Auditor sees "deficiencies" in D.C. Council's earmark system

The D.C. Council recklessly gave $47 million in taxpayer dollars to nonprofit groups last year, including money that went to several dozen organizations that were not abiding by tax and business licensing laws, according to a preliminary report from the city auditor's office.

After reviewing council earmarks awarded in fiscal 2009, Auditor Deborah K. Nichols concluded that there were "significant financial and management deficiencies" in how the council awarded and tracked the money.

"A failure to establish a rigorous selection and application process, as well as an effective system of financial and programmatic monitoring, resulted in a lack of transparency and financial accountability in the use of these District funds," Nichols wrote in the report.

The National Association of Former Foster Care Children of America, for example, was awarded a $300,000 earmark even though it owed $221,000 in local and federal taxes and had not filed a proper tax return since 2007, according to the report. No one with the association, which filed for bankruptcy in summer 2008, could be reached for comment.

In dozens of other cases, the auditor had trouble determining whether an organization was in compliance with tax and licensing laws "because earmark recipients provided outdated business addresses, P.O. boxes or invalid organization names."

In the report, which can be amended, Nichols calls for greater oversight from the council's budget office. But in his official response to Nichols on Tuesday, Council Budget Director Eric Goulet wrote that it would be "impossible" for his office to dedicate substantial amounts of time to monitoring earmarks.

"There is only a 56-day window from the time the Mayor submits his proposed budget, until the Council must take final action," Goulet wrote. "Given that a reasonably firm draft list of earmarks will not emerge until after Committee mark-ups, any additional procedures or steps in this process will make it impossible for my office to complete the necessary work on the budget within the 56-day window."

The modern earmark began in 2005, when council member David A. Catania (I-At Large) began diverting noncompetitive grants to health-care organizations.

In the years since, Mayor Adrian M. Fenty (D) and other council members also began lining up grants for arts and social service organizations, many of which came to rely on the money. Since 2005, earmarks have cost taxpayers nearly $150 million, according to Nichols's report.

In summer 2008, Council Chairman Vincent C. Gray (D) began pushing for tighter restrictions on earmarks. Gray required for the first time that earmark recipients be registered nonprofit organizations and be subject to audits from Nichols. Newly formed groups without tax-exempt status were required to have fiscal agents. Gray also capped earmarks at $250,000 for noncapital projects and $1 million for capital projects.

"The actions of the Council and Chairman Gray significantly increased the transparency of the earmark process, and for the first time, brought these grants into the mainstream oversight process," Goulet wrote.

But earmarks took a twist this summer, when the Washington City Paper reported that council member Marion Barry (D-8) had issued nearly $1 million in earmarks in fiscal 2009 to organizations that appeared to be run by members of his staff. Some of those groups, according to the City Paper, received money before they were incorporated.