Note information in last paragraph. If I remember correctly a new computer system was installed last year. D.C. Audit Becomes Worrisome By Stephen C. Fehr Washington Post Staff Writer Sunday, April 2, 2000; Page C01

Independent accountants reviewing the District's financial records can't account for more than $40 million in last year's budget and have warned D.C. officials that they may have to downgrade their rosy assessment of the city's fiscal health.

The District's financial staff is working through the weekend with the outside accountants, Mitchell Titus & Co., of Northwest Washington, to try to reconcile a difference of $40 million and possibly as much as $60 million for the budget year that ended Sept. 30, sources said. If they can't explain why the $4.5 billion budget is out of balance  either through bookkeeping error, over-spending, incomplete financial data or something else  the accountants won't be able to conclusively prove that the city finished 1999 with a surplus, as D.C. officials have said.

This would be an embarrassing step backward for the District government, which has produced two straight years of sterling financial reports and posted surpluses each of those years showing the city has turned around after near bankruptcy in 1995. The bond markets have responded to the improved financial picture by upgrading the District's junk bond status. Congress also has looked at the city more favorably, and the federally mandated D.C. financial control board has been preparing to go out of business early next year.

D.C. Council member Jack Evans (D-Ward 2) said yesterday that if the accountants do not bless the city's finances, the control board probably will have to remain active. Congress has said the District must produce four straight balanced budgets before the control board relinquishes its authority over city operations.

"It is likely Wall Street would reevaluate our bond rating and could possibly downgrade us to junk bond status again," Evans said, adding that any budget discrepancies "would damage the perception that the city has recovered financially."

A negative report also would be a blow to Valerie Holt, the city's chief financial officer, who was supposed to complete the annual audit on Feb. 1. The council already has called on the control board to oust her, and Mayor Anthony A. Williams has said Holt "must be held accountable" for delivering an accurate audit on time. Williams (D) held Holt's job before becoming mayor.

A spokeswoman for Holt said last night that "it is too premature to discuss the nature of the accountants' opinion." A spokeswoman for Williams said that it would not be appropriate to comment on an audit that has not been completed.

At issue is the District's comprehensive annual financial report, which for most jurisdictions is a routine audit much like balancing a checkbook at the end of the month. An outside certified public accountant examines the records and issues an opinion on whether the government is telling the truth about its revenue and expenses.

Jurisdictions aim for a "clean, unqualified" audit, which validates their income and spending records. If accountants can't corroborate a government's financial statements, they issue a "qualified" opinion stating the sources of the problem.

Francis S. Smith, executive director of the control board, stressed that the city and accountants are trying hard to avoid receiving a qualified opinion from Mitchell Titus. He said the problem generally centers on the cash amounts maintained in various accounts by the city. He said he could not elaborate or say whether one agency is responsible for the discrepancy.

"We'll know why we have a problem" by this week, Smith said.

Gregory M. Holloway, managing partner of Mitchell Titus, told the council last month that he expected the District would receive a clean audit. But last week, sources said, he told the control board and other city officials that he isn't so sure now. If the $40 million discrepancy isn't resolved by tomorrow, Holloway told the control board, he will meet with city officials and decide what to do next.

Holloway, whose firm works on a contract overseen by the D.C. inspector general, has been told by the control board and other city officials not to talk to reporters after his recent criticism of Holt and the D.C. government for the handling of the financial records. He did not respond to requests seeking his comments for this story.

The control board's Smith acknowledged that the financial report is long overdue and that pressure is mounting to finish. "At some point, we'll say, 'This is the best we can do,' " Smith said.

Holt first promised the report by March 15, the latest ever for the city. That deadline was pushed back, and control board Chairman Alice M. Rivlin said she expected to get the report by the end of March. But the $40 million imbalance has stymied completion.

Holt has blamed much of the delay on the conversion to a new financial accounting system that has been difficult to launch. Other cities and agencies, including the National Aeronautics and Space Administration, have had similar glitches with the same system. The delay is costing the D.C. treasury by adding more than $500,000 to the original $2 million cost of the audit.

http://www.washingtonpost.com/wp-dyn/metro/A59615-2000Apr1.html

-- Martin Thompson (mthom1927@aol.com), April 01, 2000