District of Columbia: Observations on Management Issues 	 
(16-MAY-01, GAO-01-743T).					 
								 
The District of Columbia has taken various actions to implement a
performance management process and Congress has continued to	 
provide oversight directed at strengthening the District's	 
ability to efficiently and effectively deliver results to its	 
taxpayers. This testimony discusses GAO's (1) ongoing review of  
the District's fiscal year (FY) 2000 performance report, (2)	 
report issued in April 2001 on the implementation of the	 
District's new financial management system, and (3) report being 
issued in May 2001 on the District's decision not to use money	 
that Congress provided to help simplify the District's		 
compensation systems, schedules, and work rules. GAO found that  
(1) while the FY 2000 report more fully met statutory		 
requirements than the FY 1999 report, performance planning,	 
measurement and reporting is still a work in progress in the	 
District, (2) the District continues to face significant	 
challenges in its efforts to put in place a financial management 
framework that ensures timely and reliable data on the cost of	 
the District's operations, and (3) the District no longer plans  
to use the $250,000 appropriated by Congress for reform of the	 
District's classification and compensation systems because doing 
so would delay their reform effort. This report summarizes the	 
April 2001 report, GAO-01-489, and the May 2001 report, 	 
GAO-01-690R.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-743T					        
    ACCNO:   A01003						        
  TITLE:     District of Columbia: Observations on Management Issues  
     DATE:   05/16/2001 
  SUBJECT:   State and local procurement			 
	     Financial management systems			 
	     Performance measures				 
	     Reporting requirements				 
	     Strategic planning 				 
	     Appropriated funds 				 
	     Municipal governments				 
	     District of Columbia				 
	     District of Columbia System of			 
	     Accounting and Reporting				 
								 

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GAO-01-743T
     
Testimony Before the Subcommittee on the District of Columbia, Committee on
Appropriations, House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 1: 30 p. m. EDT Wednesday May 16,
2001 DISTRICT OF COLUMBIA

Observations on Management Issues

Statement of J. Christopher Mihm, Director, Strategic Issues

GAO- 01- 743T

Page 1 GAO- 01- 743T

Mr. Chairman and Members of the Subcommittee: I am pleased to be here today
to discuss some of our current and recently completed work related to the
District of Columbia. Specifically, you asked that we discuss (1) our
ongoing review of the District?s fiscal year 2000 performance report, (2)
our report issued last month on the implementation of the District?s new
financial management system, 1 and (3) our report being issued today on the
District?s decision not to use money that Congress provided to help simplify
the District?s compensation systems, schedules, and work rules. 2

I can summarize our findings in each of these three areas very briefly.
First, our review of the District?s fiscal year 2000 performance report
underscores that while the report more fully met statutory requirements than
the fiscal year 1999 report, performance planning, measurement, and
reporting is very much a work in progress in the District. The District
changed its performance goals and measures throughout fiscal year 2000, and
the resulting performance report does not indicate why or when those changes
were made or whether the performance data developed were valid or complete.
District officials recognize the limitations with the fiscal year 2000
performance report and are committed to instilling a resultsoriented
approach to management, decisionmaking and accountability for the District
government.

Second, we found that the District continues to face significant challenges
in its efforts to put in place a financial management framework that ensures
timely and reliable financial data on the cost of the District?s operations.
Almost 4 years after the District?s acquisition of its core financial
management system, that system and related elements are in various stages of
implementation. The current mix of components involves duplication of effort
and, in some cases, requires cumbersome manual processing. As a result, the
system is unable to produce certain types of financial information on a
timely and reliable basis, such as the cost of services at the program
level. In responding to our report, the CFO stated that actions are already
being taken on some of our recommendations, and that the remaining
recommendations will be implemented.

1 District of Columbia: Weaknesses in Financial Management System
Implementation

(GAO- 01- 489, Apr. 30, 2001). 2 District of Columbia: Compensation
Simplification Contracting Requirements

(GAO- 0l- 690R, May 16, 2001).

Page 2 GAO- 01- 743T

Finally, District government officials initially told us that they planned
to apply the $250,000 from Congress to existing contracts that were being
used in the District?s effort to reform its classification and compensation
systems- and therefore would not carry out the conditions that Congress had
established for receipt of the funds. However, more recently, the officials
said they no longer planned to use the funds because doing so would delay
their reform effort, and they would formally request that Congress rescind
the appropriation.

Congress, and this Subcommittee in particular, has demonstrated a sustained
interest in working with the District government to ensure that a sound
performance management system is in place. After holding hearings on the
District?s performance in serving its residents, Congress enacted the
?Federal Payment Reauthorization Act of 1994,? which required the District
to implement an annual performance assessment process. 3

Specifically, the law requires the District to develop and submit to
Congress a performance plan for each fiscal year, including a statement of
measurable, objective performance goals for all of the government?s
significant activities. After each fiscal year, the District is to develop
and submit a performance report that includes (1) the level of performance
achieved in relation to each of the goals in the performance plan, (2) the
title of the management employee most directly responsible for the
achievement of each goal and the title of the employee?s immediate
supervisor or superior, and (3) the status of any applicable court orders
and the steps taken to comply with such orders.

This law?s general approach of establishing performance goals and reporting
on performance is similar to the requirements for executive branch federal
agencies under the Government Performance and Results Act of 1993 (GPRA).
Our extensive work on federal agencies? implementation of GPRA has shown
that it takes time and continuous effort to transform the culture of an
organization and adopt a more resultsoriented and customer- focused approach
to performance management.

Last year, on two occasions, we highlighted the challenges faced and
progress made by the District to implement a sound performance management
system. In April 2000, we reported that the District?s first

3 Public Law 103- 373. District?s Performance

Management Efforts Remain a Work in Progress

Page 3 GAO- 01- 743T

performance report, covering fiscal year 1999, lacked some of the required
information. 4 Specifically, the report did not contain (1) performance data
for most of its goals, (2) the titles of managers and their supervisors
responsible for each of the goals, and (3) information on any of the court
orders applicable to the District government during fiscal year 1999. In
October 2000, we testified before the Subcommittee on Oversight of
Government Management, Restructuring, and the District of Columbia, Senate
Committee on Governmental Affairs, that the District had made progress in
defining clear goals and desired outcomes through its strategic planning
efforts. 5 However, we said there were still opportunities to more fully
integrate various aspects of its planning process and to ensure that
performance information was sufficiently credible for decision- making and
accountability.

Since then, the District has taken a number of actions to implement a
performance management process, and Congress has continued to provide
oversight directed at strengthening the District?s ability to efficiently
and effectively deliver results to its taxpayers. The District?s fiscal year
2000 performance report, issued on March 22 of this year, included several
initiatives to address issues raised in congressional hearings on the
District?s management and performance.

Within the next few weeks, we will issue our detailed assessment of the
fiscal year 2000 performance report. However, we are far enough along in our
assessment that I can provide an overview of our key findings. Performance
management remains very much a work in progress for the District, and the
performance report reflects that fact. The District?s goals and measures
were in a state of flux during fiscal year 2000, changing as the District
introduced new plans, goals, and measures into its performance management
process. These changes were part of its ongoing efforts to further develop
and improve the performance management process. Nevertheless, these
significant and continuing revisions to the District?s performance goals
limit the usefulness of the performance report for oversight, transparency,
accountability, and decision- making.

4 District of Columbia Government: Performance Report?s Adherence to
Statutory Requirements (GAO/ GGD- 00- 107, Apr. 14, 2000). 5 District of
Columbia Government: Progress and Challenges in Performance Management (GAO-
01- 96T, Oct. 3, 2000).

Page 4 GAO- 01- 743T

For example, the goals in the annual plan submitted to Congress were revised
extensively to become a final set three- quarters of the way through the
assessment period. About 54 percent of the goals established in the annual
plan were not addressed in the final goals for the fiscal year. For example,
the Department of Motor Vehicles? goal to seek out regular feedback on the
level and quality of service was not used as a final fiscal year 2000 goal.
Although the District developed several final goals related to improving
customer service such as wait times for vehicle registration, it did not
continue the goal to obtain feedback directly from its customers. No
explanation was provided in the report to explain why the goal was dropped
or whether it had been achieved. Many of the remaining 46 percent of the
original goals were significantly revised by the time the District issued
its report, making it difficult to determine the degree to which the
original goal was achieved. A District official responsible for coordinating
the performance report said that information about revisions to goals was
only available from the District?s individual agencies and was not centrally
collected.

Although changing goals to reflect changing circumstances and better
understandings of how to improve performance is appropriate, the District?s
report does not identify why specific goals were altered during the year or
describe the decisionmaking and accountability implications of the change.
In our reviews of federal agencies? performance management efforts under
GPRA, we have noted that such information is important to Congress and other
decisionmakers so that they can have confidence in the usefulness of the
performance report. In the absence of such information, the extensive
revisions to the goals and the fact that they were revised during the fiscal
year raise concerns about the validity and completeness of the reported
performance data.

In addition, the District?s performance management process did not cover all
significant District activities. Therefore, the performance report does not
provide a comprehensive snapshot of the District government?s activities.
For example, the report does not cover the performance of the District?s
public schools, which accounts for more than 15 percent of the District?s
budget. More important, the schools are responsible for a core local
government function- providing primary education.

On the other hand, the fiscal year 2000 performance report addressed other
key legislatively mandated reporting requirements that were not met in the
fiscal year 1999 report. Specifically, the District provided the titles of
the officials responsible for the goals it finally used in fiscal year 2000.
In another improvement over its first year?s report, the District complied
with

Page 5 GAO- 01- 743T

the requirement that it provide information on the status and actions taken
to address court orders affecting the District of Columbia government.

District officials recognize that much work remains in its goal setting,
performance measurement, and accountability efforts and, as I have noted,
they have important initiatives underway. In that regard, we believe that
two actions will be particularly important as the District continues to move
forward. First, the District needs to accelerate efforts to settle upon a
set of results- oriented goals that are more consistently reflected in its
various planning, reporting, and accountability efforts. In addition and
more specifically, the District can improve transparency and thereby assist
Congress, District citizens, and city managers in using its performance
reports by providing specific information for each goal and measure that
changed including a description of how, when, and why the change occurred.
Also, the District should identify the impact of the change on the
performance assessment itself, including data collection and measurement for
the reporting period. Overall, we have a very constructive relationship with
the District on these issues and look forward to continuing to work with
District officials as they seek to instill a model, results- oriented
management system for the city government.

The District is now in its fourth year of implementing its new financial
management system. However, as we reported recently, essential elements of
the system are not operational. For example, two components of its new core
general ledger System of Accounting and Reporting, or ?SOAR,?

have not been fully implemented. Specifically, we found that the SOAR budget
module was on hold and the fixed assets module was incomplete. Further, the
implementation of personnel and payroll, procurement, and tax systems that
feed into SOAR are incomplete and lack electronic interfaces with SOAR.
Also, the personnel and payroll system, which the District estimates has
cost about $13 million so far, may be abandoned. As of April 2001, the
District had no timetable or comprehensive plan for fully implementing its
financial management system.

Because the financial management system is incomplete, much of the
District?s financial management and budget information is produced through
cumbersome, manual processes and the extraordinary efforts of a few key
staff. For example, the District does not have a formal budget execution
process to ensure that planned spending is carried out as envisioned.
Instead, it relies on an error- prone manual process to periodically compare
actual spending to planned budget limits. Therefore, the District cannot
reliably and regularly report on whether it has spent its Weaknesses in

Financial System Implementation

Page 6 GAO- 01- 743T

budget as intended for targeted city services, nor can it report on the cost
of those services. The District is continuing to conduct business process
reengineering for its budget process before making any decisions about
implementing a budget system.

The District recently received its fourth consecutive unqualified or ?clean?

opinion on its financial statements for fiscal year 2000. However, the
District?s unqualified opinions on its financial statements are primarily
the result of the tremendous amount of effort expended by a few key
individuals who were able to accomplish this yearly task despite the serious
weaknesses of the city?s financial management system. Such a situation
cannot be sustained without significant costs to the District. One of the
reasons that the District finds itself in this situation is that it has not
employed the necessary disciplined system development processes to develop
and implement its financial management system. In addition, the District has
not conducted a comprehensive assessment of its human capital needs for
financial management functions. Such an assessment would help to ensure that
the District?s financial professionals are equipped to meet the challenges
of successfully implementing its financial management system to support the
District?s mission and goals. 6 Reflecting the current overall status of
implementation, officials from the District?s five pilot agencies have
indicated that the experience of their agencies with SOAR, as it is
currently implemented, does not meet the expectations originally set forth
for the new system, and that old deficiencies have still not been remedied.

In our earlier work, which addressed the District?s need for a new financial
management system, we reported that experience studying the success and
failure of hundreds of information systems has shown that hardware and
software do little to improve financial management unless they are part of
an overall assessment of the processes, personnel, and equipment that make
up the entire system. In each of our reports leading up to the September
1997 system acquisition contract and since the acquisition, we have
emphasized the need to implement a disciplined system development effort,
including requirements management, project planning, project tracking and
oversight, quality assurance, configuration management, and risk management.

6 We have developed a tool that agency leaders can use in helping them make
such assessments and identify opportunities to address any gaps. See Human
Capital: A SelfAssessment Checklist for Agency Leaders (GAO/ OCG- 00- 14G,
Sept. 2000).

Page 7 GAO- 01- 743T

In implementing SOAR, the District proceeded with an ambitious
implementation schedule that abbreviated and eliminated key steps in a
disciplined process. As our latest report indicates, SOAR implementation had
been plagued by delays and increasing costs. Almost 6 years after we began
reviewing the system and started making recommendations, the District?s
financial management system now serves as yet another cautionary example of
the risks entities run when they choose to shortcut a structured,
disciplined approach to the planning, acquisition, and management of a new
financial management system. The District has completed action on very few
of the recommendations we have made in reports dating back to 1995.

In our recent report, we made seven recommendations that focus on the
District?s need to apply a structured, disciplined approach to completing
the implementation of SOAR and related financial management systems to
ensure that the entire financial management system is properly,
expeditiously, and fully implemented. The Chief Financial Officer (CFO) of
the District, in responding to our report, agreed with our recommendations.
The CFO also stated that the District is taking action on the
recommendations made in our prior reports. The CFO also noted that the
District had taken the initial step in conducting a human capital assessment
for financial management. The District is also in the process of
implementing a new, intensive training program for its users of SOAR.

The CFO also stated that the District had an updated timetable and
comprehensive plan for fully implementing the SOAR system; however, at the
time we finalized our report, the District was not able to provide us with a
copy of the plan.

We will follow up on the status of our recommendations to the District as
part of our regular, semi- annual process for updating the status of GAO
recommendations.

The District of Columbia Appropriations Act for fiscal year 2001 provided a
$250,000 payment to the District Mayor for a contract ?for the study and
development of a plan to simplify the compensation systems, schedules, and
work rules applicable to employees of the District government.? However, the
act placed several conditions on the appropriation.

First, the plan developed pursuant to the contract was required to include,
at a minimum, (1) a review of the current compensation systems, schedules,
and work rules applicable to DC government employees, (2) a District Will
Request

Rescission of Contracting Funds

Page 8 GAO- 01- 743T

review of the best practices of state and local governments and other
appropriate organizations regarding compensation systems, schedules, and
work rules, (3) a proposal for simplifying the systems, schedules, and rules
applicable to DC government employees, and (4) the development of strategies
for implementing the proposal, including the identification of any
statutory, contractual, or other barriers to implementing the proposal and
an estimated time frame for implementing the proposal.

Second, the Appropriations Act required the contractor to submit the plan to
the Mayor and to the committees on appropriations of the House of
Representatives and the Senate.

Third, the act required the Mayor to develop a proposed solicitation within
90 days after enactment and submit a copy of the proposed solicitation to
the Comptroller General at least 90 days before its issuance.

Fourth, the act provided that within 45 days after receipt of the proposed
solicitation, the Comptroller General must review the solicitation to ensure
that it adequately addresses all of the required elements and report on the
results to the committees on appropriations of the House and the Senate.

The conference report for the Appropriations Act indicated that the
conferees expected the District government to supplement the $250,000
appropriated, if necessary, with local funds. 7

Initially, officials from the District?s Office of Personnel told us that
the District government did not plan to develop a new solicitation. Instead,
they said the District planned to use the funds to help pay the costs
associated with existing contracts related to human resources reform
initiatives that had been started before the Appropriations Act was passed.
They said the District began to rethink its civil service classification and
compensation systems in 1999, and that the language in the Appropriations
Act was based on an assumption that nothing was being done to improve the
condition of the District?s human resource management system. They also said
the $250,000 had been deposited in a general fund account controlled by the
Mayor, but that no federal money had been spent under the existing
contracts.

7 H. R. Rep. No. 106- 1005, at 54- 55 (2000).

Page 9 GAO- 01- 743T

More recently, however, the Director of the Office of Personnel said that
the District no longer planned to use the $250, 000 because it was further
ahead in the classification and compensation reform effort than the
functional requirements of the act contemplated. The Director also noted
that her Office could not fulfill the detailed requirements outlined in the
act without delaying its reform effort. In commenting on a draft of our
report, the City Administrator said that he would ask the District?s Chief
Financial Officer to formally request rescission of the appropriation.

In summary, Mr. Chairman, the central theme running through our work that I
have discussed today is that the District has made and is making real and
important progress in addressing a series of long- term and difficult
management challenges, but more work remains to be done. Sustained progress
is needed to address the critical financial management, human capital, and
performance management challenges that the District faces. The effective
implementation of the various initiatives underway in the District is vital
to the success of the District?s efforts to create a more focused, results-
oriented approach to management and decision- making- an approach that is
based on clear goals, sound performance, and cost information, and a budget
process that uses this information in allocating resources. We look forward
to continuing to work with Congress and Subcommittee and District officials
as the District continues to strive to provide the services that District
residents expect and deserve.

This concludes my prepared statement, Mr. Chairman. I would be pleased to
answer any questions that you or other Members of the Subcommittee may have.

For further information, please contact Jeanette Franzel at (202) 512- 9406
for information on financial management issues covered in this statement or
J. Christopher Mihm at (202) 512- 6806 for information on other issues
covered in this statement. Other major contributors to this testimony
included Curtis Copeland, Ben Crawford, Linda Elmore, Boris Kachura, Bill
Reinsberg, Norma Samuel, and Joe Santiago. Summary

Contacts and Acknowledgments

(450047)
*** End of document. ***