District To Begin Schools Audit

By David Nakamura
Washington Post Staff Writer
Monday, June 4, 2007

D.C. government officials will launch an extensive audit of the city's public schools today designed to pinpoint how the system is spending its $1 billion budget and identify areas of waste and mismanagement.

The audit, scheduled for announcement at a midday news conference, comes as Mayor Adrian M. Fenty (D) prepares to take control of the 55,000-student school system and is patterned after similar studies in other jurisdictions, including New York, St. Louis and New Orleans. But those studies have not always provided clear answers and, in some cases, resulted in new problems created by the auditors.

The District's analysis, a joint effort by the mayor and school officials, will cost about $3.2 million and will be conducted by two management consulting firms: Alvarez & Marsal and McKinsey & Co. The city is soliciting private donations to help defray the cost, said government sources, who spoke on condition of anonymity because an official announcement has not been made.

City leaders, and even some school officials, have complained for years that they are uncertain exactly how the system is spending its money, particularly in high-cost areas such as special education and transportation. Although D.C. Chief Financial Officer Natwar M. Gandhi has staff assigned to the school system, he has said he does not have jurisdiction over personnel, procurement and contracting, which are overseen by the superintendent and Board of Education.

This time, however, Superintendent Clifford B. Janey and board President Robert C. Bobb have signed on as partners with Fenty in conducting the audit, which is expected to take four months. The consulting firms will be instructed to look at service contracts, the central administration structure and how management decisions are made, among other things, the sources said.

"The mayor's taking over an agency that's been independent," said D.C. Council member Tommy Wells (D-Ward 6), who served on the Board of Education until January. "It's prudent for the mayor to have as thorough an audit as possible to identify weaknesses that occurred prior to his watch."

Gandhi said he welcomed a review of the school system's management. He already is working with the accounting firm KPMG to address specific problems in the school system's accounting, personnel and Medicaid departments that were identified in the city's annual performance review last year.

Gandhi has said those problems could jeopardize the District's bond ratings on Wall Street if they are not fixed.

"This will give us a much better idea which would say how decisions made over there, a good review of contracts, how they get done and how they could be improved," Gandhi said.

Under the takeover plan, Fenty would be in charge of the superintendent and $2.3 billion capital improvement program. The mayor and council would share authority over the school system's operating budget.

McKinsey & Co. has worked with the D.C. schools in the past. In 2001, the firm helped produce "Business Plan for Strategic Reform," a document that outlined a five-year improvement strategy for then-Superintendent Paul Vance.

It is unclear what happened to that plan. Janey replaced Vance as superintendent in 2004.

Alvarez & Marsal has worked extensively on school management issues in St. Louis, New York and New Orleans. But the company's work has been criticized after some well-publicized missteps and when the solutions that were recommended failed to produce results.

In St. Louis and New York, the firm focused largely on consolidating school bus transportation routes to improve efficiency and cut costs. But in both jurisdictions, students were sometimes stranded without buses after the routes were changed, according to news reports.

St. Louis schools, which paid Alvarez & Marsal $4.5 million, were recently taken over by the state of Missouri after the system failed to meet academic and financial standards. The company recently completed a $21.6 million contract to overhaul the New Orleans school system's financial operations.

Jeff Smith, a former D.C. school board member who resigned because of Fenty's takeover plan, said the board considered hiring Alvarez & Marsal last year but decided not to after learning how much it would cost.

"Our preliminary research showed that the costs far exceeded the industry norms," said Smith, now head of the school advocacy group D.C. Voice. "When we talked with people in New York, the fees were exorbitant compared to deliverables."

The D.C. government sources said the audit would begin immediately even though Fenty has not taken control of the system.

Although Congress and President Bush have authorized a change to the Home Rule Charter, Fenty must wait until a standard congressional review period for his takeover legislation expires June 12.

A group of residents is also attempting to force a referendum on the mayor's takeover plan. District lawyers have challenged the referendum attempt in Superior Court, which is expected to rule in the case this week.

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