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Posted at 06:37 PM ET, 02/01/2011

D.C. financial report reveals surplus, ongoing management issues

Several weeks after then-Mayor Adrian M. Fenty (D) and the D.C. Council, led by then-Council Chairman Vincent C. Gray (D) scrambled to close a budget gap for fiscal 2011, Chief Financial Officer Natwar M. Gandhi announced Tuesday that an annual audit shows a $3.4 million surplus in local funds in fiscal 2010.

The comprehensive annual financial report, aka the CAFR, shows $5.456 billion in local revenues and $5.452 billion in local fund expenditures at the end of the fiscal year, Sept. 30, according to a letter and news release Gandhi issued Tuesday.

But Gandhi warned now-Mayor Gray and the new council to temper their excitement, writing in the letter that "the tenuous nature of the economy will continue to impact the District's financial condition in future fiscal years." Gandhi noted that revenue estimates decreased over the course of the year by $38 million.

Gandhi also warned officials to pay heed to the city's savings account, noting that the balance of city's general fund dropped to $890 million from $920 million the year prior. "It is imperative that the District adopts future budgets on the principle of current year spending not exceeding current year revenues," he said in the letter.

Gandhi released the letter on the same day the D.C. Council approved emergency legislation to furlough non-essential personnel on four upcoming holidays to save $19.3 million in fiscal 2011.

KPMG, the District's auditors, gave the city's books a clean bill of health in a companion report, but the firm identified five "significant deficiencies" in city management.

For instance, auditors identified several problems within city computer systems -- including a failure to properly restrict access to sensitive financial documents and programs. Problems were also found in city procurement controls, such as missing documentation for contract awards and inappropriately awarded sole-source contracts, and in incomplete financial statements prepared by several District bodies, including the city unemployment trust fund, the University of the District of Columbia, and the Washington Convention and Sports Authority.

Personnel management also drew some criticism: One employee, auditors found, received $31,000 in overtime pay that the employee was not entitled to. Another employee continued to collect a car allowance, worth $3,300, after being fired. Many other employees were found to have key documentation missing from their employment files.

And more than three years after a $50 million embezzlement scandal rocked the Office of Tax and Revenue, auditors continue to identify weaknesses in financial oversight there. For instance, some employees who are not supposed to make changes to property assessments have the ability to do so in city computer systems.

Last year, auditor BDO Seidman also identified problems in the tax office, in addition to five other stated concerns. While procurement and vendor payment issues seem to have have persisted, the new report makes no mention of Medicaid billing management or issues in the D.C. Public Schools, which were major points of emphasis in past reports.

KPMG, which took over from BDO Seidman this year, did not directly assess how city managers had addressed issues named in previous reports.

By and  |  06:37 PM ET, 02/01/2011

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