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Joint Public Briefing of the

Committee of the Whole
The Honorable Vincent C. Gray, Chairman
and the Committee on Finance and Revenue
The Honorable Jack Evans, Chairperson

February 5, 2010
10:00 a.m.
Good morning, Chairman Gray, Chairperson Evans, and members of the

Council. I am Neil O. Albert, City Administrator, and I am pleased to

provide testimony today on the Fiscal Year 2009 Comprehensive Annual

Financial Report.

Despite the current state of the nation’s economy, the District’s financial

statement received an unqualified opinion from the independent auditors,

giving the District a “clean audit” and confirming that the city’s budget is

balanced for the 13th consecutive year. The report shows an almost

$140 million budget surplus in FY 2009, which consisted of approximately

$100 million in O-type surplus and $40 million in Local surplus. Note that

the Local surplus, though, is located almost completely in restricted Local


Additionally, there is a $920 million General Fund balance. That balance

includes the $140 million FY 2009 surplus. The General Fund balance

declined overall by approximately $320 million from the FY 2008 year-end

amount, based largely on the gap-closing activities the Administration and

the Council engaged in during Fiscal Year 2009.

The $920 million General Fund balance, however, does not represent

spendable cash. Over half of the General Fund balance is held in the

emergency reserve, contingency reserve, and bond escrow accounts, and

most of the remainder is located in other restricted-purpose accounts.

Despite the problems with the national economy, the District remains in a

relatively strong financial position. Although we have seen declines in

revenue over the past year, the District is consistently ranked as one of the

strongest commercial and investment markets in the country. In addition,

our bond ratings continue to be strong, with General Obligation bond ratings

of A+, A1, and A+ ratings from Fitch, Moody’s and Standard & Poor’s. The

District’s recent Income Tax Secured Revenue Bonds received AA, Aa2,

and AAA ratings. The shared commitment to fiscal discipline on the part of

the executive and legislature has been critical to maintaining a continued

balanced budget, a clean audit opinion, and strong financial ratings.

Along with the issuance each year of the CAFR, the independent auditor

issues the Yellow Book. The Yellow Book is the auditor’s report on the

District’s internal controls over financial reporting and on the District’s

compliance with laws and regulations which could have a direct and material

effect on the determination of financial statement amounts.

The Yellow Book reports material weaknesses, which are the most serious

control deficiencies; significant control deficiencies; and compliance issues.

I am happy to report that, for the first time in several years, the Yellow Book

contains no material weaknesses. Moreover, Mayor Fenty’s actions to

improve government operations led to a reduction in the number of control

deficiencies from six, in Fiscal Year 2008, to three in this year’s report. In

addition, the number of noncompliance issues fell from four to three. These

significant improvements are a testament to the Mayor’s concerted efforts to

improve management and efficiencies within all agencies.

At this point, I would like to describe the efforts that are underway to

address those control deficiencies and compliance issues that remain in this

year’s Yellow Book. As I mentioned, there were three significant control

deficiencies, a reduction from last year’s six control deficiencies. Of those

three deficiencies, one is a deficiency in the Office of Tax and Revenue

(OTR). I understand that OTR and the Office of the Chief Financial Officer

(OCFO) are working to address the issues raised in the auditor’s discussion,

and they are available to respond to any questions you may have.

The second significant control deficiency related to the payroll system of the

District of Columbia Public Schools (DCPS). The auditor found a

significant amount of missing information related to DCPS new hires and

terminations in DCPS’s Comprehensive Automated Personnel Payroll

Systems (CAPPS). To respond to this issue, during Fiscal Year 2009,

DCPS switched from CAPPS to the PeopleSoft system. Under the

PeopleSoft system, DCPS has significantly reduced the concerns that were

raised in the auditor’s report. For example, while the CAPPS-related

samples identified a problem with timeliness in 55% of the sample set, the

PeopleSoft sample identified only a 4% problem. Similarly, the termination

process has been greatly improved with the introduction of PeopleSoft.

While the CAPPS-related samples identified a 97% error rate, the

PeopleSoft-related samples identified only a 6% error rate. DCPS therefore

has already begun to show strong improvement in this area.

The third control deficiency listed in the auditor’s report is the management

of the Medicaid program. I am happy to report that through the aggressive

work of the Administration and agency directors, we have been able to

remove this issue from the material weakness column in which it appeared

in the Fiscal Year 2008 report. Still, it remains as a significant control

deficiency. The largest concern related to this control deficiency is the

potential disallowance and write-offs of Medicaid claims. During Fiscal

Year 2009, over $30 million of Child and Family Services Agency (CFSA)

Medicaid accounts receivable were written off.

To address this ongoing concern, the Department of Health Care Finance

(DHCF) has worked aggressively to reform the District’s billing practice.

DHCF has coordinated efforts with Medicaid-billing agencies to improve

documentation and record-keeping. In addition, DHCF issued a request for

proposals for an Administrative Services Organization, which will be

responsible for implementing and operating a claim and payment

management system and other administrative functions on behalf of the

various partner agencies that receive Medicaid reimbursement or are

responsible for operational functions of the Medicaid program. We consider

this a best practice, and expect the contract to be awarded in March.

DHCF has also continued to work with Office of the State Superintendent of

Education (OSSE) and DCPS to continue implementation of an electronic

data system to capture information related to Medicaid-billable services,

which will reduce documentation deficiencies. DHCF has also been

working aggressively with CFSA to redesign how case management and

behavioral health services will be delivered and claimed under the Medicaid

program. DHCF expects to submit a state plan amendment to the federal

government this month that will reduce the risk of future paybacks.

In addition, DHCF has implemented a public provider review process. The

review measures the public provider’s adherence to Medicaid documentation

and provides DHCF the opportunity to develop recommendations for

improvement and how to target technical assistance.

We are confident that further progress in addressing the auditor’s concerns

in this area is being made.

In addition to these control deficiencies, there were three compliance issues

raised by the auditor. The first compliance issue raised by the auditor

related to procurement activities. The auditor found issues with data quality,

accuracy, and completeness in contract files, and recommended that the

District consider designing and maintaining a centralized tracking system for

procurements. In response to these concerns, the Office of Contracting and

Procurement awarded a contract in December 2009 for the implementation

of the Ariba Contract Compliance Module, which will serve as a centralized

repository of all District contract information.

The auditor’s report also found that there was missing information in a

number of contract files. OCP has addressed this finding in a number of

ways. In the fourth quarter of Fiscal Year 2009, OCP began utilizing PASS

to electronically manage and retain documents to support small purchase

transactions. Since small purchases accounted for over 80% of Fiscal Year

2009 purchase orders, this will contribute significantly to reducing the risk

of losing contract files or documentation. In addition, in August 2009, OCP

began implementation of a large contract file management redesign

initiative, which will help ensure that all new large contract files are

accurately accounted for and contain the required supporting documentation.

The auditor’s report also found non-compliance with the Quick Payment

Act, which requires payment of properly submitted invoices within 30 days

after receipt of the invoice, unless the contract establishes an earlier payment

date or allows a later payment. Prompt payment of invoices depends largely

on three factors: quick review and approval of valid vendor invoices by

agency program staff, prompt communication between program staff and

financial staff, and quick processing and payment of valid invoices by the

Office of the Chief Financial Officer. I have asked the Chief Procurement

Officer and Chief Financial Officer to work to determine how the payment

process can be improved. One improvement OCP will begin to implement

through a pilot program is an e-invoicing module in the District’s automated

procurement system. This module will help eliminate the delay that comes

with paper invoices that are received through the mail and must be

physically routed to receive written approvals and inked signatures. I also

have asked my staff to schedule a CapStat session this month to dig more

deeply into the causes of, and potential solutions to, this issue.

The auditor’s final noncompliance issue was related to potential

expenditures in excess of budget authority. Specifically, the auditor found

that CFSA had overspent its local budget by approximately $24 million and

that the District forgave debt owed it by the Sports and Entertainment

Commission and this resulted in an unbudgeted write-off of approximately

$4.5 million. The CFSA overspending reflects the write-off of the

approximately $32 million of Medicaid accounts receivable mentioned

earlier in my testimony. It does not represent actual overspending in Fiscal

Year 2009. As discussed above, DHCF has been working aggressively with

the Medicaid-billing agencies to improve the Districts billing and

documentation process to help ensure that future write-offs are minimized.

The second portion of this finding relates to the forgiveness of

approximately $4.5 million of debt owed by the Sports and Entertainment

Commission to the District. This forgiveness was part of the Fiscal Year

2010 Budget Support Act, which merged the operations of the Washington

Convention Center Authority and the Sports and Entertainment Commission

(Commission). This provision was approved by the Council, and the fiscal

impact of the provision was included in the CFO’s fiscal impact statement.

Moreover, such write-offs of debt are standard accounting practice and the

forgiveness of the Commission’s debt should not be considered a Yellow

Book finding.

As City Administrator, I take seriously the need to continually improve the

District’s internal controls and management structures. Whether or not a

particular deficiency rises to the level of an issue reported in the Yellow

Book, District residents deserve high quality services provided in an

efficient, effective manner. Although the District government has made

tremendous progress over the past years, the Administration is committed to

building on this success in the years to come. Particularly in these times of

fiscal stress, we cannot reduce our vigilance in ensuring strong financial and

program management.

In closing, I would like to thank the Office of the Chief Financial Officer

and the program, financial, and operations staff of each agency for their hard

work in delivering another clean audit for the District.

Thank you for the opportunity to testify today. At this time, I am prepared

to answer any questions you may have.