Testimony

Before the Subcommittee on the District of Columbia,

Committee on Appropriations, House of

Representatives

United States General Accounting Office

GAO

For Release on Delivery

Expected at 1:30 p.m. EDT

Wednesday May 16, 2001 DISTRICT OF COLUMBIA

Observations on

Management Issues

Statement of J. Christopher Mihm, Director, Strategic Issues

GAO-01-743T
Page 1 GAO-01-743T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss some of our current and recently

completed work related to the District of Columbia. Specifically, you

asked that we discuss (1) our ongoing review of the District’s fiscal year

2000 performance report, (2) our report issued last month on the

implementation of the District’s new financial management system,1

 and

(3) our report being issued today on the District’s decision not to use

money that Congress provided to help simplify the District’s compensation

systems, schedules, and work rules.2

I can summarize our findings in each of these three areas very briefly.

First, our review of the District’s fiscal year 2000 performance report

underscores that while the report more fully met statutory requirements

than the fiscal year 1999 report, performance planning, measurement, and

reporting is very much a work in progress in the District. The District

changed its performance goals and measures throughout fiscal year 2000,

and the resulting performance report does not indicate why or when those

changes were made or whether the performance data developed were

valid or complete. District officials recognize the limitations with the fiscal

year 2000 performance report and are committed to instilling a resultsoriented approach to management, decisionmaking and accountability for

the District government.

Second, we found that the District continues to face significant challenges

in its efforts to put in place a financial management framework that

ensures timely and reliable financial data on the cost of the District’s

operations. Almost 4 years after the District’s acquisition of its core

financial management system, that system and related elements are in

various stages of implementation. The current mix of components involves

duplication of effort and, in some cases, requires cumbersome manual

processing. As a result, the system is unable to produce certain types of

financial information on a timely and reliable basis, such as the cost of

services at the program level. In responding to our report, the CFO stated

that actions are already being taken on some of our recommendations, and

that the remaining recommendations will be implemented.

 1

District of Columbia: Weaknesses in Financial Management System Implementation

(GAO-01-489, Apr. 30, 2001).

2

District of Columbia: Compensation Simplification Contracting Requirements

(GAO-0l-690R, May 16, 2001).
Page 2 GAO-01-743T

Finally, District government officials initially told us that they planned to

apply the $250,000 from Congress to existing contracts that were being

used in the District’s effort to reform its classification and compensation

systems—and therefore would not carry out the conditions that Congress

had established for receipt of the funds. However, more recently, the

officials said they no longer planned to use the funds because doing so

would delay their reform effort, and they would formally request that

Congress rescind the appropriation.

Congress, and this Subcommittee in particular, has demonstrated a

sustained interest in working with the District government to ensure that a

sound performance management system is in place. After holding hearings

on the District’s performance in serving its residents, Congress enacted

the “Federal Payment Reauthorization Act of 1994,” which required the

District to implement an annual performance assessment process.3

Specifically, the law requires the District to develop and submit to

Congress a performance plan for each fiscal year, including a statement of

measurable, objective performance goals for all of the government’s

significant activities. After each fiscal year, the District is to develop and

submit a performance report that includes (1) the level of performance

achieved in relation to each of the goals in the performance plan, (2) the

title of the management employee most directly responsible for the

achievement of each goal and the title of the employee’s immediate

supervisor or superior, and (3) the status of any applicable court orders

and the steps taken to comply with such orders.

This law’s general approach of establishing performance goals and

reporting on performance is similar to the requirements for executive

branch federal agencies under the Government Performance and Results

Act of 1993 (GPRA). Our extensive work on federal agencies’

implementation of GPRA has shown that it takes time and continuous

effort to transform the culture of an organization and adopt a more resultsoriented and customer-focused approach to performance management.

Last year, on two occasions, we highlighted the challenges faced and

progress made by the District to implement a sound performance

management system. In April 2000, we reported that the District’s first

 3

Public Law 103-373.

District’s Performance

Management Efforts

Remain a Work in

Progress
Page 3 GAO-01-743T

performance report, covering fiscal year 1999, lacked some of the required

information.4

 Specifically, the report did not contain (1) performance data

for most of its goals, (2) the titles of managers and their supervisors

responsible for each of the goals, and (3) information on any of the court

orders applicable to the District government during fiscal year 1999. In

October 2000, we testified before the Subcommittee on Oversight of

Government Management, Restructuring, and the District of Columbia,

Senate Committee on Governmental Affairs, that the District had made

progress in defining clear goals and desired outcomes through its strategic

planning efforts.5

 However, we said there were still opportunities to more

fully integrate various aspects of its planning process and to ensure that

performance information was sufficiently credible for decision-making

and accountability.

Since then, the District has taken a number of actions to implement a

performance management process, and Congress has continued to provide

oversight directed at strengthening the District’s ability to efficiently and

effectively deliver results to its taxpayers. The District’s fiscal year 2000

performance report, issued on March 22 of this year, included several

initiatives to address issues raised in congressional hearings on the

District’s management and performance.

Within the next few weeks, we will issue our detailed assessment of the

fiscal year 2000 performance report. However, we are far enough along in

our assessment that I can provide an overview of our key findings.

Performance management remains very much a work in progress for the

District, and the performance report reflects that fact. The District’s goals

and measures were in a state of flux during fiscal year 2000, changing as

the District introduced new plans, goals, and measures into its

performance management process. These changes were part of its ongoing

efforts to further develop and improve the performance management

process. Nevertheless, these significant and continuing revisions to the

District’s performance goals limit the usefulness of the performance report

for oversight, transparency, accountability, and decision-making.

 4

District of Columbia Government: Performance Report’s Adherence to Statutory

Requirements (GAO/GGD-00-107, Apr. 14, 2000).

5

District of Columbia Government: Progress and Challenges in Performance

Management (GAO-01-96T, Oct. 3, 2000).
Page 4 GAO-01-743T

For example, the goals in the annual plan submitted to Congress were

revised extensively to become a final set three-quarters of the way through

the assessment period. About 54 percent of the goals established in the

annual plan were not addressed in the final goals for the fiscal year. For

example, the Department of Motor Vehicles’ goal to seek out regular

feedback on the level and quality of service was not used as a final fiscal

year 2000 goal. Although the District developed several final goals related

to improving customer service such as wait times for vehicle registration,

it did not continue the goal to obtain feedback directly from its customers.

No explanation was provided in the report to explain why the goal was

dropped or whether it had been achieved. Many of the remaining 46

percent of the original goals were significantly revised by the time the

District issued its report, making it difficult to determine the degree to

which the original goal was achieved. A District official responsible for

coordinating the performance report said that information about revisions

to goals was only available from the District’s individual agencies and was

not centrally collected.

Although changing goals to reflect changing circumstances and better

understandings of how to improve performance is appropriate, the

District’s report does not identify why specific goals were altered during

the year or describe the decisionmaking and accountability implications of

the change. In our reviews of federal agencies’ performance management

efforts under GPRA, we have noted that such information is important to

Congress and other decisionmakers so that they can have confidence in

the usefulness of the performance report. In the absence of such

information, the extensive revisions to the goals and the fact that they

were revised during the fiscal year raise concerns about the validity and

completeness of the reported performance data.

In addition, the District’s performance management process did not cover

all significant District activities. Therefore, the performance report does

not provide a comprehensive snapshot of the District government’s

activities. For example, the report does not cover the performance of the

District’s public schools, which accounts for more than 15 percent of the

District’s budget. More important, the schools are responsible for a core

local government function—providing primary education.

On the other hand, the fiscal year 2000 performance report addressed

other key legislatively mandated reporting requirements that were not met

in the fiscal year 1999 report. Specifically, the District provided the titles of

the officials responsible for the goals it finally used in fiscal year 2000. In

another improvement over its first year’s report, the District complied with
Page 5 GAO-01-743T

the requirement that it provide information on the status and actions taken

to address court orders affecting the District of Columbia government.

District officials recognize that much work remains in its goal setting,

performance measurement, and accountability efforts and, as I have noted,

they have important initiatives underway. In that regard, we believe that

two actions will be particularly important as the District continues to

move forward. First, the District needs to accelerate efforts to settle upon

a set of results-oriented goals that are more consistently reflected in its

various planning, reporting, and accountability efforts. In addition and

more specifically, the District can improve transparency and thereby assist

Congress, District citizens, and city managers in using its performance

reports by providing specific information for each goal and measure that

changed including a description of how, when, and why the change

occurred. Also, the District should identify the impact of the change on the

performance assessment itself, including data collection and measurement

for the reporting period. Overall, we have a very constructive relationship

with the District on these issues and look forward to continuing to work

with District officials as they seek to instill a model, results-oriented

management system for the city government.

The District is now in its fourth year of implementing its new financial

management system. However, as we reported recently, essential elements

of the system are not operational. For example, two components of its

new core general ledger System of Accounting and Reporting, or “SOAR,”

have not been fully implemented. Specifically, we found that the SOAR

budget module was on hold and the fixed assets module was incomplete.

Further, the implementation of personnel and payroll, procurement, and

tax systems that feed into SOAR are incomplete and lack electronic

interfaces with SOAR. Also, the personnel and payroll system, which the

District estimates has cost about $13 million so far, may be abandoned. As

of April 2001, the District had no timetable or comprehensive plan for fully

implementing its financial management system.

Because the financial management system is incomplete, much of the

District’s financial management and budget information is produced

through cumbersome, manual processes and the extraordinary efforts of a

few key staff. For example, the District does not have a formal budget

execution process to ensure that planned spending is carried out as

envisioned. Instead, it relies on an error-prone manual process to

periodically compare actual spending to planned budget limits. Therefore,

the District cannot reliably and regularly report on whether it has spent its

Weaknesses in

Financial System

Implementation
Page 6 GAO-01-743T

budget as intended for targeted city services, nor can it report on the cost

of those services. The District is continuing to conduct business process

reengineering for its budget process before making any decisions about

implementing a budget system.

The District recently received its fourth consecutive unqualified or “clean”

opinion on its financial statements for fiscal year 2000. However, the

District’s unqualified opinions on its financial statements are primarily the

result of the tremendous amount of effort expended by a few key

individuals who were able to accomplish this yearly task despite the

serious weaknesses of the city’s financial management system. Such a

situation cannot be sustained without significant costs to the District. One

of the reasons that the District finds itself in this situation is that it has not

employed the necessary disciplined system development processes to

develop and implement its financial management system. In addition, the

District has not conducted a comprehensive assessment of its human

capital needs for financial management functions. Such an assessment

would help to ensure that the District’s financial professionals are

equipped to meet the challenges of successfully implementing its financial

management system to support the District’s mission and goals.6

Reflecting the current overall status of implementation, officials from the

District’s five pilot agencies have indicated that the experience of their

agencies with SOAR, as it is currently implemented, does not meet the

expectations originally set forth for the new system, and that old

deficiencies have still not been remedied.

In our earlier work, which addressed the District’s need for a new financial

management system, we reported that experience studying the success

and failure of hundreds of information systems has shown that hardware

and software do little to improve financial management unless they are

part of an overall assessment of the processes, personnel, and equipment

that make up the entire system. In each of our reports leading up to the

September 1997 system acquisition contract and since the acquisition, we

have emphasized the need to implement a disciplined system development

effort, including requirements management, project planning, project

tracking and oversight, quality assurance, configuration management, and

risk management.

 6

We have developed a tool that agency leaders can use in helping them make such

assessments and identify opportunities to address any gaps. See Human Capital: A SelfAssessment Checklist for Agency Leaders (GAO/OCG-00-14G, Sept. 2000).
Page 7 GAO-01-743T

In implementing SOAR, the District proceeded with an ambitious

implementation schedule that abbreviated and eliminated key steps in a

disciplined process. As our latest report indicates, SOAR implementation

had been plagued by delays and increasing costs. Almost 6 years after we

began reviewing the system and started making recommendations, the

District’s financial management system now serves as yet another

cautionary example of the risks entities run when they choose to shortcut

a structured, disciplined approach to the planning, acquisition, and

management of a new financial management system. The District has

completed action on very few of the recommendations we have made in

reports dating back to 1995.

In our recent report, we made seven recommendations that focus on the

District’s need to apply a structured, disciplined approach to completing

the implementation of SOAR and related financial management systems to

ensure that the entire financial management system is properly,

expeditiously, and fully implemented. The Chief Financial Officer (CFO) of

the District, in responding to our report, agreed with our

recommendations. The CFO also stated that the District is taking action on

the recommendations made in our prior reports. The CFO also noted that

the District had taken the initial step in conducting a human capital

assessment for financial management. The District is also in the process of

implementing a new, intensive training program for its users of SOAR.

The CFO also stated that the District had an updated timetable and

comprehensive plan for fully implementing the SOAR system; however, at

the time we finalized our report, the District was not able to provide us

with a copy of the plan.

We will follow up on the status of our recommendations to the District as

part of our regular, semi-annual process for updating the status of GAO

recommendations.

The District of Columbia Appropriations Act for fiscal year 2001 provided

a $250,000 payment to the District Mayor for a contract “for the study and

development of a plan to simplify the compensation systems, schedules,

and work rules applicable to employees of the District government.”

However, the act placed several conditions on the appropriation.

First, the plan developed pursuant to the contract was required to include,

at a minimum, (1) a review of the current compensation systems,

schedules, and work rules applicable to DC government employees, (2) a

District Will Request

Rescission of

Contracting Funds
Page 8 GAO-01-743T

review of the best practices of state and local governments and other

appropriate organizations regarding compensation systems, schedules,

and work rules, (3) a proposal for simplifying the systems, schedules, and

rules applicable to DC government employees, and (4) the development of

strategies for implementing the proposal, including the identification of

any statutory, contractual, or other barriers to implementing the proposal

and an estimated time frame for implementing the proposal.

Second, the Appropriations Act required the contractor to submit the plan

to the Mayor and to the committees on appropriations of the House of

Representatives and the Senate.

Third, the act required the Mayor to develop a proposed solicitation within

90 days after enactment and submit a copy of the proposed solicitation to

the Comptroller General at least 90 days before its issuance.

Fourth, the act provided that within 45 days after receipt of the proposed

solicitation, the Comptroller General must review the solicitation to

ensure that it adequately addresses all of the required elements and report

on the results to the committees on appropriations of the House and the

Senate.

The conference report for the Appropriations Act indicated that the

conferees expected the District government to supplement the $250,000

appropriated, if necessary, with local funds.7

Initially, officials from the District’s Office of Personnel told us that the

District government did not plan to develop a new solicitation. Instead,

they said the District planned to use the funds to help pay the costs

associated with existing contracts related to human resources reform

initiatives that had been started before the Appropriations Act was passed.

They said the District began to rethink its civil service classification and

compensation systems in 1999, and that the language in the Appropriations

Act was based on an assumption that nothing was being done to improve

the condition of the District’s human resource management system. They

also said the $250,000 had been deposited in a general fund account

controlled by the Mayor, but that no federal money had been spent under

the existing contracts.

 7

H.R. Rep. No. 106-1005, at 54-55 (2000).
Page 9 GAO-01-743T

More recently, however, the Director of the Office of Personnel said that

the District no longer planned to use the $250,000 because it was further

ahead in the classification and compensation reform effort than the

functional requirements of the act contemplated. The Director also noted

that her Office could not fulfill the detailed requirements outlined in the

act without delaying its reform effort. In commenting on a draft of our

report, the City Administrator said that he would ask the District’s Chief

Financial Officer to formally request rescission of the appropriation.

In summary, Mr. Chairman, the central theme running through our work

that I have discussed today is that the District has made and is making real

and important progress in addressing a series of long-term and difficult

management challenges, but more work remains to be done. Sustained

progress is needed to address the critical financial management, human

capital, and performance management challenges that the District faces.

The effective implementation of the various initiatives underway in the

District is vital to the success of the District’s efforts to create a more

focused, results-oriented approach to management and decision-making—

an approach that is based on clear goals, sound performance, and cost

information, and a budget process that uses this information in allocating

resources. We look forward to continuing to work with Congress and

Subcommittee and District officials as the District continues to strive to

provide the services that District residents expect and deserve.

This concludes my prepared statement, Mr. Chairman. I would be pleased

to answer any questions that you or other Members of the Subcommittee

may have.

For further information, please contact Jeanette Franzel at (202) 512-9406

for information on financial management issues covered in this statement

or J. Christopher Mihm at (202) 512-6806 for information on other issues

covered in this statement. Other major contributors to this testimony

included Curtis Copeland, Ben Crawford, Linda Elmore, Boris Kachura,

Bill Reinsberg, Norma Samuel, and Joe Santiago.

Summary

Contacts and

Acknowledgments

(450047)