LANSING- A structural shortfall in what the Department of Health and Human Services spends on information technology compared to what it has available will result in $45 million in overspending by the close of the current fiscal year, the department has advised top lawmakers.

During the spring, DHHS had acknowledged the shortfall and began taking steps to correct it, but had held off putting an exact number on the problem, saying it would wait to do so until the June 1 deadline for the state budget director to advise the chairs of the Appropriations committees of any agencies spending at a rate that would exceed their appropriations for the fiscal year.

The figure fits with what sources had told Gongwer News Service was a deficit ranging between $35 million and $45 million (See Gongwer Michigan Report, June 12, 2019).

DHHS has reduced the number of contractors working for the agency and embarked on a major overhaul of how IT projects work.

During the final months of Governor Rick Snyder’s administration, the Legislature at the administration’s request poured large sums of money into DHHS IT to cover shortfalls – $47 million in the huge supplemental during the lame-duck session, a $15.1 million transfer and increasing the federal revenue spending authorization on technology by another $50 million.

A year ago, DHHS warned the Legislature of a $15 million shortfall in the 2017-18 fiscal year for IT.

No overspending has occurred yet, Budget Director Chris Kolb said in his letter to lawmakers, but that will change absent major adjustments to spending.

Mr. Kolb said he asked the State Budget Office’s Office of Internal Audit Services to verify the size of the shortfall, determine how it happened and figure out solutions. He also asked for efforts to establish new IT spending controls for DHHS projects. Besides concessions from “IT vendors with high contract amounts,” Mr. Kolb said officials are also “stopping IT projects” where doing so will not harm services and residents who rely on state programming.

The review from the Office of Internal Audit Services identified several reasons for the shortfall:

  • Lack of a formal process and attention from DHHS leadership over a multiyear period to oversee IT spending and monitoring of progress on projects, especially with large, multiyear contracts used to fund additional projects not authorized in appropriations and the use of change notices in existing contracts instead of new competitive bids;
  • Contractors working on projects prior to execution of signed statements of work;
  • No direct linkage of project spending to approved appropriations; and
  • Failure to appropriately monitor changes in federal matching fund rates.

The Budget Office’s auditors also faulted previous department leaders for seeking supplemental appropriations to cover the shortfall instead of addressing the structural problem.

“In short, the previous administration pursued multiple major IT initiatives without correctly accounting for the long-term cost impacts,” Mr. Kolb wrote. “Short-term budget maneuvers were used for several years before the resulting shortfall reached this magnitude.”

In a previous story, former DHHS Director Nick Lyon said by far the major reason for the shortfall was the unexpected reduction by the federal government of the matching rate from 90/10 to 50/50. He defended the mechanisms he set up to oversee IT projects in the department.

Mr. Kolb said the State Budget Office and DHHS will present a comprehensive budget plan to resolve the shortfall and ensure a structurally balanced IT spending plan for the 2019-20 fiscal year in conjunction with the budget target-setting process for the 2019-20 fiscal year.

Target-setting negotiations have yet to begin.

This story was published by Gongwer News Service.