SHARE Special Project Cash Remediation Phase II Initiation Certification May 21, 2014

1. SHARE Special ProjectCash Remediation Phase IIInitiation CertificationMay 21, 2014 SHARE: Michael Chmura SHARE Special Projects Leader Department of Information Technology Requesting Agency: Ricky Bejarano Deputy Secretary and Controller Department of Finance and Administration

2. Background The Department of Finance and Administration (DFA) Cash Remediation Project Phase I, completed in February 2013, identified the following deficiencies in business processes, system configuration, and security: Payment Processing. SHARE delivered functionality is not being fully utilized nor are business processes positioned to capture the benefits of future software releases of SHARE • The Accounts Payable payment approval process is labor intensive • External systems payment creation, bank integration, and financial accounting are separate activities instead of one single integrated process that validates payments before they are disbursed • Warrants are returned to the agencies for distribution, fraud prevention payment registers, and electronic funds transfer files are manually sent to the bank • Processes such as data archiving and staledating are not performed on a consistent basis Cash Control Processing. The control over cash processing has several key issues that were identified as requiring correction in order to position the state for future software releases of SHARE • Entering bank returned depository items should be automated • Current security set-up does not prevent unauthorized modification, addition, or deletion of data • Not all of the bank accounts owned by the state are in SHARE

3. Background General Ledger Configuration Maintenance and Control:The process to update General Ledger configuration to accommodate business process and policy changes, limitations include: • Less than optimal controls around the General Ledger maintenance process and unclear process ownership • System rules governing transactional accounting are not updated or enforced • Inconsistent level of control and approval over General Ledger entries • Excel uploads of journal entries does not utilize delivered functionality and controls • Prior periods are freely opened and closed. The process followed to reclose the periods are not robust enough to confirm that the financial information in SHARE is properly updated Subsystem/Module Reconciliation:Monitoring and reconciliation between the General Ledger and SHARE modules is not consistently being performed. Inter/Intra Unit Processing and Settlement:The accounting process followed to record entries that cross funds and/or agencies. This also includes the agencies recording “due to” and “due from” entries. • The proper use of the General Ledger numbers is not defined or controlled • Settlement of inter/intra unit balances is not defined or controlled

4. Project Objectives & Justification Payment Processing:. Implementation of leading business processes and controls will validatethat payments made by the state are accounted for properly and there are adequate controls over all payment related activity. It will also prepare the state for future software releases of SHARE. • Payments currently processed and/or accounted for in “legacy” non-SHARE payment systems will be interfaced and fully integrated into SHARE Accounts Payable. Payment and accounting entries generated by the PeopleSoft Accounts Payable module will eliminate significant manual processes and controls issues related to the separate payment and accounting processes • Payments will be validated against agency and fund balances prior to issuance which will confirm thatthey are being made in compliance with state regulations and budget controls • Warrants will be staledated and escheated in an automated process compliant with New Mexico and other states’ escheatment laws • Centrally printed and distributed warrants will provide fortimely payments and reduce the risk of lost warrants • Redesigning and implementation of preventive system controls over procurement and payment approval will provide compliance with state laws and reduced reliance on manual detective controls • Development of an Electronic Data Interchange EDI strategy will position the state for integration with vendors reducing manual data entry and processing • Redesigning of the payment creation and bank interface processes will reduce manual interaction required to create the payment and eliminate the manual transmission of the files to the bank

5. Project Objectives & Justification Cash Control Processing:The Cash Remediation I project addressed the majority of the identified issues, however, the following are the remaining areas where implementation of leading business practices, in preparation for future software releases of SHARE, would be beneficial. • Automated uploading of bank transactions associated with returned depository items to parallel and complement the leading practices implemented with the deposit process • Redesigned and automated processing of returned electronic disbursements to enhance accuracy and timeliness in accounting and resending the payments to the recipient • Modify processes and security with deposits to simplify, streamline, and provide proper controls and segregation of duties over the information and prevent loaded data from being changed or deleted • Require that all state owned bank accounts, including non-fiscal agent bank accounts, will be assigned a unique General Ledger number and entered in SHARE

6. Project Objectives & Justification General Ledger Processing:Implementation of leading business processes and controls over the following activities will confirm General Ledger configuration is properly controlled, accounting is being performed in accordance with GAAP/GASB, financial reporting is accurate, and there are proper controls over the General Ledger related activity. It also prepares the state for future software releases of SHARE. • The General Ledger Chart of Accounts (chartfields) will be centrally controlled by DFA Financial Accounting and Reporting with business processes ensuring the proper evaluation and configuration of new chartfield values. This will also allow for the proper evaluation of actions required for the closing/deactivation of chartfieldvalues • Redesign the SHARE open/closing process to eliminate issues that have resulted from improper processes associated with the opening and closing of prior periods and in the SHARE system • Modify the General Ledger accounting entry and approval process to use delivered functionality (Excel and Direct General Ledger) and eliminate the manual handling and manipulation of files • Redesign and implement of preventive system controls (combination edits) over General Ledger entries and applying those controls to all the SHARE modules will reduce the number of entries that require correction and manual intervention • Evaluate and redesign the Inter/Intra Unit/Fund accounting and settlement process to provide for the correct accounting to be performed for the various transactions types, properly include all effected parties, properly identify and settle balances using the appropriate settlement method (ACH or accounting entry) and control the accounting of such transactions

7. Payment Processing Scope In scope Payment Processing business processes include: • External Payment Systems – Integration of payment, accounting, and approval related activity for activity currently processed and/or accounted for in “legacy” payment systems • Warrant Printing, Processing, and Handling – Printing, mailing and scanning of warrants and remittance advices • Electronic Data Interchange (”EDI”) Capabilities – Delivered Electronic Data Interchange (”EDI”) capabilities in the current SHARE environment and an EDI strategy to eliminate manual processes • Payment Data Archiving – Data archiving of AP vouchers/invoices, payments, and vendors • Accounts Payable Vendors Processing – Configuration and set-up of vendors for all state payment systems • Staledating and Escheatment – Staledating and escheatment of payments • Security and Approval Processing – Design and implementation of SHARE workflow and security for the new business processes associated with purchase order, voucher, and payment approvals and other payment processing related activities • Bank Integration – Integration of SHARE payment and transaction files with the fiscal agent bank

8. Cash Control Processing Scope In scope Cash Control processes include • Returned Depository Items – Automation of returned depository items to eliminate manual processes • Returned Electronic Payments – Redesign and automation of electronic payments made by the state that have been returned • Security – Design and adjust security in the Accounts Receivable and Treasury modules to reflect the new business processes • Bank Accounts – Design and implement a process that confirms thatall bank accounts (fiscal and non-fiscal agent) are in SHARE and assigned a unique ledger number

9. Financial Accounting and Reporting Scope The Financial Accounting and Reporting in scope processes include: • Control General Ledger Process – Control over and ownership of the SHARE Chart of Accounts and related activity • SHARE chartfields (account, fund, business unit) activity (open, close, change) • General Ledger Accounting Entries (on-line or via Excel) • Journal generation and posting of entries from SHARE modules to the General Ledger • Combination Edits controls the combination of data values across the chartfields • Security changes that will be required for implementing the new business processes • Workflow that will route General Ledger activity to users for processing and approvals • SHARE module configuration that dictates the ledger numbers used for recording activity such as payables and receivables • Inter/Intra unit accounting and settlement between agencies and between funds within an agency

10. Financial Accounting and Reporting Scope The following are the in scope processes associated with Financial Accounting and Reporting. • Close Process – Standardization and control including • Opening periods in the SHARE environment • Closing periods in the SHARE environment • SHARE Subsystem/Module Reconciliation to the General Ledger • Accrual Entries required for the process • Adjustment Entries required for the process • Financial Reporting Controls – Standardizing, streamlining, and automating of internal and external financial reporting • Security – Design and implement new security to support the new General Ledger business processes.

11. Summary The business processes previously discussed warrant prompt corrective action in order to providebudgetary compliance and the safeguarding of cash. The state will remain at risk in the following areas until project completion: • Continuation of manual, error prone activities and interfaces in SHARE • Inconsistencies associated with the state’s internal and external financial reporting • Ongoing exposure related to non-compliance with accounting standards • Inefficiency in the basic business processes associated with accounting, payments, and recording of cash • Inability to rely on data within SHARE due to quality of data issues associated with users ability to manipulate data, run processes and change configuration • Continued inability to properly account for and balance accounting activity between agencies and funds • Lack or incorrect use of delivered PeopleSoft functionality • Exposure to financial and system audit findings

12. Project High Level Organization Chart The following is the high level project organizational chart for the projectwhich illustrates the proposed involvement from key agencies. Resource estimates will be determined during the Planning phase of the project. Steering Committee Project Management Team DoIT Technical Lead Consulting Technical Lead Consulting Functional Leads State Functional Leads Consulting Technical Team Members Consulting Functional Team Members STO Team Members DoIT Technical Team Members DFA Team Members Agency Team Members Agency Technical Team Members

13. Estimated Project Timeline The high level project timeline below is based upon a budgetary estimate of $4.5 million. The timeline is based upon preliminary planning and resource estimates used in the creation of budgetary estimate.