D.C. Council members, from left, Jim Graham (D-Ward 1), Marion Barry (D-Ward 8) and Mary M. Cheh (D-Ward 3) during yesterday's hearing.
D.C. Council members, from left, Jim Graham (D-Ward 1), Marion Barry (D-Ward 8) and Mary M. Cheh (D-Ward 3) during yesterday's hearing.
By Nikki Kahn -- The Washington Post

Audit Finds Financial Problems in D.C. School System

By David Nakamura and Theola Labbé
Washington Post Staff Writers
Wednesday, January 31, 2007

An independent audit of the D.C. government has found serious problems with the public school system's financial controls, alarming District officials who say that the city's fiscal health could be at risk if the lapses are not corrected.

The audit could help Mayor Adrian M. Fenty (D) win critical support in his attempt to persuade the D.C. Council to approve his proposal to take direct control of the 58,000-student school system.

Fenty and D.C. Chief Financial Officer Natwar M. Gandhi plan to formally announce the findings at a news conference today, during which they will also hail the city's 10th consecutive balanced budget.

The audit, completed last week, was conducted by BDO Seidman LLP as part of the District government's annual performance review known as the Comprehensive Annual Financial Report, which is presented to Congress, the mayor and the D.C. Council.

Although auditors issued the city a "clean" audit, they detailed significant concerns with the school system's internal controls over payroll, procurement, federal grants and Medicaid services, according to a draft copy obtained yesterday by The Washington Post.

Among the areas cited were poorly trained staff, incomplete records, unauthorized overtime pay and inadequate monitoring of federal grant money. The auditors classified the findings as a "material weakness" in the District's overall financial health, the most serious level of concern below an "unclean" audit.

In an interview, Gandhi said that if the conditions cited in the report do not improve by next year, the District would be in serious jeopardy of receiving an "unclean" audit. That, Gandhi said, could prompt Wall Street to downgrade the District's bond ratings, which have been improving steadily for the past several years.

A high bond rating allows the city to borrow money at lower interest rates for capital projects, such as renovating schools and building the new baseball stadium.

"A clean audit is a life-and-death issue," Gandhi said. "To get an unclean opinion would be a serious issue. We'd lose our credibility on Wall Street."

The audit includes written responses from school officials, who characterized many of the infractions as the result of antiquated payroll and procurement systems that are in the process of being improved.

In an interview, John C. White, spokesman for Superintendent Clifford B. Janey, said the audit actually showed that the school system was making progress because it had been cited for a wider variety of lower-level problems in previous years.

"This shows there's been some improvement," he said.

News of the audit was first made public yesterday morning during the council's second hearing on Fenty's school governance proposal. Members heard from school officials and national education experts.

The council is weighing Fenty's proposal to reduce the Board of Education's authority and transfer oversight of the school superintendent and budget to himself and the D.C. Council against the school board's alternative proposal, which promises significant academic gains within 18 months if the board remains in place.

Board President Robert C. Bobb called the board's plan a better choice because it ties in academic benchmarks, but council members expressed skepticism that the board can meet the high goals in such a short time. Activists from New York City, where Mayor Michael R. Bloomberg (R) won control of schools five years ago, warned the council to proceed cautiously.

But the biggest fireworks came when Jack Evans (D-Ward 2), head of the council's Finance and Revenue Committee, demanded that Janey and Bobb respond to the auditors' conclusions. Evans said the auditors told him that the school system was the worst department to deal with.

"The cooperation was not there," said Evans, who supports Fenty's plan. "They could barely audit your system."

Janey professed not to know about the auditors' concerns. "They have not come to me and given me the same conclusion," Janey said. "I heard differently."

After Janey left the council chambers, he spoke with Gandhi on the telephone to further discuss the matter, White said. White explained that Janey was briefed about the audit several days ago and was surprised that Evans was talking about it publicly.

© 2007 The Washington Post Company