WASHINGTON -- District of Columbia Mayor Sharon Pratt Kelly has failed to adequately control spending, and penalties should be imposed on the agency heads who exceed appropriated budget allocations, the district' s chief auditor said yesterday.

Auditor Russell Smith cited as an example the department of public works, which spent $1.67 million more than its appropriation of about $247 million in fiscal 1993. Penalties ranging from reprimands to termination of agency heads should be adopted, he told the district council.

Smith also faulted the Kelly Administration for other legal and administrative violations, including changing the use of funds without proper council overnight.

Control over spending is too decentralized because it is spread among the heads of departments and agencies, who receive their full annual budget allocation at the beginning of the fiscal year on Oct. 1, Smith said. He said most municipalities apportion allocations to help prevent overspending.

Smith's comments came during a council hearing on proposed legislation to cream a "cash manent team" comprising representatives of both the executive and legislative branches of the district government. The bill calls for the team to meet daily to oversee all fiscal 1994 and 1995 spending.

The team would consist of the city administrator, three other members of the executive branch, including a finance official; and three council representatives, including one from the budget staff.

The team would set limits on monthly spending and large cash transactions, target savings, and set up a task force to find ways to increase agency collection of revenue, including federal receivables and grant funds.

The proposed Cash Management Team Establishment Act of 1994 is sponsored by eight council members, including Harold Brazil, Marion Barry, Linda Cropp, Jack Evans, and William Lightfoot.

Council chairman David Clarke said the bill grew out of the council's "frustration" over the district's lack of spending controls and related financial problems. But Clarke said he is not supporting the measure because it would violate the separation of powers provided by the district charter.

Ellen O'Connor, the district's chief financial officer and deputy mayor for finance, agreed with Clarke's assessment. But she said she also agreed with many of the bill's provisions and said joint action must be taken to control spending in the short term. She urged creation of a councilexecutive task force to develop alternative legislation.

To address fiscal 1994 financial pressures, the mayor has called for establishment of a "cost control team" consisting of the directors of budget, personnel, and administrative services, and the controller, O'Connor said. The team will meet weekly to review and approve all spending, she said.

The team is projected to achieve a $15 million savings by the end of fiscal 1994, O'Connor said.

An existing cash management team is focusing on increased collection of receivables and grant funding, she said.

O'Connor said numerous steps are being taken to control spending, and that the executive branch can adequately monitor spending by agency heads through reports by the controller and through budget office procedures.

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