oversight

New York City's Efforts To Improve Its Accounting Systems

Published by the Government Accountability Office on 1977-04-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT RESUME
00301 -   A10519701
Noew York City's Efforts to Improve Its Accounting Systems.
FGHSD-77-15; -185522. April 4, 1977. 29 pp.
Report to the Congress; by Blmer B. Staats, Comptroller General.
Issue Area: Accounting and Financial Reporting (2800).
Contact: Financial and General Management Studies Div.
Budget Functon: General Government: Other General Government
     (806); evenue Sharing and General Purpose Fiscal
    Assistance: Other General Purpose Fiscal Assistance :"52);
    Miscellaneous: Financial anagement and Information Systems
    (1002).
Organization Concerned: New York, NY; Department of the
    Treasury.
congressional Relevance: House Committee on Banking, Currency
    &nd Housing; Senate Committee on Banking, housing ard Urban
    Affairs; Congress.
Authority: New York City Seasonal Financing Act of 1975 (P.L.
    94-143).
         an examination of New York City's efforts to improve
its accounting syste, was part of a review cf the city's
progress under its 3-yaar financial plan. The credit agreement
under which loans are made to the city by the Federal Government
requires the city to establish an accounting system by July 1,
1977, which will enable an auditor to perform an annual audit
and render n opinion. Findings/Conluasions: Although much
progress has been made, the new accounting system will not be
implemented by the required date. City officials have deferred
implementation of the payroll subsystem and ay also defer other
subsystems because of lack of time. The City will not meet
requirements for producing financial statements which will allow
for an auditor's unqualified opinion because of poblems in the
system including inaccurate ard icomplete data.
Recommendations: The Secretary of the Treasury should examine
the city's progress in meeting requirements and authorize
reasonable extensions of time where it is needed for orderly
completion of work. (HIM)
            REPORT TO THE CONGRESS

            BY THE COMPTROLLER GENER4
: ~",.:     OF THE UNITED STATES




           New York City's Efforts To
           Improve Its Accounting Systems

           Department of the Treasury


          At least some aspects of the city's new ac-
          counting system will not be implemenried Dy
          July 1, 1977, as required by the credit -gree-
          ment with the Department of the Treasury.
          Th- credit agreement contains the terms
          under which loans are made to the city by the
          Federal Government.
          The credit agreement also requires the city to
          include those records and controls in the new
          accounting system which will enable an audi-
          tor to render an opinion on the city's fin-
          ancial statements for the year ending June
          30,1978. The city temporarily deferred the
          implementation of some records and controls
          which will require the auditor's opinion to be
          st bstantially qualified.




          FGMSD-77 15                                      -   4   7
                 COMPTROLLER GENERAL
                                       OF TI-E UNITED STATES
                           WASHING1'ON. D.C. 20111




  B-185522


 To the President of the
                          Senate and the
 Speaker of te House of
                          Representatives
       Pursuant to provisions of
                                  the New York City Seasonal
 Financing Act of 1975 (Public
                                 Law 94-143), we have been
 viewing New York City's                                   re-
 plan. This report is oneprogress under its 3-year financial
                            of a series which we will
 to the Congress.                                      submit

       Appendix I contains our
                               observations on the city's
  efforts to improve its accounting
 these efforts                       systems. We reviewed
 have confidencebecause present and potential creditors
                  in the accounting information          must
 the city.                                       produced by
             Reliable accounting information
 factors which will influence                 is one of many
 a viable fiscal posture       the city's ability to establish
 tion is used as a basis in the long-term, for such informa-
 budget and program plans.for formulating and executing the

      The credit agreement under
city by the Federal Government    which loans are made to
                                                           the
lish an accounting system        requires the city to estab-
an auditor to perform an by July 1, 1977, which will enable
ion. 1/ The objective of annual audit and render an opin-
                           our review was
     --to determine the city's
                                 plans for improving its
        counting systems,                                ac-
     --to determine the status
                                of improvements as of Octo-
        ber 1976, and
     --to evaluate the problems
                                which may prevent the city
       from making the accounting
                                  system improvements which
       the credit agreement requires
                                     by July , 1977.

1/An auditor's opinion is
                          the
  asserting whether the financ written finding of an auditor,
  the condition of the entity al statements fairly present
                               under audit at the stated
  and the results of its operations                      date
  ending on that date.               for the fiscal period
B-185522


     Although the accomplishmnnts of the city and its contrac-
tors have far exceeded those which would normally be expected
in developing such a complex system, the new accounting system
will not be implemented by July 1, 1977, and the financial
statements for the year ending June 30, 1978, will not meet
the standards necessary to receive an auditor's unqualified
opinion.

     Although the credit agreement does not require an un-
qualified opinion, a qualified opinion, depending upon its
significance as perceived by the financial community, could
discourage investors and affect the city's return to the
credit markets. We believe the city should do everything
possible to receive an unqualified opinion.

     City officials have deferred implementation of the pay-
roll subsystem until after July 1, 1977.     They have informed
Is that they  may also defer  implementation  of the encumbrance
(purchase order) control subsystem.    We believe that it s
highly possible that some, and maybe all, of the other sub-
systems will also be   eferred because of the amount of work
to be completed in the relatively shcrt time remaining until
July 1, 1977.   The city already faces two major problems as a
result of the short time remaining, one involving the readi-
ness of the agency wh'ch will perform the automatic data proc-
essing oerations for the new system, and the other involving
the time required to train city employees who will be asso-
ciated with the new system.

     Under the credit agreement, the State Comptroller may
authorize a certified public accountant to make the audit for
the year ending June 30, 1978. Such an auditor of financial
statements would be concerned with whether they fairly present
the city's financial position and results of operations and
whether they conform with generally accepted accounting prin-
cioles; therefore, we believe that the city sho.uld have de-
signed the new system to include all information that a cer-
tified public accountant would need to express an unqualified
opinion on the city's financial statements.

     The city, however, did not do so.    Problems in the system
which we believe will prevent  the city from  producing adequate
financial statements  for the year ending  June  30, 1978, and
receiving an auditor's ungualified  opinion  are  (1) inclusion
of probable inaccurate payroll data  in the  statements,
(2) lack of required financial statements for intragovern-
mental and enterprise funds, (3) inclusioun of inaccurate data
in the financial statements for the Capital Projects Fund,
and (4) lack of a required statement of general fixed assets.
 B-185522


      We recommend that the Secretary
the city's progress toward completion of the Treasury examine
auditing requirements under the         of the accounting and
                                 credit
ing due consideration to the interests agreement, and, giv-
ment, authorize reasonable extensions of the Federal Govern-
where additional time is needed         of time in those cases
orderly and effective manner.    to complete  the work in an
                                On page 19 of Appendix I, we
suggest some actions that could
                                 be authorizeJ Ly the Secre-
tary to accomplish this.

      In October 1976 we provided the
State, and city with a draft report     Treasury Department,
nary conclusions and suggestions.     containing our prelimi-
                                    A
official, the Deputy to the Assistant Treasury Department
Finances, said that Treasury had         Secretary for New York
                                  no comments on the report.
The State's response, dated November
                                       9, 1976 (App. II), and
the city's response, dated November
considered in the preparation of      23, 1976 (App. III), were
                                  this report.
     We are sending copies of this report
the Treasury, Director of the             to the Secretary of
                              Office of Management and Budget,
Governor of New York, Mayor of New
ested parties.                     York City, and other inter-




                              Comptroller General
                              of the United States




                             3
APPENDIX I                                             APPENDIX I




             OBSERVATIONS ON NEW YORK CITY'S EFFORTS

                TO IMPROVE ITS ACCOUNTING SYSTEMS
     The credit agreement under which seasonal loans are made
to New York City by the Federal Government requires, among
other things, that the city and New York State Emergency
Financial Control Board
     "pursue with diligence the design and implementii-
     tion of [a]   new accounting system and * * * that
     by July 1, 1977 the City will have established an
     accounting system which will establish adequate
     records and controls which would enable an auditor
     to perform an annual audit and render an opinion
     thereon."
The credit agreement also requires the city and the board to
improve the reliability of the city's existing financial rec-
ords and the reports generated from them, and to adop- a sys-
tem of internal controls over the receipt and disbursement
of city funds.

     Our review was conducted under authority of the New York
City Seasonal Financing Act of 1975 (Public Law 94-143).  We
reviewed the city's efforts to improve its accounting systems
because the improvements are essential to the city's internal
management and its return to the credit markets.
SCOPE OF REVIEW

      Our review was conducted in New York City, where we ex-
amined pertinent documents. Interviews were held with city
officials responsible for the accounting systems improvements,
and contractors engaged to improve the city's accounting sys-
tems. Our review was limited to a determination of the city's
plans for improving its accounting systems; the status of the
improvements as of October 1976; and an evaluation of problems
which may prevent the city from making the accounting system
improvements which the credit agreement requires by July 1,
1977.




                               1
APPENDIX   I                                                       APPENDIX I




IMPROVEMENTS NEEDED IN EXISTING SYSTEM

      Numerous weaknesses have been identified in the city's
,ccounting  system since mid-1975 by various organizations
responsible for overseeing the city's financial management.
Although we know of no complete listing of the weaknesses,
many of them were identified in a report dated December 29.
1975, to the Secretary of the Treasury from the certified
public accounting firm of Arthur Andersen & Co., which was
engaged by the Department of the Treasury to obtain certain
financial and accounting information about the city.   Some of
the more serious weaknesses identified in the report are as
follows:

     -- Inadequacies and      lack of controls         in the overall      ac-
        counting systems      and procedures.

     -- Lack of good accounting and systems discipline in the
        agencies and data processing centers, and the absence
        of a capable internal systems staff.

     -- Fund control structure not useful for control                 of
        revenues, expenditures, and fund balances.

     -- Program budgeting      and   accounting       procedures cumbersome
        and uncontrolled.

     -- Expenditures recorded        on    a cash    basis and   revenue on
        an accrual basis.

     -- Agency   processing of       vouchers delayed.

     -- Expenses for contracts not           recognized    until    vouchers
        are processed.

     -- Inherent controls in municipal fund accounting weakened
        by allowing transfers of moneys between funds.

     --Two funds for special and miscellaneous revenues                    not
       under the normal budgetary control system,

     -- Accounting and financial data processin%, systems n-
        adequately integrated, redundant, inconsistent, and
        unreconciled.

     --Bank    balances not    reconciled      for    several years.



                                       2
  APPENDIX   I
                                                        APPENDIX     I




       -- Information on cash
                               balances maintained
          troller and the Director                 by the Comp-
                                    of Finance differing
          eral million dollars.                          by sev-

       -- Inadequate controls
                                over data entering
          processing system,                        the disbursement
                               rejected vouchers,
          disbursemnent requests.                  and the timing of
 CITY'S PLAN FOR IMPROVING
                           ACCOUNTING

      Weaknesses in the
                          city's accounting
 nized when the New                          system were recog-
                     York State Legislature
 pal Assistance Corporation                   created the Munici-
 1975 to provide a            for the City of New
                    temporary source of            York in June
 confidence could be                     credit until investor
                      restorei.   The act requited the
 adopt improved accounting                              city to
 ing audited financial       methods and employ them in
                        statements                       produc-
June 30, 1978, and thereafter.       for the fiscal year
                                                         ending

       The city elected to get
 new budgeting and accounting     contractual assistance
                                                          to define
                                  principles which conformed
 those prescribed by the                                       to
 and management financial State Comptroller, develop new public
 cept for new budgeting     reports, and develop a
                          and                         systems con-
 were awarded on December      accounting systems. Two
                                                          contracts
and the other to American 5, 1975, one to Touche Ross & Co.
                              Management Systems, Inc.
      The two contractors collaborated
produced a report, "City                   and on January 15, 1976,
Policies, Procedures,       of  New  York Financial
                        and Systems," to provide Management
for the design and implementation                   the framework
ment process for the city.             of a new financial manage-
four subsystems:                The plan called for the
                                                         design of
     -- Budget. This subsystem
        and expense budgets and is to provide separate revenue
                                 establish monthly revenue
        recognition. cash collection,
        revenue budget will identify    and spending plans.   The
        funds and responsible         each  separate source of
                              organization. The expense
        will be by organizational
                                   unit.                    budget
    -- Encumbrance control.
                              This subsystem is to provide
       tral accounting for commitments                      cen-
       brances (purchase orders),        (requisitions), encum-
       will permit the availabilityand expenses (vouchers). It
       by the computer before        of funds to be determined
                               an encumbrance is incurred.



                               3
APPENDIX   I                                                  APPENDIX    I




     --Accounting and financial reporting.  This subsystem is
       to be the basic management tool for  nonitcrinq the
       city's financial position.  The  ubsystem will include
       the following accounting operations:  cash disburse-
       ments, revenue recognition, cash collections, general
       ieoger maintenance, and financial reporting.   The sub-
       system will provide monthly reports comnaring revenue,
       cash collections, and spending against plans provided
       by the budget subsystem.

     --Payroll.  This subsystem is to be an integrated system
       which will perform all of the bzcic fnctions of a pay-
       roll system and maintain certain   . s,anel information.

      In February 1976 the city awarded cntracts to American
Management Systems, Inc., Touche Ross & Co., and LErnst & Ernst.
The contracts required each of them to assist the city in es-
tablishinq financial management policies, defining teoortinq
requirements, and strengthe inq organization structures and
personnel skills as reqilireu.   In addition te these general
requirements, each contractor was given specific assignments.
American Management Systems, Inc., was to    repare a general
design for the four subsystems and provide automatic data oro-
cessin   support.  Touche Ross & Co. was to assist in the de-
sign of the four subsystems and in the develooment of the
overall implementation plan, and orepare    rocedures for im-
pro:-ing control over Federal and State aid revenues and cer-
tain types of encumbrances.    Ernst & Ernst was to develop an
implementation plan for installing the new subsystems and pre-
pare the documentation needed to convrert the city's depart-
ments to the new system.

      Although the nw accounting system was not expected to
be implemented until July 1, 1977, the three contracts were
limited to that work to be   erformed up to September 15. 1976.
The city awarded new contracts to all three contractors in
August 1976.   ermitting the work to continue without interruo-
tion.

     In June 176        the city engaged   an   additional   contractor    to
assist in the accounting system improvement effort.  Two con-
tracLs were awarded to Bradford National Corooration, one for
assistance     in the   automatic data processing     asoects of the new
system and the other       for   the design of the payroll subsystem.

     In June 1976 the city also awarded a contract to the
Research Foundation of the City Universitv of New York or. be-
half of the rban Academv.   The contract requited the Urban

                                      4
 APPENDIX I
                                                     APPENDIX I



 Academy, with the cooperation
 develop training requirements of the other contractors, to
 training manuals and conduct   and, subsequently, to prepare
                               training classes.
 STATUS OF THE PROJECT AS OF
                              OCTOBER 1976
     The cty and its contractors
ress toward implementing a new     have made remarkable prog-
                                accounting
10 months since the first contracts        system.  In the
plishments of the city and its       were awarded, the accom-
which would normally be expectedcontractors far exceed hose
development effort.               in such a complex system

      American Management Systems,
that developing a complex system Inc., literature indicates
31 to 88 months, depending on      such as this one requires
                               whether
formed sequentially or concurrently.     certain phases are per-
estimates are reasonably accurate.      We believe that these
however, mandated in June 1975        The State
                                that extensive of   New York,
                                                 changes be made
in the city's accounting system
later. Only 18 months remained by July 1, 1977, only 24 months
system when the city awarded      available to develop the new
1975.                         the  first contract in December

     In addition to the work on the
its contractors have improved        new system, the city and
in the process of improving   some  existing systems and are
                            others. This work   was mandated
by the Treasury Department.

     The status of the various
accounting improvement project aspects of the budgeting and
follows:                       as of October 1976 was as

    -- New system. Except for the
                                    payroll subsystem, the
       general design documentation
       reviewed by Touche Ross & Co. had been completed and
                                      and Ernst & Ernst for
       the purpose of identifying omissions
       had determined the requirements        and errors. They
                                        for implementing the
       subsystems in the agencies and
                                       were preparing imple-
      mentation plans. American Management
       and Bradford National Corporation       Systems, Inc.,
      puter programs. The Uban Academy    were  preparing com-
      groups of employees to be trained,   had  identified the
      documentation to identify training   reviewed  the design
      had started preparing training       requirements,  and
                                       manuals.
    -- New payroll subsystem. The
       had been started by Bradford design of the subsystem
                                     National Corporation.

                             5
APPENDIX I                                          APPENDIX I




      The city plans to implement the subsystem during the
      year ending June 30, 1978.

     -- City Comptroller's system. Touche Ross & Co. was in
        the process of improving the city Comptroller's present
        accounting system. The city plans to use the system to
        do the accounting for the Capital Proje.ts Fund begin-
        ning January 1, 1977.
     -- Present payroll system. American Management Systems,
        Inc., was in the process of improving procedures for
        processing information produced by this system. The
        city plans to continue to use the system until the new
        payroll subsystem is fully implemented.
     -- Interim encumbrance system. Touche Ross & Co. designed
        this system and helped the city to implement it in six
        agencies on July 1, 1976. The system improves ontrol
        over certain types of encumbrances.

     -- Interim Fderal and    State aid revenue system. Touche
        Ross & Co. designed   this system and was in the process
        of helping the city   implement it in four agencies.
        The system improves   control over revenues from grants.

PROBLEMS MAY PREVENT COMPLIANCE
WITH CREDIT AGREEMENT
      The following sections contain our observations on
matters which will prevent (1) the new budgeting and account-
ing system from being fully implemented on July 1, 1977, and
(2) the receipt of a meaningful opinion from an auditor on
the city's financial statements for the year ending June 30,
1978.
     The credit agreement requires the city to implement the
new system by July 1, 1977.  In this regard, section 6.7
reads:
     "T.ie City, with the approval and encouragement of
     the [New York State Emergency Financial Control]
     De'ard, has retained consultants o assist in de-
     signing a new system of financial and accounting
     oactices, records and controls to be fully imple-
     mented in the City's Fiscal Year beginning July 1,
     1977. The City and the Board hereby agree to pur-
     sue with diligence the design and implementation

                                 6
  APPENDIX I
                                                                   APPENDIX I



        of such new accounting system
        that by July 1, 1977 the City and further agree
        lished an accounting system   will have estab-
                                    which
        adequate records and controls     will establish
                                      * * *
       .s discussed on pages
 with this provision. because and 10, the city will not comply
                              certain aspects of the new
 will not be implemented by July                          system
 deferred implementing the payroll1, 1977. City officials have
 July 1, 1977, and may defer        subsystem until after
 brance control subsystem.   the  implementation of the encum-

        We believe that it is highly
  maybe all, of the other subsystems possible that some, and
  because of the amount of wor         will also be defgrred
                                  to
  already faces two major problems be completed. The city
                                     as a result of the short
 time remaining. One problem,
 involves the readiness of the   discussed  on pages 10 and 11,
 the automatic data processing   agency  which  is to perform
 The other problem, discussed    operations  for  the new system.
                                on pages 11 and 12, involves
 training of city employees.                                     the
       The credit agreement requires
 State Comptroller or an independent the city to permit the
 ant to perform an audit as             certified public account-
                             of June 30, 1978. In regard
 the audit, section 6.7 of the                                to
                                 credit agreement reads:
             "The City and the Board
      that by July 1, 1977 the City * * further agree
      lished at, accounting system   will have estab-
      adequate records and controlswhich will establish
      an auditor to perform an annualwnich would enable
                                       audit and render
      an opinion thereon."

        In auditing a municipality,
is expected to comply with                      a certified public accountant
Public Accountants' industry              the Alerican   Institute
                                            audit guide entitled of    Certified
                                                                   Audits of
State and Local Governmental
the-i-5ject                                 Units.    According tothie
                         -I-_-------otle
             ive in- arinng                                               uide,
                                         a municipality is as follows: gulae,
        "The concern of the independent
       on the financial statements                   auditor reporting
        fairly financial position and           is  that  they present
                                                   results of operations
       in conformity with generally
       principles."                              accepted accounting

     Generally accepted
ities are prescribed in accounting principles for municipal-
                        the guide and in Governmental

                                      7
APPENDIX I                                           APPENDIX I



Accounting, Auditing, and Financial Reporting, published by
the National council on GovernmentaT Accounting.

     Under the credit agreement, the State Comptroller may
choose a certified public accountant to make the audit for
the year ending June 30, 1978.     Therefore, we believe that
the city should have designed the new system to produce
financial information to conform with generally accepted
accounting principles. Without this information, a cer-
tified public accountant would not be able to render an
unqualified opinion on the city's financial statements.

     The city, however, did not do so. The financial
tion which may not conform during the year ending June informa-
                                                        30,
1978, is:

     -- Payroll information.   (See pp. 12 to 14.)
     -- Information on enterprise an, intragovernmental service
        funds.  (See pp. 14 to 16.)
     -- Information   n the Capital Projects Fund.   (See pp. 16
        and 17.)
     -- Information on general fixed assets.    (See pp. 17 and
        18.)
     Although the city will not comply with the credit agree-
ment requirement that records and controls be established by
July 1, 1977, which would enable an auditor to perform an
annual audit and render an opinion thereon, it may comply
with the requirement that an accounting system be established
by July 1, 1977, that

     "* * * is in accordance with the accounting prin-
     ciples set forth in the State Comptroller's Uniform
     System of Accounts for Municipalities, as the same
     may be modified by the State Comptroller in con-
     sultation with the City Comptroller."

The city will be able to comply, however, only because it
requested and received authorization to defer implementing
the State Comptroller's requirements regarding enterprise
funds, intragovernmental service funds, the Capital Projects
Fund, and general fixed assets.



                               8
APPENDIX                                          APPENDIX I




Some aspects of new system will
not be completedy Juy_ly_, 1977
     City officials have deferred the implementation of some
aspects of the system until after July , 1977, and may defer
others. The design and implementation of a complex automated
system involves a lot of time because requirements must be
determined, a large volume of documentation must be prepared,
and numerous computer programs must be written and tested.
On the city's project, time had to be allowed for each of the
numerous concerned parties--several State and city officials
and representatives of each contractor--to review the documen-
tation.
     As stated previously, it usually requires between 31 to
88 months to design an  implement a complex automated system,
and only 18 months remained available to develop the system
when the city awarded the first contractr in December 1975.
     Through various means, the city and its contractors have
successfully minimized slippages in the project.   However, in
November 1976 city officials said that  implementing the payroll
subsystem would be deferred until after  July 1, 1977, and that
consideration was being given to deferring the implementation
of the encumbrance control subsystem.
     After evaluating the status of the project, we conclude]
that it was highly unlikely that other aspects of the system
will be ready for implementation on uly 1, 1977, as planned.
Because of our experience with other complex designs, we
thought that insufficient time was available to complete the
system design, test the computerized aspects of the system,
train the large number of personnel needed to operate the
system, and perform the numerous tasks required to implemlent
the system. Although we recognized that the system might be
implemented on schedule if no major problems were encountered,
every large computerized system of which we were aware had
experienced major problems as it neared implementation.
     Most city and contractor officials agreed with out
assessment of the project ai with our belief that some major
problems could be expected before the system is implemented.
They also agreed that the implementation of the system would
have to be delayed if such problems required changes in the
computerized aspects of the system.
     For those aspects of the system that are not implemented
as of July 1, 1977, city officials will prepare to capture

                              9
APPENDIX I                                         APPENDIX I



and store transactions for processing when the system is
capable of handling them.

     The deferral of the implementation of one or more
subsystems will permit the city to concentrate on the re-
maining subsystems, which should improve their possibility
of success. The preparation of the alternative procedures
will permit the city to defeL the implementation of addi-
tional subsystems if they are not completely ready for
operation on July 1, 1977.

     Although we believe that the actions taken by the city
were necessary, the decision to defer the implementation of
some aspects of the system should not have been made without
Treasury Department authorization. The credit agreement re-
quires a complete accounting system to be implemented by
July 1, 1977, and therefore implementation of less than the
complete system will result in a violation of the agreement.
Readiness of Financial Information
Services Agency que stionable

     We believe that the Financial Information Services
Agency, which is to perform the automatic data processing
operations for the new budgeting and accounting system, will
not be operational on July 1, 1977, if certain actions are
not promptly taken.

     By Executive order dated September 15, 1976, the Mayor
created an agency to perform the automatic data processing
operations for the new system because the city's existing
facilities were inadequate. To begin operations on July 1,
1977, city officials determined that all agency personnel
must be acquired and trained by May 1977.

     To have a complete and trained staff by May 1, 1977, the
city must accomplish the following:

     -- Obtain the city council's authorization to establish
        the agency. Although city officials intend to begin
        staffing the agency before the council's approval is
        obtained, the agency will have to be dissolved if it
        is not authorized by the council.
    -- Prepare position descriptions.  The city personnel
       department is preparing position descriptions for
       the 75 positions needed to staff the agency. We
       were informed that preparation of the descriptions

                             10
APPENDIX I                                         APPEiUDIX I



       is expected to take several weeks because the person-
       nel department and project officials do not agree on
       how the positions should be classified and described.
     -- Acquire personnel. Except for the Director, who was
        hired on October 12, 1976, no personnel have been
        hired or transferred to the agency from other agencies.
        City and contractor officials agreed with our observa-
        tion that th acquisition of qualified personnel for
        the agency may be time consuming because of the city's
        hiring procedures and the fact that the skills required
        are infrequently found.

     -- Train personnel. Unless the city acquires highly
        trained and experienced personnel, extensive training
        will be required. We believe that it is unlikely that
        enough qualified personnel can be acquired on short
        notice, because highly skilled data base management
        personnel are relatively scarce.
     City officials stated that the temporary use of contractor
personnel was being considered which would permit the agency
to begin operating on time, and also preserve the positions
for employees currently assigned to the Office of Management
and Budget and the Comptroller's Office. These employees will
become available when the city's present accounting systems
are no longer needed.

     We believe that the temporary use of contractor personnel
will do much to help the agency become operational on July 1,
1977. However, city officials should promptly decide.   If
contractor personnel are tc be used, the contract should be
awarded as soon as possible so that the contractor can have a
fully trained staff available by May 1, 1977.
Training of personnel will not
be completed by July_l, 1977
     Not all city eployees affecting the operation of the
new accounting system will be trained by July 1, 1977.

     The training task is monumental since it must address
not only the accounting and computer personnel who will be
directly concerned with running the system, but also all of
the personnel connected with financial management who will
influence the input of information to the system. City ffi-
cials have estimated that about 7,500 personnel will require
training. The amount of training required will vary according

                             11
APPENDIX I                                            APPENDIX    I




to an employee's duties.  It will   be   relatively minor   for
some and extensive for others.

     Little time remains to prepare training materials and
conduct the training.   With some exceptions, the Urban Academy
was unable to start training preparation until che system de-
sign documentation was completed in July 1976.   Academy offi-
cials then reviewed the  documentation to identify  areas in
which the information was insufficient for their purposes.     We
were informed that, although  the documentation was  generally
excellent, about 100 such areas were identified.

     City officials indicated that they did not expect to com-
plete the training of employees   y July 1, 1977, but they ex-
pect to continue training employees for some time after the
new system is implemented.  Technical support and supplemental
procedures will be used to facilitate the operation of the new
system during the startup period.

     We recognize that certain employees affecting the new
system need not be completely trained before the system is
implemented.  However, the number of such employees should
be relatively small because the new system will make exten-
sive use of new forms, classification codes. and procedures.
Such changes often result in a large number of errors which
may render a new system inoperable.

Accuratepayroll information may
not beproduced until fiscal year    1978

      The city's decision to delay implementation of the new
payroll subsystem may result in the inclusion of inaccurate
data in the financial statements for te year ending June 30,
1978.

     A new payroll subsystem was included in the new budgeting
and accounting system planned for the city beca.use of exten-
sive weaknesses in the old payroll system.  In an assessment
of the system dated January 15, 1976, American  Management
Systems, Inc., identified the following problems:

     "Lack of Controls -- Control totals, document
     number checks, and other controls on the flow of
     documents and transactions are virtually non-
     existent.
     "Lack   of Auditing -- Although the Comptroller's
     Office is supposed to conduct audits of payroll
                               12
  APPENDIX I
                                                          APPENDIX I

        payments, current audits are
                                      limited in scope.
        The tight schedule that most
        demand that everyone focus on payrolls operate on
                                       obtaining the proper
        signatures and moving the paper
        at what is being transacted.     rather than look

        "Refunds -- Not only is refund
                                       processing cumber-
       some but refunded amounts are
                                      not included on most
       reports including the recaps
       year expenses by budget line. which show fiscal
       "Budget Control -- Despite
                                  the elaborate  procedures
       for checking current payroll
                                     expenditures against
       prorated appropriations, Central
       control methods do not catch      Payroll's current
       before the checks are         all budget overruns
                             released.
       "Payroll Processing Delays
                                   in the Agencies -- For a
       variety of reasons, large transaction
       backlogs often occur in agency          delays and
                                       payroll
       Retroactive collective bargaining        divisions.
       example, often take as much as      payments, for
       the payroll clerk gets around   six  months before
                                      to computing
       amount due and submits the transactions." the

       It was recognized by city and
 complete and accurate payroll        contractor officials that
                                information
 improve the financial management            was essential to
                                   of the city and to produce
 accurate financial statements.
 tial plan for the new budgeting As a result, the city's ini-
                                  and accounting system included
 a payroll subsystem. The original
 roll subsystem to be implemented     plan provided for the pay-
 rest of the system.               on  July 1, 1977, with the

       During our review, city officials
 they would implement only part              had informed us that
 July 1, 1977, and would defer    of   the  payroll  subsystem on
 until January 1, 1978. They     the   remainder  of  the
                                said this was necessarysubsystem
                                                            because
 the subsystem could not be completed
                                           by July 1, 1977.
      The decision to defer implementing
 subsystem would require the city             part of the payroll
 tion produced, at least partially,  to  continue   using infocma-
 system until January 1, 1978.          by  the existing  payroll
make some improvements in the Although the city planned to
whether the improvements would existing system, we questioned
complete and accurate information.enable the system to produce
payroll information probably             In our view, accurate
                               would not be produced until
January 1, 1978, and as a result,
                                      the financial statements
produced by the city for the
                               year ending June 30, 1978,
may be inaccurate.

                                13
APPENDIX I                                        APPENDIX I




     City officials stated that the existing payroll system
will be improved prior to July 1, 1977, and as a result, the
city should have auditable payroll records for the year end-
ing June 30, 1978.  They said that they would consider limit-
ing the audit if it appears that the records will not be
auditable.

     The auditability of the records should not be the only
basis for determining whether to audit information produced
by the existing payroll system. We believe that the decision
should consider the reiativ, accuracy of the records. If the
information produccd b-y the existing payroll system after
July 1, 1977, is grossly      replete or inaccurate, the cost
of the audit could be p,     itive.
Enterprise and intraovernmental ser ice
funds have not been established

     The city has not established enterprise and intragovern-
mental service funds even though such funds are necessary tc
receive an auditor's unqualified opinion on the city's finan-
cial statements.
     The principles of governmental accounting and reporting
issued by the National Council on Governmental Accounting
require establishing (1) enterprise funds to account for the
financing of services to the general public where all or mosL
costs involved are paid in the form of charges to users and
(2) intragovernmental service funds to account for the financ-
ing of special activities and services performed by a desig-
nated organization unit for other units within the same gov-
ernmental jurisdiction. An auditor ordinarily will not give
an unqualified opinion on the financial statements of a muni-
cipality which has not complied with this principle.
     City officials informed us that they were unable to in-
clude enterprise and irtragovernmental service funds in the
design of the new budgeting and accounting system because of
the limited time available to develop the system.
     On June 8, 1976, city officials requested authorization
from the Mu:. icipal Assistance Corporation for the City of
New York to efer establishing enterprise and intragovern-
mental service funds until July 1, 1979. The reason for
this action may be found in the law creating the corporation,
Which states that the city and the corporation are to



                             14
APPENDIX I                                         APPENDIX I




     "formulate a mutually acceptable method of phasing
     * * * adjustments into such accounting system over
     such reasonable period, not exceeding ten years,
     as the corporation may determine to be appropriate
     *   *   *   ",




The corporation approved the city's request on October 29,
1976.
     We are aware of at least three city operations which
should be accounted for as enterprise funds: Mitchell-Lama'
housing, water and sewer systems, and off-street parking.

     The city has numerous operations which should be admin-
istered as intragovernmental service funds. At the request
of the city, Touche Ross & Co. made a study of the services
performed by the Municipal Services Administration and recom-
mended that the following be accounted for as intragovern-
mental service funds: gas and electricity   purchasing, build-
ing maintenance, repair shops, municipal telephone service,
motor pool, leased space, and data processing.

     The city will be unable to receive
fied opinion on its financial statements an auditor's unquali-
                                          until enterprise
and intragovernmental service funds have been established.

     City officials stated that they expect the audit for
fiscal year 1978 to be for the purpose of determining whether
the city complied with the accounting directives issued by
the State Comptroller rather than for the purpose of determin-
ing whether the financial statements fairly present the city's
financial position and results of operations in conformity
with generally accepted accounting principles. The city is
not required, they say, to comply with the accounting direc-
tives requiring enterprise and intragovernmental service funds
because it has been authorized to defer the implementation of
those directives until July 1, 1979.

     No comments were made on the objective of the audit to
be performed for the year ending June 30, 1979. Of course,
the financial statements for that year also will not fairly
present the city's financial position and results of opera-
tions in conformity with generally accepted accounting prin-
ciples if the city does not establish enterprise and intra-
governmental service funds on July 1, 1978.

     The city had not requested the Treasury Department to
approve its decision to defer establishing enterprise and

                             15
APPENDIX I                                         APPENDIX I




intragovernmental service funds even though such authoriza-
tion appears to be warranted.  In this regard, the credit
agreement requires the city to establish an accounting
for the fiscal year beginning July 1, 1977, that is    system
                                                    in accord-
ance with the accounting principles in the State Comptroller's
Uniform System of Accounts for Municipalities, as modified
                                                           by
the State Comptroller in consultation with the city. These
principles require the establishment of enterprise and intra-
governmental service funds and, therefore, the city's failure
to provide them would apparently constitute a violation of
the terms of the credit agreement.

Financial statements for the Capit 1l
Projecwr           be inacurafte
     The financial statements for the Capital Projects
wll be inaccurate for a few years because of erroneous Fund
                                                        data
accumulated prior to July 1, 1977.

     The principles of governmental accounting and reporting
issued by the National Council on Governmental Accounting
require financial statements for capital projects funds
                                                          o
contain cumulative financial information about each project.
Most capital projects require several years to complete,
                                                          and
therefore much of the information contained in the statements
will have been accumulated in prior years.

     City officials plan to defer inclusion of the Capital
Projects Fund in the new budgeting and accounting system for
2 or 3 years because of the limited time available to design
the system. They recognized that the existing accounting
system was not producing complete and accurate data, however,
and requested Touche Ross & Co. to improve the accounting
system presently operated by the Comptroller's office so
it could produce reliable accounting information for the that
                                                          Capi-
tal Projects Fund.

     City and contractor officials said that the Comptroller's
accounting system is basically a good system, and they believe
it will produce complete and accurate information starting
July 1, 1977. However, the financial information accumulated
prior to July , 1977, will not be corrected.

     In addition to the errors caused by weaknesses in the
accounting system, through the years the city has charged
millions of dollars of expenses to the Capital Projects Fund
which should ha ! been charged to the General Fund. Although
the city will charge such expenses to the General Fund after

                             16
APPENDIX I                                         APPENDIX I




July 1, 1977, the financial statements for the Capital Proj-
ects Fund will continue to be distorted by the expenses er-
roneously charged in prior years.

     City officials said that accounting data accumulated
prior to July 1, 1977, could not be corrected because there
was no way to verify the accuracy of the amounts which had
been recorded. Missing infocmation needed to verify the
records' accuracy will prevent an auditor from performing an
essential audit procedure. Therefore, we believe that until
projects for which large amounts of costs were accumulated
prior to July 1, 1977, have been completed, a meaningful
audit of the Capital Projects Fund will not be possible.
Financial statements will not contain
a statement of _eneral
                     -ixed   assets
     City officials do not plan to establish monetary control
over the city's general fixed assets until July 1, 1979.   As
a result, the city will not be in a position to receive an
auditor's unqualified opinion on the financial statements
until fiscal year 1980.

      In its industry audit guide for State and local govern-
mental units, the American Institute of Certified Public
Accountants said that a statement showing general fixed asset
balances at the statement date is necessary for presentation
of financial position. Although the inclision of certain im-
provements other than buildings (e.g., streets, bridges,
curbs, drainage systems, lighting systems) in the statement is
optional, a certified public accountant is not to give an un-
qualified opinion on the financial statements of a municipal-
ity if they do not include a statement disclosing the value of
the fixed assets.

     The city has not maintained accurate records of its fixed
assets and therefore will not have the information needed to
prepare a statement of general fixed asset balances until it
conducts a physical inventory of all such assets and estab-
lishes their value. A city official informed us that they
will not make such an inventory at this time because it would
require an exorbitant amount of ersonnel resources.

     On June 8, 1976, city officials requested the Municipa3
Assistance Corporation for the City of New York to authorize
them to defer the recording of new assets until fiscal year
1978 or 1979, and to defer the development of an inventory of


                             17
APPENDIX I                                        APPENDIX I




existing assets for approximately 3 years. The corporation
approved the city's reauest on October 29, 1976.
     City officials stated that they expect the audit for
fiscal year 1978 to be for the purpose of determining whether
the city complied with the accounting directives issued by
the State Comptroller, rather than for the purpose of deter-
mining whether the financial statements fairly present the
city's financial position and results of operations in
conformity with generally accepted accounting principles.
Therefore, they believe that the absence of a statement of
general fixed asset balances in the city's financial state-
ments for fiscal year 1978 will not result in an auditor's
qualification of the city's financial statements. The city
did not comment on the financial statements for fiscal year
1979, which also will not include a statement of fixed asset
balances under the city's present pan.
     Te city had not requested the Treasury Department to
aporove its decision to defer establishigc monetary control
over fixed assets even though such authorization appears to
be warranted. In this regard, the credit areement requires
the city to establish an accounting system for the fis-al
year beginning July 1, 1977, that is in accordance ith the
accounting principles contained in the State Comtroller's
Uniform System of Accounts for Municipalities, as modified
by the State Comptroller in consultation with the city.
These principles require the establishment of monetary on-
trol over fixed assets and, therefore. the city's failure
to provide them would apparently constitute a violation of
the terms of the credit agreement.
CONCLUSIONS
     Unless some terms of the credit agreement between New
York City and the Treasury are waived or amended, the city
will be in violation of the credit agreement on July 1, 1977.
The new accounting and budgeting system will not be completely
implemented and the city will not have established some of the
records and controls necessary for an auditor to perform an
audit and render a meaningful opinion.
     We believe that the city should move with all possible
speed to correct its problems and conform to the require-
ments of the credit agreement, but we do not believe that it
should proceed so rapidly that it does not complete the work
in an orderly and effective manner.  We have seen many in-
stances where dogged devotion to meeting a deadline has
                             18
 APPENDIX I
                                                      A.PENDIX I



 resulted in ineffective, error-prone
 all the money put into them, do not systems that, despite
                                      achieve the desired
 results.
      New York has been making great progress
                                               i its systems
 design work, and accordingly, we believe
 reexamine the agreement.                 that Treasury should
                           If it deems it necessary for orderly
 and effective completion of the work,
                                       Treasury should authorize
 the city to do the following:
      -- Defer implementing portions of the
                                            payroll subsystem
         for a reasonable period and, if necessary,
         the encumbrance control subsystem.         defer

      --Defer for a reasonable period the
                                          implementation of
        those aspects of the system for which
        be inadequate on July 1, 1977.        training will

      -- Limit the audit of the financial statements
         year ending June 30, 1978, to that financial for the
         mation which the city determines to be         infor-
                                                 reasonably
         complete and accurate, even if it would
         in an auditor's opinion. Such an audit not result
                                                  would give
         the city confirmation that the implemented
        of the new system are operating properly, aspects
         save the expense of auditing data that     but would
        be inaccurate. State and city auditors   is known to
        tinue to audit internal controls of       should  con-
        accounting systems to identify areas all  the city's
                                              requiring cor-
        rective action.
     -- Defer implementing enterprise and intragovernmental
        service funds until July 1, 1978.
     -- Exclude the Capital Projects Fund
                                          from
        city's financial statements until most audits of the
        for which large costs were accumulated of the projects
        1977, have been completed.             prior to July 1.

     -- Defer establishing monetary control
                                            over fixed assets
        until fiscal year 1979.
RECOMMENDATION
     We recommend that the Secretary of the
the city's progress toward completion        Treasury examine
                                       of the accounting and
auditing requirements under the credit
                                        agreement, and, giving

                              19
APPENDIX I
                                                   APPENDIX I


due consideration to the interests of the
                                           Federal Government,
authorize reasonable extensions of time when
plete the work in an orderly and effective    needed to com-
                                            manner.




                           20
  APPENDIX II                                                      APPENDIX II.




                                   STAT   O    NEW YORK
                       DEPARTMENT     OF AUDIT      AND CONTROL
                             270   ROADWAY. NEW YORK CITY


ARTHUR LEVITT
                                              November 9,   1976         parn Te




      U.S. General Accounting Office
      26 Federal Plaza
      New York City, New York 10007

      ATTN:     Mr. Edward Hefferin, Project Manager

      Dear Mr. Hefferin:

           The purpose of this letter is to offer my
      comments on certain aspects of the draft report off"ice's
      Observations ON NEW YORK CITY'S EFFORTS TO        "GAO
                                                  IMPRO'VE ITS
      ACCOUNTING SYSTEMS," (B-185522), issued by
                                                  the GAO recently.
      These comments supplement the lengthy telephone
                                                        discussions
      I had with Mr. Jim Oliver before issuance
                                                 of the draft.




                           [See GAO note page             24]




                                          21
APPENDIX II


                                                         APPENDIX II
Mr. Edward Hefferin
November 9, 1976
Page 2




                   [See GAO note page 24]




      b.   Page 2 of the draft notes the GAO's
 any comprehensive listing of the                 unawareness of
                                   numerous weaknesses in the
City's accounting system. Your attention
drawn to State Comptroller Levitt's           is respectfully
                                       report of September 30,
1976 summirizing the accounting
                                  system directives (ASD's) for
New York City issued by his Metropolitan
Report NYC-44-77; copy attached).           Area Office(Audit
listing, this report does address    While not a comprehensive
                                    itself to the major problem
areas. It sets forth the relationship
                                          between the accounting
system directives, which intended
to generally accepted accounting    ':o conform  the City's accounting
                                   principles for municipalities,
and the basic system weaknesses,
                                   as well as their effect, which
led to the need for the ASD.




                [See GAO note page 24]




                                                           The GAO


                               22
    APPENDIX II
                                                             APPENDIX II

  Mr. Edward Hefferin
  November 9, 1976
  Page 3


   draft report notes that the City's
                                         financial statements for the
   year ending June 30, 1978 will probably
   the new payroll/personnel subsystem          be inaccurate because
   operation for half a year. It is not   will   only have been in
   conclude that the GAO believes such       illogical    to further
   material effect on the expression      inaccuracies will have a
                                       of an auditor's opinion.
        We have no basis at this time for
  must first define "material" to evaluate    such a conclusion. One
  degree of conditions might cause a             what condition or
                                         disclosure
  qualification of the financial statements.            comment or
  guidelines in this respect                         There are no formal
                              for municipalities in line with the
  practices which have developed in
                                      the private sector. Materiality
  is a concept which cannot be precisely
  highly dependent upon judgment. The        defined because it is
  a condition is such that                primary question is whether
                            it must be accounted for to prevent
  financial statements from being misleading.                         the
  proposed degree of inaccuracy with                  Do you measure any
  City payroll, the payroll within a the overall budget, the overall
                                       particular fund, or by its
  net effect on fund surplus or deficit?
 which are not deemed significant will        In any event, inaccuracies
                                            not affect the financial
  statements although they would probably
 management letter accompanying the           be discussed
                                       audit report. To in       a
                                                              illustrate
 the extent of this problem, approximately
 expenditures in New York City would              .1% of payroll
                                        approximate $3.5 million
 based on a gross payroll of $3.5 billion.
 as the measure of materiality only                If this were decided
                                       inaccuracies projected at
 more than such amount would affect
 in the State Comptroller's audit unit the financial statements. We
 matter of what materiality shall be       are presently studying this
 financial statements. The              with   reference to the City's
 adjustments which should be matters  arose with reference to
                               taken in as part of the current year's
 operations, or should be recorded
                                     in the fund balance account.
       Moreover, the City is obviously going
changes to its present payroll system             somewhat slower in
its continued ability to render the        than   in  other areas to ensure
able to prepare and distribute pay primary service of being
                                      checks when due.
       e.   Page 24 of the draft
Service fund. The establishmentdiscusses       the Intragovernmental
                                    of such a fund is optional on
the part of the City. We definitely
of implementation will not result in recommended it but its lack
all the requisite transactions would a lesser auditor's opinion as
                                         still be in the general fund
and subject to audit. With respect
                                       to
officials have requested the permission the Enterprise Fund, City
                                             of MAC to defer implementation.
Such approval is within MAC's legal
                                       authority.




                                  23
APPENDIX II                                          APPENDIX II




  Mr. Edward Hefferin
  November 9, 1976
  Page 4




       I hope the above comments will be of help in the
  finalization of your report.

                                 Very truly yours,



                                Arthur N. Gordon, Director
                                Metropolitan Area Office
  ANG/td
  Enc.




           GAO note:    Deleted comments relate to material
                        contained in the draft report which
                        has been revised or which has not
                        been  included in the final report.




                                24
APPENDIX III                                                   APPENDIX III




                           THE CITY OF NEW YORK
               Office of the Mayor and Office of the Comptroller
                              NEW YORK,N.Y. 10007



                                           November 23, 1976



    Mr. Francis X. Fee
    Regional Manager
    New York Regional Office
    U.S. General Accounting Office
    26 Federal Plaza
    New York, NY 10007

    Dear Mr. Fee:

    On behalf o the Office of the Mayor and the Office of the Comptroller
    of the City of New York, we are transmitting the enclosed statement
    entitled "City of New York Statement on the Integrated Financial Nitnr7e-
    ment System Project." It represents the City's official response to ihe
    GAO's proposed report to the Congress on "GAO's Observations on New
    York City's Effort to Im; rove Its Accounting Systems."
    If you have any questions please do not hesitate to contact either one
    of us..
                                           Sincerely,



                                           Steven A. Clifford /
                                           Office of the Comptroller
                                           Co-Director, IFMS Project




                                           David G. Woodbridge
                                           Office of the Mayor
                                           Co-Director, IFNMS Prcject




                                      25
 APPENDIX III
                                                                 APPENDIX III




                             City of New York
  Statement on the Integrategc inani     anagemen System Project

                           November 22, 1976



       The City has reviewed "GAO Observations on New York
 Effort to Improve Its Accounting System" and finds it,         City's
                                                        in
 be an objective and perceptive assessment pf the progress general,  to
 plans, and potential problems.                             to date,  future

       The Credit Agreerrent bet\.-en the City and thCe ederat
                                                               Government
 requires the City to ".. .pursue with diligence the esign
 of(a) new accounting system and ... that by July 1,       nd implementation
                                                     1977
 established an accounting system which will establish the City will have
 and controls which would enable an auditor to perform adequate records
                                                        an annual audit and
 render an opinicn thereon."

      The City's compliance to date and continuing commitment
these goals is confirmed by GAO's statement that:             towards

               The City and its contractors have made
               remarkable progress toward the implementation
               of a new accounting system by July 1, 1977, the
               date mandated by the State of New York and the
               Treasury Department. In the 9 months since
               the first contracts wvere awarded, the accom-
               plishments of the City and its contractors far
               exceed those which would normally be expected
               in such a complex system development effort.
       The progress to date does not necessarily assure continued
at the same high level since each phase of the Project             performance
                                                       differs; many of the
 most intricate phases of the Proj;ct lie ahead. The
concerns of the GAO and expects in a systems projectCity appreciates the
experience implementation problems and to continue of this magnitude to
time after conversion. Nonetheless, the City believestraining efforts for sorrme
                                                        it will meet the two
major objectives of IFIMS. They are to:




                                     26
APPENDIX III                                                     APPENDIX III




     -Improve    financial manag,.lient and controls at
       all levels in the City;

    - Install auditable budget and accounting systems
      which are in accord with the Accounting Systcm
      Directives issued by theState Comptroller pursuant
      to the legislation which created the Municipal
      Assistance Corporation.
In order to meet these objectives, the following steps will be .taken:

    - In the event that some or all of IFMS is delayed,
      bridging procedures will be developed which should
      enable the City to maintain its records in a manner
      that fulfills the objectives. These procedures will
      include but not be limited to:

           enhancements to the current accounting system to
           strengthen its control capability, to improv its
           auditability, and to make it compatible with the
           new budget format;
         * new modules for the current payroll system to
           enable it, on a short-term basis, to meet the
           requirements of the new standards.
    - The new payroll system %willbe implemented during FY1978
      rather than as of July 1, 1977. This should enable orderly
      implementation of a most complex business application and
      ease the impact of IEMS implementation on the user ageacies.

      Consideraticn will be given to advantages and disadvantages
      of delaying the implementation of the Encumbrance Control
      System. A benefit would be to facilitate IFMS implementation
      in the user agencies. But, system development would not be
      eased.

      In the near future, the Miyor will hold a cabinet meeting to
      remind all Administrators and Commissioners of the importance
      to the City of the successful implementation of IFM\S and to
      emphasize the need for their active participation and cooperation.




                                      27
  APPENDIX III
                                                                     APPENDIX III


             - The successful staffing of the Financial Infbrmation
                Agency may be accomplished by using "facilities           Servces
                 ment/turn key" methods if hiring efforts re not       manage-
                                                                      successful.
                 It should be kept in mind that the original intent
                people from the Office of Management and Budgetwas to transfer
                Comptroller's Office data center operations to         and the
                proving not to be feasible because of the intense   FISA.   This is
                                                                     pressure on
                these operations by the current need for financial
                By using the "facilities management/turn key"          information.
                                                                  method, FISA
               will be able to begin operating on time and protect
               jobs for personnel currently on staff in O1MB and the FISA
                                                                     the Comptroller's
               Office.
            - The City will arrange to have extensive follow-up
              technical support and other supplementary procedures training,
              order to facilitate IFMS operations during the            in
                                                                tart-up period.
 The City is prepared to allocate the resources
                                                 needed to take these steps.
      As to the City receiving an opinion on its financial
                                                           statement for
 FY 1978, there are a number of points to be covered.

      Based on the steps outlined above,
records. The GAO recommendation that the       City should have auditable
                                           only those portions of the records
maintained by IFMNS be audited will be considered
cannot meet its goal of having auditable records. if it appears that the City
in which most of the City's activities are reflected,As to tne General Fund
appear, at this time, to be minimal.                   the potential problems

       The City intends to issue financial statements
 in accordance with the Accounting System Directives for FY 1978 which are
 Comptroller pursuant to the legislation which created issued by the State
                                                          the Municipal Assistance
 Corpcration. The City also expects the audit opinion
ASDs which some may consider to be at variance           to be based or these
accounting principles for municipalities. It should with  generally accepted
pursuant to the legislation which created             be  noted that MAC,
to delay three requirements of the ASDs. it,They
                                               has given the City permission
                                                  are budgeting and accounting
for water and sewer operations as an enterprise
for the operations of the Municipal Services Agencyfund, budgeting and accounting
service fund, and the establishment of a fixed         as an intragovernmenLal
new problems of a similar nature should arise,  asset group   of accounts. If
                                                  the
from MAC. At this time, problems are not anticipated. City  would  seek relief




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APPENDIX    III
                                                                   APPENDIX III



        The City realizes that It will be difficult
 receive a clean opinion on its FY                   if not impossible for it to
 does not believe that the various   1978  financial   statements. However, it
                                    potential problems preclude the receiving
 of an opinion. This in itself will
                                    be a giant step forward which will
 to restore creditability in the City's
                                        fiscal structure.                  do much
       The dawvbacks of the time requirement
                                                for [E;IS implementation are
obvious; however, the benefits should
in the City a sense of urgency and       be considered. It gives all concerned
if implementation were delayed by   discipline which would not be obtainable
                                    a
factor in the success to date in what year.   This has been an important
                                      the City believes will be a continuing
success story.




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