District of Columbia Financial Responsibility And Management Assistance Authority
|FOR IMMEDIATE RELEASE
April 29, 2000
|CONTACT: Jim Davison
Statement of the Chair
Alice M. Rivlin
I am pleased the District of Columbia's Fiscal Year 1999 Comprehensive Annual Financial
Report (the CAFR) has been completed and that the results are positive. It is gratifying
that the District's budget was in surplus, that outstanding debt is being reduced, and
that the audit carries an unqualified opinion. The three-month delay in completing the
audit, however, revealed some serious problems that must be corrected. I would like to
discuss the audit results, the problems to be solved, and the actions the Authority is
taking, in cooperation with the Inspector General, to ensure that the problems that led to
this delay do not happen again.
Even though the FY 1999 CAFR was delayed, the results indicate that the District's
financial health is good. The District enjoys a significant operating surplus for the
third consecutive year, which is just one year short of meeting the statutory requirement
for the Authority to suspend its activities. We expect that when the CAFR for this current
fiscal year, fiscal year 2000, is audited next year, the Authority will be able to certify
the end of the Control Period, and will begin to wind up its activities so that the
District is able to return to normal governance on schedule, October 1, 2001.
I am also pleased that the audit carries an unqualified or "clean" opinion
from the auditors. However, we do expect the Management Letter, and the Report on Internal
Controls and Compliance With Laws and Regulations, to point out serious deficiencies that
must be addressed to improve financial management practices in the District. The
Management Letter will also address deficiencies concerning the University of the District
of Columbia ("UDC"), and the Public Benefits Corporation ("PBC").
A separate opinion for UDC was not issued due to the fact that the auditors and staff
are still working with UDC and IBM in a final effort to recover missing data. Their
opinion may have a separate issuance date since it is not material to the District's
Unfortunately, the auditor will give the PBC a "qualified opinion," citing
insufficient evidence supporting Medicaid receivables in the amount of $10 million.
Equally troubling for the PBC and the District's finances is the fact that the PBC is
generating significant cash deficits.
Despite this information, and the lateness of the CAFR, three annual budgets with
surpluses and three unqualified opinions in a row signify that the District is on the
track to establishing sound financial management practices, only a few years after being
on the edge of insolvency. I will discuss below what has already begun to implement
recommendations, generated in the audit process for improving financial management.
The FY 1999 CAFR indicates the District will enjoy an operating surplus of $86.4
million after reducing long-term debt by an additional $35 million. The fund balance will
increase to $198.9 million, which is more than 4 percent of General Fund expenditures for
fiscal year 2000.
However, the financial news is not as good as it ought to be. The difficult process of
bringing the CAFR to closure with an unqualified opinion, and the problems associated with
the PBC and UDC, have revealed serious shortcomings - in people and financial systems -
that must be fixed.
Part of the problem has been the speed under which the District attempted to implement
its new financial management system last year -- the System of Accounting and Reporting
(SOAR). Because the District's existing financial management system was not Year 2000
compliant; SOAR was implemented in a much more shorter time period than in other
jurisdictions. It is now clear that training and support were inadequate. Process
re-engineering had not been conducted, and District employees were simply not ready for
the challenges of converting to a new system in a short time under pressure.
Delays and difficulties are not uncommon when large organizations, both private and
public, implement new financial management systems. However, the three-month delay
experienced by the District in producing the FY 1999 CAFR was neither an ordinary nor an
excusable event. We must treat it as a wake-up call. This was a warning that problems with
the system itself and District management be addressed immediately. Clearly, employee
skills must be greatly improved -- if this investment (SOAR) is to fulfill its promised
level of performance.
The Authority takes all of these exposed shortcomings extremely seriously. They cut
right to the heart of our original, and continuing, mandate from Congress. To address
these matters, the Authority has been conducting an examination of the problems
encountered by the various participants during the preparation of the FY 1999 CAFR and
during the auditor's testing of the financial statements. We have already begun corrective
actions, and will track our progress.
We have asked the CFO to prepare plans, to be delivered to us this month, which will
provide solutions, with concrete timetables, to address the known problems raised by the
FY 1999 CAFR.
The Authority has already begun conducting interviews with all parties involved in
preparing the FY 1999 CAFR, to generate our own list of problems and issues. We expect
that our work along these lines will help in defining the scope of the job ahead and in
executing measures to correct the deficiencies.
Essential to ensuring the District's financial performance is the successful, complete
implementation of SOAR. The Authority has directed the CFO to develop a plan to complete
implementation of the SOAR system and to deliver this plan to us next month. The plan will
detail assignments, with names and timelines, and identify those critical milestones for
finishing the full SOAR implementation.
With the FY 1999 CAFR soon behind us, we now must turn our attention to the next audit.
With seven months of the current fiscal year already gone, we must do everything within
our power to make sure the FY 2000 CAFR is grounded in sound financial information, which
the auditor can test and use as a basis for an opinion. Going forward, the Authority will
require monthly financial statements and closeouts from the CFO that track responsible
financial management. Also, this information must be accurate and presented in a more
In cooperation with the Inspector General, the Authority will reconstitute the FY 1999
CAFR audit committee next month. This group will examine the oversight process of the
just-completed audit, with an eye towards a better process for this next, very crucial
audit. Further, we will be looking to the audit committee to provide crucial assistance to
the Office of the CFO and the outside auditor to ensure that a FY 2000 six-month interim
close, best be described as a "snap shot" of the current state of the city's
finances for FY 2000, is successfully completed within 60 days of this audit submission.
It is clear that the District needs to make important improvements in both the process
and the mechanics of producing a CAFR, as well as the generation of reliable financial
statements useful for managing the resources of the city. Critical technological,
managerial and personnel deficiencies must be addressed to repair the financial management
system and ensure a responsible process for completing the FY 2000 CAFR.
The Authority will work with all of the parties integral to the production of the CAFR
and the audit -- the Office of the Chief Financial Officer, who produce the financial
statements; the Inspector general who managed the audit contract; and the independent
auditor who conducted the audit -- to ensure a satisfactory outcome.