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By Naush Boghossian, Staff Writer Article Last Updated: 12/15/2007 09:08:41 PM PST Ten months after installing a new computerized payroll process that has been roiled by glitches, Los Angeles Unified officials now say costs for fixing the system and completing its rollout could top $210 million. And some officials are questioning the district's transparency on all the costs associated with the system, noting that at least $6 million will be forfeited by allowing some overpaid teachers to keep the money. Some are also questioning why the district has not yet sued the company that rolled out the system. The state Legislature has begun to lean on school officials to recover at least $10 million that Deloitte Consulting has spent to hire a consultant to address the problems. "There's going to be a Judgment Day when all of this is over," school board member Richard Vladovic said. "There's been more spent than we know, and I'm sure there are other ancillary costs such as the overtime, the additional processing and the communications. I want an accounting of everything - every nook and cranny," Vladovic added. Some say many of the school board's closed sessions in recent months have been dominated by discussions trying Advertisement to get to the bottom of who is to blame for the fiasco. It's "imperative that the district seek cost recovery against this vendor," Assemblyman Kevin de Le n wrote in a letter to Superintendent David Brewer III last week. De Le n urged LAUSD officials to "aggressively pursue compensation from Deloitte Consulting," which was paid $55 million to roll out the system smoothly. Officials at de Le n's office could not be reached for comment. United Teachers Los Angeles President AJ Duffy said he thinks it's the "nature of a dysfunctional organization that prevents (LAUSD) from moving forward." Under terms of the various contracts for the payroll system, third parties, including teachers, cannot sue Deloitte directly for breach of contract. Instead, UTLA sued the district over the problems, but the case was thrown out of court. Arguments in an appeal are to be heard next month, Duffy said. Some members of the LAUSD's police officers association have also filed a suit that's still pending against the district. "Even if the case gets thrown out, you make the attempt on behalf of the organization and on behalf of the employees. You do it because it's the right thing to do," Duffy said. "The district is foolish if they're not going ahead with the suit because they hold the strongest chip in the game: They can destroy Deloitte & Touche in the court of public opinion, and they should because Deloitte has destroyed lives and hasn't delivered what it promised to deliver - accurate checks on time." But LAUSD general counsel Kevin Reed said district officials are working with Deloitte to resolve the issues and have not yet reached the point of suing. A lawsuit could tie up the process in court for years without any immediate resolution to the problem, officials have said. "We have not reached a moment in which it's become clear we have to sue them to get the problem fixed," Reed said. "We're still at a moment where we're entitled to presume the good will of the folks at Deloitte and try to make sure the district is going to be made whole and given the benefit of the bargain we have in the contract." Meanwhile, however, costs for the payroll system are continuing to balloon, and the school board continues to approve consulting contracts to fix the problem. LAUSD's new chief information officer, Tony Tortorice, who rolled out the same type of electronic system for his former employer, the Los Angeles Community College District, predicted hiring consultants will not stop "for a while." Tortorice had told the board last week that LAUSD's original budget was underestimated for implementing a system of such size and complexity. As a general rule, he said, an organization should expect to spend 1 percent to 15 percent of its annual budget for each year of implementation. "Over a three-year period, $300 million is not unusual for these types of organizations to experience," he said. The district still has to roll out the third phase of the system, which involves computerized purchase orders. "Much of the problem you're facing right now is you're underbudget(ing). Quite frankly, you need to spend this money to have these people on board for remediation. They need these resources," he told the board last week. But board members questioned the efficiency of spending money for consultants with no stake in the project, no loyalty to the LAUSD and no assurances that they're doing a good job. I'm not sold on that just because someone tells me I need to be," Vladovic said. "This is supposed to support instruction, not drain it." School board member Tamar Galatzan said the district has taken a piecemeal approach, reacting to each problem with a "never-ending stream of these contracts" and no way to measure success. "I've never seen a plan that included all of the consultants, all of the costs, who's responsible for what, where the money's coming from, how long it's going to take. "Nothing exists that resembles a transparent, cohesive plan." But district administrators maintain the system will be stabilized in January. They say errors related to flaws in the system have been worked out and now just human errors remain as employees adjust to the system. The overall district error rate in October was 591 percent, which dropped to 127 percent in December. A good indicator of progress is a drop in the number of people going to assistance centers about their checks, administrators said. In early November, 759 people went to a help center, but the number in early December was 237, and most of them did not claim system-generated problems, said Dave Holmquist, LAUSD's interim chief operating officer. "That's a good sign that things are well on the road to recovery," he said. Errors on other employees' checks have been less than 1 percent for months, but problems remain for teachers and other certificated personnel. But Tortorice said the district will not be able to reach its error-rate goal of about 05 percent on the certificated payroll if it does not simplify the process - namely by eliminating annualized pay. The district is still negotiating with the union to eliminate the process in which LAUSD spreads teachers' pay for 10 months of work over 12 months so they receive a check year-round. "We know what the defects are, and we continue to work on them, but we need that simplification (of eliminating annualized pay) to have the long-term health of payroll," Tortorice said. The teachers union fought for annualized pay for 25 years, and the district made the decision to roll it out in February along with the new system. "They never should have instituted annualized pay the very moment they brought on a new system," Duffy said. District administrators also insist that the production of end-of-year tax forms, or W-2s, will go smoothly. They claim LAUSD's gross overpayment is about $53 million, with about $15 million currently outstanding. About 60 percent of people contacted for overpayment have either paid back the district or agreed to pay it back, totaling about $14 million. But the district has already lost about $6 million in waiving payment for employees who owed $250 or less because it would cost the district that amount to recoup the money, Tortorice said. And LAUSD officials are also scrambling to correct faulty reports to the California State Teachers' Retirement System so there is no negative effect on the retirement accounts of current and retired employees. Holmquist said the district has learned it "rolled this out too fast." "We didn't spend enough time preparing for (the) rollout," Holmquist said. "We did it too quickly, and we risked a lot, and we went live all at once, and we've been playing catch-up ever since."
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