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David L. Cotton, DC Public Schools Performance Audit: Fiscal Year 1997 Capital Improvement Program Procurement Process
Testimony before the Subcommittee on Oversight of Government Management, Restructuring and the District of Columbia
March 9, 1998




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Chairman Brownback, Senator Lieberman, and Members of the Subcommittee:

I am pleased to be here today to discuss the results of our performance audit of the District of Columbia Public Schools (DCPS) Fiscal Year 1997 Capital Improvement Program (CIP) Procurement Process.

I am accompanied this afternoon by Mr. Ed Fritts, a senior manager with Cotton & Company, and Mr. Marvin Allmond, CPA, managing partner of Allmond & Company. Mr. Allmond and his staff assisted us on the audit.

I would like to give you a very brief summary of our results and then emphasize and clarify two key points about our audit and its conclusions.

Audit Objectives, Findings, and Conclusions

The audit was conducted at the request of the District of Columbia Financial Responsibility and Management Assistance Authority (the Authority) for the purpose of determining if (1) DCPS had an effective procurement system in place during Fiscal Year 1997 for the CIP projects and (2) the procurement system met the statutory, regulatory, and program needs of DCPS. We concluded audit fieldwork on December 15, 1997, and issued a final report to the Authority on January 12, 1998.

We concluded that DCPS did not have an effective procurement system in place and the procurement system used did not meet the statutory and regulatory requirements. The contracting process met program needs to the extent that the school-closing crisis was substantially abated by mid-September 1997.

We concluded that the statute authorizing the CIP and the Authority's Resolution and Order establishing the DCPS Board of Trustees required DCPS to follow Federal procurement rules and regulations until the Authority prescribed some other procurement rules and guidelines (or until DCPS itself adopted such policies and guidelines). DCPS did not follow Federal procurement rules and did not adopt any other procurement rules or procedures.

DCPS did not maintain complete and organized records of procurement decisions and actions. Contract files were incomplete and disorganized.

DCPS personnel told us that they knew that the emergency circumstances under which they were operating would result in higher costs. DCPS's Chief of Contract Administration estimated that prices paid might have been 25 to 30 percent lower if contractors had been allowed at least 30 days to prepare bids and 90 days to complete the work. The DCPS Chief Operating Officer stated that he informed the Authority in August 1997 that DCPS would have to pay a 30-percent premium. These estimates by DCPS personnel translate into extra costs incurred due to operating in an emergency mode of between $7.2 million and $9.4 million.

DCPS's emergency procedures were a departure from sound procurement practices, policies, and procedures and created conditions conducive to fraud, waste, and abuse. At a minimum, these conditions placed honest personnel in compromised positions where their actions and decisions become suspect.

Because DCPS did not adopt or consistently follow generally recognized procurement policies and procedures, we concluded that management controls were not adequate to protect against misappropriation of assets, errors, waste, or abuse. During contract performance, DCPS did not monitor contractor compliance with applicable laws, rules, and regulations incorporated into the contracts.

That is a brief summary of our audit's findings and conclusions. I would like to address two points related to the audit in more detail. First is the issue of whether DCPS followed proper procurement procedures. The second is the refusal by DCPS officials to affirm in writing certain representations about the roof repair procurements.

Procurement Policies and Procedures

Since our audit was completed DCPS has asserted that they complied with the DC Board of Education procurement rules which allow for emergency contracting. There are two problems with that assertion. First, the DCPS people who were actually involved with the procurements told us during our audit that they did not comply with ANY procurement policies or procedures.

During our audit, the COO, CFO, Chief of Contract Administration, and Chief of Capital Projects all told us that no procurement rules were applicable or were followed except the undefined concept of emergency procedures.

The then-DCPS Chief of Contract Administration told us, in writing, that "there are no procurement procedures which DCPS had to follow in awarding Capital Contracts... the [Authority] resolution requires only that the CEO enter into contracts which he deems appropriate and in the best interests of the School System."

The DCPS Chief of Capital Projects told us, in writing, that "[a]ll of the work done by DCPS in FY 97 was done under emergency conditions as declared by the Control Board. We were thereby exempted from procurement policies and procedures., [Emphasis in original]

The second problem with DCPS's current assertion that they followed the Board of Education emergency procurement procedures is that even if they thought they were following those procedures, what occurred failed to conform to those procedures.

For example, our audit found that

  • documentation requirements were ignored,
  • segregation of duties requirements were bypassed,
  • project managers (rather than procurement officials) decided what contractors to invite to submit bids,
  • project managers (rather than procurement officials) received and opened bids,
  • project managers (rather than procurement officials) made contract award decisions,
  • contracts and contract modifications were executed without first certifying that funds were available.
  • contract work was allowed to commence without evidence that required bonds were obtained,
  • contract compliance requirements were ignored,
  • millions of dollars of change orders were approved without justification or written findings and determinations.

Nothing in the Board of Education procurement procedures – emergency or otherwise – permits such practices. These were the conditions cited in our report as being conducive to fraud.

Public Law 104-208 stated clearly that the CIP procurements were to be done in accordance with Federal procurement rules and regulations or such guidelines as prescribed by the Authority. The Authority delegated this responsibility to DCPS and DCPS did not follow Federal procurement rules and did not adopt any other procurement rules.

Management Representations

I want to clarify the circumstances surrounding our request for written management representations. In a hearing on January 23, 1998, Delegate Eleanor Holmes Norton asked General Becton and his staff why they refused to sign the management representation letters we asked them to sign as part of our audit. They did not answer that question. Instead, General Becton and his staff stated that it was unfair and inappropriate for us to have asked them to sign these letters.

We do not agree that it was either unfair or inappropriate. Although requesting written representations from management is not a mandatory procedure in performance audits, it has been a suggested procedure for nearly 20 years. The current version of GAO's Government Auditing Standards suggests that this procedure be considered in performance audits. It was a recommended procedure in the 1988 revision of Government Auditing Standards, and it was a recommended procedure in the 1981 revision of Government Auditing Standards.

The focus should not be on whether or not our request for management representations was appropriate. The focus should be on why DCPS officials refused to provide these representations .

We asked six DCPS management officials to affirm certain key assertions made to us explicitly and implicitly during the audit. Four officials did not respond. Two officials gave us some but not all of the representations 16 days after we issued our report.

Our request was simple and straightforward. We asked them to affirm to the best of their knowledge and belief that, for example –

  • they knew of no material unrecorded transactions;
  • they made available to us all relevant information;
  • they informed us of all evidence of error or fraud of which they were aware;
  • they knew of no violations of law that had occurred in connection with the contracts;
  • they provided us with all relevant information regarding the conviction of two DCPS procurement officials for accepting bribes and illegal gratuities, and that these two officials had nothing to do with the CIP procurements;
  • and so forth.

These were legitimate questions within the scope of our audit.

An audit relies on a modicum of cooperation from the entity being audited. We cannot force people to cooperate. We have an obligation, however, to determine if restrictions have been placed on the scope of our work, and when they have, to disclose the nature and significance of those restrictions.

* * * * * * * *

Mr. Chairman, that completes my prepared statement. I will be happy to respond to any questions you or other members of the Subcommittee may have at this time.

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