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Letter to Alice Rivlin, Chair of the Control Board
From Eight Councilmembers
Concerning Valerie Holt, Chief Financial Officer
February 29, 2000




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Response from Mayor Anthony A. Williams Response from Alice Rivlin


February 29, 2000

Alice Rivlin, Chairman
District of Columbia Financial Responsibility Authority
One Thomas Circle NW
Washington D.C. 20009

Confidential/By Courier

Dear Chairman Rivlin:

We write to request that you take immediate action to replace Valerie Holt as Chief Financial Officer of the District of Columbia through voluntary resignation or termination for cause. We obviously do not make this request lightly and do so only after research and deliberation.

We request this action for the following reasons.

Failure to meet the statutory deadline for the Comprehensive Annual Financial Report. Failure to produce trial balances during Fiscal 1999 resulting in delays in the CAFR. Failure to retain effective OCFO staff critical to CAFR production

The two announced delays in the CAFR put in jeopardy the District's continuing financial recovery. Ms. Holt has acknowledged at two public hearings - February 4 and February 25, 2000 - that producing trial balances with the SOAR system represents sound financial practice, yet, from her assumption of her responsibilities in June 1999 to date, no such actions have been taken.

Representatives of KPMG Peat-Marwick testified on February 4 that they recommended producing trial balances in 1999. Private interviews have indicated that OCFO staff made the same recommendation to Ms. Holt. Her failure to act on what she acknowledges as sound financial practice is a dereliction of duty with substantial negative consequences for the District of Columbia. This failure, alone, in our view, constitutes cause for termination.

Individuals who were key to producing the annual audit were transferred elsewhere in the District government or pressured to leave the employ of the District. We can provide documentation on this point if necessary in the form of internal OCFO documents.

Failure to effectively manage the implementation of the SOAR system.

In testimony on February 25, Ms. Holt acknowledged that she was aware of the failures on the part of District of Columbia staff to participate in training on the new financial system as reported by the General Accounting Office to Rep. Ernest Istook on June 18, 1999. That GAO letter report stated that 42% of government employees designated for training failed to participate, including 48% of designated staff within the Office of the Chief Financial Officer. In her testimony February 25, Ms. Holt questioned the usefulness of the District-sponsored training, most of which took place in 1999 prior to her assuming the CEO position. She testified that it was her view that no further training was necessary since most staff who needed to know how to fill out vouchers apparently had learned how to do so. She, thus, has failed to recognize, as late as last week, the clear link between District government staff capacity and continuing difficulties in producing the CAFR, as well as in producing budget documentation.

Gregory Holloway, managing partner of Mitchell and Titus, testified on February 25 that a significant issue in the CAFR delay was the failure on the part of District financial staff to enter all relevant data into the SOAR system prior to and immediately after the end of the fiscal year. Not only has the Chief Financial Officer failed to adequately address staff capacity issues since June 1999 - according to her testimony on February 4 and February 25, she fails to acknowledge that there is a capacity issue. It will not be possible, in our view, to effectively implement the SOAR system with leadership and management failures of that magnitude.

In addition to the critical capacity issue, Ms. Holt has also failed to permit implementation of SOAR modules that the District requested and paid for, and that were a part of the state-of-the-art financial management system envisioned by former CFO Anthony Williams, the Financial Authority, the Council, and the Congress from 1997 forward. Examples, documented both by GAO and by Mitchell and Titus in their November 9, 1999, report, include the fixed asset module and the performance budget module. As Councilmembers noted at the February 25 hearing, in the wake of Ms. Holt's decision last fall to stop implementation of the fixed asset module, several District agencies are now seeking authority to implement their own, independent fixed asset information systems because of their need for such management tools.

Failure to implement the approved FY 2000 budget and failure to produce an adequate baseline budget for FY 2001.

The Council's performance review hearings over the last two weeks provide example after example of decisions made by the CFO that have severely hampered effective performance by other agency directors.

The document forwarded to the Council the week of February 22, 2000, identified as the OCFO Baseline Budget for Fiscal Year 2001 is inadequate. Again, here, the issue is not just the poor quality of the documentation; it is the apparent failure of Ms. Holt to understand what is required in the budget process. A baseline budget should reflect current law and incorporate a reasonable inflation rate, in the 3 to 4 percent range. Throughout this document are increases of 15 percent, 20 percent, and even 50 percent for some agencies.

Failure to effectively communicate with government stakeholders

Ms. Molt has acknowledged and apologized for failing to notify elected officials of the CAFR delay in a timely manner. More serious has been her failure to communicate the seriousness of the failures to meet CAFR timelines from October 1, 1999, on, including failure to request contractual or other assistance in November and December 1999. Failure to recognize and act on the need for assistance is a failure not readily rectified.

Failure to provide leadership in long-term financial planning.

The District's financial stability is fragile. Maintaining and enhancing financial stability requires vision and leadership in developing a broader tax base and ensuring continued fiscal discipline in the budget process. Though Ms. Holt has participated in such discussions over the last nine months, she has not provided the kind of leadership demonstrated by her predecessor and the kind of leadership necessary over the course of the next several years.

Dr. Rivlin, we are on the verge of considering a new budget and financial plan without a true idea of actual spending and a baseline that is seriously flawed. We cannot exercise leadership under such conditions, and we have no confidence that Ms. Holt can resolve these issues. We have no confidence in Ms. Holt's ability to address the leadership, management, and financial issues before the District. Time is a critical element; we must have strong leadership in the Office of the Chief Financial Officer.

For these reasons we ask that you immediately replace Ms. Holt and act to secure the financial leadership the District requires.

Thank you for your consideration.

Sincerely yours,

Jack Evans Chair, Committee on Finance and Revenue
Sharon Ambrose
David Catania
Jim Graham
Charlene Drew Jarvis
Phil Mendelson
Vincent Orange
Kathy Patterson

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