The District government has lost track of how it is spending much of the $120 million in mostly federal money allocated for its late-starting Year 2000 computer repair project, city and federal officials acknowledged yesterday.

The situation is so severe that the District has brought in an outside auditing firm to provide financial oversight to the D.C. information technology agency. Meanwhile, about $25 million worth of bills submitted by International Business Machines Corp., the city's chief Y2K contractor, have been called into question.

The financial management of the District's Y2K project will be the subject of a House hearing today. An administrator with the General Accounting Office is prepared to testify that because of the city's confusion over Y2K spending, "it [is] impossible to currently determine whether its Y2K funds were spent properly," according to an advance copy of her remarks obtained by The Washington Post.

"We [have] received inconsistent and unreliable cost data from several District officials and the cost schedules continued to change," the GAO official, Gloria L. Jarmon, says in the prepared testimony. "It was apparent that the District did not have reliable financial data to manage the Y2K project costs."

Top city officials did not dispute yesterday that the District has had trouble keeping track of the money budgeted for the massive, and fast-moving, Y2K project. They said they, too, have been frustrated at times by the inability to determine reliably how much has been spent, how much money is available and what other spending has been committed.

But Interim City Administrator Norman Dong stressed that he remains confident in the Y2K repair team and its ability to complete the computer fixes, develop backup plans in the event of failure and ensure that city services are not disrupted at year's end.

City officials added that there have been no allegations that the Y2K money has been misspent. And Dong noted that as of this week, the accounting firm KPMG LLP will be handling financial oversight of the information technology agency.

"We expect we will get the timely, accurate and reliable information we need to manage this moving forward," Dong said.

The federal government has already allocated $104 million for the District's Y2K project--supplementing $16 million in city funds--and an additional request for $68 million in federal aid is pending.

Members of Congress are awaiting an explanation for the financial disarray. "We have heard loosely that there may be issues as to how the money has been spent," said David Marin, a spokesman for Rep. Thomas M. Davis III (R-Va.), chairman of a House District oversight panel. "This is one of the reasons we are having the hearing, to shake the trees and ask the appropriate parties to share with us the details of the expenditures."

Questions about the IBM contract pertain to $37.5 million worth of bills submitted to the District for 211,809 hours worth of work the firm says it performed from November to May. IBM is searching through 650,000 lines of computer code for date references that could make city computers think that Jan. 1, 2000, is Jan. 1, 1900.

An internal District memorandum obtained by The Post concludes that $15.2 million billed by IBM was "disallowed" and in dispute because the city did not have advance approval for the spending or the approval was questionable. An additional $7.2 million lacked invoices to prove work had been done. The city also suspects that IBM may have overbilled the District by $1.1 million, noting that to perform all the work billed the staff would have needed to work more than 24 hours a day, seven days a week.

The author of the memorandum, Terrie Weston Saunders, is being reassigned to another city agency that officials would not disclose. One city official, who asked not to be identified, said part of the reason for the confusion over the IBM bills is the poor financial management of the Y2K project.

Lucy B. Murray, spokeswoman for Chief Financial Officer Valerie Holt, disputed suggestions that Saunders's reassignment is based on dissatisfaction with her work. Murray said that Saunders's appointment in July as chief financial officer to the information technology agency was temporary. In an interview, Saunders defended her work, saying that she was just trying to document Y2K spending.

But Murray agreed it would be helpful to have outside assistance in managing the IBM contract and other Information Technology-related financial matters.

"We need somebody with a lot of experience and knowledge with federal accounting procedures, and the people that we have on staff are already assigned so no one is available," Murray said. "It is much too critical of a project to not have the appropriate personnel on it."

IBM spokesman Glen Brandow said he could not comment on the questions raised in the District memorandum and referred all inquiries to the city.

Mary Ellen Hanley, the District's Y2K project director, said most if not all of the concerns will be resolved after IBM submits sufficient documentation and the city finds the appropriate budgetary authority.

Dong, the interim city administrator, said he will reserve judgment on the matter until KPMG completes its review.


IBM Corp., under a federally financed contract with the District government, is handling almost all of the Y2K repairs on the city's computer software. The city's chief financial officer assigned to the agency has questioned IBM's bills, including making allegations of possible excessive charges or unauthorized spending.*

Total billed (November 1998-May 1999): $37.5 million

Average hourly rate: $176.8 an hour

Average hours of labor a month: 35,302 hours

Inappropriate budget authority: $13.8 million

No support to justify invoices: 7.2 million

Questionable compliance with budget authority: 1.4 million

Possible overbilling: 1.1 million

Questionable billed amount total: $23.4 million (62.5 percent)

*The questions about the IBM bills were first raised in a memorandum written on Aug. 31. The city could not say as of yesterday afternoon if any of these estimates of questionable bills have since changed.

SOURCE: Aug. 31, 1999, memorandum by Terrie Weston Saunders, chief financial officer assigned to the Office of Chief Technology Officer.