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District of Columbia appropriations for 1997 : hearings before a subcommittee of the Committee on Appropriations, House of Representatives, One Hundred Fourth Congress, second session PDF

1660 Pages·1996·49.6 MB·English
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Preview District of Columbia appropriations for 1997 : hearings before a subcommittee of the Committee on Appropriations, House of Representatives, One Hundred Fourth Congress, second session

^\^ DISTRia OF COLUMBIA APPROPRIATIONS ,i3 FOR 1997 Y4,AP 6/l:D63/997/PT.l District of Colunbia Appropriations... tINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OP REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS SECOND SESSION SUBCOMMITTEE ON DISTRICT OF COLUMBIA APPROPRIATIONS JAMES T. WALSH, New York, Chairman HENRY BONILLA, Texas JULIAN C. DIXON, CaUfomia JACK KINGSTON, Georgia MARCY KAPTUR, Ohio RODNEY P. FRELINGHUYSEN, New Jersey JOSE E. SERRANO, New York MARK W. NEUMANN, Wisconsin MIKE PARKER, Mississippi NOTE:UnderCommitteeRules,Mr.Livingston,asChairmanoftheFullCommittee,andMr.Obey,asRanking MinorityMemberoftheFullCommittee,areauthorizedtositasMembersofallSubcommittees. Americo S. Miconi, StaffAssistant PART 1 (Pages 1-1496) Page Results ofFY 1996 Independent Audit 1 FY 1996 Budget Status and FY 1997 Budget Process 119 Problems With Management and Service Delivery 399 FY 1997 Budget 603 GAG Review ofControl Board Plans and Progress 759 Printed for the use of the Committee on Appropriations i'Z.0 ] , DISTRICT OF COLUMBIA APPROPRIATIONS FOR 1997 HEAEINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OP REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS SECOND SESSION SUBCOMMITTEE ON DISTRICT OF COLUMBIA APPROPRIATIONS JAMES T. WALSH, New York, Chairman HENRY BONILLA, Texas JULIAN C. DIXON, California JACK KINGSTON, Georgia MARCY KAPTUR, Ohio RODNEY P. FRELINGHUYSEN, New Jersey JOSE E. SERRANO, New York MARK W. NEUMANN, Wisconsin MIKE PARKER, Mississippi NOTE:UnderCommitteeRules,Mr.Livingston,asChairmanoftheFullCommittee,andMr.Obey,asRanking MinorityMemberoftheFullCommittee,areauthorizedtositasMembersofallSubcommittees. Americo S. MicoNi, StaffAssistant PART 1 (Pages 1-1496) Page Results ofFY 1996 Independent Audit 1 FY 1996 Budget Status and FY 1997 Budget Process 119 Problems With Management and Service Delivery 399 FY 1997 Budget 603 GAO Review ofControl Board Plans and Progress 759 Printed for the use of the Committee on Appropriations U.S. GOVERNMENT PRINTING OFFICE 27-054O WASHINGTON 1996 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053889-0 COMMITTEE ON APPROPRIATIONS BOB LIVINGSTON, Louisiana, Chairman JOSEPH M. McDADE, Pennsylvania DAVID R. OBEY, Wisconsin JOHN T. MYERS, Indiana SIDNEY R. YATES, lUinois C. W. BILL YOUNG, Florida LOUIS STOKES, Ohio RALPH REGULA, Ohio TOM BEVILL, Alabama JERRY LEWIS, California JOHN P. MURTHA, Pennsylvania JOHN EDWARD PORTER, Illinois CPL\RLES WILSON, Texas HAROLD ROGERS, Kentucky NORMAN D. DICKS, Washington JOE SKEEN, New Mexico MARTIN OLAV SABO, Minnesota FRANK R. WOLF, Virginia JULIAN C. DDCON, California TOM Delay, Texas VIC FAZIO, California JIM KOLBE, Arizona W. G. (BILL) HEFNER, North Carolina BARBARA F. VUCANOVICH, Nevada STENY H. HOYER, Maryland JIM LIGHTFOOT, Iowa RICHARD J. DURBIN, Illinois RON PACKARD, CaUfornia RONALD D. COLEMAN, Texas SONNY CALLAHAN, Alabama ALAN B. MOLLOHAN, West Virginia JAMES T. WALSH, New York JIM CHAPMAN, Texas CHARLES H. TAYLOR, North Carolina MARCY KAPTUR, Ohio DAVID L. HOBSON, Ohio DAVID E. SKAGGS, Colorado ERNEST J. ISTOOK, Jr., Oklahoma NANCY PELOSI, California HENRY BONILLA, Texas PETER J. VISCLOSKY, Indiana JOE KNOLLENBERG, Michigan THOMAS M. FOGLIETTA, Pennsylvania DAN MILLER, Florida ESTEBAN EDWARD TORRES, CaUfornia JAY DICKEY, Arkansas NITA M. LOWEY, New York JACK KINGSTON, Georgia JOSE E. SERRANO, New York FRANK RIGGS, CaUfornia RAY THORNTON, Arkansas MIKE PARKER, Mississippi RODNEY P. FRELINGHUYSEN, New Jersey ROGER F. WICKER, Mississippi MICHAEL P. FORBES, New York GEORGE R. NETHERCXJIT, Jr., Washington JIM BUNN, Oregon MARK W. NEUMANN, Wisconsin James W. Dyer, Clerk and StaffDirector (HI) DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 1997 Thursday, May 9, 1996. RESULTS OF FY 1995 INDEPENDENT AUDIT INDEPENDENTAUDITORS' REPORTON FY 1995 RESULTS AND ANTI-DEFICIENCYVIOLATIONS WITNESSES JOHNH. HUMMEL, PARTNER, KPMG PEATMARWICKLLP ANTHONY A. WILLIAMS, CHIEF FINANCIAL OFFICER, DISTRICT OF COLUMBIA ROBERTN. REID, D.C. CONTROLLER ANGELAL.AVANT, INSPECTORGENERAL, DISTRICTOFCOLUMBIA INTRODUCTION OF NEW SUBCOMMITTEE MEMBERS Mr. Walsh. The subcommittee will come to order. I understand our colleague, the ranking Member of the sub- committee, Mr. Dixon, is on his way. This is our first meeting this session. I would like to welcome our new members. We have two. One is not here yet and one is. Mike Parker, who represents the Fourth District of Mississippi, will be joining us on our side ofthe aisle. We're delighted to have him. On the other side of the aisle my very good friend and distinguished colleague from New York State, representing the 16th District of New York, Mr. Jose Serrano. Welcome. Mr. Serrano. Thank you. Mr. Walsh. He'll be replacing Mr. Durbin of Illinois on the sub- committee. We extend a warm welcome and look forward to work- ing with both Mr. Serrano and Mr. Parker to try to get the District government back on a sound footing. ANTI-DEFICIENCY ACT CITED We are here this morning to hear about the financial results of the District's operations for fiscal year 1995 based on Peat Marwick's independent audit. We are particularly interested in hearing about the District government's violations of the Anti-Defi- ciency Act and what is being done about them. The Anti-Deficiency Act states the following. "An officer or em- ployee ofthe United States government or ofthe District ofColum- bia government may not make or authorize an expenditure or obli- (1) gation exceeding an amount available in an appropriation or fund for the expenditure or obligation." Let me stop at this point to ac- knowledge our ranking Member, Mr. Dixon. Welcome. Mr. Dixon. Thank you, Mr. Chairman. Mr. Walsh. The Act goes on to say that officers or employees vio- lating that provision may be subject to administrative and criminal penalties under 31 U.S.C. 1349 and 1350. Additionally, 31 U.S.C. 1351 requires the mayor to report immediately to the President and Congress all relevant facts concerning the violations and to provide a statement ofactions taken regarding the violations. Section 603(e) of Public Law 93-198, the District of Columbia Self-Government and Governmental Reorganization Act continued the applicability ofthe Anti-Deficiency Act to the District ofColum- bia following the adoption ofthe Home Rule Charter. We'd like to see this morning how all of this can be applied in the District for fiscal year 1995. INTRODUCTION OF WITNESSES We have three witnesses before the subcommittee this morning. John Hummel, a partner with KPMG Peat Marwick, the District's independent auditor for fiscal year 1995. Anthony Williams, the District's chieffinancial officer, and Angela Avant, the District's in- spector general. Our standard procedure is to swear in all witnesses. So if you would all come forward I will swear you in together and then each of you can take a seat and make a statement. Then we'll open it up for questions. [Witnesses sworn.] Mr. Walsh. Welcome. Mr. Hummel, we'll be pleased to receive your testimony at this time. Then we'll go to Mr. Williams, and then last, Ms. Avant. Mr. Hummel. Thank you. Mr. Walsh. Let me just give my colleagues the courtesy of ask- ing ifthey would like to make an opening statement. Mr. Dixon. I have no opening statement. Mr. Walsh. Please proceed, Mr. Hummel. Opening Statement of John Hummel Mr. Hummel. All right then. Gtood morning, Mr. Chairman, and Members ofthe subcommittee. I am pleased to be here today on be- half of my firm, KPMG Peat Marwick LLP, to provide information that may be helpful to the subcommittee in reviewing the oper- ations and financial position ofthe District ofColumbia. I am the KPMG partner that was responsible for the 1995 audit of the District's financial statements. My personal experience in- cludes more than 20 years of auditing financial statements of gov- ernmental entities, both local and Federal. We issued three reports in accordance with the General Account- ing Office standards this year. The reports we issued were an inde- pendent auditor's report on the general purpose financial state- ments, an independent auditor's report on the internal control structure, and an independent auditor's report on compliance with laws and regulations. In addition, we issued a management letter which included matters oflesser importance. CHANGES IN DISTRICT SINCE 1991 As you know, my firm audited the District in the past, specifi- cally for Fiscal Years 1987 through 1991. I was also the partner in charge of those audits. What changed since 1991? Two primary things. First, there has been a significant deterioration in the Dis- trict's financial condition that is requiring tighter and tighter budg- etary constraints on procurement. The District agencies often re- spond to these constraints by going around the rules. We found widespread commonplace violations ofprocurement rules. OBLIGATIONS NOT BEING RECORDED The most common violation is not recording obligations when the District commits to spend money. This practice, which is prevalent at District agencies, is very harmful because it makes budgetary controls meaningless. We think the extent of these violations has increased since 1991. Add the lack ofcontrols over recording obliga- tions to the continued violations ofthe Anti-Deficiency Act, and you also get less budgetary control now than in 1991. — [CLERK'S NOTE. Anti-Deficiency Act violations have been reported in past years by the District ofColumbia Auditor and the U.S. General Accounting Office. In fact, according to the annual audit reports prepared by the "independent audi- tors" (including Peat Marwick), violations ofthe Anti-Deficiency Act have been re- portedeveryyearfromfiscalyear 1983throughfiscalyear 1995.] REDUCTIONS IN QUALIFIED FINANCIAL PERSONNEL Equally important has been the impact of reductions in qualified financial personnel on the District's ability to manage its financial affairs and perform routine processing. The District uses the same systems and follows the same interim and year end reporting pro- cedures as in 1991, but with far fewer people. Recordkeeping short- comings that used to be corrected with staff help and institutional knowledge now hamper management and almost caused the Dis- trict to miss its February 1 reporting deadline. YEAR-END CLOSING DEADLINES IGNORED Generally, closing deadlines were ignored. In fact, we requested the city administrator to apply intense pressure to certain agency controllers to divert their attention from daily processing matters to closing the 1995 books. They did so, and the financial statements were completed on time. But this level ofintervention was new for us this year. SIGNIFICANT AUDIT FINDINGS Now I will discuss our audit findings in detail. Our most impor- tant finding in the audit was an obvious one. The District has a serious liquidity problem. This liquidity problem is apparent in the general purpose financial statements which disclose a $378 million accumulated deficit. The District will continuously experience cash shortfall problems until this deficit is eliminated. [CLERK'S NOTE.—It should be noted that this $378 million represents an accu- mulated deficit, i.e., an excess ofliabilities overassets; it does notrepresenta "cash" shortfall.] Further, the District must deal with its unfunded pension Uabil- ity which will become a funding problem in 2004. All agree that the District will be unable to fund this liability, which in 2004 we un- derstand will be over $10 billion. [CLERK'S NOTE.—It should be noted that the District government has taken no action to adjust pension benefits forpolice, fire fighters and teachers even though responsibility for pension benefits was transferred to the District government in 1979. In testimony before the Committee on May 24, 1994, Council Chairman David Clarke made the following statement (excerpt from page 1222, part 2, FY 1995 House D.C. Appropriations Subcommittee hearings): * * * with respect to new hires, legislation has been introduced in the Council to tie the new police, fire, and teachers into the system, the new system that was established foreverybody else in 1987. It isbasically a "defined contribution" plan, a system c—oordinated with so- cial sec—urity. That legislation is scheduled for hearing it was introduced Friday on the 12th ofJuly, * * * we are just going to have to modify it a little bitfrom whatwould applyto everybody else. But those three employee groups are the groups within the fund that has the unfunded liability. The District's Delegate, Eleanor Holmes Norton, in a letter dated October 17, 1995, addressed to the Committee states "The Council has pending legislation which will close the defined benefits plan to all new hires. Mark-up is scheduled for December (1995)." As ofSeptember 10, 1996, no change has been made to the pension program for police, fire fighters and teachers.] QUALIFIED AUDIT OPINION Despite the efforts of many individuals, including the City Ad- ministrator, the ChiefFinancial Officer, and the Inspector General, the District was unable to provide us sufficient evidence regarding two accounts receivable balances this year, one affecting the gen- eral fund, and one affecting an enterprise fund. This led to a quali- fied opinion on the 1995 general purpose financial statements. The fact that we qualified the opinion with respect to these two ac- counts does not affect the validity ofthe other financial information in the financial statements. — [CLERK'S NOTE. Regarding the District's financial crisis, it should be noted that in the independent auditor^s FY 1994 audit of the District's financial state- ments (CAFR), the only"qualification" mentioned relates to a lack ofdocumentation. Also, it should be noted that the "independent auditor's" opinion letter does not in- clude a "MATTER OF EMPHASIS PARAGRAPH" which would have brought the District's financial crisis tothereader's attention.] ERROR IN BUSINESS TAX INFORMATION SYSTEM I will now discuss the details of these two accounts for which we were unable to render an opinion. The first qualified accounts re- ceivable balance relates to system errors in the business tax infor- mation system, which is the responsibility of the Department ofFi- nance and Revenue. Business taxes include business income, prop- erty, sales and use, hotel occupancy, and other business related ac- tivities. These taxes are recorded in the general fund. We tested the accounts receivable in the system and found errors in over half of the items we tested. Our testing included confirming amounts due with taxpayers and examining support for amounts due. The errors included accounts receivable which were calculated incor-

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