Bookkeeping Error Cited In Delayed D.C. Audit

By Stephen C. Fehr Washington Post Staff Writer Tuesday, April 4, 2000; Page B01

The accounting snags threatening the District's financial recovery came about partly because a D.C. government accountant mistakenly deducted $40 million from the city's balance sheets last year, not knowing that a transit bill already had been paid, sources said yesterday.

Meanwhile, D.C. officials seeking a favorable opinion from an independent auditor also are struggling to account for more than $26 million in 1999 expenditures that simply were not recorded.

The accounting problems are at the heart of a two-month delay in the District's effort to receive what accountants call a "clean, unqualified" audit. That opinion is needed to certify that the city finished 1999 with a balanced budget, which is key to the city's continuing fiscal recovery and will trigger legislation to shut down the federally appointed D.C. financial control board.

The control board, set up by Congress when the District was near bankruptcy five years ago, has oversight authority of all D.C. government decisions. To restore home rule and remove the control board from the city's policymaking process, the District must post four consecutive balanced budgets.

The city has reported balanced budgets in the previous two years; any interruption in that progress could mean that the control board would stay active at least another four years, rather than shut down next year as anticipated.

The independent auditor's report also is being watched closely by bond markets. An unfavorable review by the auditor could lead bond houses to lower the District's bond rating, leading to higher borrowing costs.

D.C. Chief Financial Officer Valerie Holt, her staff and the independent auditor, Mitchell Titus & Co., have said little about the $40 million discrepancy, which is a major reason Holt's report on fiscal 1999 is two months late. Inspector General Charles C. Maddox, who oversees the report, also declined to comment.

But sources familiar with the audit said yesterday that in September 1998, the control board paid Metro $40 million, part of the city's share of capital expenses contributed by local governments.

Separately, an unidentified D.C. Department of Public Works accountant--unaware of the control board's payment--believed the city had paid the $40 million, and so deducted the money from the city ledger but didn't record it as being paid.

"It reduced our cash by $40 million, but we couldn't track it," said Anthony Pompa, D.C. deputy chief financial officer. "We knew we had $40 million less, but we didn't know why."

Gregory M. Holloway, managing partner of Mitchell Titus, who is supervising the $2.5 million audit, told D.C. finance officials they would have to account for the $40 million mistake, which has added to the delay.

In addition, there are other unresolved issues with the audit. Holloway and the city had prepared a plan Saturday to resolve several issues, but yesterday, Holt's office would not discuss whether progress had been made.

"Right now, there's still a question when they're going to get all this done," without receiving a less-than-sterling judgment from Mitchell Titus, said council member Jack Evans (D-Ward 2).

The $26 million in unidentified cash transactions are akin to someone not recording checks in a personal checkbook--and as a result not knowing how much was spent and where.

Council member Kathy Patterson (D-Ward 3), noted that Holt has blamed the delay in the audit on the city's conversion to a new financial management computer system. But Patterson said the mistake involving $40 million proved the computer system wasn't necessarily at fault.

"The $40 million obviously was a bad decision made by management, not a system issue," Patterson said.

The accounting problems are an embarrassing bump in the road for the administration of Mayor Anthony A. Williams (D), who as the District's chief financial officer helped to set the city on the path to financial recovery.

Williams recently returned from an international mayors' conference in Paris, where, among other things, he touted the city's economic rebound. The CBS television show "60 Minutes" is preparing a profile of Williams as a key figure in the city's rejuvenation.

But since Williams chose Holt as chief financial officer last year, council members have persistently questioned whether she is up to the job. The recent delays in the audit of the 1999 budget have increased their criticism of her, and by extension the mayor's administration.

The first warning that the D.C. government would not produce the annual report on time came Nov. 9, when Holloway wrote that the city was "challenged to close its books and records and produce a reliable" report for 1999.

But it wasn't until late January that key decision makers, including Williams and the council, learned the full extent of the problem. By then it was too late: The report would be delayed past its Feb. 1 deadline, and no one could predict when it would be finished or whether it would be accurate.

Now, two months later, the city is running out of time. The council is scheduled to begin marking up the city's fiscal 2001 budget in 10 days, and it needs the final, audited budget figures from the 1999 report. The council, mayor and control board are supposed to agree on a budget to send to Congress by June 1.

A budget could be prepared without the audited numbers, but it would be imprecise.

Some officials believe Holt should have asked the mayor and council for more money, staff or outside assistance when she realized last fall that the audit could be delayed. The city's Year 2000 computer repairs were completed on time largely because D.C. officials understood the risk of not completing it on time and asked for help from the federal government.

"If we were a publicly funded corporation, we would have fired the chief financial officer by now, because you have to get these reports out," said council member Phil Mendelson (D-At Large). "This is not a situation that creates public or investor confidence."

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-- - (x@xxx.com), April 04, 2000

Answers

http://www.washingtonpost.com/wp-srv/WPlate/2000-04/04/115l-040400- idx.html

-- (v@vvv.com), April 05, 2000.

"...struggling to account for more than $26 million in 1999 expenditures that simply were not recorded."

Oops! How does this happen? Oh well, I did the same thing recently with my own checkbook. All of a sudden there was less money than I thought I had! But I cannot imagine doing this at this level. DC just cannot get its act together. Did that money get funneled to former mayor Barry? I guess there are a bunch of "crack" accountants down there.

-- FutureShock (gray@matter.think), April 05, 2000.