Mayor Anthony A. Williams
Testimony on GAO Report, District of Columbia: Weaknesses in Financial Management System Implementation to the
City Council Committee of the Whole and Committee on Finance and Revenue
May 14, 2001

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Testimony of the Mayor of the District of Columbia
to the
Council of the District of Columbia
Committee of the Whole
Committee on Finance and Revenue

on the
Financial System Implementation

May 14, 2001

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 processes.

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 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 status.
• 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 floor.
• 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 independent auditors.
• 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 Herculean effort.

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:

• 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 agencies;
• 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 basis;
• 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 currently using.

I'll be happy to take any questions you may have.