Correction to This Article
An April 26 Metro article incorrectly said that a D.C. Superior Court judge rejected two lawsuits that sought to challenge the legality of Mayor Adrian M. Fenty's school takeover plan. The judge rejected requests for a temporary injunction. The lawsuits will be heard at a later date.

Schools to Hire Accountants To Help With Fiscal Problems

By David Nakamura
Washington Post Staff Writer
Thursday, April 26, 2007

District officials announced yesterday that they will hire an accounting firm to help the public school system fix financial problems that threaten the city's overall fiscal health.

After a private meeting with D.C. Chief Financial Officer Natwar M. Gandhi that lasted about 30 minutes, Mayor Adrian M. Fenty (D) and Board of Education President Robert C. Bobb said the school system had agreed to bring in a firm as soon as today. The cost is estimated at about $200,000 and will be paid by the school system, Fenty said.

The announcement marked the first major collaboration between the Fenty administration and the school system since the mayor's plan to take direct control of the 55,000-student school system was approved by the D.C. Council last week.

Fenty needs Congress to approve a change in the city's Home Rule Charter before he assumes authority from the school board. Until then, he has said he hopes to work with Bobb to ensure a smooth transition.

Problems with the school system's accounting were identified in January during the city government's annual performance review, known as the Comprehensive Annual Financial Report, which is delivered to Congress.

Although auditors from BDO Seidman LLP gave the city a "clean" audit, they detailed significant concerns with the school system's internal controls over payroll, procurement, federal grants and Medicaid services.

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

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 several years.

Last week, Gandhi sent a letter to council members stating that the school system has made little progress toward fixing the problems because the system lacks the resources and expertise.

"The number one issue for us over the next few weeks is to address the material weaknesses," Fenty said yesterday.

If the school system cannot improve, Gandhi added, "that would have a catastrophic effect on us from a financial perspective." Downgraded bond ratings would raise the city's cost of borrowing.

Fenty and Bobb said the accounting firm's role would be limited to correcting the weaknesses. They said another firm would be hired to conduct a broader "forensic audit" of the school system.

Also yesterday, a D.C. Superior Court judge rejected two lawsuits that sought to challenge the legality of Fenty's school takeover plan. The suits were brought by activists who argued that the city government is required to hold a referendum on any proposed change to the Home Rule Charter.

© 2007 The Washington Post Company