Straight talk from the D.C. Auditor

Want to know when there's some new Auditude?

D.C. and the Financial Rules of the Road – Part I

Published February 2, 2024

On January 4, 2024, the Office of the D.C. Auditor published a management alert report (MAR) entitled The District’s FY 2022 Annual Comprehensive Financial Report Mischaracterized the Relationship Between the District and the D.C. Housing Authority.

We issue a management alert, distinct from an audit, when we stumble across an issue of significance that we believe an agency would want to address and resolve at the earliest possible time. In this MAR, we recommended that the FY23 Annual Comprehensive Financial Report (ACFR) released this week refrain from mischaracterizing the D.C. Housing Authority (DCHA) and incorporate it as a component unit in the District’s financial statements.

That recommendation was rejected by the Chief Financial Officer.

Here is why anyone who cares about the District’s finances should care about this deep-in-the-weeds issue: D.C.’s annual audit states on its first page that the financial statements were prepared according to rules promulgated by the Governmental Accounting Standards Board (GASB). GASB is the independent, private-sector organization that establishes accounting and financial reporting standards for state and local governments.

The District appointed the current DCHA board and provides significant financial support to maintain public housing properties, support the DCHA police department, and fund capital improvements. Governance and financial burden are elements in GASB’s definitions of a component unit.

But in testimony this week, officials from the Office of the Chief Financial Officer (OCFO) brushed aside governance and financial support to say the District has no legal obligation to support DCHA. GASB, however, says “legally obligated OR has otherwise assumed the obligation…[to] provide financial support” (emphasis added).

As an example, GASB says a city is financially burdened if it chooses to subsidize a public housing authority even though the city is not legally required to do so—precisely the arrangement between the District and DCHA. The Mayor and Council have increased DCHA funding to nearly $200 million in recent years and despite a tighter budget cycle coming up it is highly unlikely elected officials will stop supporting DCHA.

So, neither the FY22 ACFR nor the FY23 ACFR followed these GASB rules in their treatment of DCHA. This means the annual financial report that forms the basis for all of the District’s other financial activities—such as issuing bonds to support capital construction—says it’s based on a set of rules that, in fact, were not followed in this instance. And it made matters worse at this week’s Council hearing on the ACFR when the independent audit firm McConnell Jones LLP stood by the OCFO’s faulty analysis.

If the District of Columbia publishes such an important document without following the rules of the road, it begs the question: what other financial rules are being ignored? Are there other errors in the ACFR? Are there other misrepresentations in the District’s oversight of its own financial processes and procedures? Where is accountability?

Our recent Management Alert Report on DCHA and the ACFR is the tip of the iceberg.

Next up…D.C. and the Financial Rules of the Road—Part II: A fractured financial framework

Leave a Reply

Your email address will not be published. Required fields are marked *