Review of Certain Aspects of the District of Columbia's Fiscal Year 1999
Comprehensive Annual Financial Report (CAFR) (Correspondence, 11/03/2000,
GAO/GAO-01-173R).

Mitchell & Titus, LLP issued its Independent Auditors' Reports on the
general purpose financial statements included in the District of
Columbia's Comprehensive Annual Financial Report (CAFR) the fiscal year
1999. GAO reviewed the auditors' report in order to answer several
congressional questions about to the CAFR. The independent auditors used
generally accepted auditing procedures to ensure that the expenditures,
revenues, and assets were properly stated in the CAFR. However, the
auditors did not, when assessing the District's property, plant, and
equipment, include in their risk analysis two issues that could affect
the accuracy of the data reported. Accounting errors explained why the
District of Columbia Financial Responsibility and Management Assistance
Authority's actual expenditures were different on the CAFR and its own
audited financial statements. The auditors' report notes that the
District's Chief Financial Officer did not use proper procedures in
performing reversal of accruals in the Advisory Neighborhood
Commission's (ANC) account. By not following the stated procedures,
ANC's expenditures were understated by about $277,000.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-173R
     TITLE:  Review of Certain Aspects of the District of Columbia's
	     Fiscal Year 1999 Comprehensive Annual Financial Report
	     (CAFR)
      DATE:  11/03/2000
   SUBJECT:  Financial statement audits
	     Reporting requirements
	     Internal controls
	     Accounting standards
	     Auditing standards
	     Auditing procedures
IDENTIFIER:  District of Columbia

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GAO-01-173R

Review of D. C. 's 1999 CAFR

United States General Accounting Office Washington, DC 20548

November 3, 2000 The Honorable Ernest J. Istook, Jr. Chairman, Subcommittee
on the District of Columbia Committee on Appropriations House of
Representatives

Subject: Review of Certain Aspects of the District of Columbia's Fiscal Year
1999 Comprehensive Annual Financial Report (CAFR)

Dear Mr. Chairman: On April 24, 2000, Mitchell & Titus, LLP, issued its
Independent Auditors' Report on the general purpose financial statements
included in the District of Columbia's CAFR for the fiscal year ended
September 30, 1999. This letter responds to your request that we review
certain aspects of this report. In meetings with your staff in September, we
agreed to provide responses to six specific questions that would address the
Subcommittee's concerns related to the CAFR.

To address these questions, we reviewed the fiscal year 1999 CAFR, prior
financial statements as well as audit reports, and reports on internal
control and compliance with laws and regulations. We interviewed officials
from Mitchell & Titus and the District of Columbia. In addition, we examined
workpapers prepared by Mitchell & Titus and documents and schedules of the
District of Columbia. We conducted our work from September through October
2000 in accordance with generally accepted government auditing standards.

Responses to Question on the District of Columbia's Fiscal Year 1999 CAFR

Our answers to the six questions follow. 1. Why is the amount of actual
expenditures for the D. C. Financial Authority (Control Board) reported in
the CAFR different than the amount reported in the Control Board's audited
financial statements?

Due to an oversight by the District's Office of the Chief Financial Officer
(OCFO), the Control Board's budgeted expenditures from its fiscal year 1999
financial statements were incorrectly reported in the actual expenditure
column in Exhibit 3, on page 26 of the fiscal year 1999 CAFR. District
officials stated that the amount reported was

GAO- 01- 173R Review of D. C. 's 1999 CAFR Page 2 overstated by $56,656,
which had the effect of decreasing the District's surplus by

that amount. As discussed under Question 2 below, this amount would not have
been deemed to be material to the District's fiscal year 1999 CAFR and
accordingly would not necessarily have been identified by Mitchell & Titus'
audit. The OCFO is now aware of the reporting difference and has stated that
the actual amounts of revenues and expenditures reported in the Control
Board's audited financial statements for fiscal year 2000 and thereafter
shall be included on Exhibit 3 of the District's CAFR.

2. Were reasonable procedures performed by the District's independent
auditors and the District's Office of the Chief Financial Officer (OCFO) to
ensure that there were no other revenues or expenditures similarly misstated
in the CAFR? Based on our review of the independent auditors' workpapers and
the District OCFO's procedures, it appears that reasonable procedures were
performed in accordance with generally accepted government auditing
standards to ensure that material amounts of the revenues and expenditures
reported in Exhibit 3, on page 26 of the CAFR, were supported by audit
workpapers and accounting records.

3. Were reasonable procedures performed by the District's independent
auditors to satisfy them that all appropriate District government entities
were included and fairly presented in the CAFR, in accordance with generally
accepted accounting principles (GAAP)? Specifically, where are the revenues
and expenses of the Cable Television activity and the Business Improvement
Districts (BIDs)?

Based on our review of the independent auditors' workpapers, the District's
independent auditors performed adequate procedures to ensure that
appropriate District government entities were included and fairly presented
in the CAFR, in accordance with GAAP.

With regard to the revenues and expenses of the Cable Television activity, a
review of the District's Approved Fiscal Year 1999 Appropriation Budget
shows that this agency is not part of the General Fund. The revenues and
expenses for Cable Television are reported on Exhibits G- 1 and G- 2, pages
95 and 97, of the CAFR on a schedule entitled “Financial Reporting
Entity.” The schedule reports revenues and expenses of various
entities on a combined basis.

BIDs revenues and expenses are reported on Exhibit 3, page 26, of the CAFR.
Revenues of $9.3 million are included in the line captioned "Private &
Other," while expenses of $7.2 million are included in the line captioned
"Economic development and regulation." The excess of $2.1 million for
revenues over expenses was appropriately deferred for future use in the
General Fund Deferred Revenue account.

4. Is there sufficient accounting detail to support the property, plant, and
equipment in the CAFR, and was the detail sufficiently audited to warrant a
clean opinion on the amounts presented? Exhibit 1, on page 23 of the CAFR,
reports approximately $6 billion of recorded property, plant, and equipment
for the District as of September 30, 1999. The

GAO- 01- 173R Review of D. C. 's 1999 CAFR Page 3 District's independent
auditors concluded that risk was low in the property, plant,

and equipment area based on their determined materiality levels and the
anticipated implementation of a new property management system, which was
not in place at the end of the audit. The independent auditors' risk
analysis did not appear to consider that (1) the new system was not in place
during fiscal year 1999 and (2) recent prior audits reported weaknesses in
controls over property, plant, and equipment. The auditors' testing focused
on additions and deletions to property, plant, and equipment during the
fiscal year ended September 30, 1999. We noted no evidence of the
application of audit procedures to determine if the total reported balance
of property, plant, and equipment at the beginning of the period or the end
of the period was complete and accurately reported.

5. Were the reversal of accruals at the close of the fiscal year 1999
handled properly according to GAAP? How were accruals and the reversal of
accruals performed in general, and for the Advisory Neighborhood Commission
(ANC) account? The District's Office of the Chief Financial Officer has
procedures that explain the year- end accrual/ reversal/ payment process
applicable across the District government's departments and agencies. While
these procedures, properly applied, would have resulted in appropriate
accounting information, they were not properly applied. The consequences of
not properly following the procedures resulted in the ANC's expenditures
being understated by about $277,000.

As discussed with staff in your office, we attempted to obtain information
from the District on other accounts that might be misstated due to the
District not properly following its accrual procedures. However, because of
the District's year- end closing process and other current priorities, this
information may not be available until much later.

6. Was the amount loaned to the Public Benefit Corporation by the District
government for use at the D. C. General Hospital fully reserved?

The amount loaned to the Public Benefit Corporation by the District
government is not fully reserved because there has not been a legislatively
binding decision to forgive the debt. District officials informed us that
when a decision is made to forgive the loan, the receivable would then be
written off and expensed. At the beginning of fiscal year 1999, there was an
accounts receivable balance related to these transactions of $42 million. In
addition, $28 million of loans were made during the fiscal year. Also,
during fiscal year 1999, $29 million was forgiven and approved by the City
Council and, therefore, deducted from receivables. The balance of
approximately $41 million was reported on page 44 of the CAFR along with
other amounts due to the District from the Public Benefit Corporation of $1
million, for a total amount due to the District of $42 million.

GAO- 01- 173R Review of D. C. 's 1999 CAFR Page 4

District and Auditor Comments

On October 27, 2000, officials from the District of Columbia's Office of
Financial Operations and Systems, the office responsible for the preparation
of the fiscal year 1999 CAFR, told us they had no comments on the letter.

On November 2, 2000, officials at Mitchell & Titus told us they had no
comments on our letter.

----- We are sending copies of this letter to Representative James P. Moran,
Ranking Minority Member of your Subcommittee, and to Representative C. W.
Bill Young, Chairman, and Representative David R. Obey, Ranking Minority
Member, of the House Committee on Appropriations. We are also sending copies
to Anthony E. Pompa, Chief Financial Officer of the District of Columbia;
Darrell Giles, Partner, Mitchell & Titus, LLP; and other interested parties.
Copies will also be made available to others on request.

If you have any questions on the material in this letter, please contact me
at (202) 512- 7353 or Michael Fischetti, Assistant Director, at (202) 512-
5125. We can also be reached by e- mail at calder. aimd@ gao. govand
fischettim. aimd@ gao. gov, respectively.

Sincerely yours, Philip T. Calder Chief Accountant

(916372)
*** End of document ***