Cost Overruns


"Short-term thinking and disgraceful, dishonorable, and inexcusably poor money management has crippled our country."

...Larry Nichols

Current challenges impeding any type of lasting economic solutions:
  • Cost Overruns account for $Billions Annually

  • US Trade Deficit accounts for $Billions of Lost Revenue Annually

  • Financial Mismanagement accounts for $Billions Lost Annually

  • Illegal Immigration costs $Billions Annually

Image of State Capitol Building
Don't Get Overwhelmed, Get Focused
Image of Chalkboard with complex formula The challenges associated with the US economy are so vast and so complex that even with legions of staffers in each State, it is impossible to address them all.

I believe that our only hope is to try and focus our efforts and attention, as much as we can, on a top 3 to 5 list of challenges as resolution to these challenges will inherently provide some sort of resolution, or at least change the landscape, of other challenges we face such as Healthcare. I would recommend a top challenges list to include; Cost Overruns, US Trade Deficit, Financial Mismanagement, and Illegal Immigration.

The belief that "we are too big to fail" is a lie, as proven by Fannie May and Freddie Mac, and the notion that "we always make it" breeds a false sense of security and the complacency of sheep brought to slaughter.
Cost Overruns
The Federal government has hundreds of agencies and thousands of programs, and it now spends almost $4 trillion a year. Agencies have little incentive to control costs or improve efficiency, and poor transparency encourages abuse. As a result, many Federal, State, and Local agencies suffer from wasteful business policies and spending practices.

Cost overruns have plagued government entities for years. Economists have studied a sample of government projects and found that most had substantial cost overruns (reference1).

In recent years, nearly all Federal, State, and Local projects have had large cost overruns. Examples of cost overruns are numerous because they include nearly all projects, for example the cost to create the Healthcare.gov website launched in 2013 grew from $464 million to $824 million (reference2), note: Office of Inspector General reports a total of $1.7B. The International Space Station more than quadrupled in cost from $17 billion to $74 billion (reference3), and a Veterans Affairs hospital currently being constructed in Orlando has more than doubled in cost from $254 million to $616 million (reference4).
Image of chart showing increasing costs
This issue of cost overruns is important because not only does it obviously impact budgets and equate to an additional cost burden to the taxpayer, but it is only the true cost of a project that determines whether or not the project makes any economic sense.

Unfortunately, policymakers and planners do not strive to implement a fix or safeguard to limit cost overruns and the magnitude of cost overruns on projects has not declined over time (reference5). When project stakeholders are questioned, they are quick to cite many excuses and technical reasons why cost overruns occur, typically stating that the costs of materials, labor, or other requirements have change in unexpected ways. However, as experts, they should be expected to use their years of experience and better judgment to consider contingencies and include leeway in their initial cost estimates.

The Solution to safeguard against Cost Overruns is Transparency and Intervention...

Federal, State, and Local government agencies typically have a process in place for managing projects, contracts, purchasing, financial accounting, and more but these systems traditionally do not work together seamlessly or even communicate information efficiently, if at all. Sometimes, finding information on any given subject is like trying to find a needle in a haystack, other times there is so many versions of information it is impossible to tell what is true and correct. Many times these systems can be cumbersome to use, require significant training/support, prone to data errors, and require significant capital expense to maintain. Added to this, there is little to no transparency especially for upper level management.

A solution that automatically notifies the respective hierarchy of upper management of projects in danger of cost overrun, as well as, enforces hard stops on spend (requiring approvals in order to exceed the budgeted amounts) would not only provide a more transparent audit trail but would inherently reduce; risk of cost overruns, and media/special interest involvement/criticism.

When asked for quotes to develop a software solution that would provide real-time budget controls, intervention, and transparency capabilities to upper level management, the quotes came back at $200MM - $500MM, with additional costs per agency. Not many agencies could afford this heavy burden.

One significant challenge has been how to connect to all of the dissimilar systems within the various agencies and departments of a government enterprise in order to provide real-time collaboration without replacing the entire infrastructure.

Significant development costs and the lack of a thorough understanding of the business practices and rules for each and everything agency/department were the primary reasons that a solution has never been formally attempted until 2005. In 2005 a group of former Federal, State, and Education public procurement experts band together to develop an agile solution that is not only affordable to all agencies (even Parks & Recreation), but minimally invasive, allows real-time budget controls, intervention, and top-down transparency capabilities. Upper management, like the Governor, Senator, Rep. etc., can now traverse (security permissions required) any/all agencies and departments down to the employee to see what is being spent and why. Not only is there a complete audit trail of every financial transaction, but a transparent approval process to help ensure the expenditure is justified. Projects and budgets can be better managed before there are Cost Overruns, and the officials (like the Mayor, Governor, etc.) no longer need to worry about being blindsided by media, special interests, and lobbyist about challenges as the control and all the data is at their fingertips.
To find out more go to: www.WorldERP.com
 

Reference1: Stanley L. Engerman and Kenneth L. Sokoloff, “Digging the Dirt at Public Expense: Governance in the Building of the Erie Canal and Other Public Works,” National Bureau of Economic Research, Working Paper 10965, December 2004, Table 1.

Reference2: Department of Health and Human Services, Office of the Inspector General, “Federal Marketplace: Inadequacies in Contract Planning and Procurement,” January 2015, p. 18.

Reference3: A 2014 NASA report found, “The final configuration of the ISS cost more, took longer to complete, and is less capable than NASA and its partners envisioned. NASA originally estimated assembly of the station would be complete by 2002 at a total cost to the agency of $17.4 billion. However, construction was not completed until 2011, and through fiscal year (FY) 2013 the agency has spent approximately $74.4 billion.” National Aeronautics and Space Administration, Office of Inspector General, “Extending the Operational Life of the International Space Station Until 2024,” September 18, 2014.

Reference4: Government Accountability Office, “VA Construction: Actions to Address Cost Increases and Schedule Delays at Denver and Other VA Major Medical-Facility Projects,” GAO-15-564T, April 24, 2015, p. 4.

Reference5: Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter, Megaprojects and Risk: An Anatomy of Ambition (Cambridge, UK: Cambridge University Press, 2003), p. 16.

Trade Deficit


The Importance of the US Trade Deficit is being minimized.

Reasons why the US Trade Deficit is so important:
  • We are losing jobs in many States to China, Mexico, and other countries.

  • We are spend roughly $700Billion more abroad than we earn from abroad ($700Billion OUT of our account, $0.00 INTO our account).

Image of two ships in a balancing scale
Job loss in many States to China, Mexico, and other countries.
Image of Job Loss Chart by U.S. Bureau of Labor Statisics Job loss, brought on by the US Trade Deficit, is one of those subjects that succum to periodic debate yet, it is common sense.

Regardless of the reason(s), if a US customer purchases everything from a Foreign manufacturer, the US manufacturer makes no sales and therefor will go out of business resulting in no jobs and no tax revenue for the State or Feds. In short, no money is flowing back into the US economy, the money is only flowing out of the US economy.

How long do you think you and your family would survive with no income?

What would you say to those who wish to debate the reasons for your loss of income?

We are spend roughly $700Billion more abroad than we earn from abroad.
Marshall Auerback and others have been arguing that focusing on cutting the federal budget deficit during an economic downturn can harm the economy, putting people out of work, for one thing. Our government discovered this in 1937, when a push to balance the budget led to a mini-Depression. But tanking the economy is exactly what is being discussed in Washington; every alternative on the table involves cutting spending, which will cut jobs, which will lead to even less revenues for the government, bigger deficits, and even more job losses.

We need to narrow the federal budget deficit by growing the economy, which generates wealth, part of which is then used for more revenue for the government. Narrowing the budget deficit by slashing spending will actually increase the deficit. In addition, a default on the debt, if it sent the dollar into a tailspin, would make the trade deficit much worse because we would have to pay much more for all of our imported goods, and thus, the standard of living for most Americans would go down.

Closing the trade deficit, on the other hand, would actually create millions of jobs. In 2007, for instance, the trade deficit – that is, the difference between the goods and services we sell to the world, and the goods and services we buy – was about 700 billion dollars, according to the Economic Report of the President. The deficit in goods was about 800 billion. In 2007, there were 13.9 million people working in the manufacturing sector, down from 16.5 million in 2001, according to the Bureau for Labor Statistics (we are now at 11.5 million). Since the gross output of the manufacturing sector in 2007 was about $5 trillion (that is, including all the services, etc. that go into the price of manufactured goods), that means that the US could have increased manufacturing employment by about 1/6th (800 billion into 5 trillion), or about 2.25 million workers, had it made all the goods that were imported. According to the Economic Policy Institute, for each manufacturing job, the economy creates almost three more. So eliminating the trade deficit could have reduced the unemployment rate by almost 10 million – or, as of June 2011, about 70% of the 14 million officially unemployed workers in the United States.

We can close the trade deficit by engaging in a serious industrial policy, one which will pull the manufacturing sector back up by rebuilding the infrastructure to prevent the worst of global warming and wean us away from oil, as I have argued. If, for instance, the government guarantees a 20 year infrastructure rebuilding program, that might help to convince the banks and corporations that it is prudent to invest the 2 trillion dollars that they are currently sitting on. They would know that they had a market for the output of their investments, and they would be assured that American workers would have the purchasing power to buy their output.

There has been a long-running argument that federal budget deficits contribute to trade deficits, but trade deficits expanded in the 1990s when the federal budget went into surplus. I would argue that the trade deficit is caused by the decline of manufacturing in the United States, which has a variety of causes, and is only marginally affected by the increased demand caused by a budget deficit. In any case, by creating millions of jobs in the long-term, a program of job creation would lead to a lower budget deficit, in the long-term.

To put it simply, rebuilding the manufacturing sector could lift us out of the Great Recession.



A Solution for the US Trade Deficit
Federal and State governments access a tax on every dollar American citizens earn, yet, there is no significant taxes placed on imports. Other countries commonly levy heavy taxes on products that are imported into their countries to compensate for lost jobs and internal revenue (taxes resulting from earned income, business taxes, etc.). The solution is simple, do the same as most other countries and levy a tax high enough to compensate for lost jobs and revenue.

Political hot potato you say?
The American citizens are not as dumb as many would have you believe. When it comes down to it, American citizens are already concerned, perhaps even a bit scared. We need strong, intelligent leaders to pledge allegiance from their heart to the United States of America, not some "Global initiative" that puts Americans second or third. Stand by America and its citizens, and lead us back into prosperity.
Image of two ships in a balancing scale
 

Source: Jon Rynn is the author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. Mr Rynn holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems.

Financial Mismanagement


Lack of meaningful transparency and weak internal controls coupled with outdated practices and poor data integrity create a perfect storm of obscurity and abuse.



Financial Mismanagement can be categorized into the following major subject areas:


  • Abuse & Wasteful Spending

  • Weak Internal Controls

  • Outdated Business Rules & Practices

  • Poor Management of Data

Image of balancing scale that is tipped to one side
Abuse & Wasteful Spending
Image of poster that says End Wasteful Spending Wasteful spending is a problem that transcends multiple administrations in Federal, State, and Local governments, but it’s incumbent on the present administrations to mandate a culture that prevents this type of waste and mismanagement, no matter what happened before them.

At the beginning of 2014, there were 73 inspectors general at different federal agencies. The White House contains an Office of Management and Budget and State governments also typically have a Department of Budget and Management that looks for ways to cut costs. The Government Accountability Office also checks expenditures, and so do legions of staffers who are eager to help their bosses score political points, but nothing seems to work. Politicians always campaign on the vague promise of reducing Federal, State, and Local spend, yet their lack of cohesive leadership, or lack of financial management skills usually enable the excesses.
When a new report identifies wasteful spending, they down play it by saying, “It’s a mere $600 million, or, “It’s only $1 billion—a rounding error” compared to the $3.8 trillion that makes up the Federal budget.

The Fiscal Times decided to look at annual wasteful spending and mismanaged funds. Since the study conducted by the Fiscal Times was not a massive study, they probably missed a lot. Nevertheless, what becomes clear is that billions of dollars (even with an incomplete snapshot) are being wasted in infrastructure, education and other sorely needed programs and services. The Fiscal Times study shows $790B in annual wasteful spending and mismanaged funds. See the reports at: CUTTING WASTE, REDUCING THE DEFICIT... and website: Government Wastes More Money than You Think

I am confident that there is a single "magic bullet" solution that can defend against abuse and wasteful spending issues as there is with many other Financial Mismanagement challenges see conclusion below, Top Down Transparency and Control. This is the only way to guard against poor decision making and incompetent leadership as it not only puts the offender on point, but holds the offenders management responsible as they would have had to preapprove or be aware of the activity.

There is, unfortunately, another more insidious method of abuse and wasteful spending, legislation. Larger companies and organizations, form special interest groups and lobbyist that act on their behalf, or even sometimes strategically against them, in order for the government to fund a certain initiatives. This type of abuse and wasteful spending accounts for hundreds of billions of dollars, yet, there is no good way to guard against this issue except for States' Rights which can introduce more representation and subjectivity before passing legislation. A very small sampling (but still totaling $218.9MM) of these wasteful spending bills include:


  • $76MM annually to round up wild horses that roam on public land
  • $60MM Obama family trip to Africa
  • $27MM to teach Moracins how to design and make pottery (in 2012)
  • $17.8MM in Federal Aid sent to China (2011)
  • $15MM to help Russians recruit nuclear scientist (in 2012)
  • $10MM spent to create a version of Sesame Street for Pakistani TV (US Agency for International Development)
  • $5.5 MM to send professional athletes around the world for "Sports Diplomacy"
  • $1.3MM given to Pepsi to build a yogurt factory in New York
  • $1.1MM on puppets and puppet shows (2009-2013)
  • $1MM annually spent on developing food for a manned mission to Mars (NASA)
  • $700K spent on production of climate change musical (National Science Foundation 2011)
  • $667K spent to research benefits of watching re-runs on television (National Institutes of Health)
  • $550K contribution to a documentary about how Rock & Roll contributed to the decline of the USSR (Federal Govt. - 2011)
  • $516K spent on development of 'prom week' video game (National Science Foundation 2012)
  • $505K used to promote specialty hair and beauty products for dogs and cats (US Govt. - 2012)
  • $593K on study to find out why chimps throw poop (National Institutes of Health - 2011)
  • $400K on oil paintings of government officials (Current Administration)
  • $350K for research on the sport of Golf
  • $325K used to find out what would happen when snakes would come face-to-face with a robotic squirrel
  • $300K spent on encouraging US Citizens to eat more caviar (USDA 2011)
  • $60K IRS spent on film parities of Gilligan’s Island and Star Trek
Weak Internal Controls
A major weakness in financial management is a lack of adequate documentation. Whether records are in paper or digital form, financial management has to be able to reconstruct who initiated an action, such as the purchase, the payment; who approved it; who modified it, if it was modified; who executed it; and what resulted from the action. Adequate documentation of activities establishes who was responsible for an action if a problem arises later.

Many activities, especially larger ones, have to be segregated into multiple tasks and/or carried out by different employees which introduces more difficulties and challenges as the more employees involved the more important it is to have cohesion and familiar with the standards, policies and internal controls. Inadequate training of employees in key positions of responsibility constitutes a weakness in financial management.

Image of balancing scale that is tipped to one side
Deficiencies can occur in the design or execution of procedures, but financial management has to target both possibilities with automation and monitoring that detects discrepancies and issues corresponding reports. For example, if software is not tracking important documents or an employee forgets to issue required forms, employees in charge of verifying documentation should be notified instantly.

Neglecting to implement and track approvals to make sure that employees are not exceeding their authorization levels is a key internal control function weakness. Employees have authorization to sign for certain functions and spending limits below which they can approve expenditures. If an employee doesn't respect his limits, it represents a serious weakness in internal financial controls.



Outdated Business Rules & Practices
Times have changed but, in the end, the way in which government manages finances has largely remained the same creating enormous waste and abuse every year. Even with agencies planning out their purchases carefully, based on some sort of IT master plan and acquisition strategy, there are many areas of financial management within government that have remained and desperately need to be terminated or, at best, overhauled. Two policies in particularly, are extremely wasteful and chock-full of abuse: The Use or Lose policy, and; The Purchasing Card (P-Card) policy.

The Use or Lose policy
As far back as I can remember, there has been ridicule and contempt over the government Use or Lose policy of spend. To those outside of government, it is preposterous and ridiculous. For those in government, it is Christmas and a veritable shopping spree.
Image of old computer
Many have been calling for an end to the Use or Lose policy, but to date, it remains.
The solution for this form of waste and abuse is simple; Reserves and Carryover. Reserves are put in place for unexpected expenditures or emergencies and the balance carried over to the next fiscal year. This is not a new concept but its success largely still depends on competent oversight and spend management, which only transparency and top-down command and control can provide.

The P-Card policy
Back in the late 80's and 90's, computerized purchasing and spend management was non-existent. Paper-based Purchase Orders (PO) remained the staple for transacting business and for good reason, approvals. While a paper-based PO has little transparency, it did provide the a way for management to approve the purchase before the expenditure was made and to manage which account(s) were used to make the purchase. Unfortunately, acquiring approvals could take weeks or even months depending on the number of approvals needed.

The challenges associated with the paper-based approval process, couple with other challenges brought on by the lack of computerization, made the creation of a PO very slow and very expensive. A 1994 study by the Environmental Protection Agency on its own processes revealed an estimated cost to create one (1) purchase order to be as high as $300 per PO. Another study in 2006 from APCQ found that the cost to create one (1) purchase order could be as high as $500.

As a result, the clever banking industry found opportunity and in 1995-96 (before computerized purchasing and spend management), the New York State's Executive Budget recommended the Purchase Card concept. With the P-Card, authorized personnel could simply go get what they need (or want) and reconcile the purchase after the fact avoiding the very slow and very expensive paper-based PO process.

In order to get buy-in for the P-Card initiative and combat concern over abuse, the banking industry together with their business development staff focused on the pitch to use P-Cards for small (under $100.00) and emergency purchases where the expense to create, or lack of expedience of, the traditional PO could be offset. The P-Card is much like a Credit Card but with a few differences:
  • The Agency/Department can limit, to a point, what the card is used for.

  • The Agency/Department can 'tie' the P-Card to one(1) Account Code.

  • Banks charge up to 8% or more for P-Card transactions, compared to 2%-4% for traditional credit cards.

Initially, this sounds like a viable solution to the lack of efficiencies and cost associated with the paper-based PO, so why have I identified P-Cards as extremely wasteful and abusive?

Lets start by examining the proclaimed benefits of the P-Card:
1. The traditional procure-to-pay process is costly.
Fact: This was true back before computerized purchasing, spend management, and electronic invoicing came on the seen in 2010, but it is not true any longer. By using an efficient computerized system, the estimated cost to create a PO is less than $25 per PO, compared to that of a typical P-Card transaction which is estimated to be less than $20. Yes, there appears to be a potential difference of up to $5.00 per PO, however, an efficient computerized system provides much more functionality, transparency, and top down command and control, as we will see, not to mention eliminating the direct & indirect costs associated with fraudulent, improper use, and abuse of the P-Card.

2. A P-Card program simplifies the process.
Fact: While this is true, it is riddled with fraudulent abuse. Simply do a search on the internet and you will find hundreds, if not thousands, of cases of reported abuse from the Federal level down to the County level and everywhere in between. Spending money IS simple. Proper management and oversight is not.

3. P-Cards also benefit vendors.
Fact: This is a half-truth, and a double edged sword. Truth be known, the only benefit to the vendor is that they get paid faster, however, they get paid less. They get paid less because costs associated with P-Card transactions can be as high as 8% or more. Some vendors may see the speed of payment as an offset to reduced earnings, some may not.

Now that we have examined the proclaimed benefits of the P-Card, lets take a look at some of the challenges associated with the P-Card.
1. Fraudulent, improper use, and abuse. I can't say much more than thousands of others have said as a simple internet search will attest, but I would like to shed a bit more light on one aspect; the ability to limit what the card can be used for. An Agency/Department can try and set limits on the type of purchases made with the P-Card, but limits are general limits and not well controlled. For example, an Agency provides its employees with a P-Card that is limited to purchasing Office Supplies. Have you ever been in an office supply store in the past couple of years? Nearly everything is available from copy paper to furniture, to computers, and more. While the capability to limit is not based on the type of store, it IS based on ambiguous types of transactions or how the vendor categorizes products. The sheer number of categories forces many to select from more general category types such as; Travel, Office Supplies, Computers, Furniture, when in reality, much more detail is needed make a clear assessment of what should or should not be approved. Furthermore, the receipts used to report or reconcile the P-Card transactions many times repeat these generalized, ambiguous transactions making it impossible to enforce policies.

2. A P-Card can only be tied to one(1) Account Code. Unlike a PO which can charge against any funding account in a General Ledger, a P-Card is limited to only one (1) account. The challenges associated with this concept are numerous but here are a few:
  • What happens when an agency has 1,000 or 10,000 account codes? Since it is not reasonable to maintain a P-Card for each account code, it is only logical that additional management is required or a misappropriation of funds commonly occurs.

  • P-Cards, like Credit Cards can be lost, stolen or compromised.

  • Banks charge up to 8% or more for P-Card transactions, compared to 2%-4% for traditional credit cards. This can result an increase in vendor pricing as they have only built in 2%-4% for credit card expenses and not 8% for P-Card expenses.

In consideration of the improves made in technology, the challenges identified here, and other challenges not reviewed in this except, I am convinced that the P-Card has seen its day and it is past. No longer is a P-Card a viable solution for transacting business. However, I do agree that a P-Card continues to have benefit for emergency use only for which it should be restricted. With the advent of robust, computerized software there is no longer a need for the P-Card in non-emergency situations. Several capable and robust software solutions are available which can replace need for the P-Card with a solution offering better control and transparency. A JV2020 compliant solution would be the most desireable (see the Conclusion section below).



Poor Management and Stewardship of Data
Image of pie chart of actual expenditures Data has enormous economic value. A concept, proven by companies such as Google, Facebook, Twitter, but government has traditionally focused their efforts and technologies on everything but sound financial management principals.

Those of you who are/were directly involved in government budgets or spend management, know that there is a considerable amount of effort devoted to the task and "getting the job done". Unfortunately there are an overwhelming number of steps, processes, and procedures which allow potential errors to be introduced whether intentionally or not. Added to that, there are frequent changes in staff, lack of passing on knowledge to others, frequent training issues, loss of records, political reprioritization, and more.
Simply put, there is no way humanly possible to achieve success to any great degree of properly managing; spend, compliance, contracts, budgets, and their respective data without a very robust and capable software solution that automates as much as possible to avoid human error.

Being personally involved in the internal workings of government, my gut reaction becomes defensive in the presence of any accusation of deficiency, non-compliance, or even a lack of efficiency when it comes to the management of data. There are those of us who try hard to do our best and take our jobs very seriously.
However, I succumb to the realization that there is an enormous lack of efficiency and catastrophic failure brought on by the bureaucracy of too many moving parts, and the lack of transparency that provides for critical checks-and-balances resulting in the left-hand not really knowing and the right hand trying to make decisions based on the left-hands data (which, when it comes down to it, is either unknown to a certain degree or can't stand up against any independent scrutiny).

This issue or poor and unreliable data is not limited to Defense spending, nor the Federal government. Poor and unreliable data exists in nearly every agency and department within the Federal, State, Local, and Municipal governments yet, the solution can be found through; Consistency and Top-Down Transparency and Control.
Consistency. Any private business who serves millions of customers will tell you that that consistency is paramount because it:
  • Helps to Ensure Integrity & Compliance
  • Provides for more Accurate Budgeting
  • Minimizes Mistakes and Errors
  • Minimizes Training and Support Issues
  • Builds Trust and Credibility

Top-Down Transparency and Control. Officials, Directors, Executives, and other Higher-level stakeholders don't necessarily need to be bogged down with involvement in all projects, but they do need to approve certain transactions and also have visibility into each asset of the organization and real-time status, especially those deemed high concern. For example, Top-Down Transparency and Control allows a Governor to take an active, direct, role into the visibility of project data, especially politically sensitive project(s), to ensure first hand knowledge and awareness of all activity, decisions, expenditures, and potential areas of concern before they become a problem or cost overrun.

 

Conclusion:

Image of balancing scale that is tipped to one side
As we have seen, there are serious financial, legal, and political implications associated with Cost Overruns and Financial Mismanagement. With decades of experience, and through personal relationships, I have found that Federal, State, Local, Municipal governments, and Public Schools basically suffer from the same core financial challenges; spend management, contract management, project management, and transparency, and ultimately these challenges result in significant budget deficits, political challenges, and many times corruption.

To the outsider, solutions to these challenges can appear simple to fix, but to those involved, the challenges are monumental, diverse, overwhelming, and sometimes even unprecedented. In fact, the sheer number of challenges alone is enough to convince nearly everyone in the world that a solution is impossible, but I am here to tell you it is NOT impossible.
Just as a single spine provides the brain with top-down transparency, command and control of billions of electrical transactions, a robust and secure, computerized backbone that can grow at will beyond a single agency or department to encompass the entire government enterprise would provide top-down transparency, command and control which I believe is a required and critical element to repairing our Federal, State, and Local governments. Without this component, we will never be able to solve the challenges associated with Cost Overruns and Financial Mismanagement.

Many of us have searched for decades for a solution but with cost estimates expected to exceed $500MM for an average size city government and into the $Billions for a small State government, it has not been economically viable, well, until now. It should not be surprising that one of the greatest offenders of cost overruns and financial mismanagement, the US Department of Defense (DOD), has been has spent considerable effort in researching such solutions, producing the report entitled 2020 Vision which has now been adopted and referred to a JV2020.

In short, JV2020 identifies the following key elements which are required in order to be successful:
  • Joint Deployment/Rapid Distribution (allows each agency/department to configure to operate using their own unique business rules)
  • Agile Infrastructure(allows agencies/departments with dissimilar systems to be able to communicate/collaborate on the same backbone)
  • Information Fusion(consolidates data from disparate records into a master record)
  • Top-Down Transparency, Command, and Control(allows management to view and participate real-time)
The reason these objectives may sound familiar is because these are the same conclusions made by others (myself included) as a result of experience with cost overruns and financial mismanagement challenges.

As with many new initiatives, failure is in the execution...

While the JV2020 does a good job of identifying the infrastructure necessary to help overcome challenges associated with collaboration, transparency, and command & control, it falls short in a practical execution/rollout plan and two key and very important objectives:
  • Addressing cost overruns and financial mismanagement challenges
  • Identifying challenges associated with participation
The JV2020 presumes that the objectives are achieved through mandated or otherwise assumed participation, however, participation is itself a challenge if not mandated by legislation. For example, lets assume that a State government wishes to implement a software solution to meet the JV2020 type objectives and minimize cost overruns and financial mismanagement. To achieve a very high efficiency, every agency and department within the State would need to adopt the solution.

In theory this seems plausible, but in practice it is nearly impossible as each agency/department can have their own unique software (financial accounting, procurement, contract management, etc.) and most agencies/departments do not have the budget to shoulder the capital expense of replacing infrastructure, hardware, software, or additional licensing fees. Immediate, agencies/departments such a Police, Parks & Recreation, Schools, Volunteer, Fire, etc., who traditionally have little to no money can not participate, and the plan to dramatically improve the State's budget, efficiency, and achieve top down command and control would be considered a mediocre success or maybe even a failure.

To see how this and other challenges associated with the implementation of software that can actually achieve JV2020 type objectives and help guard against cost overruns and financial mismanagement, I turned to the pioneers and leaders of this technology, World ERP. World ERP has a track record of successes with Federal, State, Local, and Municipal governments, as well as School Districts, with case studies documenting impressive results. Clients, like Baltimore City Public Schools, saved $Millions the very first year of operational use, a impressive $34MM according to the case study.

When I asked the CEO of World ERP how they overcome the challenge of participation, this is what he said:
"Participation is the single biggest hurdle that any JV2020 compliant initiative will face, but the equation is simple. Either the top tier entity bares the capital expense for all agencies and departments to participate in a secure, collective enterprise or, the vendors pay a fee to fund the system, similar to Amazon. A vendor funded architecture is how most eCommerce is done now-a-days anyway and, it is the only way to ensure that every agency and department can participate since it doesn't cost them anything. After all, participation is critical to the successfully achievement of JV2020 objectives, and the only truly effective protection against cost overruns and financial mismanagement. If an agency or department is not part of the system, there is no real transparency other that what your being told and historically, that hasn't been working well at all."

I then proceeded to ask other questions...

Larry: "Won't the vendors raise their prices to compensate for the fees?"
CEO: "Some, more traditional public procurement folks, have expressed this concern on occasion, but it is simply not true. The facts are that vendors already build in credit card and P-Card fees (2%-8%) into their prices to cover their costs in case a credit card or P-Card is used. If cash or a PO is used, the vendor is putting that 2%-8% back into their bottom line. Obviously, this is something they don't like to talk about, but you still see evidence of it when you go to many gas stations as cash price versus credit price. Additionally, eCommerce sites, which are free to use like Amazon.com, commonly charge a monthly subscription fee in addition to sales/referral fees which are 3x-10x greater than ours and yet their prices continue to remain more competitive than items under publicly awarded contracts. We actually save vendors money."

Larry: "Speaking of contracts, how do you handle contracts that have already been awarded and price set prior to the implementation of your system?"
CEO: "World ERP has two basic classes of vendors; those who are already participating in the World ERP Network, and those who are not yet participating. We have tens of thousands of vendors who are already participating and they have already agreed to the terms and conditions, so they honor the contract as a part of the agreement. There can be small and/or local vendors that have not joined the World Procurement Network (there is no cost to join). In cases where the vendor has not joined, or elects not to join, vendors can still transact business with the client(s), however, the vendor will not be able to leverage any of the features offered in the World Procurement Network such as; Catalog sales (similar to Amazon.com look an feel), order management, shipment notifications, eInvoicing, online bidding, marketing opportunities, etc.."

Larry: "How do you address the challenge of connecting to dissimilar systems within the various agencies and departments government?"
CEO: "In order to reduce costs and implementation times, we offer several options from which to choose, depending on client's need. Using our technology, there is typically no need to replace architecture, hardware, or software, the client only needs internet connectivity. Immediately, agencies and departments achieve a Return On Investment (ROI) because they are getting a new and improved, modernized solution without the costs associated with updating their infrastructure. At one side of the spectrum, there will be agencies/departments will want to make use of a completely dynamic and integrated solution. These agencies/departments run Oracle, SAP, or something more modern. In these cases, we offer dynamic connectivity through the use of "plug-n-play' adapters. On the other side of the spectrum, are those agencies/departments that are using outdated systems, and in these cases we communicate using files such as XML, Microsoft Excel, Comma Delimited, etc. In this way, every agency and departments can participate."

Larry: "Do all agencies and departments have the same content?"
CEO: "No. Content and features are customized by each agency or department to best match their current or desired business processes or rules. For example, in the case of a shopping environment, law enforcement products may be restricted to only one department or one person. In the case of account codes, each user is restricted to only the account codes or functionality for which they have permission to use. Permissions to use account codes, contracts, projects, etc. also provide real-time balances available at the object and sub-object levels (if applicable), as well as cost to completes."

Larry: "Do all agencies and departments have join?"
CEO: "No. Many times, a pilot approach is taken where one or more departments or agencies start using the system and others follow. Entities can use the system in standalone mode, collaborative mode (where each entity is completely autonomous but can share content, like contracts, catalogs, etc.), or in Hierarchy mode (Top-Down Transparency Command and Control), or any combination. This allows for gradual, planned expansion."



Illegal Immigration


"The problem is not passing laws, it is enforcing the laws. That's where we get bogged down."

...Larry Nichols

Current challenges in enforcing immigration laws:
  • Finding illegal immigrants - The amount of tax payer money required to try to find illegal immigrants is unacceptable. Illegal immigrants pose a flight risk and are prone to relocate quickly without notice.
  • ,
  • State and local police may apprehend illegal immigrants only to later find them back in the community, and when the police try to turn them over to Immigration and Customs Enforcement (ICE). For a large majority of illegal immigrants, ICE says there is nothing they can do and returns the illegal immigrants back to police custody.

  • Incarceration does little except cost tax payer money and promote violence and gang association before releasing the illegal immigrants back into American society.

  • Building a wall is effective to a point, but is expensive and illegals can still go over, under, and around the wall.
Image of ICE logo
The Cost of Illegal Immigration
Image of Cost Chart The cost burden for welfare is enormous, reaching $927 Billion in 2011 with an expectation to exceed $1 Trillion in 2015.

To get a better idea of what the illegal immigration cost burden looks like to an American household, lets take a look at what the Federation for American Immigration Reform (FAIR) reported for the State of Illinois. It should be noted that total cost burden of national welfare overall is roughly $1 Trillion divided by 115,600,000 household (as reported by US Census) which equals a cost burden per household of $8,650.00 per year.

The analysis, based on current estimates of the illegal alien population residing in Illinois, of the official FAIR report indicates that population costs the state’s taxpayers exceeds $3.5 billion per year for education, medical care and incarceration. That annual tax burden amounts to about $695 per Illinois household headed by a native-born resident. Even if the estimated $465 million in sales, income and property taxes collected from illegal immigrants are subtracted from the fiscal outlays, net costs still amount to more than $3 billion per year.
The three cost areas discussed in this analysis (education, health care and incarceration resulting from illegal immigration) are the major cost areas. They are the same three program areas analyzed in a 1994 study conducted by the Urban Institute, which provides a useful baseline for comparison. Other studies have been conducted in the interim, showing trends that support the conclusions of this report.

Even without accounting for all of the numerous other areas in which costs associated with illegal immigration are being incurred by Illinois taxpayers, the program areas analyzed in this study indicate that the burden is substantial and that the costs are rapidly increasing.

The more than $3.5 billion in costs incurred by Illinois taxpayers annually result from outlays in the following areas:
  • Education. Based on estimates of the illegal immigrant population in Illinois and documented costs of K-12 schooling, Illinoisans spend more than $3.1 billion annually on education for the children of illegal immigrants. This estimate does not include programs for limited English students, remedial educational programs or breakfast and lunch programs available to students from low-income families. An estimated 10 percent of the K-12 public school students in Illinois are children of illegal aliens.
  • Health care. Taxpayer-funded, unreimbursed medical outlays for health care provided to the state’s illegal alien population amount to an estimated $340 million a year.
  • Incarceration. The uncompensated cost of incarcerating deportable illegal aliens in Illinois state and local prisons amounts to about $55 million a year. This estimate includes only prison costs and not short-term or other detention costs, related law enforcement and judicial expenditures, or the monetary costs of the crimes that led to incarceration.
The fiscal costs of illegal immigration borne by state taxpayers do not end with these three major cost areas. The total local cost of illegal immigration is considerably higher if other cost areas such as preventive health programs, special English instruction, interpretation services in courts and hospitals, welfare programs used by the U.S.-born children of illegal aliens, or welfare benefits for American workers displaced by illegal alien workers are also calculated. If illegal immigrants were able to obtain legal work status as currently advocated by the Bush administration, and/or eventual permanent residence and possible citizenship as currently proposed in both houses of Congress, state income tax collections might increase, but this likely would be outweighed by increased use of public services to low-income families. In addition, the possibility for family members of the current illegal alien population to come to the United States to reunite families would increase the size of the poverty and near-poverty population using public services.
I suspect the reported cost burden is lower than it actually is, never-the-less If you take the average illegal immigration cost burden of $700 per household and multiply it by 115,600,000 (number of households in US), you get a total illegal immigration cost burden of $81 Billion!
Image of 2015 Discretionary Spending piechart
In order to more clearly grasp the enormity of $81 Billion, lets compare it against the US Discretionary Spending for the entire year of 2015 (above). As you can see, $81 Billion could easily pay for Medicare and Health programs and still have $15 Billion left over!

Click HERE to view the full cost study report from FAIR.



Image of Solutions as recommended by Larry Nichols