oversight

Year 2000 Computing Challenge: The District of Columbia Cannot Reliably Track Y2K Costs

Published by the Government Accountability Office on 1999-09-24.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on the District of Columbia,
                          Committee on Government Reform, House of
                          Representatives


For Release on Delivery
Expected at
11 a.m.
                          YEAR 2000 COMPUTING
Friday,
September 24, 1999        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:

• the funds provided and the District’s reported expenditures to date,
• the District’s ability to track its Y2K costs, and
• 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.




Page 1                                                       GAO/T-AIMD-99-298
Funds Provided and      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.
Reported Expenditures

                        Table 1: Reported Funds Provided to the District for Its Y2K Project
                        (Dollars in millions)
                        Date funds available            Source of funds                                         Amount
                        June 1998a                      District funds                                              $10.0
                                           b
                        October 1998                    District funds                                                6.0
                        October 1998c                   Federal appropriations                                       20.0
                        March 1999                      Federal emergency funds: First supplemental requestd         61.8
                        Total                                                                                       $97.8


                        a
                            These funds represent part of the District’s fiscal year 1998 budget.
                        b
                            These funds represent part of the District’s fiscal year 1999 budget.
                        c
                         Public Law 105-277.
                        d
                         These 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     District officials said that they have had significant problems in tracking
                        Y2K costs and expenditures, which they attribute primarily to the frequent
Data                    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.




                        Page 2                                                                       GAO/T-AIMD-99-298
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,
19961 and 1997,2 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,3 the District’s independent auditors reported the following material
financial management weaknesses:

• lack of timely obligation of budget authority by the Office of the Chief
  Financial Officer,
• improper authorization of expenditures or obligations exceeding
  available funds,
• improper use of obligated or expended amounts,



1
 Financial Audit: District of Columbia Highway Trust Fund’s 1996 Financial Statements
(GAO/AIMD-98-30, December 15, 1997).
2
 Financial Audit: District of Columbia Highway Trust Fund’s Fiscal Year 1997 Financial
Statements (GAO/AIMD-98-254, September 30, 1998).
3
 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).




Page 3                                                                 GAO/T-AIMD-99-298
                     • noncompliance with laws and regulations regarding procurement of
                       goods and services, and
                     • 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,4 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   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
Requested            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.




                     4
                     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.




                     Page 4                                                                GAO/T-AIMD-99-298
                   Table 2: Additional Emergency Supplemental Funding Requests by the District
                   (Dollars in millions)
                                                       Federal emergency             Federal emergency
                                                           funds: second                    funds: third
                   Activities                       supplemental requesta         supplemental requestb             Total
                   Remediation                                           $1.2                          $12.3        $13.5
                   Testing                                                 0.3                           0.0          0.3
                             c
                   Non-IT                                                  2.6                           5.5          8.1
                   Desktop computing                                       4.6                           3.2          7.8
                   Contingency planning                                    0.3                           2.1          2.4
                   Otherd                                                13.3                           45.3         58.6
                   Total                                                $22.3                          $68.4        $90.7


                   a
                    This 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.
                   b
                       This request was submitted to OMB in August 1999. OMB is currently reviewing the request.
                   c
                    This term refers to equipment and infrastructure devices with embedded processors, such as
                   elevators and medical equipment.
                   d
                    The 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        For further information regarding this testimony, please contact Gloria L.
                   Jarmon at (202) 512-4476, or by e-mail at jarmong.aimd@gao.gov.
Acknowledgement    Individuals making key contributions to this testimony included Norma
                   Samuel, Linda Elmore, Meg Mills, and Maria Zacharias.




(916301)   Leter   Page 5                                                                          GAO/T-AIMD-99-298
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