Statewide reform of payroll system won’t deal with fraud

A statewide technology overhaul of government payroll and management systems won’t prevent timesheet fraud, according to state government officials.

The $8.2 million Enterprise Resource Planning project, which has been in the works for two years, will streamline the timesheet system for state workers, as well as upgrade the state’s overall human resources software.

But top state officials say the upgraded system won’t prevent fraud, in spite of concerns raised by a recent Vermont State Police overtime scandal.

Brittany Elliot
Brittany Elliot manually enters payroll information for about 70 employees from the Secretary of State's office every two weeks, using their paper timesheets. Photo by Nat Rudarakanchana

Now workers manually record hours on paper timesheets, before department supervisors approve the logs and pass them to a clerk. The clerk enters the information into Paradox, an outdated program from the early 1990s which logs time and expenses for state employees.

In the new system, state employees will log their own hours directly into the system. Supervisors will then review the timesheets electronically.

Jim Reardon, commissioner of the Department of Finance and Management, said no system “can be 100 percent foolproof.” He emphasized that primary responsibility for internal controls remains with supervisors, who review and approve timesheets.

Deputy Administration Secretary Michael Clasen explained that there is no connection between the IT overhaul, which has been in the works for years, and the recent timesheet fraud case.

“The impetus for this project had nothing to do with fraud in general,” Clasen said. The objective of the modernization overhaul is to increase efficiency and accessibility. Although Clasen hopes the new system could quickly raise red flags for managers, he also deemed it “almost impossible” to systematically guard against fraud.

The Time & Labor program is only one part of the comprehensive Enterprise Resource Planning project, which updates the PeopleSoft accounting and human resources software across state government. The ongoing upgrade is on budget and on schedule.

Department of Human Resources Commissioner Kate Duffy added it’s not clear whether the new system could have prevented James Deeghan’s alleged fraud scheme, which she described as “very brazen.”

That case “is very different than catching someone who’s off a couple of hours here and there,” said Duffy. Asked whether the ongoing upgrade could have helped in this case, she replied: “Certainly. Would it have prevented it? I can’t say that without more information.”

The extent to which the upgrade will help prevent fraud is unclear.

State Auditor Tom Salmon said his office hasn’t done a comprehensive audit of statewide payroll systems before. He observed that weak payment systems like Paradox and others partly facilitate fraud and embezzlement, by fostering “an acceptance of inefficiency … that adds risk of manipulation or circumvention.”

In light of the Deeghan case, Salmon’s office will start an audit of payroll practices at the Department of Public Safety this month, with expected completion in December. But results from a fuller statewide pay system audit will only come out around April 2013, said Salmon, even with the scheduled September start.

Salmon remained unsure about what other steps the state could take to prevent payroll fraud in the meantime. He said that until specific vulnerabilities are unearthed in a more comprehensive review, recommendations are premature.

“We may not even realize what [system] weaknesses are driving some of the potential fraud that could still be existing now,” said Salmon.

Payroll fraud prevention is managed by individual departments, according to state officials.

The PeopleSoft Project

Vermont contracted out the upgrade for almost $8.2 million to CherryRoad Technologies, a New Jersey technology firm, and New Hampshire-based West Lake Consulting Inc. in May 2011.

The Time & Labor program is only one part of the comprehensive Enterprise Resource Planning project, which updates the PeopleSoft accounting and human resources software across state government. The ongoing upgrade is on budget and should be up and running in January 2013.

This isn’t the first time the state has tried to reform how employees record their time and expenses.

Project manager Brad Ferland said the state first opened a bid to reform time and labor, as well as a finance system module, back in 2006. State records also indicate an even earlier request for a project cost quote, dating back to November 2004.

But while the finance module upgrade went through, the time and labor reform never received the needed funding because of budget cuts during the recession.

“Sometimes a lot of the internal projects required to manage state government lose out on funding,” said Ferland, director of financial operations under Reardon and partly responsible for paying more than 9,000 state employees. “It’s a matter of priorities.”

The time and labor project only became active again in 2009, despite the fact that payroll staff had an “extremely long list of concerns” about Paradox.

Paradox program
The Paradox program, an aging software used to process the payroll data of state employees. Photo by Nat Rudarakanchana

The program is outdated and inflexible, Ferland said, and is “held together with Band-aids, rubber bands and paper clips.”

“Every payroll we complete, we’re thankful we complete it,” said Ferland. “Then we’re hoping we get through next week.” As for the price tag of the “long overdue” overhaul, he noted that it was a significant sum, but argued that it would save money in the future.

Previous state oversight of payroll systems has also been somewhat lacking, perhaps contributing to last week’s calls by a political candidate for closer scrutiny of pay practices.

Like other state officials, project manager Ferland stressed the need for human oversight in fraud prevention. “Fundamentally, this system only works if people do their job outside the system,” argued Ferland.

“The system can only do so much. There’s still an element of human oversight that’s required. A lot more rules built into the system doesn’t stop you from putting incorrect hours in there.”

All this makes little practical difference to Brittany Elliot, who inputs data from about 70 different timesheets each fortnight at the Secretary of State’s office. Elliot, one of about 100 timekeepers statewide, said she has only experienced honest mistakes from people logging their own hours, sometimes because pay codes are complicated.

Sometimes Elliot has to chase people for their timesheets, or correct obvious but time-consuming errors. Although she seemed excited about the upgrade, she also hesitated a little, saying: “I think we’re a little behind.”

The new payroll system is scheduled to go live in January 2013, with tests taking place over the next few months. The overhaul is a joint initiative of the Agency of Administration, the Department of Finance and Management, the Department of Human Resources, and the Department of Information and Innovation.

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Nat Rudarakanchana

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