Staff Present:
Mr. Henry Jones, Chief Financial Officer
Mr. Olonzo Woodfin, Controller, Accounting and Disbursements Branch
Mrs. Judy Burton, Assistant
Mr. John Nagata, Assistant Superintendent, Information Technology Division
Mrs. Irene Yamahara, Assistant Superintendent, Certificated Personnel Division
Mr. Jon Campbell, Director, Personnel Commission
Mr. Roger Rasmussen, Director, Independent Analysis Unit
Dr. Charles Schepart, Program Analyst, Independent Analysis Unit

Others Present: See attached list.

Mr. Slavkin noted that there was a revised version of the January 30, 1997 minutes that was distributed on April 3, 1997. This version replaces an earlier draft which contained several inaccurate numbers related to the Critical Funding III discussion.

Mr. Kiriyama indicated that he had received a memo from Mr. Campbell which showed compensation of $117,000 for the Director of Special Audits and not the $90,000 that was estimated at the January 30, 1997 meeting. Mr. Kiriyama wanted to know about the difference. Dr. Rasmussen responded that the lower amount probably applies to salary only, while the higher amount probably includes salary and benefits. Mr. Campbell confirmed Dr. Rasmussen's response. Mr. Slavkin asked staff to prepare a written response to Mr. Kiriyama's question and Mr. Jones agreed to provide a response.

The January 30, 1997 minutes were approved as submitted.

INTEGRATED FINANCIAL SYSTEM (IFS) MASTERPLAN

Mr. Slavkin commented that this agenda item is meant to give Mr. Nagata and ITD an opportunity to provide the Committee a fairly detailed overview of the status and direction of the IFS implementation.

Mr. Nagata thanked the Committee for giving ITD an opportunity to give a detailed report on the Integrated Financial System. He provided a brief outline of the IFS presentation.

1. History
2. American Management Systems (AMS - the company that provided the software for IFS)
3. Current IFS situation
4. Training and support
5. Current rollout status
6. Demonstration
7. Closing - questions and answers

Mr. Nagata began the history presentation by referring to a document entitled, "Project Team Organization Meeting, October 15, 1992." This document coincides with the first team meeting for IFS and includes the original project scope, timeline, tasks and organizational structure.

Mr. Nagata presented a videotape of the Superintendent's kickoff presentation made to administrative offices involved with the implementation of IFS (December 1992). This meeting was the actual official kickoff of IFS. He emphasized that the original intent of IFS was to combine the 18 to 24 fragmented, disparate systems that were operating at the time. The purpose of IFS was create a single database and one system that the entire District could look at.

The videotape which contained the comments of Superintendent Thompson was played. Mr. Thompson noted that he intended to do a management audit of all District operations to determine whether the District is properly administered. He noted the need for integrating the various financial systems and coordinating the services of all the District's divisions. He emphasized the need to make changes using staff's best thinking -- "doing it better and cheaper." Mr. Thompson did not rule out the possibility of additional funding in the future, noting that while funding may be a problem now, it may not be in the future.

Mr. Eli Cortez presented the history of IFS.

1. History
a. Objectives

• Initiate as a District a strategic plan to improve the ability to impose management control over financial operations and provide a stable technical and functional foundation
  
• Develop an IFS to support central offices by integrating business and financial computer systems
  
• Provide on-line access to current financial information and facilitate more efficient and effective management of District financial resources.

• Review existing computer systems
  
• Collaboratively determine functional requirements
  
• Review available software
  
• Determine implementation approach

• In 1990, $67 million was requested to implement IFS in functional offices.
  
• In 1991, the request was revised to $28.5 million.
  
• In 1992, $25.4 million in COP's were allocated.
  
• In 1994, project scope was changed to include all schools and offices.
  
• In 1995, an additional $20 million in COP's were allocated.

• The original plan to put IFS on-line was 5 years (completion in 1996).
  
• In 1991, the revised/accelerated plan reduced on-line completion to 3 years (completion in 1994).
  
• In 1992, the final plan to put IFS on-line was 18 months (completion in 1993).
  

• The original scope (1990) was to put budget, business/financial accounting, payroll, personnel and position control on-line within 5 years at an estimated cost of $67 million.
  
• In 1991, the scope was revised to put budget, business/financial accounting, and position control on-line within 3 years at an estimated cost of $28.5 million.
  
• In 1992, the scope was revised to put budget and business/financial accounting on-line within 18 months at an estimated cost of $25.4 million. (Some operational funds were also added.)
  
• In 1993, LEARN schools were added to the IFS project scope.
  
• In 1994, an additional $20 million was approved to expand the scope to include all schools and offices.

• Inadequate and delayed funding
  
• Insufficient and reduced personnel
  
• Staff furloughs
  
• Earthquake impact
  
• Relocation of BSC (Communications and District Data Center)
  
• Rotating executive District staff involvement
  
• Continuous and ongoing audits.

• In January 1992, the Board allocated $25.4 million to develop an integrated financial system.
  
• In February 1992, the Focus Group -- Joint Application Development (JAD) sessions began.
  
• In March 1992, the IBM/AMS proposal was selected and approved by the Board.
  
• In July 1992, the project scope document was delivered to the District.
  
• In December 1992, the District Standard Account Code development was completed.
  
• In April 1993, installation of work stations in business offices began.
  
• In April 1993, the Budget module was implemented.
  
• In June 1993, the LEARN schools IFS focus group was established.
  
• In June 1993, a 36 school pilot project was initiated.
  
• In July 1993, the major IFS modules were implemented:

• In August 1993, the functional offices' user groups were established to provide feedback.
  
• In November 1993, Budget Adjustments were implemented.
  
• In 1994, after pilot input, screens for schools were modified.
  
• In 1995, COP funding was approved to acquire/install workstations in schools and offices.
  
• In 1995, IFS architecture was modified to support the new cluster organization.
  
• In 1995, the IFS project module to track all FEMA-related expenditures was developed/modified.

2. American Management Systems (AMS)
a.AMS's mission: AMS partners with clients to achieve breakthrough performance through the intelligent use of information technology.
b.AMS is a full service information technology firm that solves complex information systems problems for large organizations:

• Business/technology analysis and consulting
  
• Development integration and implementation of critical business systems
  
• Development of reusable software for business functions
  
• Managing long-term client relationships in key target markets.

• 48% of AMS's revenue comes from the government and education marketplace.
  
• Other markets include financial services, telecommunications firms, insurance and health care.

• The Gartner Group recognizes AMS as "among the top 10 consulting firms in client/server technology worldwide."
  
• Computer Systems News says AMS is "one of the top 20 systems integrators."
  
• Consultant News describes AMS as "among the top 15 consulting firms worldwide."
  
• Information Week reported AMS as "among the top 10 independent software vendors."

• AMS is one of the three information technology-based services companies listed in The Service Edge: 101 Companies that Profit from Customer Care (a best-selling book in the business area).
  
• Information Week named AMS as one of the top software firms for quality, sales/support, and value.

• Financial and administrative systems for over 300 education and government organizations include:

All these organizations use the basic underlying fund accounting software which forms the basis for IFS at LAUSD.

• AMS was recently selected by:

These organizations will use the same underlying functional architecture as LAUSD's IFS.

• California public sector clients include:

Mr. Roth commented that LAUSD IFS project has had difficulties. However, he noted that there have been some accomplishments.

• Established solid technical foundation for further growth.
  
• Integration of all accounting, purchasing, and inventory functions under a common processing model, thereby eliminating over 20 non-integrated systems that were spread over 7 different technical environments.
  
• Technical and functional training of ITD staff.
  
• Development and delivery of end-user training.
  
• Replacement of batch-processing systems with an over 500-screen on-line, real time system.
  
• Creation and implementation of common policies and procedures in financial and systems operations.
  
• Streamlined commodity ordering, thereby reducing turnaround time.

To underscore his assertion that AMS has state-of-the-art technology, Mr. Roth pointed out that New York City recently selected AMS after doing an extensive year-long evaluation of available software. AMS products will be used as the foundation for the City's finances, budgeting and purchasing.

Mr. Roth commented that some persons have remarked that LAUSD cannot take advantage of software upgrades because it has modified the IFS software. He said this comment is only partially correct. He noted that AMS allows for system modifications since all organizations are not the same. Software is separated into those areas that are stable and functional and do not change from client to client; and into those areas above the line that change from client to client. He said that as long as clients follow the guidelines for the application, they can make modifications and still be assured of an upgrade path.

Mr. Abeles asked if LAUSD has been taking advantage of upgrades. Mr. Roth responded that LAUSD has not so far.

Mr. Abeles asked when LAUSD made its last upgrade. Mr. Roth did not know. He said that LAUSD was in the process of upgrading the technology layer of the software. This should be completed by September 1997. The technology level will then be u[-to-date, but the application level will not.

Mr. Abeles wanted to know whether the vendor is responsible for maintenance. Mr. Roth responded that it was a complicated issue. Mr. Nagata added that LAUSD did not take advantage of the software upgrades because of the difficulty in completing the system rollout. He said that once the rollout is complete and the system has been stabilized, the District will take advantage of the software upgrades. Mr. Nagata said that the District was behind by about two versions of the software. LAUSD is on version 3 and the upgrade to version 4 (including user modifications) will be completed over the next 3-4 months. He also noted that all the District's funds were expended to fix the problems occurring with IFS.

Mr. Slavkin asked if the District needed to pay additional funds to AMS for the software upgrades or whether they were included in the District's maintenance agreement with AMS. Mr. Roth responded that the maintenance agreement entitles LAUSD to automatic upgrades. Mr. Nagata added that the decision not to upgrade was based on the need to meet the rollout schedule and was not cost-related.

Mr. Abeles asked if AMS was still providing maintenance. Mr. Roth responded affirmatively.

With regard to IFS being a "troubled project," Mr. Roth commented that any time one tries to introduce complex technology into a large, decentralized organization, it is a significant challenge. LAUSD is not an easy place to move and turn around. In addition, LAUSD had "one hand tied behind its back" because of inadequate funding. He noted that while $25 million sounds like a lot of money, he indicated that 3 or 4 similar projects cost more. For example, in the State of Michigan, the financial system was replaced at a cost of over $100 million (and still spending). The State of Minnesota did a similar project to LAUSD and assigned twice as many consultants to the project. The City of New York plans to spend over $200 million over the next several years to do a project similar to LAUSD's.

Mr. Cortez presented the next part of the presentation.

3. Current IFS Focus

a.The current IFS focus is to stabilize the IFS environment by balancing production and development.

• Ongoing IFS maintenance support (January 1996 to present)
  
• User modifications to accommodate changing LAUSD needs
  
• Major enhancements (for example, FEMA repairs and hazard mitigation)
  
• Stabilize production environment (where the goal is for all schools and functional offices to have access to the entire IFS package).

• Limited staffing resource levels
  
• Slow skills transfer due to staff dedicated to production.

• Maintain a detailed business plan in each functional unit area which provides direction
  
• Maintain pilot baseline priorities with core IFS users
  
• Input from IFS focus school group
  
• Bi-weekly IFS users group stakeholder participation
  
• Skills transfer to LAUSD staff resources
  
• Customer service focus.

• Prioritize workloads for time project completion
  
• Balance staffing resources, skills and capabilities to deliver existing commitments
  
• Initiated project management methodology skills transfer.

• FEMA (processing of $78 million in reimbursement claims)
  
• Rodriguez reporting
  
• Accounting Division production projects.

• Position control
  
• Year 2000
  
• New State-mandated account code structure
  
• Job cost implementation
  
• Food ordering
  
• Provide integrated payroll personnel and position control functionality.

4. Training and support
a. IFS focus group

• Begin in June 1993, as a collaboration between UCLA Advanced Management Program (AMP), the LEARN budget and implementation offices and ITD.
  
• The initial schools in the focus group were chosen by UCLA and LEARN.
  
• Training for schools was sequenced with the budget training from AMP before the IFS program was implemented.
  
• Originally, there were 5 schools in the focus group with 3 members from each school.
  
• At present, there are 15 school members, 6 central office support members, a cluster office member, and UTLA.
  
• To have widespread representation on the focus group, ITD has increased membership.
  
• The focus group meets about 8 times a year.

b. Phase I LEARN school - Roscoe Elementary School

Ms. Ellen Morgan (Coordinator) spoke enthusiastically about IFS. She commented that the initial IFS training took place after school. She noted that the initial training was difficult because it involved a completely new language for school personnel. After 3 or 4 days of training, she thought that she would be able to do simple purchase orders and stock requisitions. However, she had to call ITD staff for help. Ms.Morgan noted that during the first year of IFS use, she made daily telephone calls for assistance. She praised staff for their help.

After the first year of use, school personnel felt they were proficient in doing purchasing related tasks. However, they were not as sure in doing budget-related tasks. She noted that the school was concerned about carryovers not showing at the end of the school year. She was told that the school would get its carryover funds later. Being a year-round school, it was necessary for the school to get its carryover funds. Staff was able to make carryover funds available for summer use. Ms. Morgan indicated that Roscoe now receives immediately about two-thirds of its carryover funds. She praised staff for their responsiveness in making carryover funds available so quickly.

Ms. Morgan commented that in the first year of IFS, the school had one computer, which was located on the Office Manager's desk, to run IFS. This location limited usage of the computer. In year two, ITD provided the school with two additional computers which solved the problem of computer availability.

In year two, the school received training on the new IFS screens. She noted that in comparison to the first screens, these screens were very simple to use. She indicated that in the first screens, the user needed to know many four letter codes. The new system used plain English to inform users of their choices. It also permitted users to stay within a single system versus going between two systems.

Ms. Morgan commented that in year two, the budget printouts from the District included personnel accounts that told the school how much money had been paid to each person. This data allowed schools to use the budget system because it allowed for a better matching of information. When discrepancies were discovered, most problems were worked out with staff. She believes the District was able to save money by finding errors.

Ms. Morgan indicated that several months ago the school received training in doing budget transfers on-line. She noted Roscoe is participating in the pilot program that gives schools the ability to do budget transfers. While there has been some glitches, she believes that these problems will be solved.

c.Phase II LEARN school -- Farmdale Elementary School

Ms. Rose Ponce (Administrative Assistant) said that she received IFS training about one year ago. She noted that initially she was not comfortable using IFS. She said that the school has two computers linked to the IFS. She uses IFS to do ordering and still relies on help from ITD. She also can give the principal information on the school's budget balance or a specific account. She now feels comfortable using IFS. She praised ITD staff for their assistance.

d.Pre-LEARN school -- Bethune Middle School

Mr. Carlos Cobos (Assistant Principal) commented that he developed a manual system (using Excel spreadsheet software) to aid administrators with their budgets. He noted that school did not get hooked up to IFS until October 1996. He received IFS training and was pleased with the four days of training. He uses IFS to track school purchasing. He shares information with other administrators using reports generated by IFS and Excel. Mr. Cobos believes that IFS has given the school more control and flexibility over using funds. He also noted that IFS allows the school to look carefully at its budget lines and object codes. In addition, IFS is helpful in the grant-writing process. Mr. Cobos looks forward to receiving additional IFS training.

Mr. Slavkin asked if Mr. Cobos uses Excel for peace-of-mind to have a back-up or whether it is needed to do his job. Mr. Cobos says he used it for back-up. IFS provides him with adequate information, but Excel allows him to do his job better.

5. IFS rollout status

a.The goal of IFS rollout is to provide access to IFS applications at every school and office. Mr. Armendariz noted that each school and office offers unique challenges both in the physical layout and culture within the campuses.
b. Implementation approach

• The first step was to provide schools with personal computers and printers to build a campus communications link which would enable the schools to have access to the District Central Host Application.
  
• The completion criterion for the installation was that every school and office would successfully communicate with the host and print host applications within printing limits of the applications.

• Begin expansion of the existing centralized network infrastructure (January 1995)
  
• Pilot project for elementary network (August 1995)
  
• Began installation of continuation schools (December 1995)
  
• Began installation of children centers (May 1996)

• IBM contracted to do site surveys, cabling and installation of servers and workstations.
  
• IBM contracted to provide staging of equipment, installation of gateways, hubs, digital service units (DSU's or modems) and printers.
  

• District personnel observed how site surveys, cabling and installation of servers and workstations, gateways, hubs, DSU's and printers were being done by IBM.
  
• The District evaluated the way the processes were being carried out by IBM.

• Reevaluation of processes (November 1996)
  
• Discovered and in the process of correcting a few problems discovered with the IBM PS/2 Model 80's at 20 of 126 secondary schools (replacing with Pentium PC's)
  
• Quality assurance checks incorporated

• Verification of site surveys
  
• Complete cabling of every school
  
• Installation of equipment
  
• Obtain a sign-off by administrator and staff
  
• Post-site networking orientation.

• 744 total schools need IFS installed

Mr. Armendariz concluded by indicating that ITD is on schedule and would meet the
June 30, 1997 commitment.

Ms. Jones provided information on training. She noted that training is continuous because of changeover in staffing at schools and offices. Therefore, the number of schools trained or needing training changes daily. However, she believes that all schools will receive initial training by
June 30, 1997. User offices are scheduled for training soon. ITD and the Budget Division are working together with five pilot schools in developing training for budget transfers.

i. Training update

• 744 total schools need IFS training

6. Demonstration

A demonstration of the original IFS screens, the present screens and future screens was conducted. Mr. Nagata indicated that the new screens will be available for rollout within 60 days.

• The original screens required coded responses to activate the program. No helps were available on the screen. This version required substantial memorization. Some offices are still using these screens because they are more oriented toward using budget codes.
  
• The present screens are menu-driven (plain English) and have function keys to make use easier for schools. Summary information screens are also provided.
  
• The future screens will take advantage of a Windows environment with icons, function keys and multiple windows.

Mr. Nelson Huang demonstrated some of the uses of GUI technology for budgeting. He showed how charts can be produced quickly. The use of multiple windows and multiple tasking were performed.

Mr. Huang spoke about the decision support that he defined as a system for decision makers that allows them to analyze data and create reports. The goal of this system is to be "easy and flexible" so multiple report formats can be generated. ITD is creating a data warehouse (separate database independent from production) that will allow the District to utilize a true client-server environment that will allow users to access database information. Database information can be exported into other popular software (for example, Excel, Lotus 1-2-3) for further manipulation. However, the system software tool set should adequately serve user demands.

7. Questions and Answers

Mr. Abeles asked if the database described in the demonstration was designed yet and whether ITD had a database management system yet. Mr. Huang answered "yes" and that ITD was utilizing IBM's DB II system which was already in place. Mr. Huang indicated that historical data were available.

Mr. Slavkin commented that IFS was set up initially to integrate the central office systems with an eye toward financial management of the District as a whole. He noted that prior to IFS the District had mid-year difficulties in reconciling expense and income. He thought that one year there was about a $100 million budget imbalance at mid-year. Mr. Slavkin asked Mr. Jones whether the mid-year budget problem was solved. Mr. Jones responded that the mid-year crisis referred to was not solely a systems problem. He noted that the District did not receive some income and there were some communications problems. Now, with IFS on-line, the District is able to access expenditure data in a more timely manner. However, he indicated that IFS does not track income generation. He says tracking income is a goal that staff is trying to accomplish. Once this is done, then the District would have a timely database to examine income and expenditures.

Mr. Slavkin asked why the income component of IFS has not been completed. Mr. Nagata responded that IFS budget component requires staff to input revenues that have been received into the budget. The income side has not been totally computerized yet. ITD has a project underway to accomplish this task, but it is considered a low priority. Mr. Slavkin commented that he did not understand why this task was not a priority since integrating income and expense is essential to reconciling the District's financial condition. Mr. Nagata responded that the major portion of LAUSD's income comes from ADA. He commented that the actual ADA calculation is computerized and helps staff determine the number of norm teachers at each school. Mr. Jones added that ADA generated revenue has not been computerized yet. Staff's goal is for each school to be able to access revenue information. Mr. Jones indicated that the District's revenue calculations are done on a PC (personal computer).

Mr. Slavkin asked about the status of position control. Mr. Nagata responded that position control was supposed to be discussed at today's meeting, but was postponed. He noted that position control is proposed as a budget addition. So far it has not been funded. Mr. Jones added that the Board set aside money for position control in Critical Funding Issues ÂIII. Staff needs to present to the Audit Committee the proposed rollout for position control. After some issues have been resolved by staff, they will make a presentation to the Committee.

Mr. Slavkin commented that he was trying to understand which central office functions were completed during the 18 month IFS implementation period that ended July 1993. He wanted to know what central goals have not been fully implemented yet because of priorities, insufficient funding, etc. He noted that the revenue component was one issue. Position control is another. Mr. Nagata responded that the original intent was to include position control and the Human Resources System (HRS) with IFS. HRS is supposed to meld the payroll functions together. Position control and HRS are items yet to be funded. He indicated that staff has requested funding for these items since 1994, but moneys have not been allocated because of other priorities or a lack of funding.

Mr. Slavkin asked about the rollout to schools. He noted that the rollout was put into place ahead of a clear policy decision on how schools are going to control their own budgets. He commented that the District was putting the infrastructure into place, before the issue of local control was entirely conceived. He asked Mr. Nagata when the "future" version of IFS was going to be implemented at schools. Mr. Nagata responded that a pilot stage was probably going to be demonstrated at several schools in the next 60 to 120 days. Mr. Kiriyama asked about the cost of implementing this version. Mr. Nagata said that this version was paid for already by the District within the IFS maintenance budget. He added there may be some training-related costs.

With regard to the use of GUI, Mr. Nagata commented that GUI technology was available in 1992, but it required mini-computers that were more powerful than the computers at schools. LAUSD waited to use GUI until each school could receive at least one Pentium 100 computer (a computer with enough power to run GUI technology). While ITD was working with GUI technology since 1991, the cost of computers prevented implementation until now.

Mr. Slavkin asked whether the software to run GUI programs was available now. Mr. Nagata responded affirmatively and added that the State of Utah has been using GUI programs for about three years.

Mr. Slavkin commented about some of the complaints schools have made regarding the first several versions of IFS. He asked whether the new GUI version would solve some of the problems identified. Mr. Nagata responded that many of the problems found in the secondary school visits (to be discussed at the next Audit Committee meeting) are attributable to problems with the IBM PS/2 Model 80 computers. He added the new software will make IFS use more friendly and will solve some of the other problems associated with the earlier screens.

Mr. Abeles stated that he did not understand the overall concept of the IFS project. He said the following questions need to be addressed:

€ What goal is the District trying to accomplish?
€ How much money has already been committed to reaching that goal?
€ How much more money is needed to complete the future plans?

Mr. Abeles said that the IFS project needs an overall design document. He does not believe that he has seen a document that presents this information.

Mr. Abeles commented that the Arthur Andersen studies and the site visits paint a very different picture than what has been presented to the Audit Committee. It bothered him that there is such an unreconciled difference between the two positions. He characterized the site visits as saying that users find that "thing's aren't working very well." Mr. Abeles observed that while one can say that the IFS in the future will be much better, it bothers him that after five years so many problems still remain. Mr. Abeles stated that he is concerned whether the District has gotten its money's worth out of the $45 million that has been spent on IFS.

Mr. Nagata responded to Mr. Abeles's questions regarding project design. He admitted that it has been a problem from the very start. He noted that one of the historical documents he distributed to the Committee shows what he was going to do. Mr. Nagata said that scope changed, that the original design of the entire project is a different matter, and that his presentation is confined to IFS. He added that Mr. Abeles is referring to other systems.

Mr. Abeles asked Mr. Nagata to define what IFS is. Mr. Nagata referred to a chart that was on display. Mr. Abeles commented that he had a problem understanding what the specific deliverables were. For example, what is the budget module supposed to be delivering and is it being delivered? Mr. Nagata responded that he can provide the Committee with those documents. Mr. Abeles added that staff needs to state:

€ What was the District originally trying to get out of this system?
€ Where are we today?
€ How much is it going to take where we are going?
€ What specifically do we want to achieve, particularly at schools?

Mr. Abeles commented that this information is not necessarily a technology issue. That is why he is concerned about the management of this project. He does not believe that it is generally appropriate to have the technology arm of an organization running projects. At his company, projects are run by the Chief Financial Officer. Mr. Abeles noted that his company is doing a $30 million project that replaces the financial suite of projects and that he is responsible. Absent of placing blame or concluding that the project is not going well, he asked whether the Superintendent should assign the IFS project to the CFO. By doing so, the technology would be balanced sensibly against the users and the money available. Mr. Abeles added that in private business, he has never seen a project of this size run by the technology arm of an organization.

Mr. Nagata commented that the technology arm of the District is not running the IFS project. They only do their portions of the project. There is a steering committee that has this responsibility.

Mr. Slavkin said that the point of Mr. Abeles's concerns is that there needs to be a single person who is responsible and accountable for the project. He commented that the District's effort has been troubled by a constantly changing cast of persons who are assigned to steering committees, resulting in a lack of continuity and lack of singular responsibility. Mr. Slavkin stated that the pieces of the project are bigger than ITD. He noted that the computer cabling, software, and the hardware are important. However, the design of how accounting or budgeting are supposed to interact within the system goes beyond the personnel who report to ITD.

Mr. Nagata responded that Mr. Bill Magee was brought on to manage the project. The various divisions were supposed to report to him. However, he did not remain long enough with the District to implement the project plan. Mr. Nagata told the Committee that Mr. Magee made several presentations to the Audit Committee regarding the project strategy and plan.

Mr. Abeles commented that it was time to get back to that concept of management, regardless of the personnel assigned to the project. Mr. Nagata added that part of the problem was the revolving executive syndrome. There have been three Superintendents during the lifespan of the project. Each Superintendent had a different definition of what the end product should be. There were also changes in senior management and the organization of District central offices. Mr. Nagata concluded by saying that for a short period of time, the project was being managed the way Mr. Abeles suggested. He agreed that ITD should not be managing the project.

Mr. Kiriyama commented that in the past he proposed that the various divisions should come together to see if they could agree on position control. He said that Dr. Zacarias reported to the Committee that staff could not agree on position control and that is why it has not been implemented. Mr. Nagata agreed with Mr. Kiriyama's assessment of the issue. He noted that the leader of the steering committee responsible for position control was the Superintendent (August 1993).

With regard to whether the District was getting its money's worth with the project, Mr. Roth responded "not yet." He indicated that a vast portion of the money spent on the project has been for laying infrastructure. When the project has been entirely rolled out and is being used, then the District will have gotten its money's worth. He said the District was years away from reaching that goal. He added that the technology is potentially available, but the user community needs to be taught how to use it in an analytical sense. The system needs to reach the point where policies can be made with numbers that are not being disputed and are accessible to all principal players. At that point, Mr. Roth believes that more elevated policy decisions will begin to flow and the District will have gotten its money's worth with IFS.

Mr. Abeles commented that he believes that the five years taken to complete IFS are too long. He said that a similar, but slightly smaller project being done by his company will be completed within 18 months. Mr. Slavkin added that the central office portion of IFS was completed in about 18 months. However, the project scope was expanded to the schools before the concept of local budgeting was clarified. He noted that the site visits seem to indicate that schools are not utilizing IFS for budgeting because schools have little control over the budgets. Mr. Slavkin commented that this is not an ITD issue, but a District-wide issue. Until schools have autonomy over their budgets, the use of bar graphs, for example, will not be important to school administrators. If local budgeting authority is not realized, then the expenditure of funds to allow schools to do online purchasing, for example, may not be worth it.

Mr. Roth commented that Mr. Slavkin's remarks lead precisely to Mr. Abeles's point about project management. By default, IFS has become an ITD run project. This situation puts ITD into an untenable position. Mr. Roth indicated that ITD is responsible for technology within the District. To make IFS work and be useful for site-based management and decentralized decision-making, leadership must come from outside of ITD. Mr. Abeles agreed with this assessment.

Mr. Nagata agreed that leadership should come from outside of ITD. He spoke about meeting with Governor of Utah and asking how Utah could rollout their project so quickly. The response that he was given by the Governor (who is the CEO) was "that everyone works for me that implements." Mr. Nagata commented that is very difficult to do an IFS-type project unless one individual has staff or line control.

As to the issue regarding whether the District has gotten its money's worth from IFS, Mr. Nagata commented that it was important to understand the history of the project. He noted that the District had been audited by the State of California. LAUSD was operating 18 different batch systems. There was no on-line access. He stated that LAUSD started at "zero."

Mr. Nagata spoke about the initial problems of trying to train schools to use the system when they were only used to manual processes that rely on paper. He noted that schools had difficulty understanding the "old" system, let alone understanding the "new" system.

Mr. Nagata believes that the initial $25.4 million was well-spent given the conditions at the start of the project. He believes that the people that designed the system should be congratulated. He said that ITD could not control units above it. He believes that ITD completed the tasks for which it had responsibility and that they were done on time.

Mr. Nagata noted that in the original system, the District had three charts of accounts. He believes that in itself was not good. Now there is one chart of accounts and he believes that is an accomplishment well-worth the $25 million expenditure if you look at the District's books.

As to other accomplishments, Mr. Nagata cited that the District now shares the same database and it is accessible to users. The books are closed within a reasonable amount of time. Budgets can be generated at schools, something that was not possible under the old batch operating system. He believes that this is worth the money.

Mr. Nagata referred to the size of the District and the number of sites where equipment was installed. With regard to equipment purchased, he noted that the Pentium 100's cost $6 million. Mr. Nagata also indicated that because he is not given a budget to update technology, older equipment had to be used within the IFS and other systems.

In summary, Mr. Nagata believes that the total $45 million spent was a small price to pay for the functionality attained, including a single database, one chart of accounts, and on-line access (including schools). Mr. Nagata pointed out that he does not control all the District's workflow processes. He believes that many of the problems cited are related to workflow processes, such as budget and revenue generation.

Mr. Abeles commented that issues of how much is spent on technology and how to implement new technology over what time frame are management questions for the District. Mr. Slavkin agreed. Mr. Slavkin suggested that at the next Audit Committee meeting, the Committee fashion a format statement that makes a recommendation to the new Superintendent as to the management structural issues involving implementation of IFS and new technology. Mr. Slavkin alluded to the original Andersen management review that made the point that the ITD function should report to the Chief Financial Officer. This recommendation was not implemented. Mr. Slavkin indicated that this may be the answer or maybe there is some other variation. He agreed fully with Mr. Abeles that there is a need to fix responsibility for the desired outcome. If this outcome is not clearly set, then the District will continue to argue over the utility of the technology and not be clear over the overall systemic goal of the District. Mr. Slavkin said that this goal needs to drive the District's policy. The technology is only a tool. Such decisions are not ITD's responsibility. Mr. Slavkin reiterated his position that it is important for the Committee to give the new Superintendent a clear recommendation so the IFS issue is not rehashed again and again.

Mr. Nagata agreed with Mr. Slavkin's comments. Mr. Nagata believes that the issues regarding design, scope and timeline have been discussed many times and that the project has been subject to multiple management audits over the same issues.

®Mr. Slavkin asked to agendize this item for the next Audit Committee meeting.

Mr. Tokofsky asked Mr. Nagata to prepare documentation on how the $45 million for IFS was spent. He agreed to provide that information. Mr. Nagata said that Deloitte and Touche itemized the expenditures in their report.

Mr. Tokofsky asked Mr. Roth when AMS received its first contract with the District. Mr. Roth responded that AMS was first hired as a subcontractor to IBM in late 1991-early 1992. Mr. Tokofsky asked for copies of the contracts with AMS.

Mr. Tokofsky asked about AMS's projects with the City and County of Los Angeles. Mr. Roth responded that AMS put in the citywide and countywide financial management systems, which included budgeting, accounting, general ledger, revenue management, accounts payable, and for the City, purchasing and inventory management. The scope of these projects is approximately 30% of the District's IFS project.

Mr. Tokofsky asked about FEMA and Rodriguez as being impediments in completing IFS. Mr. Nagata responded that to deal with Rodriguez requirements that relies on personnel expenditures, he had to implement, without funding, the HRS system (payroll). He said that the basic links were implemented so people costs could be computed. He said that Rodriguez was not as much an impediment as it was an increase in project scope.

Mr. Tokofsky commented that he thought that the Board had approved separate funds for technological accounting for FEMA. He asked how ITD became involved. Mr. Nagata said that there was a choice to be made on the FEMA accounting process. ITD worked very closely with Ms. Scholl on this matter. The District could either create a different accounting system for the project or it could use the District's existing accounting system. They decided to modify the District's system. He noted that the FEMA requires some very detailed reports that most accounting systems do not provide. By using different staff, he had to pull some programmers off IFS and assign them to the FEMA project.

Mr. Tokofsky asked whether the FEMA costs were part of the $45 million spent. Mr. Nagata responded that COPs were the source of the $45 million. He also noted that $4.7 million in additional general funds were provided to bring back some staff that were lost to budget cuts in 1994. The FEMA project used other funds and is not part of the $45 million project. Mr. Tokofsky asked Mr. Nagata to provide a full accounting of all sources of funds for the IFS project. Mr. Nagata agreed to provide that information.

Mr. Tokofsky inquired about the food services system. Mr. Nagata responded that this system is up and running efficiently at 13 pilot schools. However, the project is now on hold because ITD is looking at some different equipment and other staff are trying to coordinate some other problems. This project is not related to IFS.

Mr. Tokofsky asked about the Geographical Information System (GIS). Mr. Nagata responded that ITD uses this system to make maps. It is an Integration project. There is a small module within GIS that aids in District transportation planning. This project is not part of IFS. He noted that most of this project is completed. The funding for GIS comes from Integration. Mr. Nagata said that he would provide Mr. Tokofsky additional information.

With regard to the June 30, 1997 completion date, Mr. Tokofsky asked if Mr. Nagata to put into a paragraph what a person will be able to do at a school on that date. While he is interested in IFS, he is also interested in what can be done on the other systems. Mr. Slavkin suggested that
Mr. Tokofsky go to a school and actually see what can be done. Mr. Nagata added that not every system works on the same platform. Therefore, one would have to use more than one computer terminal at each school to see what can be done. He noted that ITD is moving toward a single platform.

Mr. Kiriyama asked if the District needs to hire additional personnel in ITD and if so, what the cost is. He asked if the District needs to buy additional technology and if so, what the cost is.
Mr. Kiriyama said the Board will need to discuss these issues with Mr. Jones and the Audit Committee. To reach the desired goal, the Board needs to fund the project adequately. Mr. Nagata responded that Deloitte and Touche concluded two years ago that it would take about $18 million to solve some of the workflow problems. With exception of position control where funding is now being considered, funding has not been provided to solve these problems.

Mr. Jones commented that the $45 million allocated came from the issuance of COPs. Additional general funds were allocated. He asked Mr. Nagata to work with Mr. Varon in identifying all of the funding allocated. Mr. Nagata indicated that he was going to separate ITD costs from those divisions that use IFS (technology versus workflow process).

ADMINISTRATIVE USE OF COMPUTERS AND LOCAL BUDGETING AT LEARN SECONDARY SCHOOLS: REPORT OF SITE VISITS

This item was put over until the June 12, 1997 meeting.

AUTHORITY TO ISSUE UP TO $300 MILLION IN 1997-98 TAX AND REVENUE ANTICIPATION NOTES (TRANs)

Mr. Jones commented that this agenda item deals with Board authorization to issue up to $300 million in 1997-98 Tax and Revenue Anticipation Notes (TRANs).

Mr. Woodfin noted that District staff has been bringing this type of report before the Audit Committee over the last 3-4 years. Staff is projecting that there will be a deficit (insufficient cash on hand to meet anticipated expenditure requirements) again in the District's cash flow of about $7 million in November 1997 and about $112 million in December 1997. Mr. Woodfin informed the Committee that the District is allowed to go out and borrow funds to cover the actual cash flow deficit. In addition, under Federal tax regulations, the IRS allows the District to borrow enough money to having a working capital reserve, which is usually about $150 million. Therefore, staff is asking for authorization to issue up to $300 million in TRANs. Mr. Woodfin said that staff still needs to complete sizing the issue and to meet with bond counsel. He believes that this year's issue will be in the range of $260-$280 million (last year's issue was about $280 million).

Mr. Slavkin asked who the lead underwriter was for this year's issue. Mr. Woodfin responded that the lead underwriter was Merrill Lynch. He added that LAUSD uses an underwriting team that consists of six underwriters. The three main underwriters are Merrill Lynch, Lehman Brothers, and Bear Stearns. The team also included a woman-owned underwriter, Artemis Capital Group; an African-American underwriter, M.R. Beal; and a Latino underwriter, Reinoso.

This underwriting team was formed in 1993 and Mr. Woodfin believes that this group has been involved in a number of successful endeavors with the District.

Mr. Slavkin asked if there were any particular issues in the current financial markets or interest rate environment that are different this year than in past years. Mr. Woodfin responded that there was not a significant change in the markets, but the District's financial position has improved and this information has been provided to the different rating agencies. He added that LAUSD has tried to separate its finances from those of the City and County of Los Angeles, where there might be some differences.

Mr. Slavkin noted that this item will be brought to Board for action on April 21, 1997.

ITEMS REFERRED TO THE AUDIT COMMITTEE BY THE BOARD OF EDUCATION OR THE COMMITTEE OF THE WHOLE

There were no items referred to the Audit Committee by the Board of Education or the Committee of the Whole.

PUBLIC COMMENTS

There were no speakers.

CLOSED SESSION

The Committee recessed to Closed Session at 12:23 p.m. The Committee considered public employee performance evaluations of the Internal Audit Branch. The Committee reconvened at 12:35 p.m. There were no actions taken. The meeting was adjourned.

[The next Audit Committee meeting is scheduled for Thursday, June 12, 1997 at 1:00 p.m.]

Notes by: Charles Schepart, Independent Analysis Unit