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KPMG
Independent Auditors’s Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statement Performed in Accordance with Government Auditing Standards
January 22, 2002

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KPMG
2001 M Street, N.W.
Washington, D.C. 20036

Independent Auditors' Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards

Honorable Mayor and Council of the Government of the District of Columbia
Inspector General of the Government of the District of Columbia

We have audited the general purpose financial statements of the Government of the District of Columbia (the District) as of and for the year ended September 30, 2001, and have issued our report thereon dated January 22, 2002, which referred to the adoption of Governmental Accounting Standards Board Statement No. 33 and to changes in the District's reporting entity. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. The financial statements of the Tobacco Settlement Financing Corporation, the District of Columbia Water and Sewer Authority and the District of Columbia Housing Finance Agency were audited separately; accordingly, this report does not extend to those entities.

Compliance

As part of obtaining reasonable assurance about whether the District's general purpose financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance related to expenditures in excess of budgetary authorization that is required to be reported under Government Auditing Standards and is described in greater detail in Appendix A.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the District's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on internal control over financial reporting. However, we noted certain matters involving internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of internal control over financial reporting that, in our judgment, could adversely affect the District's ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements.

  1. District of Columbia Public Schools accounting and financial reporting

  2. University of the District of Columbia accounting and financial reporting
  3. Accounting and financial reporting for the District medicaid program
  4. Reconciliation of bank accounts and cash management
  5. Payroll process management
  6. Accounting for non-routine transactions
  7. Monitor of expenditures against open procurements
  8. Reporting of budgetary revisions
  9. Disability compensation claims management

A material weakness is a reportable condition in which the design or operation of one or more internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the general purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of internal control over financial reporting would not necessarily disclose all matters in internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we consider items I through III, identified above, to be material weaknesses.

We also noted other immaterial instances of noncompliance with laws, regulations, contracts and grants, and other matters involving internal control over financial reporting, that are not considered to be reportable conditions, that we will report to District management in a separate letter. The status of prior year material noncompliance and reportable conditions are presented in Appendix C.

This report is intended solely for the information and use of the Mayor, Council, the Inspector General of the District, District management, the U.S. General Accounting Office, and the U.S. Congress and is not intended to be and should not be used by anyone other than these specified parties.

January 22, 2002

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Appendix A

MATERIAL NONCOMPLIANCE WITH LAWS AND REGULATIONS

Expenditures in Excess of Budgetary Authorization

The Anti-Deficiency Act states, in part, the following:

An officer or employee of the United States Government or of the District of Columbia government may not (A) make or authorize an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation...

The Home Rule Act states, in part, the following:

No amount may be obligated or expended by any officer or employee of the District of Columbia government unless such amount has been approved by Act of Congress, and then only according to such Act.

Section 101 of the DC Appropriations Act 2001, enacted November 22, 2000, states, in part, the following:

Whenever in this Act, an amount is specified within an appropriation for particular purposes or objects of expenditure, such amount, unless otherwise specified, shall be considered as the maximum amount that may be expended for said purpose or object rather than an amount set apart exclusively therefore...

The District's general purpose financial statements state in note 1, "Appropriated actual expenditures and uses may not legally exceed appropriated budget expenditures and uses at the function level. An unfavorable balance in the budgetary statement for an expenditure or other financing use is a violation of the Anti-Deficiency Act. Also, a violation of the Anti-Deficiency Act exists if there is an unfavorable expenditure variance for a particular purpose or object of expenditure within an appropriation." We have confirmed this interpretation with the District's Office of Corporation Counsel.

By allowing expenditures in excess of appropriations within the Public Education and Receivership function levels, the District may have violated the Anti-Deficiency and Home Rule Acts.

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Appendix B

REPORTABLE CONDITIONS IN INTERNAL CONTROL OVER FINANCIAL REPORTING

I. District of Columbia Public Schools Accounting and Financial Reporting

The District of Columbia Public Schools (DCPS) expends over $700 million annually in operating and capital expenditures. These expenditures are reported as a component of the District's public education function in the District's general fund and-capital projects fund, respectively. During fiscal year 2001, we observed the following areas of weakness within the DCPS accounting and financial reporting processes:

  • Monitoring of expenditures - The detailed break out of original budget approved by Council was not loaded into the' accounting system by DCPS personnel timely to allow for appropriate monitoring of -expenditures by DCPS management. Further, budget modifications were not loaded into the system timely and there were numerous instances of expenditures being incurred by program offices that were not submitted to the budget and finance offices for timely processing. During the fiscal year 2001 closing process, approximately $7 million in amounts owed to vendors for goods and services received during 2001 and prior years, but not previously identified for timely payment, were required to be accrued for financial reporting purposes.
  • Accounting for medicaid expenditures - DCPS incurs medicaid reimbursable expenditures primarily related to services provided to special education students at private schools by third party contractors. However, because the private schools and other vendors do not always provide sufficient or timely encounter data to the DCPS medicaid program office, many of these costs are considered ineligible for reimbursement by the US Department of Health and Human Services. At September 30, 2001, a significant adjustment was required to reduce previously recorded medicaid revenues and receivables that were no longer considered collectible. Further, the medicaid program office appears to have no established process to follow up with vendors to obtain necessary encounter data to improve DCPS's ability to receive medicaid reimbursement for special education student services provided. Finally, there is no process in place to provide for timely communication between the medicaid program office and the DCPS office of financial operations.
  • Capital projects expenditures - The DCPS capital projects expenditures are processed by purchase orders issued directly by the DCPS CFO's office rather than through the DCPS's procurement office. The procedures for issuing purchase orders are not documented and subsequent invoice processing against the purchase orders do not include the controls for approval that are required for other DCPS procurements. For fiscal year 2001, the majority of the expenditures for capital improvements were provided through service agreements with the Army Corps of Engineers. These agreements define the scope of work to be performed and the source of funding. Various purchase orders are issued against the service agreements; however, there is no process to reconcile goods and services obtained to the provisions of the service agreements. Further, the account coding of expenditures between capital and local funding is not adequately monitored.
  • Payroll processing - DCPS failed to appropriately pay approximately 1,700 DCPS employees compensation for pay increases that were due, but not timely processed by the human resources and payroll departments, amounting to approximately $2.4 million. We also observed numerous instances of employee payroll time sheets, which often provide DCPS's primary basis for obtaining federal reimbursement of eligible payroll costs, that could not be located. Finally, we observed that the payroll reports generated by the CAPPS system are not reconciled timely to the DCPS payroll posted to the general ledger.

Each of these items contributes to the risk that the financial reports relied upon by DCPS management may not be accurate. Accurate and timely management information is essential to DCPS management's ability to identify and respond to significant financial changes (e.g., revenues shortfalls and expenditures in excess of budget). To improve DCPS internal control over financial accounting and reporting, we recommend the following:

  • Ensure that DCPS personnel load the annual operating and capital budgets into the accounting system timely and in sufficient detail to allow management to monitor expenditures versus budget more closely. Such information, along with an analysis of significant variances, should be provided to the DCPS School Board on a monthly basis.
  • Require medicaid service providers to provide relevant encounter data to permit DCPS to bill the Medical Assistance Administration (MAA) timely and in sufficient detail to ensure claims for reimbursements are not denied. We understand that requiring such information from the service providers may not be possible under existing contracts. Because the special education program, and the required payments to service providers, are under various court orders, it may be necessary to petition the Court to require service providers to provide such information in a timely manner.
  • Monitor contractors hired to administer DCPS capital projects programs more closely. Further, each month DCPS management should review capital expenditures accounts to ensure that there are no significant budget variances and to identify and correct potential improper coding of expenditures between local and capital.
  • Monitor the timing of pay increases more closely to ensure that all pay rate changes are processed timely. DCPS management should reemphasize to its timekeepers that adequate maintenance of payroll time sheets is critical to maximizing federal reimbursement under federal grant programs.

We further believe that DCPS has a unique opportunity to evaluate the adequacy of its existing financial accounting and reporting processes due to the anticipated implementation of the PeopleSoft system. We recommend that DCPS conduct a comprehensive review of its payroll, procurement, budget, capital expenditures and medicaid program accounting and financial reporting processes in conjunction with this system implementation.

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II. University of the District of Columbia Accounting and Financial Reporting

The University of the District of Columbia (UDC) expends approximately $80 million each year. UDC maintains separate bank accounts in addition to participating in the District pooled cash management program. It also maintains several detail subsidiary ledgers to account for its student tuition and grants receivable. UDC uses the District's System of Accounting and Reporting (SOAR) as its general ledger and is required to post and reconcile its separate bank accounts and receivable subledger activity to the amounts recorded in the general ledger. Based on the information derived from these ledgers, the University produces stand-alone financial statements, and the University's financial position is summarized in the District-wide CAFR.

During fiscal year 2001, UDC experienced significant turnover in its financial management personnel. With the assistance of a task force deployed to UDC by the District's CFO and subsequently the leadership of a new financial management team, including a new Chief Financial Officer, the University has made progress towards addressing several key issues affecting financial management that were noted in prior years. Specifically, during the last eight months of the fiscal year, the University has made improvements in the effectiveness of its financial management, some of which include the following:

  • cash reconciliations completed on a monthly basis;
  • reclassification of payroll default balances performed on a timely basis;
  • quarterly transfers from the postsecondary account to the District's pooled cash maintained by the DC Treasurer;
  • quarterly billings performed for intradistrict activities; and
  • financial review process (FRP) reports submitted to Office of Budget and Planning (OBP) on a monthly basis.

In spite of the task force's efforts, the financial position and results of operations of UDC were not readily determinable during a substantial part of the year, and UDC management again required outside contractor assistance in order to close its books for fiscal year 2001 and complete the closing packages required by OFOS on a timely basis.

We recommend that the University undertake a comprehensive review of its financial management systems, addressing such issues as:

  • Internal staffing levels, roles and responsibilities and relevant training issues;
  • Communication between financial and operational personnel at UDC and between UDC and District financial management to ensure appropriate guidance in the performance of duties is available, and all relevant information is considered in making financial decisions and preparing financial reports;
  • Extent and nature of involvement of external consultants throughout the year and in the year-end closing process; and
  • Effectiveness of training efforts on existing IT systems, including SOAR and SIS Plus, and the extent to which the implementation of these systems meet the needs of University senior management.

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III. Accounting and Financial Reporting for the District Medicaid Program

Various District agencies, including the DCPS, Child and Family Services, the Department of Mental Health (DMH), Fire and Emergency Services, Mental Retardation and Developmental Disabilities Administration, and the former Public Benefit Corporation, provide medicaid services to eligible District residents. The costs incurred by these agencies are summarized in a cost report that is submitted to the MAA, part of the District's Department of Health, for approval before those claims are submitted to the federal government for reimbursement.

We observed that the agencies record a receivable and revenue in SOAR for the federal share of their medicaid claims incurred, and MAA records a payable and an expense to the agencies for the claims submitted. However, these amounts were not eliminated for financial reporting purposes during the year, but rather through an audit adjustment at year-end. We also observed that the agencies and MAA also budget medicaid revenues and expenditures in the same manner.

We also observed that, once the cost reports submitted by the agencies are audited, MAA has disallowed a significant portion of the medicaid costs submitted for reimbursement by these District agencies. Reasons for the disallowances are generally a failure to file medicaid claims timely as well as to provide sufficient support for the claims that are incurred. We further observed that disallowed costs are generally appealed by the agencies and revised cost reports are resubmitted with additional documentation after a significant period of time. The difference between costs submitted for reimbursement and the costs actually reimbursed result in the use of local, rather than federal, dollars to fund these expenditures.

Finally, we observed that agencies are not recording reserves for disallowed costs as a result of cost report audits. As a consequence, aggregate audit adjustments exceeding $100 million were required to be posted as part of the year-end closing process.

To improve the accounting and financial reporting for the medicaid program, we recommend the following:

  • Modify the financial reporting process to ensure that transactions between MAA and the agencies are properly eliminated to ensure that medicaid revenues and expenditures are not double counted for budgetary and financial reporting purposes.
  • Require all agencies that prepare and submit medicaid cost reports to MAA to record reserves for disallowances included in their audited cost reports timely.

  • Create a working group between MAA and the provider agencies to improve communication and better coordinate the submission of claims by agencies in a form that is acceptable to MAA. This will allow the District to reduce the time between the medicaid expenditures being incurred and the ultimate reimbursement from the federal government.

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IV. Reconciliation of Bank Accounts and Cash Management

The District uses a pooled cash arrangement to manage cash collected by the Office of Tax and Revenue and other District agencies. As of September 30, 2001, there were approximately 50 pooled cash bank accounts. In order to ensure all bank accounts were properly reconciled and related adjustments were posted to the general ledger, the Office of Financial Operations and Systems (OFOS) established a cash management reconciliation unit (CRU). At various times throughout the year, the CRU was staffed by over 20 District employees and contractors whose sole responsibility was to reconcile pooled cash bank accounts. However, in spite of these efforts, reconciliations of the pooled cash accounts were not always completed timely. We did, however, observe improvement in the timeliness of reconciliations by CRU during the last half of the fiscal year.

Although reconciling items were identified, they were not always resolved timely, and were often carried forward on reconciliations for several months. We observed the following reasons for significant reconciling items:

  • Once reconciling items are matched, there is confusion among CRU and the District agencies as to whose responsibility it is for recording the journal entry to resolve the reconciling item.
  • Deposits made by agencies into pooled cash accounts through the Office of Finance and Treasury (OFT) are recorded by OFT in such a manner that does not facilitate matching of transactions by CMRU. For instance, a single bank deposit may be summarized into several SOAR journal entries. Matching by CRU occurs at the individual bank deposit to SOAR journal entry level.
  • OFT obtains a daily listing of all deposits made into District pooled cash accounts from the various banks. OFT records journal entries for those deposits that it is responsible for recording. However, if a deposit was made on behalf of an agency and the agency is unaware of it, OFT does not routinely attempt to identify where this deposit should be recorded in SOAR. Therefore, amounts have been recorded in the bank statement but no entry has been recorded in SOAR.

The reconciliation of bank accounts to amounts recorded in the general ledger is an essential control to ensure cash receipts and disbursements are completely and accurately processed, and that cash balances are safeguarded from potential misappropriation. We recommend that CRU provide detailed guidance to OFT as to the journal entry format that is needed by CRU to facilitate matching of bank transactions. We further recommend that OFT establish a process to communicate with all agency CFOs to determine proper ownership of deposits made to bank accounts for which adequate information is not available. Once identified, the deposit should be properly recorded at both the agency and OFT level. Finally, we recommend that the CRU continue to devote substantial attention to reconciling all pooled cash accounts within 45 days of month end.

Numerous District agencies also maintain bank accounts that are not part of the pooled cash arrangement. These agencies are responsible for reconciling these agency controlled bank accounts to the general ledger timely and resolving all reconciling items for these accounts. We obtained a listing of all agency controlled bank accounts from OFT, noting that there are over 650 bank accounts maintained at various District of Columbia financial institutions under the District's taxpayer identification number. Although the number of such accounts has been significantly reduced since the prior year, some of these bank accounts continue not to be recorded in the general ledger. During fiscal year 2001, OFT and OFOS worked with the agencies controlling these accounts to verify that all agency controlled bank accounts were reconciled and recorded in the general ledger. However, we continue to observe that District agencies establish bank accounts without notifying OFT as required by District policy. We believe the number of bank accounts maintained by the District (both pooled cash and agency controlled) has contributed to untimely bank reconciliations. We recommend that OFT and OFOS continue to analyze the number of bank accounts necessary to facilitate cash management. A further reduction of the number of bank accounts will help to improve the timeliness of bank reconciliations, enhance monitoring of collateral requirements, and 'provide improved opportunities for investment earnings on the cash balances. Additionally, we recommend that OFT again notify all agencies of the requirement to report all bank accounts separately maintained under Agency control. 

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V. Payroll Process Management

Over 40% of the District's annual operating expenditures are for employee compensation and benefits. The maintenance of employee personnel information such as personnel action forms and withholding authorizations is a critical component of internal control over the payroll process. Time sheets documenting (1) the hours worked by employees, (2) related grants or other projects charged and (3) review and approval must also be maintained. We observed the following: 
  • Twenty-nine of 170 employee timesheets, primarily at the Fire Department, the Department of Human Services, and the Department of Public Works, could not be located or lacked evidence of appropriate management authorization, review and approval of hours worked. We were able to identify other sources of information, such as daily work logs maintained at the fire houses and at the various District agencies, to substantiate the hours worked.

  • Inadequate maintenance of personnel files as evidenced by (1) a number of missing files, (2) files that contained information for more than one employee, (3) incomplete files where appropriate authorization forms were missing, and (4) inadequate physical safeguards over files at storage locations.
  • Terminated employees were not always removed from the payroll systems timely.
  • Changes to the CAPPS payroll database were not always made timely, and because of CAPPS system limitations, certain employees who were due annual step increases were not awarded those increases when due, requiring retroactive payroll adjustments. These pay adjustments amounted to approximately $12.8 million during fiscal year 2001, of which approximately $4 million was payable at September 30, 2001.
To improve internal control over the payroll process we recommend that the District:
  • Train agency timekeepers on better methods of ensuring proper documentation is on file for all timesheets, annual leave, and sick leave forms.
  • Establish a methodology for employee file maintenance and related physical safeguards at each file room and assign responsibility for these matters to a single employee at each location.
  • Develop a standard checklist to ensure that all personnel files contain appropriate supporting documentation. Consider a periodic unannounced review of existing files to determine the completeness and accuracy of file data.
  • Reinforce established procedures for employee terminations to ensure that they are processed timely.

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VI. Accounting for Non-Routine Transactions

Each year, the District enters into various transactions that do not occur on a routine basis in the normal course of business. Often, these transactions are material to the general purpose financial statements, particularly the general fund. During fiscal year 2001, such non-routine transactions included the sale of the DOES building to the Freedom Forum, the issuance of tax increment financing notes, the cessation of the Public Benefit Corporation (PBC) and subsequent outsourcing of services previously provided by PBC to the DC Healthcare Alliance, the establishment of the Tobacco Asset Securitization Corporation (TASC), and the subsequent issuance of debt by the TASC, and the acceptance of the Casey Foundation gift of a mayoral mansion.

Although these transactions occurred throughout fiscal year 2001, the journal entries to record many of these transactions did not occur until after year-end. For instance, when the cash proceeds for the sale of the DOES building were deposited into the District's escrow account, no corresponding accounting entries to record the transaction were recorded in the general ledger until after year-end. We recommend that OFOS establish procedures to obtain timely information about these transactions, research the appropriate accounting and financial reporting treatment, and prepare journal entries to record non-routine accounting transactions timely. The source of information for such entries should be review of Council minutes, bank reconciliations, minutes of CFO Council meetings, and other communications between District financial and operational management, whether written or oral. 

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VII. Monitoring of Expenditures Against Open Procurements

Agency finance personnel must approve each contract award to indicate that there is available budget for the goods or services being procured. Based upon this approval, the procurement staff finalizes the contract documents. It is the responsibility of the agency finance personnel to properly, and timely, encumber the funds. However, we observed that such encumbrances are not always recorded timely.

Encumbrance monitoring is further complicated by the fact that there is no linkage between the contract files and SOAR. SOAR, through ADPICS, is a purchase order number driven system. In order to process vendor invoices, ADPICS assigns a purchase order number; however, this number bears no relationship to the contract number. Because there is not a one-for-one relationship between the actual contract and the purchase order recognized by SOAR, and because encumbrance information is not readily available, it is possible for payments against purchase orders to exceed the contract value.

While the finance officer should continue to authorize the available funds, we recommend that policies be established to assign the contracting officer the responsibility for recording the encumbrance prior to finalizing the contract. This would ensure that the encumbered funds are in agreement with the final contract value and provide a stronger segregation of duties since the contracting officer has no role in approving or paying invoices. Further, we recommend the District develop a monitoring and reporting mechanism that will relate the contracts to the purchase orders and help ensure that payments in excess of contract values are not made.

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VII. Monitoring of Expenditures Against Open Procurements

Agency finance personnel must approve each contract award to indicate that there is available budget for the goods or services being procured. Based upon this approval, the procurement staff finalizes the contract documents. It is the responsibility of the agency finance personnel to properly, and timely, encumber the funds. However, we observed that such encumbrances are not always recorded timely.

Encumbrance monitoring is further complicated by the fact that there is no linkage between the contract files and SOAR. SOAR, through ADPICS, is a purchase order number driven system. In order to process vendor invoices, ADPICS assigns a purchase order number; however, this number bears no relationship to the contract number. Because there is not a one-for-one relationship between the actual contract and the purchase order recognized by SOAR, and because encumbrance information is not readily available, it is possible for payments against purchase orders to exceed the contract value.

While the finance officer should continue to authorize the available funds, we recommend that policies be established to assign the contracting officer the responsibility for recording the encumbrance prior to finalizing the contract. This would ensure that the encumbered funds are in agreement with the final contract value and provide a stronger segregation of duties since the contracting officer has no role in approving or paying invoices. Further, we recommend the District develop a monitoring and reporting mechanism that will relate the contracts to the purchase orders and help ensure that payments in excess of contract values are not made.

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VIII. Reporting of Budgetary Revisions

The District of Columbia Appropriations Act (Appropriations Act) serves as the original appropriated annual budget. The Appropriations Act authorizes expenditures at the functional level. Generally, all revisions that alter total appropriations of an individual function must be approved by an act of Congress. The District then allocates the revised appropriations at the functional level to various agencies within the function. The District may reallocate budget amounts among agencies within a functional level in accordance with District policies contained in the Reprogramming Policy Act. The Office of Budget and Planning (OBP) is responsible for tracking all local budget authorized reprogrammings, while the Office of Research and Analysis is responsible for all nonlocal budget authorized reprogrammings.

We observed that approved local budget reprogrammings are posted to a manual tracking sheet maintained by OBP personnel. OBP personnel then use these manual tracking sheets to compare the revised budget amounts to SOAR balances to ensure that agencies have not overexpended their revised appropriated budgets. Most reprogrammings are not loaded into SOAR to facilitate agency review of total expenditures versus the revised appropriated budget, and as a result agencies must contact OBP to obtain a current status of reprogramming requests and the total revised appropriated budget. As designed, this control serves only to detect, not to prevent, possible budget overexpenditures.

We recommend that OBP assure all budgetary reprogrammings are recorded in SOAR upon approval and notify the requesting agency of such approval. This will enhance the agencies' ability to monitor the status of their reprogramming request and will provide them with accurate budgetary information against which to monitor expenditures.

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IX. Disability Compensation Claims Management

The Department of Employment Services (DOES) was responsible for administering the District's disability compensation program through September 30, 2001. When a District employee becomes disabled due to an on-the-job illness or injury, the responsibility for that employee's compensation is transferred from the agency for which they work to the Office of Benefits Payments of DOES. The Office of Benefits Payments paid over $32 million in disability compensation benefits during fiscal year 2001 and has recorded an actuarially computed liability of over $200 million for benefits that it expects to pay in the future for workers currently eligible to collect disability compensation. On June 29, 2001, Council enacted legislation that, effective October 1, 2001, removed the responsibility for disability compensation claims management from DOES and assigned it to the Office of Personnel.

We examined a sample of claim files for participants receiving benefits under the program to ensure data provided to the actuary was complete and accurate. In our sample of 61 recipients (out of 897 recipients), we identified 10 recipients whose claims data contained errors. Additionally, we identified 7 beneficiaries who were incorrectly classified in the temporary total disability category instead of the scheduled award category in fiscal year 2001. Although these errors were ultimately corrected upon auditor request when reconciled to data maintained by the third party administrators after year-end, we recommend that benefit data be reconciled to the data maintained by third party administrators on a more timely basis so that accurate disability compensation records are maintained and the liability can be accurately determined at any point in time.

We observed that employees returning to work from disability are not required to notify DOES of this event. The agency to which the employee has returned is required to process the payroll change information. However, we continued to observe that this paperwork is not always prepared by the agency and provided to DOES timely. Therefore, a formerly disabled employee could receive both a disability compensation check and a regular payroll check until DOES is notified that the employee has returned to work. We identified 2 beneficiaries who were being paid on a temporary total disability award basis and continued to collect regular payroll checks, one beneficiary who was determined to be ineligible by court order and continued to receive disability compensation, and another beneficiary who did not return to work after his release from medical treatment, but who continued to receive disability compensation. These and similar situations resulted in overpayments of approximately $930,000 to formerly eligible recipients of disability compensation in fiscal year 2001.

The District is attempting to collect approximately $2.7 million in cumulative overpayments as of September 30, 2001. We observed that the Office of Personnel established a procedure, effective October 1, 2001, to identify beneficiaries receiving a disability compensation payment as well as a regular payroll payment, for subsequent determination of the propriety of receiving both types of payments and for eliminating duplicate payments. We recommend that OFOS monitor whether continuing follow up is being made to collect amounts owed to the District due to overpayments. We also recommend that OFOS determine whether the Office of Personnel is following their newly established procedure.

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STATUS OF PRIOR YEAR MATERIAL NONCOMPLIANCE AND REPORTABLE CONDITIONS

Nature of Comment Type of Comment Current Year Status
Expenditures in excess of budgetary authorization Material Noncompliance Repeated as an instance of material noncompliance, but for different agencies of the District government
Failure to obtain timely Single Audits Material Noncompliance Resolved. Comment not repeated
Reconciliations of bank accounts and cash management Material Weakness Upgraded from material weakness to reportable condition
Accounting for payroll transactions Material Weakness Upgraded from material weakness to reportable condition
Disability compensation claims management Material Weakness Upgraded from material weakness to reportable condition
University of the District of Columbia transaction processing Material Weakness Repeated as a material weakness
Public Benefit Corporation transaction processing Material Weakness Operations were discontinued. Comment not repeated
Lack of timely entry of transactions into SOAR Reportable Condition Resolved. Comment not repeated.
Accounting and reporting for intra-District transactions Reportable Condition Resolved. Comment not repeated
Failure to monitor expenditures against open procurements Reportable Condition Repeated as a reportable condition
Inadequate access controls over District information systems Reportable Condition Resolved. Comment not repeated
Timely reporting of budgetary revision Reportable Condition Repeated as a reportable condition

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