A contract to perform a survey of the accounting and financial management practices of the District of Columbia governme...


Material Information

A contract to perform a survey of the accounting and financial management practices of the District of Columbia government for the Committee on the District of Columbia, United States Senate pursuant to Senate Resolution 316
Contract to perform a survey of the accounting and financial management practices of the District of Columbia government
Physical Description:
iii, 268 p. : ill. ; 24 cm.
United States -- Congress. -- Senate. -- Committee on the District of Columbia
U.S. Govt. Print. Off.
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Publication Date:


Subjects / Keywords:
Finance, Public -- Accounting -- Washington (D.C.)   ( lcsh )
Appropriations and expenditures -- Washington (D.C.)   ( lcsh )
federal government publication   ( marcgt )
non-fiction   ( marcgt )


General Note:
At head of title: 94th Congress, 2d session. Committee print.

Record Information

Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 029271338
oclc - 02206909
lccn - 76601385
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Full Text

2d Session







UNITED STATES SENATE [Pursuant, to Senate Resolution 316]


Printed for the use of the Committee on the District of Columbia


THOMAS F. EAGLETON, Missouri, Chairman
ROBERT HARRIS, Staff Director and General Counsel
ANDREW E. MANATOS, As88ociate Staff Director COLBERT I. KING, Minority Staff Director



Ps ge
Contract agreement -------------------------------------------------- 1
Request for proposal ------------------------------------------------- 4
Arthur Andersen & Co. response --------------------------------------- 11
Section 1. Statement of work to be done ------------------------------- 21
Section 2. Approach ----------------------- 7 ------------------------- 29
Section 3. Survey team organization ---------------------------------- 47
Section 4. Recent related experience ---------------------------------- 125
Section 5. Independence and objectivity ------------------------------- 161
Exhibits ------------------------------------------------------------ 173

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Contract Agreement

THIS AGREEMENT is made and entered into this
24th day of February, 1976, by and between the Committee on the District of Columbia of the United States Senate, hereinafter referred to as the Committee, and the firm of Arthur Andersen & Co., hereinafter referred to as the Contractor, subject to the approval of this Agreement by the Committee on Rules and Administration of the United States Senate.

It is hereby agreed that the Committee under
authority of Senate Resolution 316, approved December 11, 1976r 94th Congress, retain the Contractor to render the following specialized services: A survey of the accounting and financial management practices of the District of Columbia government as set forth more fully in the Request for Proposal, dated December 15, 1975, incorporated herein as Exhibit 1, and the response thereto by the Contractor dated January 12, 1976, incorporated herein as Exhibit 2.

The Committee agrees to pay the said Contractor
the sum of $20,000 to be paid upon delivery to the Committee, not later than May 31, 1976, of the completed study in form and content satisfactory to the Committee. It is understood, however, that the Chairman of the Committee reserves the right to terminate this agreement at any time.

The Contractor further agrees and warrants that it:

1. Has not employed any person to solicit or obtain this Agreement for any commission, percentage, brokerage or contingent fee;
2. Will save the Government harmless from. liability in performance;

3. Will release no information obtained in carrying out the provisions of the contract without prior consent of the contracting Committee;

4. Will not subcontract or assign elsewhere any of the work or service involved without prior consent of the contracting Committee; and



5. Will not discriminate in its performance of this Agreement because of race, creed, color, or national origin and shall comply with all laws appertaining to t-he compensation of labor.

The Contractor further agrees and warrants that it will fully complete its services to the Committee hereunder not later than May 31, 1976, unless said date shall be extended by mutual agreement of the parties to this Agreement, and with the approval of the said Committee on Rules and Administration.

No Member or Delegate to Congress, or Resident Commissioner, shall be admitted to any share or part of this contract or to any benefit that may arise therefrom.

Committee on the District of Colurbia

Thomas E. Eagleton Chairman

Charles McC. Mathias Ranking Minority Member

Arthur Andersen & Co.

By: Charles N. Storm

Approved by the Committee on Rules and Administration of the United States Senate

Howard Cannon

21nifeb Actez enate

December 15, 1975


You are invited to submit a proposal for auditing
services relating to the District of Columbia government. Specifications relating to the submission of
such proposals are attached.

Very truly yours,

Thomas F. Eagleton Charles McC. Mathias
Chairman Ranking Minority Me r





December 15, 1975

I. Summary

The Senate Committee on the District of Columbia, pursuant to Senate Resolution 316, is requesting proposals from independent certified public accountants to perform a survey of the accounting and financial management practices of the District of Columbia government. The scope and requirements of this survey are set out in this document. There are three primary objectives of this survey, and firms seeking to submit proposals should address themselves to these points: (a) defining and analyzing existing problems, (b) developing a plan leading to the implementation of generally accepted accounting principles and the eventual statement of an auditor's opinion, and (c) reporting on the results of the survey to the Senate Committee on the District of Columbia.

II. Description of Work for Survey

A. Review prior work

Analyze previous surveys and reviews of District
accounting and reporting practices. Review recommendations
made, follow-up, and extent of implementation.

B. Compliance with legal requirements

Limited home rule was accorded the District of
Columbia under Public Law 93-198. The survey should review this legislation, relevant D.C. Code regulations, and other relevant documents necessary for understanding the authority
and obligations of the District as a whole. The survey
should examine the legal requirements for Federal
appropriations, borrowing, and reporting which apply to the
District. This would be required in order to assess the
adequacy of controls to assure compliance with such

C. Organization

1. Review structure of government

Survey organization charts and structure of
principal operating units.

2. Review policy and procedure documentation

3. Analyze budget preparation process

This should be a definition of the budget
development process within the Mayor's office.


Request for Proposal
December 15, 1975
Page 2

Attention should be given to manner of presentation,
inclusion of historical data, bases for revenue
projections, and development of cost estimates for
expenditure projections.

D. Accounting

1. Define existing accounting procedures

The analysis should include general operating
expenses, the capital program, and the individual

2. Identify and analyze departures from GAAP

Compare existing accounting principles to those
currently used by corporate entities, and to those
standards which have been endorsed for use by
governmental units. The survey should also note the requirements imposed by the General Accounting Office
and the Department of the Treasury.

3. Discuss appropriateness of various systems

With respect to the information gathered in
II.D.1. and II.D.2., discuss the appropriateness of
cash versus accrual basis accounting and the
circumstances under which each might be desirable.

4. Analyze financial controls in effect

R-eview adherence to and validity of controls
over fiscal and financial policies, procedures, and
practices. Inquire into controls over accounting
systems: approval of financial transactions, recording
and coding procedures, preparation of financial

E. Reporting and auditing

1. Review internal reporting activities

Survey information reported by the several
entities of the District government to the central
budget and accounting office for consistency, accuracy, support, currency, and completeness.

2. Review internal auditing activities

Request for Proposal
December 15, 1975
Page 3

Examine programs, plans, accomplishments, and
capabilities of the internal audit systems and other
self-evaluations of the District government.

3. Review activities of General Accounting Office

Define role of General Accounting Office in
auditing District fiscal affairs.

4. Survey existing external financial reporting

Note existing requirements for financial
reporting and discuss generally accepted standards
with respect to financial reporting.

F. Preliminary recommendations for improvement

The survey should recommend preliminary suggestions
for improving accounting and reporting procedures,
particularly those which can be accomplished without outside

G. Outline requirements for further work

1. Recommend plan of work for further stages

As mentioned in I. above, a major objective of
this preliminary survey is the development of a plan
of work leading to the implementation of generally accepted accounting principles. It is anticipated that the results of the survey would be used as the
basis for proceeding with a full audit of the District
government, with the hope that an auditor could
eventually give a favorable opinion of the correctness
of the annual financial statement. Hence a firm's
ability to develop such a plan would be of major
importance in the survey phase.

2. Discuss internal (District) resource availability

Evaluate the internal audit, GAO, and other
governmental assistance which may be available to
minimize the cost of the engagement and to enable the
most effective follow-up. Determine the need for
additional accounting personnel in the District

3. Estimate the timetable required for future work

Request for Proposal
December 15, 1975
Page 4

Structure a reasonable timetable for completing
the steps outlined in 11.19.1.

4. Estimate man-hours and cost

The survey should be designed to produce a
reasonably accurate estimate of the number of manhours, type of staffing, and cost of carrying out the further work recommended. The cost estimate would be
used primarily to evaluate the desirability of doing
further audit work. The cost estimate would not be considered a bid on the work by the firm performing
the survey, nor would the cost estimate create any
prejudice for or against that firm as regards future

5. Discuss feasibility of proceeding with additional
work through consortium or subcontracting

III. Submission of Proposals

A. Requirements

1. Ten (10) copies of the proposal shall be submitted.

2. Proposals must be received by the close of business
(5:00 p.m.) on Monday, January 12, 1976.

3. Proposals shall be addressed to the Senate
Committee on the District of Columbia; Attention:
Robert Harris, Staff Director; 6222 Dirksen Senate
Office Building; Washington, D.C. 20510. Proposals
may be delivered by mail or by hand.

B. Independence and objectivity

The following information should accompany the

1. Descriptions of work in process or work performed
for the District of Columbia, its officials, the
General Accounting Office, or any other organization with respect to the District of Columbia within the
last five years, and comments as to how such work
might impact on independence and objectivity.

2. Financial information such as balance sheet,
statement of income and expense, statement of retained

Request for Proposal
December 15, 1975
Page 5

capital, number of partners, and other information
which the firm feels appropriate to establish the
financial stability of the firm.

3. A listing of any clients whose fees account for 5
percent or more of the firm's revenues, and the
percentage for which each accounts.

4. Additional information pertaining to the
independence and objectivity of the firm.

C. Competence

The proposal should include information on the firm's
experience in the auditing of large state and local
government units. Also include information to demonstrate
the ability to identify errors, problems which cause errors, problems which contribute to inefficient or ineffective use
of resources, and the ability to develop creative, valid,
and practical recommendations. Offerors may indicate client
names, and the name and telephone number of responsible
individuals who may be contacted as a matter of reference.

D. Engagement team

Firms should explain how they would organize and
manage the engagement team. All professionals down to the
senior accountant level and the work to be performed by each
should be listed. Resumes for these named individuals
should be provided and should indicate their general
qualifications and the extent of recent experience in
auditing and evaluating the financial systems of state and
local governments.

E. Approach

The proposal should describe in detail the firm's
anticipated approach to the work described in II. above.

F. Contribution to goals

The firm should submit its ideas on how it would
contribute to the objective of enhancing the financial
credibility of the District.

G. Pricing

1. Payment will be made on the basis of time and

Request for Proposal
December 15, 1975
Page 6

2. Firms should state a guaranteed maximum price,
which would be the amount paid should the total of
time and materials exceed that price. Under the authority of Senate Resolution 316, no more than
$45,000 may be expended on this project.

H. Reporting

1. Proposal should specify the date on which the final
report would be submitted to the Committee. The Committee requires this final report by April 17,

2. Proposal should specify approximate number and
timing of interim written progress reports.

3. Firm should indicate its ability to provide oral
briefings on demand during the course of the project.

4. Firm should be prepared to discuss findings of the
survey in testimony before the Committee.

IV. Additional Information

A. Notification

All firms submitting proposals will be notified of the
award. It is anticipated that the contract will be signed
on or before January 26, 1976.

B. Selection

A technical evaluation panel may be assembled to
review the proposals submitted and to make recommendations
to the Committee. Final selection will be made by the
Committee. The following factors will be taken into

1. Experience in auditing state and local governments

2. Approach to be used in carrying out the survey

3. Understanding of the financial and management
reporting requirements of the District

4. Qualifications of professional staff

5. Price


Request for Proposal
December 15, 1975
Page 7

The contract will not necessarily be awarded to
the lowest bidder.

C. Participation of relevant government units

The District government (including executive and
legislative branches) and the General Accounting Office have pledged their complete cooperation with the firm conducting
the survey.

D. Confidentiality

All responses will remain confidential. They will be
considered the property of the Senate Committee on the
District of Columbia.

E. Future contracts

Selection of a firm or firms to conduct future
contract work for the Committee will be made independently.
Participation in this survey phase will not prejudice the
award of future contracts for or against a firm.

F. Contract terms

The contract to be drawn up will include those
provisions of Standard Form 32 (41 C.F.R. 81-16-901-32)
which are not inconsistent with or specifically changed by
this Request for Proposal.


JANUARY 12, 1976




1666 K STREET, N.W.
WAsHiNoToN, D. C. 20006 (202) 785-9510

January 12, 1976

The Senate Committee on the
District of' Columbia
6222 Dirksen Senate Office Building Washington, D. C. 20510 Attn: Mr. Robert Harris, Staff' Director Dear Mr. Harris:

We are pleased to submit our proposal to perform

a survey of' the accounting and financial management practices of' the District of' Columbia as outlined in your request dated December 15, 1975.

The purposes of this survey are to define and

analyze existing problems; develop a plan which would lead to the implementation of' generally accepted accounting principles and the eventual auditors' opinion; and report the results of' the survey to the Senate Committee on the District of' Columbia.

Arthur Andersen & Co. has extensive experience in this type of' survey work and is completely qualified to accomplish the objectives as outlined in your Request f'or Proposal. We request that you note in particular (1) the


67-106 0 76 2




qualifications of the review team selected for the survey,

(2) our performance on similar engagements, and (3) our proven approach to financial accounting and reporting, auditing and consulting.

The selection of the professional firm to perform this survey is a difficult process, and there are many criteria you will examine in this selection process. We consider the prime characteristics to be leadership, objectivity, competence and experience. On all of these counts, we believe our firm is exceptionally well qualified. The following paragraphs summarize why we believe this to be true.

Leadership and
Objectivity Our leadership within the accounting

profession toward constructive change has won for us the vigorous backing of thousands of clients and nonclients. This is particularly true in the development of sound accounting principles and related financial reporting. Our demonstrated competence in government matters and our objectivity and independence are significant attributes which would assure our successful completion of this assignment. For example, in September 1975., personnel of our Washington office who would be on the survey team prepared a


ARTHuR ANDieRszN & Co.


booklet (included in the exhibit section at the end of this proposal) entitled "Sound Financial Reporting in the Public Sector." The booklet included consolidated financial statements for the United States Government which were prepared on the accrual basis. As we stated in the booklet, sound financial reporting is a prerequisite to fiscal responsibility. We undertook this project to encourage public discussion on the need for sound accounting controls and financial reporting in the public sector.

Mr. Harvey Kapnick, the Chairman and Chief Executive of Arthur Andersen & Co. has committed the firm to an extensive effort in the area of financial reporting in the public sector. In this respect, we are working on a joint project with the faculty at the University of Chicago Graduate School of Business.

Last month we were selected by the Department of the Treasury to be the accounting and financial advisors to the Secretary of the Treasury on the $2.3 billion loan to New York City.




Qualified Review Team We believe this engagement demands

the top resources of' any firm of independent public accountants. Many firms may describe their experts In the field and indicate that they will be available in some fashion to the project team. We would like for you to note that we are committing all of our top government experts to active participation in the engagement. The personnel we have assigned to conduct this survey have been carefully selected to provide the Senate Committee on the District of Columbia with the 'experience necessary to accomplish the objectives in an expeditious manner. Our two project directors are Mr. Charles A. Bowsher and Mr. Charles L. Storm, who have firm-wide responsibility for our Federal and State/Local Government industry programs.

All of the team members have extensive experience in state, city and county governments in their areas of special expertise. See organization and matrix of experience on pages 3-5 and 3-6. In addition, all have either particiated in the design and installation of financial accounting and reporting systems or in auditing and consulting for governmental units.

Furthermore, Mr. Kapnick has taken a personal interest in this project and plans to participate, as required, in working with the Senate Committee.




Detailed resumes of all team members are included in proposal Section 3, Survey Team Organization. Demonstrated-Performance Arthur Andersen & Co. has performed surveys of this type in virtually every industry and for Federal., state, county and city governments. In proposal Section 4, Recent Related Experience, we list many examples of engagements in the areas specified in your Request for Proposal. The personnel assigned to this survey have participated in these engagements and our commitment of these personnel to this engagemerit is a firm one.

The examples of the engagements outlined in this proposal are a strong evidence of our demonstrated performance; however, the best evidence is available through recommendations of our clients. We invite you to solicit their comments. The hallmark of our practice is to provide clients with sound recommendations that are practical and capable of implementation.

We have been involved in financial management and auditing for over sixty years. We are one of the largest, if not the largest firm of our type in the world, and have in-depth experience on thousands of engagements. As a




result of this experience and our commitment to quality service, we have developed an extensive library of proven approaches and techniques, the practicality of which has been tested on hundreds of engagements. These experiences and techniques provide background and solutions to clients' problems and needs. We believe they will enable us to perform a superior job in less time of diagnosing the problems and recommending constructive solutions. Summary

We believe this to be an engagement where creativity and clear thinking need to be applied to existing and long-standing areas of difficulty. Accordingly, although much information will be gathered and analyzed during the survey, we expect that it will be the synthesizing of further work which will generate the new approaches to accounting policies, procedures and internal controls that will be the real benefit of this work. Although we will be reviewing the District's affairs with a current perspective, we believe our work must also look to the future. In the future lies the success of this project. We are eager toassist the District in achieving a position of leadership in financial controls and reporting which other cities throughout the country might wish to emulate.




We will do all we can to improve the credibility of the District's financial information. We plan to review critically the supervisory and financial controls over the revenues and expenditures of the District while thoroughly examining the personnel resources.

We believe that the urban problem is the predominant domestic issue in the United States today. Our firm has publicly supported sound financial reporting in the public sector as a key factor in addressing these problems. Xe believe a major effort is required to produce a professional product of maximum quality and further, that any effort short of this level will not produce the meaningful analyses and answers that are required by the Senate Committee. We estimate a manpower investment approximating $200,000 at our regular per them rates is required and further recognize that the Senate's available funds are limited to $45,000. However, because we have a commitment to improving the accounting and reporting procedures for our public sector and believe the D. C. Government situation offers a unique opportunity for us to further our research and efforts within the public sector, we have concluded we will contribute our professional services to achieve the objectives outlined in your request and will undertake




this project for $20,000, which we would expect will cover the out-of-pocket expenses of the personnel assigned to the engagement.

To help in your review of this proposal, we have organized it as follows:

Section 1 Statement of the Work To Be Done

Section 2 Our Approach

Section 3 Survey Team Organization Section 4 Recent Related Experience

Section 5 Independence and Objectivity

We are prepared to commence work on this survey

promptly upon selection and would complete the assignment by April 17, 1976. We would be prepared to discuss the findings in testimony before the Senate Committee on the District of Columbia. We look forward to the opportunity to work with you. If you have any questions regarding this proposal, please call either Mr. Charles A. Bowsher or Mr. Charles L. Storm at (202) 785-9510.

Very truly yours,





Included in this section of our proposal is a discussion of our understanding of the objectives of the survey and also the general description of the work to be done. In order to properly evaluate the scope of this survey and determine how effectively and efficiently the financial systems are operating, and for purposes of making the appropriate recommendations, this review must be structured with a set of objectives which will address certain key considerations. These objectives are as follows:

General Objectives

Determine if the financial management organization is properly structured and if the organization plans and controls expenditures in an

efficient and effective manner.

Determine if.the required financial information

is being produced by the current financial


Determine how budgets are used and evaluated in

the cost control process and if the extent of

financial analysis is sufficient to adequately explain variations.


Determine what has to be changed in the present

financial information systems to (1) enable

the District to apply generally accepted

accounting principles, (2) meet the requirements imposed on it by the General Accounting

Office and the Department of Treasury, and

(3) be adaptable to conform to rules and

regulations that may be promulgated by the

Securities and Exchange Commission or other

regulatory agencies for the purpose of registration of municipal securities.

Recommend preliminary suggestions for improving

accounting and reporting procedures, particularly those which can be accomplished without

outside assistance.

Specific Objectives Determine if and how the District's

financial systems provide for the following:

0 Provide complete general ledger reporting capabilities for asset, liability, revenue and

expense accounts for each fund, appropriation,

program, organization, account, location aRd



22 3

" Provide the capability for (1) preparation of

the budget, (2) review and approval of documents and (3) tracking the budget approvals

through to the District Council's final

budget amendments.

" Support comprehensive encumbrance accounting

and reporting.

" Maintain the integrity and control of each


" Plan, collect and report financial and statistical information at each appropriate level

in the organization and program structure. Provide comparisons of actual revenue and

expenditures to approved budgets.

" Support accrual accounting, and utilize the

computer to create as many of the accounting

entries as is practical.

" Support current period, fiscal year-to-date,

and project-to-date reporting.

" Support variance and other forms of exception




Support responsibility reporting concepts for

both organizational and program reporting.

Integrate directly with all source accounting


Properly plan and report controllable and noncontrollable expenses including cross-charging

between departments.

Provide users with a simple coding scheme (to

minimize clerical effort and improve clerical

accuracy) which the system can expand into

the necessary coding to support comprehensive

fund, appropriation, program, organization,

location and project reporting. I

Provide for automatic cost allocations where

feasible to minimize clerical effort. General Description of Work to be Done

In order*to adequately address the present problems and to develop a plan which would lead to the eventual statement of an auditor's opinion, we believe the project scope should include, but not be limited to, the following.

Review and analyze all previous surveys and

reviews of the District of Columbia's

accounting and reporting practices.



" Examine and review the legal requirements for

Federal appropriations, filings and reporting

which apply to the District, and review the

relevant District code regulations so that

we could assess the adequacy of controls to

assure compliance with such regulations.

" Review the systems and the organization of the

principal operating units, data processing

resources and all manual accounting procedures

and practices and the documentation thereof. Analyze the financial planning and control procedures for cash management, budgeting and fund control. Included in this would be a determination of the basis for revenue and expenditure projections and the development of cost estimates for claim reimbursements. Define all accounting principles used by the

District and.compare to those approved for

use by the District. In addition (1) compare

the principles to those generally accepted

in the private sector and other governmental

units, and (2) review for compliance with

requirements of the General Accounting Office

and the Department of Treasury.



" Consider cash and accrual methods of accounting

after all procedures and principles have been

identified. Determine the pros and cons of each of these methods as they specifically

relate to the District.

" Determine adequacy of the accounting policies,

procedures and internal controls in effect at

the District.

" Review internal auditing programs and evaluate.

the capabilities of the internal audit systems

and other self-evaluation systems of the

District government.

" Survey information flow from the several agencies and entities of the District government

to the central budgeting and accounting

office. Evaluate this information for its

meaningfulness, accuracy, support, timeliness

and consistency.

" Review and analyze the General Accounting

Office audit activities and reports and

define for your Senate Committee the future

role the General Accounting Office could

best carry out examining the District's

financial activities.



Analyze the adequacy of current external financial reporting including compliance with

proper reporting requirements.

After completion of the above procedures

Make recommendations for improvement in

accounting policies, procedures and

internal controls.

Determine specific requirements for subsequent work and the type of assistance

needed from the District or the General Accounting Office to minimize the cost

and to effectively train the appropriate


Estimate the timetable and the cost for

the proposed subsequent work.

Prepare final report to the Senate Committee on the District of Columbia.




Preliminary Definition
and Resolution of
Financial Problems Our booklet "Sound Financial Reporting in the Public Sector," makes several observations concerning the financial condition of various governmental units which, according to recent public commentary, appear to be particularly pertinent to the District. These are:

Several states, large cities and other municipalities appear to be in serious financial difficulty. This circumstance can produce a devastating financial crisis unless timely corrective action is taken. A basic problem has been that financial statements of government units have been less than adequate for providing the fundamental financial information necessary for governmental officials, investors and the public t6 be adequately informed. Problems are not identified on a timely basis, and when problems are uncovered the lack of adequate information leads to confusion and frustration in attempting to deal with them.

The Comptroller GeneralP Mr. Elmer Staats, has stated the District's financial management system in its present state probably cannot be audited. The General


67-106 0 76 3


Accounting Office, in attempting to review the financial systems of the District, has encountered many problems including (1) serious inadequacies in the payroll system, not only in the amounts being paid, but also in the control or positioning of certain District personnel., and (2) problems in accounts receivable collections and in billings to third parties such as Medicare. We are als-o aware of the recent announcement of a $35 million cut-off error in the District's financial records.

Based on what has been publicly disclosed and on GAO reports which have been filed with Congress and our experiences in performing similar work for a number of state and local governmental units, we believe that you may anticipate the survey will uncover some or all of the following additional problems in some degree:

(1) In the area of outside purchases and payroll

costs which represent the two largest types

of expenditures incurred by the District (or

for that matter any large city):

Duplicate unauthorized payments.

Duplicate accidental payments.

Weak and ineffective inventory controls.

Misrouted material deliveries, such as
food, automotive equipment and housing materials.



Inflated prices (with the risk of "kick

Certain buying sources may be noncompetitive.

(2) In the area of personnel administration:

0 Personnel on the payroll, but not working.

Poor time reporting or lack of controls.

Duplications on the payroll.

9 Unauthorized individuals included in pension programs.

Nonexistent persons being placed on the

Persons who leave the District employ who
continue to receive payroll checks.

(3) Some cities only provide financial reporting

at the fund and appropriation level. Program

reporting is accomplished by recasting the

annual appropriation budget. If this is true

of the District, there probably exist the

following operational and reporting problems:

Increasing data processing effort to
develop and maintain multiple systems as more departments desire expanded reporting.

Significant data, such as detail encumberance and budget amounts are not provided on most interim reports.



Operational complexity and control problems in providing data to these systems from multiple sources.

Cumbersome and time-consuming reconciliation of the various reports. Inefficient processing causing delays in report preparation.

Lack of uniformity and coding input transactions.

(4) Some government systems have retained their

original design, although they have been converted to operate on large, sophisticated data processing equipment. Generally, reporting problems involving these systems


Delays in identifying and correcting errors and input transactions. Lack of coordination.and cut-off procedure schedules.

Inadequate reporting of incumberances.

Need for simplification of Input coding requirements.

As the Committee is concerned over generally

accepted accounting principles, sound financial controls and related reporting, to the extent that the above described situations are present in the District, action needs to be taken. The next question is what approach or approaches should be taken to rectify the problems?



Positive recommendations should only be made upon completion of the survey. However, our experience is that specific recommendations generally fall in two broad areas:

(1) Develop an integrated financial accounting

system with improved controls and reporting.

This involves a complete system redesign, and

would probably cover a long period of time.

This would be especially true if there were

severe deficiencies in present personnel,

accounting and systems disciplines, and

internal auditing.

(2) The other alternative involves immediate

steps to modify the present controls and

systems so as to strengthen the accounting

and internal controls within the present

accounting structure. This interim systems

effort would have to be accomplished as

rapidly as possible.

These alternatives need not be mutually exclusive. An interim systems effort does not necessarily interfere with the development of an integrated financial accounting system as discussed in Alternative No. 1 above. The development of a formal system could continue at the same time. However, the results of the survey would determine the District's needs.



The survey will identify the probable costs relating to all recommendations. It is not possible to provide cost data until the problems are defined. However, our firm's substantial experience in the development of centralized accounting and other systems will permit us to provide you with meaningful cost data when the survey report is rendered. Ultimate cost data will also vary depending upon a firm's prior experience. For example, we recently completed an engagement for the City of Detroit, Michigan to design and implement a central accounting system. Since this system was a modification of the software developed for the financial management and reporting control system we installed in Louisiana, the time and cost required for implementation was reduced. Our fees for this engagement were $500,000.

Of principal concern is that any new accounting

system installed in the District not only must be in accordance with generally accepted accounting principles and conform to statutory requirements but should also be adaptable as needed to conform to any future rules and regulations adopted by the Securities and Exchange Commission or other regulatory Federal agencies. We say this because we believe that in the future the Securities and Exchange Commission or other regulatory Federal agencies may require certain financial reporting before approving the registration and sale of municipal securities.



In summary., through our study and past experience, we have tried to give you some appreciation of what may be determined during the survey phase and what alternative courses of action may be recommended. No positive opinions or recommendations are appropriate until the survey has been completed. We have also described our specific approach to the survey. As residents of the District of Columbia we are keenly aware that the District is taking steps to improve its systems and is currently reviewing various systems installations. These would be considered in our recommendations.

General Approach

Taken as a whole, financial management is a finely tuned.set of responsibilities, duties, systems and procedures for planning, budgeting, operation and follow-up on all basic activities involving costs and revenues.

Checks and balances are built in and efficiency is such that redundancies should be permitted only when needed for control. These checks and balances should interface with each other within the respective departments and between departments. Because of this totality, we believe it is appropriate to conduct a study of all financial management areas and not to omit any functional areas. Omissions could lead to incomplete conclusions which could result in future inefficiencies.



We propose to form several teams of individuals from our several offices who have knowledge and experience in understanding the unique accounting and reporting requirements of various departments of government such as those of the District of Columbia. We are fortunate in having available a group of professionals who possess a wide range of experience in select government departmental operations. Because of this we can make full use of the limited time available, minimize the learning curve and successfully complete the project.

We will assign each of five working teams to the areas of general government operations, public safety, education, human resources and environmental services. Each of these teams will concentrate their efforts in their respective areas of specialization (human resources for example). We have developed a work program which is usable by all of the teams as they review their designated departments within the D. C. government. This work program (included at the end of this section) includes all of the items set forth in Section II of your Request for Proposal and will be specifically tailored to meet each department's particular requirements. We also have designated a core group of well qualified and experienced personnel to be responsible for the coordination of the entire project. This group includes the managing partner of our Federal



Government Services Industry, Mr. Charles A. Bowsher, and Mr. Charles L. Storm, the managing partner of our State and Local Government Services Industry.

In Section 3 of this proposal we have included our charts showing the individuals assigned to this survey and their respective areas of expertise together with detail resumes of their backgrounds and experience.

We believe the following work segments represent a logical sequence to be followed in completing the review. This will allow us to utilize the project teams in the most efficient manner.

Organize and control the review and obtain
additional general background information.

Review the financial management organization
and information flow controls.

Analyze fact finding and summarize data based
on management interviews.

Review the present automated and manual information systems. Determine the adequacy of
available information and the quality of the
service provided by the respective systems
and the cost of the service.

Consolidate data gathered, prepare findings and
develop conclusions.

Develop recommendations for improvements in the
financial management and reporting organization. Prepare alternative approaches, including specific recommendations as to timing,
scope and direction for a subsequent audit if
such an audit is determined to be feasible.

Prepare the final report.



our proposed procedures are flexible and may be modified or redirected if we uncover unanticipated conditions or if your Committee should desire to redirect our effort. We will be responsive. However, you can rest assured that before we would undertake any major deviation from the proposed plan we would discuss circumstances thoroughly with the Committee. Progress Reporting The preparation of periodic progress

reports is a standard control tool on all projects we undertake. These reports serve to keep management informed of the accomplishments during the reporting period and focus attention on items requiring decisions or other action. It would be our recommendation to have progress report meetings, including written reports, at least six times during the twelve week period of the study. In addition, we will be prepared to provide oral briefings at any time during the course of the work.






A. Finalize specific objectives of the project.

B. Determine internal resources (D.C.) available
to assist on the project.

C. Finalize detailed work program including task
completion dates and specific work assignments.

D. Train D. C. personnel, who will assist in the
project, in the techniques to be used in the

E. Schedule review of the various departments.

F. Hold progress meetings.

G. Provide project supervision. Ii. REVIEW BACKGROUND DATA A. Analyze reports and working papers from
previous surveys relating to accounting and
reporting practices.

B. Review legal requirements.

1. Public'Law 93-198.

2. Relevant D. C. code regulations.

3. General Accounting Office (GAO) regulations.

4. Department of the Treasury requirements.

5. Other.



C. Review overall structure of D. C. government.

1. Obtain copies of all pertinent organization charts and policy and procedure

2. Determine appropriate officials to be
interviewed during the review.


Public Safety
Human Resources
Environmental Services General Government Operations

A. Meet with selected departments and prepare
descriptions of each accounting and reporting
system. Include such information as:

1. Who maintains the system(s)?

2. Is the system manual or mechanized?

3. If the system is mechanized, where is
the processing done?

4. How do the systems relate to the control

5. Do the systems provide the information

6. Is the department satisfied with the

7. Does the system duplicate other information maintained within the department or
by the control system?

8. What are the objectives of the system?

9. Are accounting records maintained
according to GAAP and in accordance with
requirements of GAO and Department of

10. What types of internal control are built
into the system?



B. Obtain copies of internal reports generated
by the departmental systems and determine:

1. What are the reporting requirements of
the systems?

2. Who determines the reporting requirements?

3. What information is included in each

4. What is the sequence of the report?

5. How frequently is the report prepared?

6. Does the report duplicate information
available from other sources?

7. Who uses the report?

8. Does the report fulfill a meaningful

9. Could other types of reports be considered to fulfill the basic objectives? C. Review all manual or mechanized information
files utilized by the system.

1. File type manual or mechanized?

2. Contents of the files.

3. Sequence of the files ("key").

4. Frequency of use.

5. Describe file maintenance method of

6. Controls maintained over input to the file.

7. What is the purpose of the file and the
information needs satisfied by it?

8. Might it be desirable to consider
certain alternative file types?



D. Describe the processing flow of the system.

1. What type of input documentation is
used? Obtain copies.

2. Who prepares the input documents and
what is the distribution of copies?

3. What controls are maintained over

4. Obtain copies of processing flow charts
and description of processing flow.

5. How does the system interface with other

E. Identify accounting related personnel.

1. How many people are directly involved
with accounting and related functions?

2. Summarize man-hours and payroll costs
relating to accounting functions.

3. Enumerate the classification level of
accounting personnel.

F. Review accounting equipment usage such as
data processing equipment and posting
machines. Determine:

1. Specific equipment identification.

2. Cost or rental for equipment.

3. Equipment utilization.

4. Salaries of personnel directly associated
with accounting equipment.

5. Specific accounting functions accommodated
by the hardware.

G. Review areas in which the department may or
may not have accounting records. Find out
what is done in such areas as:

1. Inventories.

2. Property.



3. Long-range planning and budget preparation.

4. Accrual of revenues and expenditures.

5. Accrual of sick and vacation leave
and retirement benefits.

6. Review department audit reports and
problem areas noted.

H. Discuss adequacy of current systems with
appropriate supervisory personnel. Cover
such things as:

1. Usefulness of existing reports.

2. Reliance on accuracy of reporting systems.

3. Improvement projects in process or


A. Prepare for periodic progress meetings with
District and Committee personnel:

1. Review prior meeting memoranda and
status of matters in process.

2. Update current status of survey.

3. Identify areas requiring management
consideration and recommend action to
be taken.

4. Prepare c commentary on the status of the

B. Review the status of the survey with appropriate personnel:

1. Document comments and matters requiring

2. Prepare memoranda on the results of the
meetings and distribute copies to appropriate personnel.




A. Collect and organize findings for the

1. Prepare a summary of all material
accounting and financial reporting
functions. Note important facts.

a. Indicate which functions are duplicated by the various departments or the central accounting office.

b. Indicate which functions are not presently performed by anyone.

C. Identify and analyze departures
from GAAP and requirements of GAO and Department of Treasury.

d. Adequacy of controls over fiscal affairs.

e. Appropriateness of the financial systems currently In effect.

f. Compliance with legal requirements.

B. Develop a plan leading to the implementation
of generally accepted accounting principles.

1. Identify changes required to comply
with GAAP.

2. Prepare definition of accounting system
which can accommodate all accounting and
financial reporting functions.

3. Develop a master plan for making the
necessary changes.

4. Prepare an implementation work program
to identify the work tasks and related manpower requirements to proceed with
the future work.

5. Determine which changes can be accomplished
without outside assistance.

6. Structure a timetable for and the cost of
completing the additional work.



VI. PREPARE A REPORT OF RECOMMENDATIONS A. Prepare an outline of the final report.

B. Discuss the outline with appropriate D. C.
and committee personnel.

C. Assign report elements to various project

D. Complete draft of final report.

E. Submit draft of report to appropriate personnel
for comment.

F. Complete final draft.



67-106 0 76 4



This survey requires team members who possess

technical expertise and the ability to apply this expertise in an environment of government financial management. Arthur Andersen & Co. is able to commit such experienced and qualified personnel to fully meet the unique requirements of the Senate Committee in its effort to obtain sound financial management organizations and systems and the implementation of generally accepted accounting principles.

The selection of these personnel was based on two factors. First, there was a requirement for previous experience in city, state and county government. Second, there was a requirement for a high level of technical ability in the areas of financial organization, financial management information systems (including auditing, accounting, financial reporting and analysis, and other data systems) and long-range planning so as to enable a review of these and related topics in terms of cost and effectiveness.

This section includes the organization of the survey team and a summary of their government experience (included as exhibits in this section) and resumes on the team members.




The resumes by no means contain a full description of the individual's entire experience and accomplishments relevant to this survey. They have been prepared to indicate the high level of expertise and experience these people have in city, county and state government. All of the personnel are full-time career members of our organization.





Charts Page

Survey Team Organization 3-5

Summary of Team Member Experience 3-6

Team Members

Charles A. Bowsher 3-7

Clifford E. Cox 3-12

Alexander E. Dean 3-14

Bert T. Edwards 3-18

James H. Haas 3-21

Louis P. Herremans 3-23

Brian K. Johnson 3-26

Donald V. Kane 3-30

Harvey E. Kapnick 3-34

Duane R. Kullberg 3-36

Richard C. LaVelle 3-39

Laroy A. Luther 3-43

John A. Moga 3-46

Karl E. Newkirk 3-49

Harry P. Ridenour, Jr. 3-52

Ronald M. Sail 3-55

George T. Shaheen 3-57


r n

Team Members Page

Michael E. Simon 3-59

Charles L. Storm 3-64

George C. Walker 3-69

Lucius P. Wheeler 3-72

Robert G. Wilson 3-75

James R. Yoakum 3-77


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Mr. Bowsher joined the Chicago office of Arthur Andersen & Co. in 1956. He is currently a partner in the Washington, D. C. office and serves as Managing Partner of the firm's Federal Government Services Industry Program. In this capacity as well as in an appointed position in the Federal government, Mr. Bowsher has had supervisory responsibility similar to that required in the evaluation of the District of Columbia's financial management organizations and systems.

Government Service

Department of the Navy In November 1967, Mr. Bowsher was nominated by President Johnson for the position of Assistant Secretary of the Navy (Financial Management), which he assumed as of December 18, 1967. He was reappointed by President Nixon and held this position until June 30, 1971, when he resigned to return as a partner of Arthur Andersen & Co.

As the Assistant Secretary of the Navy (Financial Management), Mr. Bowsher had line responsibilities of the Comptroller and Chief Financial Officer. These included direct supervision of an annual budget of over $20 billion, which was administered by a budget department of 250 people,



an accounting and systems department of 4,500 and an internal audit staff of 500. In addition, he had the direct coordination responsibility for both the Senate and House Appropriations Committees, the Office of Management and Budget and the General Accounting Office. He also had responsibility for all ADP operations in the Navy and for the management information system for the Secretary of the Navy.

Government Consulting

New York City Engagement partner for the work we are performing for the Department of the Treasury as accounting and financial advisors with regard to the financial reporting problems of the City of New York.

Department of the Interior Engagement partner for a review performed for the Assistant Secretary of the Interior Management and Budget, to evaluate the accounting, budgeting and program information systems of the Department of the Interior and its Bureaus and Offices. The objective of the engagement was to develop comprehensive plans for both short and long-term improvements in financial management and program information systems to better serve the information needs of the Secretariat and the Department.

Federal Reserve Consulting partner for the design of a totally integrated management information system.



The project involved extensive interviews) analysis of information requirements and current management information systems.

General Accounting Office Engagement partner on an assignment which called for the development and presentation of two seminars, the first of which was entitled "What are the Special Problems of Financial Management in the Federal Government?" This seminar was presented to Assistant and Under Secretaries, or their counterparts, of selected Federal government departments. A second seminar was entitled "Are Reimbursably Funded Government Agencies Operating on a Business-Like Basis?"

U. S. Price Commission Consulting partner on an engagement to set up the systems and procedures needed to meet the mission requirements of the U. S. Price Commission.

National Railroad Passenger Corporation Continuing and direct involvement in the planning and control of all the firm's assignments for National Railroad Passenger Corporation. Among these was the submission of special testimony regarding railroad compensation which was presented to the Interstate Commerce Commission. Background

Mr. Bowsher graduated from the University of

Illinois with a Bachelor of Science degree in 1953. After

3 -9


serving two years in the U. S. Army, he attended the University of Chicago Graduate School of Business and received an M.B.A. degree in 1956. In 1957, he was licensed as a CPA in the State of Illinois and is licensed in several other states by reciprocity.

His interest in the government led to his chairmanship of the Board of Visitors, Defense Systems Management School; membership in the Secretary of the Navy's Navy and Marine Corps Acquisition Review Committee (NMARC); membership in the Advisory Committee to the Secretary of Health, Education and Welfare and Commissioner of Social Security on Medicare Administration; and membership in the Federal Government Executive Committee of the American Institute of Certified Public Accountants.

Mr. Bowsher is a recipient of the Navy Distinguished Public Service Award (1969 and 1971) and the Department of Defense Distinguished Public Service Award (1971).

He is a member of the District of Columbia Institute of Certified Public Accountants and the American Institute of Certified Public Accountants. He is also a member of the Public Sector Advisory Committee, Metropolitan Washington Board of Trade and the Management Advisory Services Division Task Force of the American Institute of Certified Public Accountants.



Mr. Bowsher was a member of the firm's research

group which compiled the booklet "Sound Financial Reporting in the Public Sector" published by Arthur Andersen & Co. in





Mr. Cox is a manager in the Administrative Services Division of our Chicago office. Since joining the firm in 1972 his experience has been primarily in the field of business systems for educational institutions.

Government Consulting

Chicago Board of Education Project leader for the design and installation of a comprehensive real-time personnel information and payroll system for the Chicago Board of Education. The Chicago Public School System has approximately 60,000 employees, 700 schools, a one billion dollar annual budget and 600,000 students. Mr. Cox was responsible for a major part of the design of this computer-based system. He also directed the installation effort of the processing system. In addition, Mr. Cox had a key role in defining the integration of this system with both the current and newly designed accounting and financial control systems.

Mr. Cox has been involved in other engagements

dealing with the information needs of government agencies:

He was the project leader for the establishment of the data base administration
function for the Chicago Public School



He participated in the review of the planning
and management information system of
another public school system with 170,000

He was the project leader for the design of
an accounting and management information
system for a transit district.

Mr. Cox received a Bachelor's degree in social science from the University of Chicago in 1964 and a Master's degree in business administration from the same institution in 1966.




Mr. Dean joined the firm in 1971 and is now a manager in the Administrative Services Division of our Washington, D. C. office. Mr. Dean has performed extensive reviews in the area of operating procedures and information systems for both government and private industry clients. Government Service

U. S. Coast Guard As an officer in the Coast Guard, he served as project leader in charge of designing and installing the "JUMPS" Joint Uniform Military Pay System, which is used to standardize compensation procedures for service-wide military pay. This work involved an understanding of all military and government regulations concerning compensation and personnel accounting.

He also led the Coast Guard's research and development efforts to install optical character recognition as a means of data entry. This responsibility included selection of vendors, programming and systems design.

Government Consulting

Federal Home Loan Bank Board Manager for an

operational audit of the Information Systems Division. The objective of the operational audit is to identify deficien-' cies within the Information Systems Division in the areas 3-14


of organization, personnel policies, physical security, standards, resource utilization, project control, planning, library and data retention practices, backup and recovery, systems operations and scheduling. Where deficiencies are identified, alternate solutions for improving these areas and estimates of the resources required to implement alternatives are being developed and presented for the consideration of management.

General Accounting Office Served as lead analyst on an internal facilities management review of the data processing function of the General Accounting Office. The purpose of the engagement was to develop detailed technical procedures for conducting internal facilities management reviews of the various data processing operations throughout the government. Specific responsibilities included a detailed review of the operating system and major applications. This engagement included the use of software and hardware monitor techniques.

Urban Mass Transportation Association Analyst on an engagement to provide a management accounting and project administration and control system. His specific responsibility included the design, programming and installation of cost budgeting and accrued expenditure forecasting models. He also developed all computer production job stream run procedures.


67-106 0 76 5


Industry Consulting

Greater Southeast Community Hospital Performed a hardware evaluation study of various automated data acquisition techniques for this 450-bed community hospital. The objective of the study was to collect clinical laboratory test results from automated laboratory equipment, perform analog to digital conversion and validation using a minicomputer and then transmit the results to the hospital's main IBM 370 equipment. The installed system used a minicomputer for remote processing and validation. Tapes were carried to the central site daily for processing. Other alternatives considered included controlling the minicomputer via CICS on the 370 computer.

On this same engagement, Mr. Dean assisted the

hospital select all computer hardware and convert to DOS/VS and multiprogramming.

Regional Processing Center Mr. Dean recently

completed an assignment as manager for a third-party review of a regional processing center for the largest credit card organization in the United States. The review included evaluation and testing of computerized and manual systems and controls, including on-line data entry, multi-bank processing, interbank and regional electronic funds transfer and microfilm.




Mr. Dean was graduated from the University of

Massachusetts with a Bachelor of Arts degree In economics in 1967, and from George Washington University with a Master of Business Administration in 1971. He has served as an instructor In several courses presented in our firm-wide training program, including internal facilities management, operating systems (OS) and assembler language.

Mr. Dean is a CPA and a member of the American Institute of Certified Public Accountants, District of Columbia Institute of Certified Public Accountants, and the Society for Management Information Systems.




Mr. Edwards is a partner in the Audit Division of the Washington, D. C. office. He joined Arthur Andersen &

--Co. in June 1961, was promoted to manager in June 1966, and was admitted to the partnership in April 1971.

Mr. Edwards serves on the firm's government services industry team with special responsibility for Elementary and Secondary Education Industry Competence. Government/Industry Auditing Experience

Mr. Edwards is audit partner on the Board of'

Education of Prince George's County, Maryland, the Board of Education of Washington County, Maryland, Prince George's Community College, The American University and the Carnegie Institution of Washington engagements, and is a member of the audit team assigned to the District of Columbia Model Cities Program grant projects at D. C. Department of Human Resources, Federal City College,, the D. C. Public Schools and other organizations. He has also served as engagement partner for several organizations receiving support from and subject to the reporting requirements of the Office of Minority Business Enterprise of the Department of Commerce and the Small Business Administration.



Mr. Edwards has had extensive experience with

Federal government contract requirements through serving as audit partner on the Newport News Shipbuilding and Dry Dock Company, the world's largest shipbuilder.

Mr. Edwards performed an extensive review of the accounting procedures of The American University leading to the establishment of its internal audit function. He also was the principal member of the firm's team which reviewed the administrative procedures of The Brookings Institution and recommended changes to effect economies in its operations.


After receiving a BA degree in chemistry from Wesleyan University, Middletown, Connecticut, in 1959, Mr. Edwards graduated from Stanford University with an MBA degree in finance and accounting in 1961. He is a CPA in the District of Columbia.

Mr. Edwards is Trustee of The Barker Foundation, a licensed adoption agency, and formerly served as President, Vice President and Treasurer. He is currently a Director and Treasurer of Junior Achievement of Metropolitan Washington, Director and Treasurer of the Population Reference Bureau, Inc., a nonprofit organization which performs demographic population studies, and was a member of the



D. C. City Council Advisory Commission on Industrial and Commercial Development. He served five years as an officer, including two as.President, of the Wesleyan University Alumni Club of Washington. He has served as an officer of serveral local churches of the United Methodist Church. He was listed in the 1970 edition of "Outstanding Young Men in America."




Mr. Haas joined the New Orleans office of

Arthur Andersen & Co. in 1965. After spending one year on the audit staff, Mr. Haas transferred to the Administrative Services Division and was promoted to manager in 1969. His systems involvement with the firm spans a broad spectrum of industry and application areas.

For the past three years he has also been heavily involved in the government services sector supervising operations audits in selected areas of state government operations and institutions of higher education. Government Consulting

Mississippi Department of Public Welfare Most recently he has been directly involved in the design and, at present, the installation of a financial reporting system for the Mississippi Department of Public Welfare. Embodying many of the same management reporting and control concepts developed in Louisiana, the system also includes comprehensive indirect cost allocation capabilities to meet HEW requirements.

State of Louisiana Mr. Haas served as project manager for the design and installation of a comprehensive financial accounting and reporting system for the State of



Louisiana. Extending over a 2 year period, the scope of this system included accounting, budgetary control and reporting for funds, appropriations, grants and contracts and included responsibility reporting as well as cost reporting for programs, projects, disbursements, payables, encumbrances and budget development. Industry Consulting

Mr. Haas has also participated in the design and installation of inventory cost and control, payroll, marketing, and financial reporting systems for clients in the forest products, food distribution, transportation, and utility industries.


Mr. Haas graduated from Louisiana State University with a Bachelor of Science degree in 1961 and a Master of Business Administration degree in 1965. He joined the New Orleans office of Arthur Andersen & Co. in 1965. Prior to that time he was associated with the banking industry and is a Certified Public Accountant.

In addition to membership in several professional and civic organizations, Mr. Haas has participated as a faculty instructor at various firm training meetings and seminars as well as currently serving as a member of the firm's Marketing Core Group.




Mr. Herremans is a partner in the Administrative Services Division of the firm's Detroit office. During his 13 years with Arthur Andersen & Co., Mr. Herremans has designed and installed numerous large-scale computer systems, including several government system *projects. Government Consulting

Mr. Herremans has engagement responsibility for

all governmental engagements in the Detroit office. A list of representative engagements under his responsibility include:

State of Michigan Department of Management

and Budget Designed and installed a comprehensive financial management information system on a statewide basis. This project included program cost reporting, responsibility reporting, project reporting, appropriation control and fund general ledgers.

Designed and installed a statewide payroll!

personnel system for 60,000 employees. The system uses online terminals for data collection and inquiry-response.



State of Michigan Department of Public Health Designed and installed a uniform financial reporting system to be used on a statewide basis by the local units of government to report budgets and monthly status of Federally and state funded programs conducted by local units.

City of Detroit Department of Finance Currently designing and installing a city-wide accounting and financial reporting system including fund general ledgers, program cost reporting, responsibility reporting, project reporting, appropriation control, accounts receivable, accounts payable and cost management.

Currently designing and installing a city-wide

payroll-personnel system. System includes position control, fringe benefit accounting, labor distribution and employee history.

Detroit Board of Education Revision of the

general accounting functions of the Board of Education to eliminate the excessive delays in processing disbursement vouchers.

Currently reviewing and recommending changes in warehousing procedures to improve security and control.

Evaluating method of determining overhead costs for the Board to be used in Federal grant applications.



Assisting in the installation of a payroll personnel system.

County of Muskegon, Michigan Performed the work necessary to develop an A-87 overhead cost plan and prepared the departmental cost proposal to the Federal government for approval.


He received a Bachelor of Science degree from Ferris State College in 1961 and a Master of Business Administration degree from Michigan State University in 1962.

Mr. Herremans is a Certified Public Accountant in Michigan and a member of the American Institute of Certified Public Accountants, Michigan Society of Certified Public Accountants, and holds a Certificate of Data Processing from the Data Processing Management Association. He also holds office in the local chapter of the National Association of Accountants.




Mr. Johnson is a manager in the Administrative

Services Division of our Minneapolis office. Since joining Arthur Andersen & Co. in 1966, Mr. Johnson has had extensive experience in state and local government work. In addition, he has had technical and administrative responsibility for data processing and general systems engagements in the hospital, manufacturing and banking industries. Government Consulting

Hennepin County Welfare Department Currently participating in the project management of our systems engagements at the Hennepin County Welfare Department and the Ramsey County Welfare Department. These projects encompass the design and implementation of computer-based information systems for the welfare departments, utilizing communication terminals for remote data entry and on-line access to a central data base. The system will be processed at Hennepin County on an IBM 370, Model 155, while Ramsey County is anticipating implementation of an IBM 370, Model 145.

State of North Dakota Participated in the

modernization and centralization of the data processing activities for the State of North Dakota. This project included the development and implementation of a plan for 3-26

complete centralization of the State's data processing equipment and personnel, and redesign and installation of data processing systems for the major State agencies on an RCA Spectra 70/45.

Several States Social Services Departments Manager responsibility for the cost evaluation phase of a nationwide demonstration project to provide an integrated program of social services and nutrition for the aged. His responsibilities included project management in the development of accounting and reporting systems and cost/benefit analyses for the social service programs.

Ramsey County Welfare Department Manager responsibility for the design of a computer-based information system to serve this urban county welfare department. The system was designed to utilize communication terminals for remote data entry and on-line access to a central data base.

State of North Dakota

Design and installation of mechanized procedures for real estate and personal property

tax assessments for a county.

Design and installation of bill status and

budget status reporting systems for use by a

state legislature.



Design and installation of a mechanized system

for processing workmen's compensation


Design and installation of a mechanized system

for processing applications and repayments

for student loans which were Federally-funded

and issued by a state agency.

Review of accounting and reporting procedures

for all penal and charitable institutions in

North Dakota.

Review of organization, accounting and clerical

procedures for county government in North


State of Wyoming A study to determine the need

and alternative designs for a statistical information system for Wyoming State government. This study encompassed all major State agencies.

State of Alaska A review of processing and

reporting requirements for financial information in each major State agency in the State of Alaska. Background

Mr. Johnson is a graduate of the University of

Michigan with a B. S. degree in Business.Administration and 3-28

a Master of Business Administration in Accounting. He is a member of our firm-wide industry team responsible for providing services to state and local government. He is also a member of the American Public Welfare Association and the Minnesota Social Service Association.




Mr. Kane joined the Chicago office of Arthur

Andersen & Co. in 1945. He transferred to the Baltimore office as Managing Partner in 1966 and from there to Washington, D. C. to be responsible for the firm's relationship with numerous Federal and other governmental organizations and for the audit and consulting work of our firm for governmental organizations. Government Consulting

The legal entities with which Mr. Kane has consulted and performed other professional services or testified on economic and financial matters, including accounting principles matters and public security issuance matters, include:

Legal and Monetary Affairs Subcommittee of the United States House of Representatives Analysis of the economics and accounting principles of the railroad industry with recommendations of proper principles and testimony thereon.

United States Post Office Review of a study of the cost of transportation of mail and recommendation of an approach to the reduction of costs was adopted and effective.


7" 7

Federal Communications Commission Analysis and testimony of proper accounting principles to be applied to costs incurred on capital facilities programs.

Federal Power Commission Analysis and testimony on proper accounting principles for a very substantial longrange capital investment program, operating cost allocation bases and the rates to be charged consumers after completing the project.

Interstate Commerce Commission Analysis of

accounting principles matters and recommendations of proper principles of accounting and public reporting.

Cook County Illinois Grand Jury Testimony regarding results of an investigation of the handling of the cash receipts of the Chicago Police Department.

CookCounty Criminal Court Testimony regarding legal requirements for an audit of the cash receipts of the Police Department of the City of Chicago and on the meaning of an auditor's report thereon.

United States Criminal Court Chicago, Illinois District Investigation and preparation of documents for filing with the court on very substantive irregularities in the handling of cash of a not-for-profit organization.


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City of Baltimore Civil Service Commission

Testimony on the need for a comptroller for the city hospital and on the range of salary which would be appropriate for the position at the time.

City Council of the City of Baltimore Testimony on the economic effects of proposed limited access highway facilities.

New Jersey Health Services Cost Review Commission

Analysis and testimony on the basic cost allocation and hospital patient rate-making techniques proposed for use by the commission in regulating approximately 150 hospitals.

State of Maryland Health Services Cost Review

Commission Review, analysis and testimony on the proper cost accounting principles and rate-making techniques for a hospital subject to a jurisdiction of the commission.

Maryland Public Service Commission Analysis

and testimony on the proper accounting principles for cost of transit and other utility operations, the proper bases for rate-making and the economy and efficiency of companies subject to the jurisdiction of the commission.

Public Service Commission of Indiana Analysis

and testimony on the proper cost and rate-making principles in the water, transit, telephone, electric and gas industries,


on an historical basis, a pro forma basis and for long-range capital facilities programs.

New York City Consulting partner for the work we are performing for the Department of the Treasury as accounting and financial advisors with regard to the financial reporting problems of the City of New York. Background

Mr. Kane obtained a degree in accountancy from the University of Illinois. He subsequently took graduate and advanced courses in accounting and business management at Loyola of Chicago and Northwestern University.

He is a member of the American Institute of Certified Public Accountants, the American Accounting Association and the Association of Certified Public Accountants in Maryland

'He is a member of the Board of Directors of the

Association of Independent Colleges of Maryland and has been a member of numerous other boards of education, charitable and health care institutions. He is a member of Greater Baltimore Committee and was the founder of the Baltimore Promotion Council and its first President and Chairman of the Board. He was especially active in the program to redevelop economy and the image of the City of Baltimore while he was the Managing Partner of our Baltimore office.




Mr. Kapnick was elected Chairman of Arthur Andersen & Co. in May, 1970. He is chief executive of his company, an international firm of accountants and auditors with its world headquarters in Chicago and offices in principal cities throughout the world. He joined Arthur Andersen & Co. in 1948 in its Chicago office and became a partner in 1956. In 1962 Mr. Kapnick became Managing Partner of Arthur Andersen & Co.'s Cleveland office and has been a member of his firm's Board of Directors since 1966.

Mr. Kapnick was born in 1925 in Michigan. After

serving as an officer in the Army Air Force, he was graduated from Cleary College in Ypsilanti, Michigan, in 1947, and attended the Graduate School of Business Administration of the University of Michigan 1947-48. Mr. Kapnick received the honorary degree, Doctor of Science in Business Administration, from Cleary College in June, 1971.

Mr. Kapnick is the principal consulting partner for the work we are performing for the Department of the Treasury as accounting and financial advisors to the City of New York. He was also responsible for the booklet "Sound Financial Reporting in the Public Sector" published by Arthur Andersen & Co. in 1975.



Mr. Kapnick is a member of*:

Advisory Committee for Trade Negotiations (two-year
Presidential appointment)
U. S. State Department Advisory Committee on Transnational Enterprises

Boards of Directors/TrusteesThe Orchestral Association (Chicago Symphony Orchestra)
(and Treasurer)
Chamber of Commerce of the United States
International Executive Service Corps
Logistics Management Institute
The Menninger Foundation
Northwestern University
American National Red Cross, Mid-America Chapter
Chicago Council on Foreign Relations
Chicago Sunday Evening Club
Chicago 21 Corporation
The Mid-America Club (and Treasurer)
Museum of Science and Industry
Ravinia Festival Association
Siena Heights College

Other boards, councils, etc.Iran-U.S. Business Council
Duke University Graduate School of Business Administration Board of Visitors
Stanford University Graduate School of Business
Advisory Council
Graduate School of Business Council--University of
YMCA (Chicago) Advisory Board
American Institute of Certified Public Accountants
(Council Member at Large)

Mr. Kapnick is Chairman of the 1976 Metropolitan

(Chicago) Crusade of Mercy. He was Illinois State Crusade

Chairman of the American Cancer Society for 1972 and was

cochairman of the Illinois Task Force on Welfare Audit.

Mr. Kapnick and his wife Mary live with their

three sons in Winnetka, Illinois.




Mr. Kullberg joined the Minneapolis office of Arthur Andersen & Co. in 1954 and has continued with the firm since then with the exception of two years of military service with the Army Audit Agency. He was admitted to the partnership in 1967, in 1970 he became managing partner of the Minneapolis office and in July, 1974 he transferred to the firm's World Headquarters as Coordinator of Audit Practice Directors. In July, 1975 he became Deputy Managing Partner of the Chicago office and is a member of the firm's Board of Directors.

Government Consulting

Hennepin County Hennepin County covers the

greater metropolitan area of Minneapolis, Minnesota. The firm has been auditors for Hennepin County from December 31, 1970 through the present time. Mr. Kullberg was the engagement partner on that engagement when it became a client of the office and was advisory partner on the engagement following his becoming managing partner of the office in 1970. This engagement represented the first examination of Hennepin County by independent public accountants.

Hennepin County is the largest county in the State of Minnesota and one of the largest county governments in the nation. It has an annual budget of approximately $250 million.


Minneapolis Public Schools Minneapolis Public Schools (Special School District No. 1) became a client of the firm in 1968. Mr. Kullberg was the engagement partner on that engagement for its first two years and was advisory partner on the engagement for two years. This engagement represented the first examination of the Minneapolis Public Schools by independent public accountants.

New York City Consulting partner for the work we are performing for the Department of the Treasury as accounting and financial advisors with regard to the financial reporting problems of the City of New York.

Other Engagements Mr. Kullberg was involved as advisory partner on a number of other local government engagements in Minneapolis and other offices as a result of his experience in the Minneapolis office. Background

Mr. Kullberg was graduated with honors from the College of Business Administration of the University of Minnesota in 1954 with a B.B.A. degree in accounting.

He has had an active interest in government with

various civic groups for a number of years. Among his civic activities, he was active in the Citizens League of Minneapolis, Chairman of the Governmental Affairs Committee of



the Minneapolis Chamber of Commerce which studied state and local government issues, and was a member of the Board of the Minneapolis Chamber from 1971 until his transfer to Chicago in 1974. He was on the Board of Directors of the United Way of Minneapolis and was appointed to the Governor's Advisory Commission to the Securities Commissioner in Minnesota in 1968.

Mr. Kullberg is a member of the Illinois and

Minnesota Societies of Certified Public Accountants and the American Institute of Certified Public Accountants.




Mr. LaVelle joined Arthur Andersen & Co. in 1957 and is a partner in the Administrative Services Division of the firm's Washington, D. C. office. His experience with the firm has been heavily concentrated on the design, installation, management and operational control of largescale computer systems In a number of industries. He is a member of the firm's Information Processing (ADP) Policy Team and has firm-wide responsibility for ADP Facilities Management. He is the director of the firm's continuing projects to develop standard practices and techniques and 'train our personnel in the areas of ADP Facilities Management and Operating Systems. He has also been responsible for conducting training courses in computer fundamentals, system design and installation and the administrative services practice.

Mr. LaVelle has had in-depth experience in financial, manufacturing and regulated industries and, more recently, he has participated in some of the firm's significant work for government agencies.

Government Consulting

General Accounting Office Project director of an ADP facilities management review of a major Federal government department selected by GAO. -This study included an 3-39


organizational and management review of the department's ADP function, a cost effectiveness study of the ADP facility and extensive use of computer hardware and software monitoring techniques. At the end of this engagement a training program was developed for GAO personnel to enable them to perform future ADP facility reviews.

U. S. House of Representatives Engagement partner for a review of the House Information Systems organization. The review, which was requested by the Committee on House Administration, involved a study of the management controls, systems effectiveness and operation of the data processing facility.

Federal Reserve Consulting partner for the design of a totally integrated management information system. The project involved extensive interviews, analysis of information requirements and current management information systems.

Department of the Interior Consulting partner for a review performed for the Assistant Secretary of the Interior Management and Budget. He was responsible for evaluation of the ADP support for the financial and program information systems of the Department of the Interior and its Bureau and Offices. With a goal of better serving the information needs of the Secretariat and the Department, the review was followed by development of comprehensive plans


8 7

for both short- and long-term improvements in financial management and program information systems and Departmental control of ADP.

Industry Consulting

First Wisconsin National Bank of Milwaukee Engagement partner with overall responsibility for the design and implementation of a Management Planning Control and Reporting System. This involved working with a management project team of the bank to develop an advanced and comprehensive management planning, control and reporting system.

Major Diversified Manufacturer Project director for an engagement to review the overall status of ADP operations, i.e., computer equipment, costs, system design concepts, operational problems and determine the general feasibility of consolidating into centralized or regionalized computer centers. The company had annual sales in excess of $600 million.


Mr. LaVelle graduated from the State University of Iowa with a B.S. degree in accounting in 1957 and joined the firm in that year. He became a partner in 1969.



Mr. LaVelle is a contributing author of a chapter on financial management systems for Computer Applications in Architecture and Engineering. He published an article for the Chronicle, "Managing the Information Processing System," and was a guest speaker on financial information systems and cost accounting at the BAI Banking School in Madison, Wisconsin. He has also been a guest speaker on the topic of managing the computer facility at various professional associations for systems management.




Mr. Luther is a partner in the Administrative Services Division of our Minneapolis office. Since joining the firm in 1961, Mr. Luther has had both technical and administrative responsibilities in a variety of industries, including state and local government, manufacturing, insurance, and health care organizations. He has firm-wide responsibility for our government industry practice for services to welfare and social service agencies.

Government Consulting

Welfare and Social Services Mr. Luther has served both as engagement partner as well as consultant to other Arthur Andersen & Co. offices on numerous review, design and installation engagements. These engagements have encompassed both data processing and general systems development for state and local government agencies. He had responsibility for our work at the Ramsey County Welfare Department and the Hennepin County Welfare Depattment. He had responsibility for our other work at Hennepin County in modernizing the accounting and reporting systems, combining the Auditor and Treasurer Offices and developing an internal audit function. Other representative engagements include:

State of Minnesota, Department of Public



State of Florida, Department of Health and
Rehabilitative Services.

St. Paul Ramsey County Mental Health Center.

City and County of Denver Welfare Department.

State of North Dakota Public Welfare Department. Industry Consulting

Mr. Luther has had technical and supervisory responsibility for a variety of engagements involving the health care industry. Representative engagements include:

St. Paul Ramsey Hospital Assisted in the

installation of a shared computer system and the related business office, accounting and financial reporting procedures.

Blue Cross of Minnesota Shared Hospital Systems

Mr. Luther was involved in all of the following work for Blue Cross of Minnesota:

Designing and installing mechanized procedures
for processing the business and accounting
systems utilizing large-scale computer equipment on a shared basis.

Developing the management control and financial
reporting that could be obtained from the
business and accounting systems through
utilization of data processing.

Designing a comparative analysis reporting
system for utilization in a shared computer

Conducting a study for evaluating the feasibility of establishing regional data processing centers for a shared computer system.



0 Developing and implementing financial reporting
and budgeting procedures for a shared computer
system including:

Establishment of a service charge structure for billing the participating hospitals.

Development of a formal data processing agreement.

Implementation of reporting procedures that provide participating hospitals with comprehensive financial reporting as related to the operations of the shared computer system.

Several Hospitals in Minnesota Mr. Luther conducted several hospitals' data processing surveys for evaluating the economics and systems feasibility of utilizing data processing. He also evaluated the feasibility of utilizing alternative cost allocation procedures for improving third-party reimbursements to hospitals.

Six Blue Cross Organizations in the United States Conducted a study of several similar shared computer organizations to determine how these organizations might work together in developing and providing data processing services.


Mr. Luther graduated with a B.A. degree in Business Administration from Luther College. He is presently managing partner of the Administrative Services Division of our Minneapolis office. He is a member of the American Public Welfare Association and various professional organizations.




Mr. Moga joined the Seattle office of Arthur

Andersen & Co. in 1961. He is currently the partner-incharge of our Seattle office Administrative Services practice. In addition, Mr. Moga is a member of the firm's Government Services--Health Industry Specialty Program team as well as the Health Care Industry team. His responsibilities in these areas include assistance to our clients throughout the country. Mr. Moga also participates in firm-wide industry presentations and has made numerous presentations to various health care organizations. He has spent 13 years consulting with health care clients.

Industry Consulting

Mr. Moga has participated in and supervised the design and implementation of various computer-based information systems for clients in medical services. He has also been involved in the following engagements:

Providence Medical Center, Portland, Oregon

Evaluation of vendor software for real-time data collection and data communication activities.

Group Health Cooperative of Puget Sound Consulting assistance in the development of an RFP for new computer hardware. Systems requirements included extensive on-line processing capabilities.



Sisters of Providence Development of a longrange systems plan for a group of ten hospitals.

Providence Hospital, Seattle, Washington Review of a laboratory computer system installation plan developed by a software vendor. Assisted in the implementation of a comprehensive mechanized payroll/personnel system.

Providence Hospital, Anchorage, Alaska Assisted

in the installation of a medium-sized computer for processing patient business systems.

The Mason Clinic, Seattle, Washington System

study of alternatives for a laboratory computer-based information system and design and implementation of a clinic patient accounting system.

Skagit Valley Hospital Flathead Health Center

St. Joseph's Hospital, Providence Hospital Installation of the firm's Financial Modeling Software System.

Kadler Hospital, St. John's Hospital, Northwest

Hospital, St. Joseph's Hospital Review of shared hospital computer centers for these hospitals.

Sisters of Providence, Oregon Corporation Systems, Engineering and Computer Services Assisting in the reorganization of a hospital shared computer services department.


67-106 0 76 7


Mr. Moga was responsible for the design of a responsibility accounting and budgetary control system for approximately five medium-sized hospitals. He also worked on the improvement of data processing utilization,, with particular emphasis placed on controls, streamlining systems flow, and development of user procedural standards and manuals for approximately ten hospitals. Background

Mr. Moga graduated from Seattle University with a Bachelor of Science degree in 1961. He joined the firm that year and, after one year's experience, transferred to our Administrative Services Division and developed his expertise within our health practice.

Mr. Moga is a member of the Association of Medical Computering, AICPA, and the Washington Society of Certified Public Accountants. He also is involved in several community organizations which, among others, includes his position as a member of the Board of Trustees, Seattle Repertory Theatre, and membership on the Board of Trustees, Seattle Art Museum.




Mr. Newkirk is partner-in-charge of the Administrative Services Division of the Cleveland office. In addition, he has overall responsibility for Arthur Andersen & Co.'s firm-wide consulting practice in courts and related criminal justice agencies.

During the course of his twelve-year professional consulting career with Arthur Andersen & Co., Mr. Newkirk has specialized in engagements involving the study, design, and implementation of management information systems. These systems ranged from sophisticated on-line computer-based projects to manual systems where forms design and efficient paperflow were emphasized. These engagements have spanned a wide variety of applications and industries, including the city, state, and Federal government areas. Government Consulting

In the criminal justice area, Mr. Newkirk has acted, in the last year, as engagement partner on four projects:

Cuyahoga County (Ohio)

Design of an information system for the Sheriff

of Cuyahoga County. This system was closely integrated with the existing Judicial Information System for Cuyahoga County.



Design of an information system for the Juvenile Court of Cuyahoga County.

Design and implementation of a key module of

the Juvenile Court system. This module deals

with updating and accessing a data base of

information regarding the juveniles and their


Review and conceptual design of improved

systems and procedures for the 13 suburban

courts in Cuyahoga County.

Mr. Newkirk has performed several related firmwide assignments including:

Faculty member in charge of the firm's internal

training school covering computer fundamentals and programming and installation of

computer systems.

Member of a project team that designed and

implemented Base V, one of the firm's data

management software systems. Background

Mr. Newkirk received his Bachelor of Science degree in Management Science from Case Institute of