Year 2000 Computing Challenge: The District of Columbia Cannot Reliably
Track Y2K Costs (Testimony, 09/24/1999, GAO/T-AIMD-99-298).
Pursuant to a congressional request, GAO discussed the District of
Columbia's financial management issues related to its year 2000 efforts,
focusing on the: (1) funds provided and the District's reported
expenditures to date; (2) District's ability to track its year 2000
costs; and (3) additional funding requested by the District.
GAO noted that: (1) the District is acutely vulnerable to year 2000
problems due to its widespread dependence on computer systems for
delivering important public services; (2) if these problems are not
solved before the end of the year, the District may be unable to
effectively carry out its core business operations that ensure public
safety, collect revenue, educate students, and provide health care
services; (3) District officials are aware of the urgency of this task
and have made several funding requests in order to have adequate
resources to address it; (4) the District's records indicated that $97.8
million had been provided for year 2000 efforts as of September 20,
1999; (5) of the $97.8 million provided, $42.4 million had been spent
and $53.8 million had been obligated, leaving available funds of $1.6
million; (6) these draft financial reports also showed disallowed costs
of $12.5 million; (7) District officials told GAO that these disallowed
costs resulted from recent reviews of amounts billed by contractors; (8)
District officials said that they have had significant problems in
tracking year 2000 costs and expenditures, which they attribute
primarily to the frequent turnover in key financial positions; (9) GAO
received inconsistent and unreliable cost data from several District
officials and the cost schedules continued to change; (10) it was
apparent that the District does not have reliable financial data to
manage the year 2000 project costs; (11) the District was not tracking
the year 2000 amounts obligated and spent and could not provide
reliable, supportable data to GAO related to these amounts; (12) the
District's difficulties in tracking its year 2000 costs make it
impossible to determine whether its year 2000 funds were spent properly;
(13) this situation also makes it difficult for the District to
reasonably determine additional funds needed to meet its future year
2000 challenges; (14) the District has requested $90.7 million in
additional funding from the Office of Management and Budget to complete
its year 2000 efforts; (15) District officials stated that these
additional funds would be used primarily for year 2000 remediation,
testing, contingency planning, and additional resource requirements at
the various District agencies; and (16) until the District can better
track its costs and improve the reliability of its financial data, it
cannot assure Congress that the additional funds requested will be spent
as intended.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-AIMD-99-298
TITLE: Year 2000 Computing Challenge: The District of Columbia
Cannot Reliably Track Y2K Costs
DATE: 09/24/1999
SUBJECT: Y2K
Internal controls
Accountability
Financial records
Future budget projections
Systems conversions
Computer software
Computer software verification and validation
Funds management
IDENTIFIER: Y2K
DC Highway Trust Fund
District of Columbia
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Before the Subcommittee on the District of Columbia, Committee on
Government Reform, House of Representatives
For Release on Delivery
Expected at
11 a.m.
Friday,
September 24, 1999
YEAR 2000 COMPUTING CHALLENGE
The District of Columbia Cannot Reliably Track Y2K Costs
Statement of Gloria L. Jarmon
Director, Health, Education and Human Services Accounting and Financial
Management Issues
Accounting and Information Management Division
*****************
*****************
GAO/T-AIMD-99-298
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to update you on financial management issues
related to the District's Year 2000 (Y2K) effort. In response to your
questions, my statement today covers three points:
o the funds provided and the District's reported expenditures to date,
o the District's ability to track its Y2K costs, and
o the additional funding requested by the District.
As you know, the District of Columbia is acutely vulnerable to Y2K
problems due to its widespread dependence on computer systems for
delivering important public services. If these problems are not solved
before the end of the year, the District may be unable to effectively
carry out its core business operations that ensure public safety, collect
revenue, educate students, and provide health care services. District
officials are aware of the urgency of this task and have made several
funding requests in order to have adequate resources to address it.
In June 1998, the District established the Year 2000 Program Management
Office (PMO) and began preparing for Y2K readiness by initiating parallel
efforts with this office and other offices, including the Office of the
Chief Technology Officer (OCTO), the principal programmatic agencies, and
the Office of the Chief Financial Officer (OCFO). PMO, OCTO, and the
agencies are primarily responsible for implementing and reporting Y2K
readiness initiatives, while OCFO is primarily responsible for tracking
financial data in the District's financial management system.
To determine the District's financial management status relevant to its
Y2K effort, we reviewed pertinent documents provided by the Office of the
City Administrator (CA), OCFO, OCTO, and the Office of the Inspector
General (OIG). We also interviewed the Interim City Administrator, the
Chief Financial Officer, the Chief Technology Officer, and other officials
from those offices and officials from the District's OIG and the District
of Columbia Financial Responsibility and Management Assistance Authority.
We did not audit the District's Y2K reported funds provided or
expenditures, and, accordingly, we do not express an opinion or any other
form of assurance on these reported amounts. Our work was done in
accordance with generally accepted government auditing standards in
September 1999.
Funds Provided and Reported Expenditures
As illustrated in table 1, the District's records indicated that $97.8
million had been provided for Y2K efforts as of September 20, 1999.
Table****Helvetica:x11****1: Reported Funds Provided to the District
for Its Y2K Project
------------------------------------------------------------------------
| (Dollars in : : |
| millions) : : |
|----------------------------------------------------------------------|
| Date funds : Source of funds : Amount |
| available : : |
|----------------------------------------------------------------------|
| June 1998a : District funds : $10.0 |
|----------------------------------------------------------------------|
| October 1998b : District funds : 6.0 |
|----------------------------------------------------------------------|
| October 1998c : Federal appropriations : 20.0 |
|----------------------------------------------------------------------|
| March 1999 : Federal emergency funds: First : 61.8 |
| : supplemental requestd : |
|----------------------------------------------------------------------|
| Total : : $97.8 |
------------------------------------------------------------------------
aThese funds represent part of the District's fiscal year 1998 budget.
bThese funds represent part of the District's fiscal year 1999 budget.
cPublic Law 105-277.
dThese are appropriated funds for emergency expenses related to Y2K
conversion of federal information technology systems.
Draft financial reports provided by the District for the period June 1998
to September 15, 1999, indicated that of the $97.8 million provided,
$42.4 million had been spent and $53.8 million had been obligated, leaving
available funds of $1.6 million. These draft financial reports also showed
disallowed costs of $12.5 million. District officials told us that these
disallowed costs resulted from recent reviews of amounts billed by
contractors. According to District officials, support for the amounts
provided in the draft financial reports was not readily available.
Unreliable Y2K Cost Data
District officials said that they have had significant problems in
tracking Y2K costs and expenditures, which they attribute primarily to the
frequent turnover in key financial positions. Over the past few weeks,
District officials have spent considerable resources in their efforts to
better track these costs and to determine the remaining unfunded needs by
agency. During this time, we received inconsistent and unreliable cost
data from several District officials and the cost schedules continued to
change. It was apparent that the District did not have reliable financial
data to manage the Y2K project costs.
Specifically, the District was not tracking the Y2K amounts obligated and
spent and could not provide reliable, supportable data to us related to
these amounts. For example, District officials stated that (1) invoices
were received and paid even though the District's financial management
system had no corresponding purchase orders or contract-related
information,
(2) some invoices were paid without adequate supporting documentation to
justify the amounts paid, and (3) some contractor bills were paid and
later had to be adjusted by the contractor due to inaccurate time charges.
This was partially due to the District having no clear process for
reviewing and verifying that invoices submitted by contractors were valid
and should be paid prior to making payments.
The District's inability to monitor its spending is not a new issue. GAO
and others have reported on the District's weak financial management
processes and inability to account for its use of funds. For example, our
prior work on financial management in the District, including several
audits of the District's Highway Trust Fund's financial statements, have
highlighted financial management problems similar to those the District
now faces with Y2K implementation. In our audits of the District's Highway
Trust Fund's financial statements for the periods ended September 30,
1996/Footnote1/ and 1997,/Footnote2/ we reported that the District had
material financial management weaknesses in accounting for revenue and
certain expenses.
In addition, in the District's fiscal year 1998 financial statements audit
report,/Footnote3/ the District's independent auditors reported the
following material financial management weaknesses:
o lack of timely obligation of budget authority by the Office of the
Chief Financial Officer,
o improper authorization of expenditures or obligations exceeding
available funds,
o improper use of obligated or expended amounts,
o noncompliance with laws and regulations regarding procurement of goods
and services, and
o lack of timely reporting of transactions in the financial management
system and failure to reconcile transactions until the year-end closing
process.
In a recent report,/Footnote4/ the District's Inspector General stated
that because of its concerns about the propriety of Y2K funding for goods
and services, it plans to initiate audit work in the areas of procurement,
financial management, and contract administration functions relative to
this initiative. The objectives of its upcoming audit will focus on
whether the OCTO has controls in place to ensure the reasonableness of
expenditures and to properly account for and monitor Y2K funding amounts
and to comply with applicable regulations, policies, and procedures.
District OIG officials said that this work will begin in the fall of 1999.
The District's difficulties in tracking its Y2K costs make it impossible
to currently determine whether its Y2K funds were spent properly. This
situation also makes it difficult for the District to reasonably determine
additional funds needed to meet its future Y2K challenges. Further,
without reliable cost information, the Congress lacks important
information needed to properly evaluate the District's potential future
funding needs to address remaining Y2K work.
Additional Funding Requested
As indicated in table 2, the District has requested $90.7 million in
additional funding from the Office of Management and Budget (OMB) to
complete its current Y2K efforts. District officials stated that these
additional funds would be used primarily for Y2K remediation, testing,
contingency planning, and additional resource requirements at the various
District agencies.
Table****Helvetica:x11****2: Additional Emergency Supplemental Funding
Requests by the District
-------------------------------------------------------------------------
| (Dollars in : : : |
| millions) : : : |
|-----------------------------------------------------------------------|
| Activities : Federal emergency : Federal emergency : Total |
| : funds: second : funds: third : |
| : supplemental : supplemental : |
| : requesta : requestb : |
|-----------------------------------------------------------------------|
| Remediation : $1.2 : $12.3 : $13.5 |
|-----------------------------------------------------------------------|
| Testing : 0.3 : 0.0 : 0.3 |
|-----------------------------------------------------------------------|
| Non-ITc : 2.6 : 5.5 : 8.1 |
|-----------------------------------------------------------------------|
| Desktop computing: 4.6 : 3.2 : 7.8 |
|-----------------------------------------------------------------------|
| Contingency : 0.3 : 2.1 : 2.4 |
| planning : : : |
|-----------------------------------------------------------------------|
| Otherd : 13.3 : 45.3 : 58.6 |
|-----------------------------------------------------------------------|
| Total : $22.3 : $68.4 : $90.7 |
-------------------------------------------------------------------------
aThis request was submitted to OMB in July 1999, and approved in August.
According to a District official, OMB notified the District on September
22, 1999, that the funds were available.
bThis request was submitted to OMB in August 1999. OMB is currently
reviewing the request.
cThis term refers to equipment and infrastructure devices with embedded
processors, such as elevators and medical equipment.
dThe term "Other" refers to the emergency dispatch systems, citywide
initiatives, and additional agency resource requirements.
As of September 20, 1999, District officials could not tell us what
additional funds, beyond these requests, might be needed to complete Y2K
conversion compliance and contingency planning efforts. Until the District
can better track its costs and improve the reliability of its financial
data, it cannot assure the Congress that the additional funds requested
will be spent as intended. Given the urgency of the task of addressing the
Y2K problem, and the fact that the District is behind schedule, it is
essential that the District have accountability for the funds provided and
do careful planning, budgeting, and tracking of expenditures. Without this
kind of discipline over its efforts, the District cannot offer assurance
that funds intended for Y2K efforts have been properly or effectively spent.
Mr. Chairman, this concludes my statement. I will be happy to answer any
questions that you or Members of the Subcommittee may have.
Contact and Acknowledgement
For further information regarding this testimony, please contact Gloria L.
Jarmon at (202) 512-4476, or by e-mail at [email protected].
Individuals making key contributions to this testimony included Norma
Samuel, Linda Elmore, Meg Mills, and Maria Zacharias.
(916301)
--------------------------------------
/Footnote1/-^Financial Audit: District of Columbia Highway Trust Fund's
1996 Financial Statements (GAO/AIMD-98-30, December 15, 1997).
/Footnote2/-^Financial Audit: District of Columbia Highway Trust Fund's
Fiscal Year 1997 Financial Statements (GAO/AIMD-98-254, September 30,
1998).
/Footnote3/-^District of Columbia Government: Report on Internal Controls
and Compliance with Laws and Regulations and Management Letter for the
Fiscal Year Ended September 30, 1998 (January 29, 1999).
/Footnote4/-^Management Implication Report to the Mayor of the District of
Columbia, August 12, 1999, Government of the District of Columbia Office
of the Inspector General.
*** End of document. ***