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Government IT Systems Need A $800 Million Overhaul

Phil Pennington, Reporter

The government is facing a bill of more than $800 million to overhaul back-office IT systems, and attempts to lessen its impact have hit delays.

The issue comes as ministers look to save about twice that amount by cutting "back-office" staff and expenditure, with about 1000 positions axed on Wednesday.

Some of those staff savings could eventually recirculate into the back-office tech upgrades.

"Many agencies have ageing back-office infrastructure, and overall digital costs are increasing," said Cabinet papers from before last year's election.

The overall digital and IT wishlist across all parts of the public service expanded from $8 billion in 2020 to $12 billion last year - an "unaffordable and unrealistic" level at odds with public sector outcomes, Internal Affairs warned incoming Digitising Minister Judith Collins in November.

About $5 billion of that is wanted in order to go cloud-first, as ordered by the government.

The back-office overhaul of "essential" systems in finance, HR and payroll is a smaller cost, but is still significant and imminent - estimated at $825m between 2022 and 2026, in the Cabinet papers.

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The "siloed, ad hoc" investment in technology had created issues for departments over the years, the papers showed.

Treasury told government agencies four years ago that it expected them to "take an all-of-government approach when considering investment in digital, data and ICT for both existing baseline and new budget".

But that has not happened, with one of the Cabinet papers saying: "Collaborative, multi-agency digital investments are rare, despite the availability of shared platforms and reusable capabilities.

"The consequence is rising ongoing costs, higher exposure to risk, less opportunity to adopt a joined-up approach to managing risks (including cyber security), and an ineffective ability to respond quickly to establish or disestablish public facing services."

The problem is that agencies need to improve online access to public services, while also bolstering security amid escalating cyber threats.

The Cabinet paper laid out a rescue plan - now being undertaken, though delayed by cost pressures - to force more sharing and dissuade lone projects.

This "will save the government at least $160 million (a 10-year estimate)", it said.

Huge downsides, years in the making

In one case, NZTA Waka Kotahi warned four years ago it needed $130m just to stop its old tech from falling over, before launching a $52m data management overhaul.

The Ministry of Social Development (MSD) has a number of 30-year-old systems that have caused problems for people applying for help, and now faces massive IT bills, as well as contractor and consultant costs.

"The scale of Te Pae Tawhiti [its modernisation plan] require strong specialist capability and where MSD does not have all of the required internal capability it is required to go to market to supplement its own expertise," its annual review for 2022-23 said.

Expensive IT projects can be found in the annual reviews of multiple agencies. Internal Affairs has more than 20, topped by the $203m Te Ara Manaaki project.

Problems are common - Te Ara Manaaki has several, as does Oranga Tamariki.

Some agencies lacked basic knowledge, "embarking on back-office investment with little knowledge regarding the scope of the work or how to approach it", the Cabinet paper said.

They can get an idea of the right direction from the 'Common Process Model', which is open to 118 agencies. About 40 agencies are also already under orders to do more sharing.

But that has not been enough to head off the IT issues that have put agencies such as Health NZ in a situation where it has to spend millions with Amazon and Microsoft on a huge new cloud-data system, at the very same time it struggles to fund frontlline technology in hospitals, such as PET and MRI scanners.

When Internal Affairs asked agencies about the issues recently, 23 of them signalled they may need to replace their finance systems in the next five years.

The department is now pledging to "hold their feet to the fire".

The previous Cabinet agreed with its plan to make the finance systems the first issue to deal with.

The plan is to set up a panel of approved suppliers, and a number of standardised products and services, by next year.

"That is an example of where there will be no discretion to that," government chief digital officer Paul James, head of Internal Affairs told MPs in March.

"So agencies will be required, if they are replacing their finance systems, to take that approach.

"So that's an example where we really are holding their feet to the fire."

That would then be spread to HR and payroll upgrades, James said.

However, the 'Back-Office Digital Transformation Service' project has also run into problems.

It has been delayed a year due to financial pressures on agencies, which were all going to be asked for pay cuts to set it up.

That now would not happen till after July in the new financial year.

This delay had posed the risk of a full shutdown of what was already in place with a loss of time, money and intellectual property, Internal Affairs told RNZ.

It has instead tapped $100,000 of reserves to keep the engine ticking, until it can boot it up again mid-year.

"It's all aimed at trying to better join up," James said.

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