tools are not readily available for help desk support andnetwork and server monitoring and diagnostics. Additionally, Gartner did not find a formal disasterrecovery plan for the organization’s data and processing. The report recommends a number of waysto address this, such as:

� collecting and analyzing performance parameters to predict and avoid potential downtime;

� identifying, quickly resolving, and preventing problems through root cause analysis;

� better understanding the configuration of IT infrastructure; and

� extending performance management by predicting future IT resource needs.

Implementation of Gartner Recommendations Reliant on Budget

OTHS reviewed and evaluated its strategic plan with the appointment of a new Chief InformationOfficer in February 2001. At this time, Gartner was hired to conduct the architectural study describedabove. However, DHR’s strategic plan for fiscal 2003 was produced in July 2001, several months beforeGartner’s final report was provided. As a result, OTHS does not plan to have the Gartnerrecommendations fully incorporated into its strategic plan to the extent it desires until the next fiscal year.

DHR's strategic plan was developed at the beginning of the weakening economy. When it doesconsider the Gartner recommendations, DHR will have to contend with much more difficult budgetarydecisions. According to DHR, once it receives feedback from its stakeholders on Gartner’s recommendedtransition plan, OTHS plans to construct a coherent budget plan for making recommended changes to itssystem.

DHR should discuss the impact of the current budget constraints on its strategic plan forcomputer systems, including the consideration of Gartner’s recommendations. Additionally, giventhe need to prioritize projects during these tight fiscal conditions, the department should discusswhere its stakeholders believe the department should be moving.


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2. DHR Helps IBM/Global Services Data Processing Move to Gaithersburg

Committee narrative from the 2001 legislative session requested DHR to provide an update on the dataprocessing contract, currently held by IBM/Global Services. This request stemmed from the budgetcommittees concern that the department was paying a premium for outsourcing their data processingneeds, as reported in the Gartner Consulting study conducted in 1999. Specifically, DHR was asked toreport on:

� total contract costs for fiscal 2001 and 2002;

� whether the department was able to renegotiate the contract costs for fiscal 2001 and 2002; and

� whether the department continues to pay a higher-than-market rate for the contract.

DHR Finds Increased Savings with Modified IBM/GS Data Processing Contract

As provided in DHR’s Joint Chairmen’s Report response, the total contract cost for IBM/GS in fiscal2001 was $16.5 million. The fiscal 2002 contract cost is $12.4 million, a 25% cost reduction. DHRexplains that there are two reasons for this cost savings:

� Decreased usage rates -- Since 1996, data processing usage rates have decreased in central processorunits. DHR does note in its report, however, that the extent of the savings is reduced by the fact thatoverall usage has increased.

� Renegotiated contract -- DHR renegotiated its contract with IBM/GS to allow for a two-yearextension (rather than a one-year extension) for fiscal 2002 and 2003. First year spending will be$12.4 million compared to the originally contracted $14.2 million, a 12.5% savings. Second yearspending will be $11.3 million, a 9.28% savings.

The data processing contract will be rebid in fiscal 2004. An RFP is expected to be releasedMay 2002.

DHR Assists IBM/GS’s Move from Connecticut to Maryland

In addition to the contract extension option modification, DHR also modified the contract regardingthe location of the data processing. Currently, the data center operation is in Southbury, Connecticut.The modified contract will allow IBM/GS to relocate its operations to Gaithersburg, Maryland. DHRagreed to pay IBM/GS approximately $3 million (59% federal and 41% general funds) for moving andtransition costs. Also, the contract was modified to provide hardware, software, and related servicessupporting DHR’s web-based application for the CSES at an additional cost of $2.3 million. The Boardof Public Works approved these changes in May 2001.


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DHR sites several reasons for the move to Gaithersburg:

� Clearer understanding of data center transition -- DHR has stated that this move is in compliancewith the legislature’s recommendations, although no formal recommendations have been made by thelegislature to date. The department believes that in having the data center located in Maryland, it willhave a better understanding of the data center and the DHR IS program overall.

� Lower request for proposal costs -- By having the data center in Maryland, DHR will spend less insupporting “due diligence” during the upcoming recompete for the contract in fiscal 2004. Forexample, DHR will not have to pay for potential bidders to fly up to Southbury to review the currentdata center when preparing their bid proposal.

� Economic benefits to Maryland -- IBM/GS has estimated a $1.7 million economic benefit to theState over the two-year period as a result of the move. This amount is derived from estimated stateand local income tax, property tax on equipment, and corporate tax revenues. The contractorenvisions five to eight new employees as a result of the move.

Exhibit 3 demonstrates the costs of the IBM/GS contract between fiscal 1995 and 2003.

Between 1995 and 2001, the State paid $98.7 million for the IBM/GS contract, with the mostexpensive year being fiscal 2001. In fiscal 2002 and 2003, these costs are expected to drop greatly.However, as Exhibit 3 shows, the savings realized by the lower computer usage rates and the renegotiatedextension are minimized by the added $5 million attributed to the data center relocation and CSESservices. In fact, comparing the original $14.2 million contract for fiscal 2002 to the renegotiated$12.4 million plus the new costs associated with the move and CSES changes annualized over19.5 months, or $14.3 million, the savings is a wash. Theoretically, any real savings would not be felt untilfiscal 2004, when the contract is rebid.

The economic benefit added from the renegotiated contract is derived from IBM/GS having thecontract in Maryland. Further, any data processing savings achieved by the renegotiated contract will endwhen the contract ends. Given the uncertainty of IBM/GS winning the contract through the rebidprocess, DHR should explain how it will enure cost savings beyond the current contract term.Moreover, DHR should explain how it can ensure a fair, competitive recompete process, given thatit helped subsidize the incumbent contractor’s move to Maryland.


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$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

FY19

95

FY19

96

FY19

97

FY19

98

FY19

99

FY20

00

FY20

01

FY20

02

FY20

03

Renegotiated contract Renegotiated contract plus moving and CSES costs

Exhibit 3

IBM/GS Contract Costs Fiscal 1995 through 2003

($ in Thousands)

Source: Department of Human Resources, Department of Legislative Services


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Recommended Actions

1. Add the following language:

Provided that the Department of Human Resources will be restricted to 160.14 contractual full-time equivalent positions at any one time consistent with existing funds in fiscal 2003. Thedepartment shall provide the budget committees with a quarterly report for review on the numberand purpose of each contractual position above the maximum including the source of funds. Thelevel of 160.14 contractual full-time equivalents may be exceeded only if the Department ofHuman Resources notifies the budget committees of the need for additional contractual personneland the committees have 45 days to review and comment upon the request.

The level of 160.14 contractual full-time positions is exclusive of those established for theBaltimore City L.J. Consent Decree and contractual positions fully reimbursed from non-Statefunding (federal, local, foundation, endowment, etc.).

The Department of Human Resources shall provide the committees a report for their review onthese excluded positions on a quarterly basis.

Explanation: A ceiling on the recommended number of contractual personnel which theDepartment of Human Resources (DHR) can employ at any one time is established. The ceilingcaps the number of contractual positions at the level included in the fiscal 2003 allowance.Contractual positions defined as “fully reimbursed” are time-limited, dedicated purpose positionsfunded to enhance services to DHR customers and should be considered outside those contractualpositions provided in DHR’s budget appropriation.

Information Request

Report providing: (1) thenumber, purpose, and fundsource for each contractualposition created above themaximum; and(2) information on excludedpositions.

Author

DHR

Due Date

October 1, 2002January 1, 2003 April 1, 2003July 1, 2003

AmountReduction

PositionReduction

2. Reduce funding for student interns given the tight fiscalcondition of the State. The fiscal 2003 allowancegrows by 34% over the department's spending plan forinterns in fiscal 2002. This includes a new summerintern in the Office of the Secretary. Given the currenthiring freeze and need for fiscal prudence, thedepartment should be limited in its use of interns. This

$ 35,573 GF


AmountReduction

PositionReduction

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reduction provides a 2% inflationary increase overfiscal 2002.

3. Reduce new computer equipment funding related toMD CHESSIE due to high turnover expectancy fornew positions. The fiscal 2003 allowance includeshardware and software for 108 new positions requestedfor the Caseload Reduction Initiative. However, thesenew positions are funded at a 80% turnover rate. Thisreduction reflects the smaller than anticipated newpositions related to the Initiative.

112,659112,659

GFFF

4. Delete funding for planning of an integratedmanagement information system due to tight fiscalconditions in the State. The integrated managementinformation system would be used in the CommunityServices Administration for automation of functionsrelated to State commissions, offices and programs.This initiative, however, is not included in theDepartment of Human Resources’ InformationTechnology Master Plan. Given the expected deficit infiscal 2004, planning of new systems should be setaside until the State pulls out of the current economicdownturn.

225,000225,000

GFFF

5. Defer funding for the development and implementationphases of the child automated welfare computersystem, CHESSIE. The State's Chief InformationOfficer (CIO) is responsible for overseeing andreviewing major information technology developmentsin each agency. Before CHESSIE moves forward witha major multi-year investment, the CIO should reviewthis project and ensure proper controls are in place tomaintain accountability. This action leaves the unitwith nine core staff and related office expenses in orderto retain institutional knowledge and necessarymanagement for when the project is implemented.

7,243,2647,245,543

GFFF

12.0

6. Reduce travel expenses to reflect actual history plusinflation for fiscal 2002 and 2003. Travel increases byover 66% between fiscal 2001 and the 2003 allowance.This decrease provides for 2% inflation in both fiscal2002 and 2003. The cut should be distributedthroughout the following programs: NA0101,

430,454 GF


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NA0102, NE0101, NE0102, NF0002, NF0004, andNG0005.

7. Delete funding for an independent verification andvalidation contract related to services that the State’sChief Information Office (CIO) is already responsiblefor conducting. According to the department, thiscontract will supply information technology andprogrammatic expertise needed to achieve thedepartment's objectives and plans on time and costeffectively. However, the State's CIO is responsible foroverseeing the planning, development, andimplementation of major information technologyprojects within each department. The proposedcontract would include the department's major projects.Therefore, the CIO should already conduct theservices the new contract would require.

629,413738,878

GFFF

8. Delete positions that have been vacant more than oneyear prior to the hiring freeze. The specific PINs andtheir respective programs are listed below:

NE.0101 - 077148, 077937,030404, 077024, 077050

NE.0102 - 077101, 075677, 077241

NF.0002 - 077912, 077916, 077914, 077915,077911, 077920, 077921, 077922, 077909, 077910,077913

NF.0004 - 029187, 075627, 032297, 032088,062279, 032246, 057013

NG0005 - 209473, 206681, 205815, 206743

30.0

9. Delete funding for equipment replacement in the newBaltimore County office. The current Baltimore Countylocal office was cited as a “sick building,” necessitatinga move. However, equipment from the old office canbe transferred to the new office.

500,000 GF

Total Reductions to Fiscal 2002 Deficiency $ 500,000

Total Reductions to Allowance $ 16,998,443 42.0

Total General Fund Reductions to Allowance $ 8,676,363

Total Federal Fund Reductions to Allowance $ 8,322,080


19

Updates

1. Office of Legislative Audits Finds Significant Deficiencies in Office of theSecretary

OLA produced a report for the Office of the Secretary and other related units for the period beginningJuly 1997 and ending June 30, 2000. In its report, OLA cited 16 findings of significant deficiencies withinthe Office of the Secretary and other administrative offices. Of these 16, four were full or partial repeatfindings from the preceding audit. OLA has received follow-up responses from DHR, which agreed with,and is in the process of instituting, all of OLA’s recommendations.

Computer Systems -- Related Findings

Eight findings were related to computer services and contracts, one of which was a repeat finding.

Accenture Technical Services Contract

� Finding: The technical services consultant services contract, with a potential cost of approximately$110 million, was not procured in a manner that ensured the State obtained the best value. Forexample, after rejecting the only two qualified bidders from the first RFP, the department issued asecond RFP with several changes discouraging competition. Also, the incumbent contractor hadaccess to information that could have provided it an unfair advantage in the bidding process. Inaddition, certain significant issues related to this contract were not formally disclosed to the Board ofPublic Works (BPW) and General Assembly budget committees.

DHR Response: The department concurred and is redeveloping its procurement process. In addition,DHR has added BPW and General Assembly to its quarterly status report distribution list.

� Finding: The department did not exercise adequate fiscal accountability and control over thecomputer consultant services contract. Specifically, the department could not document how contractcosts had been allocated to specific tasks, and certain contract provisions intended to control contractcosts and provide project oversight were not enforced. For example, the department waived its rightto withhold 10% on amounts invoiced until the work was satisfactorily completed. Furthermore, thedepartment’s records indicate that system problems occurred because of an inadequate quality controlprocess and because programs were released even though problems were known to exist.

DHR Response: The department concurred and is enforcing fiscal accountability procedures.Additionally, it is verifying on a test basis the proprietary of the contractors' past and present billingsand is reviewing actual time sheets for discrepancies. Also, the Chief Information Officer completeda review and documentation of existing IT Account Management Processes. Subsequently, OTHSmade "best practices" recommendations for a new IT management process completed October 2001.


20

IMB/GS Data Processing Contract

� Finding: The department had not obtained an independent audit since September 1997 of IBM/GSto ensure the integrity of its systems and applications. Additionally, computer usage estimatesprovided to the contractor were overestimated as compared with recent and expected utilization,resulting in additional costs to the State.

DHR Response: The department concurred and procured audit services, which began May 1, 2001.The official report should have been available June 30, 2001, the publication date of OLA’s audit.Also, OTHS and IBM/GS have agreed to review the resource baselines on a quarterly basis and alterthe contract to reflect new usage rates.

Funding and Accounting -- Related Findings

� Finding: The department did not take timely and sufficient action to recover $10.4 million in federalfunding for expenditures relating to fiscal 1996 to 1999. Also, the department did not requestadditional funding on a retroactive basis until year 2000.

DHR Response: The department concurred and explained that the recovery of $10.4 million infederal funds was due to the department’s failure to properly report the food stamps portion of theCARES Development and Operational Costs. Revised reports were submitted for fiscal 1996 through1998. The department was issued a grant award for 1996 through 1998 after review by USDA/FNS.DHR also has taken corrective action to make sure reporting is accurate in the future.

� Finding: The department recorded significant budget closeout transactions for fiscal 2000 whichcould not be substantiated. Also, DHR recorded federal fund revenues totaling approximately$16.4 million, which could not be substantiated.

DHR Response: The department concurred with the auditor's recommendation regarding the needto make accruals in accordance with the policy as stated in the year-end closing instructions and hasinstructed the appropriate units of the policy's requirements. DHR plans to institute a monitoringpolicy to insure accruals are calculated more accurately in future closings.


21

Appendix 1

Current and Prior Year BudgetsCurrent and Prior Year Budgets

Administration($ in Thousands)

GeneralFund

SpecialFund

FederalFund

Reimb.Fund Total

Fiscal 2001

LegislativeAppropriation $66,503 $3,052 $56,298 $0 $125,854

DeficiencyAppropriation 0 0 0 0 0

BudgetAmendments 12,559 0 73,322 0 85,881

Reversions andCancellations 0 (12) (3,340) 0 (3,352)

ActualExpenditures $79,062 $3,040 $126,280 $0 $208,383

Fiscal 2002

LegislativeAppropriation $65,591 $3,305 $61,030 $0 $129,926

BudgetAmendments 1,285 1,260 7,174 0 9,719

WorkingAppropriation $66,876 $4,565 $68,204 $0 $139,645

Note: Numbers may not sum to total due to rounding.

Fiscal 2001

The fiscal 2001 working appropriation increased by a net total of $82.5 million. The largest increaseof $63.3 million in federal funds is for an accounting correction related to the Baltimore CityEmpowerment Zone grant. Also, $11.8 million in general and special funds were added for the major


22

information technology projects formerly budgeted in other administrations within the department. Also,there was a $4.6 million increase in federal and special funds for local government operations and a$3.6 million increase in federal and special funds dedicated toward salaries and contractual securityservices in Baltimore City. Approximately $2.9 million in federal funds were cancelled due to less thananticipated expenditures for the DHR IS/Accenture consulting contract.

Fiscal 2002

The fiscal 2002 working appropriation increases by $11.7 million as a result of adding in the majorinformation technology projects. This increase is offset by $2.0 million in cost containment reductions.

NA.01 - DHR - AdministrationAppendix 2

23

Obj

ect/

Fun

d D

iffe

renc

e R

epor

tD

HR

- A

dmin

istr

atio

n

FY

02F

Y01

Wor

king

FY

03F

Y02

- F

Y03

Per

cent

Obj

ect/

Fun

dA

ctua

lA

ppro

pria

tion

Allo

wan

ceA

mou

nt C

hang

eC

hang

e

Pos

itio

ns

01

Reg

ular

1097

.50

1200

.30

1200

.30

00%

02

Con

trac

tual

67.9

35.

586.

911.

3323

.8%

Tot

al P

osit

ions

1165

.43

1205

.88

1207

.21

1.33

0.1%

Obj

ects

01

Sal

arie

s an

d W

ages

$ 52

,420

,395

$ 54

,777

,300

$ 56

,325

,696

$ 1,

548,

396

2.8%

02

Tec

hnic

al &

Spe

c Fe

es3,

511,

694

971,

273

1,21

1,56

624

0,29

324

.7%

03

Com

mun

icat

ion

9,99

0,96

67,

607,

978

8,68

5,26

41,

077,

286

14.2

%04

T

rave

l69

6,02

285

4,63

51,

154,

596

299,

961

35.1

%06

F

uel &

Uti

liti

es15

7,61

518

8,89

225

5,64

866

,756

35.3

%07

M

otor

Veh

icle

s1,

389,

540

1,00

9,32

199

5,35

7(1

3,96

4)(1

.4%

)08

C

ontr

actu

al S

ervi

ces

59,6

08,9

3257

,611

,378

65,1

29,0

737,

517,

695

13.0

%09

S

uppl

ies

& M

ater

ials

2,04

9,21

32,

069,

265

2,32

6,62

025

7,35

512

.4%

10

Equ

ip -

Rep

lace

men

t2,

115,

389

593,

900

536,

554

(57,

346)

(9.7

%)

11

Equ

ip -

Add

ition

al5,

701,

441

4,68

7,76

65,

011,

189

323,

423

6.9%

12

Gra

nts,

Sub

sidi

es, C

ontr

65,1

67,1

242,

744,

864

3,16

9,63

742

4,77

315

.5%

13

Fix

ed C

harg

es5,

574,

318

6,52

8,50

67,

814,

791

1,28

6,28

519

.7%

Tot

al O

bjec

ts$

208,

382,

649

$ 13

9,64

5,07

8$

152,

615,

991

$ 12

,970

,913

9.3%

Fun

ds

01

Gen

eral

Fun

d$

79,0

62,0

44$

66,8

76,2

75$

78,8

07,6

64$

11,9

31,3

8917

.8%

03

Spe

cial

Fun

d3,

040,

240

4,56

4,58

94,

103,

353

(461

,236

)(1

0.1%

)05

F

eder

al F

und

126,

280,

365

68,2

04,2

1469

,704

,974

1,50

0,76

02.

2%

Tot

al F

unds

$ 20

8,38

2,64

9$

139,

645,

078

$ 15

2,61

5,99

1$

12,9

70,9

139.

3% N

ote:

Ful

l-ti

me

and

cont

ract

ual p

osit

ions

and

sal

arie

s ar

e re

flec

ted

for

oper

atin

g bu

dget

pro

gram

s on

ly.

NA.01 - DHR - AdministrationAppendix 3

24

Fis

cal S

umm

ary

DH

R -

Adm

inis

trat

ion

FY

02F

Y02

FY

01L

egis

lati

veW

orki

ngF

Y01

- F

Y02

FY

03F

Y02

- F

Y03

Uni

t/P

rogr

amA

ctua

lA

ppro

pria

tion

App

ropr

iati

on%

Cha

nge

Allo

wan

ce%

Cha

nge

01 O

ffic

e of

the

Secr

etar

y$

10,5

16,4

82$

11,5

16,5

32$

11,3

16,4

437.

6%$

12,3

43,5

319.

1%02

Citi

zen’

s R

evie

w B

oard

for

Chi

ldre

n1,

239,

746

1,46

4,93

31,

419,

173

14.5

%1,

480,

442

4.3%

01 D

ivis

ion

of B

udge

t, Fi

nanc

e an

d Pe

rson

nel

75,1

05,8

6712

,429

,998

12,1

50,0

54(8

3.8%

)13

,626

,802

12.2

%02

Div

isio

n of

Adm

inis

trat

ive

Serv

ices

7,30

9,32

14,

754,

991

4,68

5,62

8(3

5.9%

)5,

090,

264

8.6%

02 M

ajor

Inf

orm

atio

n T

echn

olog

y D

evel

opm

ent

11,7

76,3

210

11,7

25,8

38(0

.4%

)18

,900

,783

61.2

%04

OT

HS

62,0

35,5

7658

,001

,319

57,5

51,7

69(7

.2%

)58

,614

,999

1.8%

05 G

ener

al A

dmin

istr

atio

n -

Loc

al D

epar

tmen

ts40

,399

,336

41,7

58,5

7640

,796

,173

1.0%

42,5

59,1

704.

3%

Tot

al E

xpen

ditu

res

$ 20

8,38

2,64

9$

129,

926,

349

$ 13

9,64

5,07

8(3

3.0%

)$

152,

615,

991

9.3%

Gen

eral

Fun

d$

79,0

62,0

44$

65,5

91,4

70$

66,8

76,2

75(1

5.4%

)$

78,8

07,6

6417

.8%

Spec

ial F

und

3,04

0,24

03,

304,

589

4,56

4,58

950

.1%

4,10

3,35

3(1

0.1%

)Fe

dera

l Fun

d12

6,28

0,36

561

,030

,290

68,2

04,2

14(4

6.0%

)69

,704

,974

2.2%

Tot

al A

ppro

pria

tion

s$

208,

382,

649

$ 12

9,92

6,34

9$

139,

645,

078

(33.

0%)

$ 15

2,61

5,99

19.

3%

operating budget data - maryland general...

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