Jonetta Rose Barras: Shiny facades and internal chaos

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Local,DC,Jonetta Rose Barras,Jack Evans

District elected officials have cited balanced budgets and Wall Street credit ratings as indicators they have handled the city's finances masterfully. But behind those shiny facades are internal control problems screaming for attention.

Independent auditors from KPMG, who in 2012 reviewed District finances and internal controls, recently sent city officials a 55-page "management letter" identifying 34 weaknesses, deficiencies and cases of noncompliance. The majority -- 24 -- were cited in previous years.

A remediation committee, composed of agency representatives and guided by Chief Financial Officer Natwar Gandhi's shop, should have resolved those outstanding problems. But CFO spokesman David Umansky seemed unfazed by the recurring findings. He told me 14 simply dealt with the lack of adequate supporting documentation; seven others were about policies and procedures.

"The OCFO fully recognizes the importance of maintaining adequate supporting documentation to demonstrate the validity and accuracy of reported transactions," said Umansky, adding sometimes it's difficult to have information "at a specific moment" when there are a large numbers of transactions daily. Further, he said developing new policies and procedures sometimes "extend from one fiscal year into the next."

But the CFO has a staff of more than 800 employees and a $120 million budget. Why can't he effect timely changes?

"Whether they are major or minor doesn't matter. It doesn't instill confidence in the public," said Councilman Jack Evans, who oversees the CFO's operations.

Evans said he charged Gandhi with reducing management issues to zero. "I will look forward to an explanation for why that has not happened."

The lax or absent internal controls could cost taxpayers a bunch of money.

For example, the Health Care Finance Administration couldn't provide documentation supporting the eligibility for some Medicaid providers. Auditors said that could result in payments to "ineligible" providers and the federal government's refusal to pay for services. Then, District taxpayers foot the bill.

Auditors also found the Office of Tax and Revenue lacked adequate policies and procedures for property tax appeals and "insufficient controls" over tax-withholding reconciliations. "The failure to fully reconcile withholding amounts could lead to misstatement in revenues and an increase risk of fraud," auditors wrote.

Umansky asserted there are several other controls to detect fraud, including an automated data system and warehouse. As for property tax appeals, he said the problem was more in the "accounting treatment." The year-end procedure didn't incorporate financial information from out-of-court settlements. "OTR is working to enhance the database that tracks appeals to the Superior Court" to ensure projects are based on accurate and current information.

The management letter actually underscores the need for the Office of the Chief Financial Officer Act of 2013, recently introduced by D.C. Councilman Vincent Orange. That bill would mandate a forensic-type audit of the OCFO's operation, including an analysis of how much revenue has been loss because of weak internal controls.

"That's warranted for other agencies -- not just the CFO," objected Evans. "What about the human services cluster, which is $4.5 billion of our budget?"

Evans is right. Let's do them all.

Jonetta Rose Barras can be reached at jonetta@jonettarosebarras.com.

Jonetta Rose Barras' column appears on Tuesday and Friday. She can be reached at jonetta@jonettarosebarras.com.

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