Oracle at Europe's largest council didn't foresee bankruptcy
Auditors unable to sign off accounts partly due to lack of IT controls amid challenging ERP deployment
Birmingham City Council turned off security features on its Oracle ERP system, meaning auditors have been unable to sign off the accounts for Europe's largest local government body, which effectively went bankrupt earlier this year.
Earlier this month, The Register reported that the £3.4 billion ($4.3 billion) revenue organization declared itself in financial distress after costs for the Oracle project ballooned from £20 million to around £100 million ($125.5 million) with the implementation of its replacement for an SAP ERP system still in trouble. A bill of up to £760 million ($954 million) to settle equal pay claims also contributed to the effective bankruptcy.
Speaking to members of the council's audit committee on Friday last week, Mark Stocks, leader of external auditor Grant Thornton's public sector assurance practice, said Oracle security features tracking changes to the new ERP system were not switched on at the start of the implementation.
"When we look at any audit, we try and determine whether the IT control environment is appropriate and whether we can actually see what's happened within what we call 'the black box'. For Birmingham, we can't do that. We have no insight into what's happened within the core IT security systems because there's no record," Stocks said.
Stocks said the council could not give an "out-turn" position – an accounting measure of work or sales – or produce a set of accounts for the most recent financial year. "All of that arises from the Oracle implementation that we all know didn't work," he said.
The Register has contacted the council for a response.
In July 2019, the council picked Oracle Fusion Cloud to replace SAP for financial, HR and procurement processes. In March 2022, the council said the implementation cost would rise from £20 million to £38.7 million. In May 2023, the council said the total cost may rise to £100 million.
Despite concerns that the system would not meet the council's needs and replace the functionality in SAP, the council went live with Oracle in April 2022.
Stocks said that since the council started using the Oracle system, one of the main problems has been cash management. The previous SAP system took information from the bank and then allocated the cash to the relevant ledger codes.
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"That adaptation was put in for Oracle but didn't work. A lot of the work that officers have had to do is to manually move that cash into the right place. You've had over 30 officers working on that for a significant period. That's now reasonably accurate, but that's a tremendous task," Stocks said.
The original implementation partner for the Oracle Fusion rollout was Indian systems integrator Evosys, now merged with Mastek. PwC and KPMG were appointed to help rectify problems with the system earlier this year, while the council had previously employed EY on the implementation.
In June 2023, a Report to Cabinet said: "The council had planned to adopt the Oracle system, changing its existing business processes and upskilling staff to support its implementation."
The report went on to say: "This is what members gave officers approval for through Cabinet papers in July 2019 and March 2021. However, officers evolved the approach towards adapting the system – meaning that Oracle was customized to meet the council's existing business processes. This shift in emphasis (from adoption to adaptation) has severely impacted upon the council's ability to properly implement the Oracle system."
In its most recent progress report on rectifying the Oracle implementation, the council said it was working with Oracle Consulting "to ensure we deliver our 'out of the box' Oracle vision."
An individual close to the implementation told The Register that using the standard or "vanilla" Oracle product would mean that more staff would be needed for running processes than the number employed for equivalent work on SAP. For example, cash management had been handled by three people on SAP, and, as Stocks pointed out, it required 30 under the current Oracle system.
In 2021, Oracle founder and CTO Larry Ellison singled out Birmingham City Council in a call to investors following the software giant's Q3 results. It was one of a litany of organizations he held up to exemplify big wins in grabbing customers from SAP. ®