State lawmakers grilled CSU Chancellor Charles Reed and Executive Vice-Chancellor Richard West about a recent audit that questioned the ethics and business sense of the university’s contract with software giant PeopleSoft to run its $662 million Common Management System computer program.

“It is clear that the legislature needs to be more demanding of CSU, and that our trust has been misplaced,” said committee chair Assemblywoman Rebecca Cohn, (D-Campbell), in Thursday’s frequently combative hearing of the Joint Legislative Audit Committee. “There has been damage to trust.”

CMS is a managerial computer network upgrade intended to unify information tracking, including human resources and financial aid data, among CSU’s 23 campuses. The university estimated the total costs of implementing the system at $440 million, and hoped to have it finished by 2006.

However, the report prepared by State Auditor Elaine Howle found that CSU, among other things, underestimated costs of implementing the system by over $200 million, neglected to engage in a competitive bidding process, and failed to develop a business plan with a cost-benefit analysis.

“This is a severe black eye for the CSU system,” said Sen. Richard Alarcon, (D-San Fernando Valley), who commissioned the audit along with Assemblyman Manny Diaz, (D-San Jose). “You went out and bought a Mercedes Benz, but you haven’t justified why you needed a Mercedes.”

Sacramento State successfully launched its PeopleSoft Human Resources and Financials software on April 1, two days before Reed faced the committee, but Sen. Alarcon believed the JLAC hearings will probably result in either a “time-out” period or a slow-down in the CMS roll-out.

“There clearly has to be a reconsideration of this project,” said Alarcon, who is looking to trim the $92 million annual operating budget of CMS by at least $25 million. “The main desire is to get the money back in the classroom.”

Thursday’s hearing was suffused with tension from the outset–Reed and West’s hands occasionally appeared to tremble as they answered questions from the combative committee, which repeatedly chided CSU for what it perceived as a cavalier attitude towards the auditors and a major breach of trust in their procurement process.

When Cohn asked Reed why he didn’t have a comprehensive business plan for implementing CMS, Reed answered, “I don’t know.” He also said that the audit’s findings “caused me several sleepless nights” and claimed CSU was currently undertaking a cost-benefit analysis, as well as all of the audit’s twenty-nine other recommendations.

Several committee members criticized the CMS deal for taking money away from instructional services, especially with cutbacks and fee hikes looming for California colleges.

Individual CSU campuses were supposed to pay their share to implement the centralized CMS program. However, the audit found that only seven of twenty-three CSU campuses had a budget plan to pay for CMS, and only CSU Los Angeles had done a cost-benefit analysis.

Another controversial point centered around former CSU Vice-Chancellor of IT Services David Ernst, who committee members believed was involved in a conflict of interest because of his ties with PeopleSoft.

The audit revealed that PeopleSoft paid Ernst to facilitate meetings and to work with existing university clients, which didn’t include CSU at the time, while presiding over the office that eventually contracted PeopleSoft to implement CMS. Ernst was promoted to CSU Chief Information Officer one year after the PeopleSoft contract was signed.

“I’m very concerned about a culture of corruption here,” said Sen. Tom McClintock, (R-Thousand Oaks), who also said CSU “blissfully tolerated” their conflicts of interest. “Somebody needs to be fired over this, and I want to know who it is,” he said.

Cohn, who repeatedly used the phrase “deeply disturbed” to describe her feelings about the PeopleSoft deal, was also troubled by CSU’s awarding of sole-source contracts, especially since the CSU policy manual forbids them except when proven in writing that only one source exists for the product available.

In this case, other corporations, including IBM, were negotiating with CSU for the CMS deal before PeopleSoft won their sole-source contract.

“We made a judgement that may have been in error,” said Chancellor Reed.

“I think that we probably should have bid this.”

Reed defended CSU’s deal by stressing the university’s need for a comprehensive computer system to replace their antiquated models. However, the committee felt Reed and West were evading the issues.

“We’re not getting direct answers here,” said Alarcon. “Nobody ever questioned the need for CSU to have a computer system. The questions we’re raising are relative to protocol.”

Cohn ultimately outlasted her colleagues, and closed the four-and-a-half hour hearing when McClintock’s departure left her alone on the committee.Thursday’s hearing was the second by the Joint Legislative Audit Committee, which will continue to examine the Common Management System in future hearings, most likely within the next two weeks.

Alarcon said the next hearing will cover many of the same issues, but that the committee will hone in on more specific guidelines for trimming costs and regaining trust.

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