LAUSD – Still Cleaning Up Deloitte’s SAP Debacle

An LA Times editorial this past weekend brings us up to date on the disaster that was the Deloitte implementation, or attempt at implementation, of SAP for the Los Angeles Unified School District. I’ve written about this project here and here. I have also given Deloitte some props for having the only somewhat legitimate consulting firm of the Big 4, but it’s by default rather than design or superior customer service. All of the other firms sold their consulting firms after the independence scares post-Enron.

So much for that. They’re all back at it again.

They do pretty much stick to “advisory services” that stay close to their core audit, controls and financial due diligence “strengths”, and I use that term generously. None, other than Deloitte, as far as I know, are doing large scale ERP implementations in the US that include responsibility for the technical side, or what is known as “system integration”.
(I have heard PwC has a plan to be back in the systems integration business in the US in two years. They were never really out of it in places like Mexico and Brazil…) Deloitte did it before, never gave it up in the US and still does it, although in more than a few cases, not very well.

A reasonable question might be, “Why do the Big 4 firms want to do these types of projects for government, of all things?”

Well, as I’ve written before, because that’s where the money is. While I was at PwC, I saw how small time their “Advisory Services” operation really was. On occasion there is a long, heavily staffed type of project such as Sarbanes-Oxley support that totals up to more than seven figures, (their fledgling consulting arm’s bread and butter the last few years,) and a few other regulatory related projects where clients pay big bucks for the firms to help them out of a jam, (think a big bank recently bought). But, in general, the projects are small. Like in the hundreds of thousands of dollars range. It’s hard to make billions a hundred thousand dollars at a time, especially under the umbrella of an audit firm, with all that litigation as well as overhead.
I was telling someone recently that when I led the Industrial, Automotive and Transportation Practice for BearingPoint in Latin America, we were doing SAP and other ERP implementations for industry that were in the US$10-20 million dollar range. And that was Latin America, at the turn of the millennium…No one I met at PwC in 2005-2006, 6-7 years later, the “consultants” that were left after the sale of their consulting arm to IBM, had ever sold, let alone managed, a US$10 million systems project.

Governments are notoriously cheap, difficult, slow paying, incorrigible, bureaucratic, wishy-washy and litigious. All are good reasons why Deloitte probably had a tough time doing a good job for LAUSD. But they’re no excuse. After all, the Big 4 are consultants. They are professionals!

The government contracts for systems implementations are big, big, big. And since the Big 4 firms are really only interested in building top line revenue and leaving the margins and profit to fall where they may, they eat these opportunities up.

Remember…Partnerships pay their partners on a cash basis, and are loathe to make investments in common goods. So they take the cash when it comes in and distribute it right away. They hate to save for a rainy day. Which is why it would be so interesting to see their reserves for litigation. But I digress…

…Irish Health Service spent eight years and 12 times more money than budgeted before calling a halt to its attempt to install SAP software customized by Deloitte Consulting. That was in 2005, just as the Los Angeles Unified School District was moving ahead on SAP, also customized by Deloitte.

The contract was just the first of the district’s mistakes.One year ago this month, the new software began generating thousands of wildly inaccurate paychecks — 32,000 in June alone — especially to teachers. Some received a fraction of what they were owed; others were grossly overpaid. Teachers camped out for entire days at district headquarters while a special office tried to solve their problems. Money and many thousands of hours of instructional time were lost. At least that part is over.

Almost all teachers are receiving the right amounts now, although it still takes an army of district employees to backstop the software.The payroll debacle was a textbook case of the inefficiencies that perennially plague the L.A. school district — a paucity of talented managers, a lack of responsiveness and a stultifying bureaucracy. Turnover among the top ranks meant the district lacked the expertise to oversee the $95-million contract. Lower-level tech people were undertrained, and many were underqualified but could not be replaced because of union contracts. The district’s pay system is impossibly byzantine, with each of nine unions having its own pay structure. Employees might be paid by the hour, the week, the task or even in six-minute increments.

And in the beginning, bureaucrats in the central office were remarkably indifferent to teachers who faced financial calamity, transferring them, disconnecting them, failing to return their calls. Given the rocky history of the SAP/Deloitte combo in Ireland and elsewhere, it’s unconscionable that Deloitte consultants and L.A. Unified managers turned on the SAP switch overnight without a full-scale test run, even after the school board had expressed doubts…Then, in a perfect microcosm of district ineptitude, it considered paying Deloitte an extra $9 million to fix the mayhem it had created. Then it spent yet more money to hire a public relations team to burnish its image.

Today, L.A. Unified is stuck with a hugely expensive software system that still needs tweaking. The district will have to streamline its pay system while demanding maximum compensation from Deloitte….Prodding Deloitte toward cooperation is Assemblyman Kevin de Leon (D-Los Angeles), whose AB 730 would prevent a company from getting a state contract for five years if it’s found in court to have failed on a large public technology contract. The bill needs modifications — it’s too narrowly drawn, and lawsuits commonly take years to resolve, giving a company plenty of time to do more damage — but its intent is right and it should go forward.

The lessons of this past year are only tangentially about SAP software; it can and does work for some companies. The lasting blame for this debacle lies with Deloitte for bad programming and worse advice, but also with L.A. Unified for the series of foul-ups that followed. If our school district cannot even pay its teachers, how can we trust that it is doing right by our children?
6 replies
  1. Krupo
    Krupo says:

    It’s scary to think I know both 1. how this kind of fiasco could come to pass, and 2. could’ve probably foreseen it were I on the inside of an operation like that. The ‘scary’ comes from the fact that even with limited knowledge of the scenario, it’s nevertheless pretty easy to surmise what went wrong and some simple steps that could’ve helped avoid the problems. I won’t really go into detail because you’ve already alluded to much of it yourself or in the quoted article itself.

  2. Oversight for the Better
    Oversight for the Better says:

    What’s to forsee? NEVER, EVER, EVER does a major system conversion go easily. If, and ONLY if, the process is thoroughly planned, wisely guided, with adequate resources available, can the results be reduced to manageable problems.

    Before embarking on such endeavors, your cost analysis should show a VERY LARGE benefit.

  3. Anonymous
    Anonymous says:

    The Big 4 is soon becoming a relic and an icon for hypocrasy.

    Change is coming due to market forces.

    I was with Deloitte for 4 years in asia, straight out of college. It’s a puppy mill.

    The ethical leave, the greedy stay.

    I saw behind the curtain as an expat privy to many things. I ate the hours, got the t-shirt and the “name brand” references for the resume, and walked away with my dignity, and a new appreciation for the value of time.

    My advice:
    1.) Watch the old movie “Wall Street”.
    2.) Listen to the Eagles song “In a New York Minute”.
    3.) Know that in private industry, humanity comes second.
    4.) Remember that life is short, make the most of time with friends, family and the things you love to do. You’ll find that time is the most valueable asset you have
    5.) Lastly, you really don’t need a huge amount of money to be happy. If you think you need a lot, you have a hard, lonely road ahead of you where you’ll most likely have to sellout and cross the line and get dirty at some point, leading to sleepless nights and hanging with people you don’t really like and can’t trust.

    – Deloitte Alumni

  4. Francine McKenna
    Francine McKenna says:

    @Deloitte Alumni Please re-post this comment on one of today’s posts. I think it is very helpful and will be more easily seen and shared.

    Thanks fm

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  1. […] That’s like hearing you still have to calculate and write half the checks manually even after spending millions on new payroll software. For the Academy, whose members seem to be more intransigent than most, maybe it was “as good as […]

  2. […] seeing with botched Deloitte ERP implementations that result in Sarbanes-Oxley issues, at LAUSD, Levis, and others, I have to ask, “Where are the IT auditors?” To PwC’s credit, […]

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