Mark David Richards
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What Is DCWatch?
Testimony of the Mayor of the
District of Columbia
Council of the District of Columbia
Committee of the Whole
Committee on Finance and Revenue
Financial System Implementation
May 14, 2001
Good morning Chairman Evans and members of the
committee, I'm pleased to be here today to discuss the financial recovery
of the District, and specifically, the role of the new financial
management system in that recovery.
The GAO and the Washington Post have raised the
question of whether the selection and implementation of the SOAR system
will support the continued recovery of the District. The short answer to
this question is an unqualified "yes."
Now, I will be the first to admit that the
implementation has had its challenges, and I understand that all of the
systems functions are not 100% in operation. But we cannot let these
implementation issues overshadow the most important facts that you will
hear today: (1) By implementing this system, the District was able to move
past the days where we couldn't track spending well enough to balance the
budget, and (2) by implementing this system quickly, we disarmed the Y2K
bug that would have derailed the entire functionality of the District
Government. In other words, the GAO is saying the glass is 10 percent
empty, we're saying that the glass is 90 percent full.
Their findings are even less compelling when you
consider the timing of their data collection. For example, their
observations on the manual processes required in the yearend close largely
reflect problems in the FY 1999 year-end close, which we all remember was
especially challenging. The FY 2000 close, which we completed 3 months
ago, was a vast improvement, and required virtually no such manual
Contrary to the impression in the GAO reports and
some discussions of it, we are continuing to improve our financial systems
and, while there still remain unfinished items in the systems
implementation, not one of these items poses a threat to the financial
recovery of the District. The fundamental tracking and reporting functions
of this system are fully operational, and the only variable affecting the
District's financial recovery lies in the discipline and judgment of the
District's leaders - namely the Mayor, Council, and CFO. And on that
subject, I think the public, our independent auditors, and Wall Street
agree that the financial future of the District is in good hands.
Perhaps the most important answer to the GAO's
question lies in the comparison between the District's financial health,
then and now. I'd like to begin this discussion by reminding the public
what the financial systems and processes of the mid-1990s produced:
The list of problems we faced several years ago goes
on and on. We were dealing with a financial crisis, and as we all learned,
a financial crisis very quickly becomes an operational crisis. When you
can't pay employees, pay vendors, or procure goods, you can't deliver
- The District couldn't balance it's annual
budget, and year after year of overspending resulted in an accumulated
deficit of $484 million by FY 1995.
- When the District needed to borrow funds for
critical capital projects, it had to pay exorbitant interest rates
because Wall Street had downgraded our bond rating to junk bond
- The District couldn't pay vendors who provided
services to citizens on our behalf.
- The District couldn't cash checks people sent
to pay their taxes, and instead, left them in buckets sitting on the
- The District couldn't pay its employees on
time, and in many cases paid people who had been fired, who had
retired, or who had died.
- A large number the District's financial staff
lacked the basic skills, training, and experience necessary to operate
at a basic level, let alone support a large-scale reform.
- The records of the District were in such
disarray that the District could not receive a clean audit from its
- And finally, the District was facing the Y2K
crisis with no preparation, no planning, and no funding to support the
massive remediation required. The existing financial system was about
to go from functioning poorly to not functioning at all.
This is the situation I faced when I was hired as
CFO in 1995. It was a situation that required quick analysis, careful
consideration, and decisive action. We recognized the skill deficiencies
among the staff, and we moved to retrain and restructure personnel as
needed. We recognized the deficiencies in the process for budget
formulation and execution, and we reengineered that process. We recognized
the deficiency in the timeliness and accuracy of reporting from the
Financial Management System, and we worked with the leaders of the
District to find a replacement.
I don't disagree that the implementation of this
replacement has met bumps in the road. I do disagree, however, that the
challenges and delays constitute a failure in implementing the system.
This system has served as the District's system of record for 3 years now,
and in each of those years, we have balanced our budget and achieved a
clean audit from the inspector general and an independent auditor. That is
the opposite of failure. That is a success story.
Why has this implementation been challenging?
Primarily, it's a matter of timing. An average city takes 3 to S years to
plan, install, debug, and fine-tune a new financial system. That means we
would have needed to begin this work in 1994 in order to beat the Y2K
clock. Add to that the fact that this was not an average city, we had
fundamental problems with the skill levels and operations in the OCFO. So,
to adjust for that, you'd need to add on several more years of preparatory
work. In other words, this work should have begun in 1990.
Instead, we did it in one year. This required a
Now, as we all know, any time that you rush a
process, two things happen. One, you have to begin with the critical
components, and leave the more advanced functions for later. Two, the
process ends up costing more than you expected because of the need for
extra manpower and extra post-implementation cleanup. Both of these things
happened in the implementation of SOAR. That is a fact. But, quite
frankly, it is not a surprise.
We all know that implementation delays and cost
overruns are natural consequences of a short implementation timeline. Did
we accomplish the Herculean task of implementing the basic system in one
year? Absolutely. Do I recommend this as the ideal way to implement a
system? Absolutely not. But the unresolved parts of this process do not
spell failure for the District's financial recovery, they simply means
that the CFO and the executive need to complete the post-implementation
cleanup that resulted from the system's rapid deployment.
I'll leave you with a final thought. The success
of this system is measured by the financial performance of the city. I
began this testimony with a description of where we were in the mid1990s.
Let me now, for the record, remind the public where we are today:
This success can be attributed not only to the new
financial system, but to the capable and hard-working professionals who
made it work, and did so in record time. Do we still have a way to go?
Absolutely. Did the financial crisis and Y2K create a situation where we
had to pay more than we would have otherwise? Absolutely. But the bottom
line is that, given the circumstances, the District accomplished a great
feat in repairing the financial mess that was, and will continue plowing
forward to continuously improve the way we do business.
- After years of overspending, we now balance
our budget every year;
- We've gone from an accumulated deficit of $484
million to an accumulated surplus of $464 million;
- We've gone from junk-bond status to having our
investment rating upgraded twice by all three Wall Street rating
- We pay our vendors on time;
- We process tax returns effectively with a
turnaround time that exceeds the industry norm, and we have increased
revenue collection by hundreds of millions of dollars;
- We pay our employees - and only our employees
- on time;
- We close and reconcile our books on a monthly
- We achieve a clean audit from the inspector
general and independent auditing firms every year;
- We have established a $150 million budgeted
reserve and are creating a $250 million cash reserve;
- Our budget formulation process has earned
accolades from all sides, including the Washington Post, which lauded
the integrity of our FY 2002 budget numbers in a March 16 editorial;
- And finally, we operate a system that is not
only Y2K compliant, but includes the capacity to grow as our
government develops, providing additional capacity for cost analysis
and other functionalities beyond what most other jurisdictions are
I'll be happy to take any questions you may have.