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entitled 'Financial Audit: Senate Health Promotion Revolving Fund's 
Fiscal Year 2002 Financial Statements' which was released on March 31, 
2004.

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Report to the Senate Sergeant at Arms:

March 2004:

FINANCIAL AUDIT:

Senate Health Promotion Revolving Fund's Fiscal Year 2002 Financial 
Statements:

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-389]: 

Contents:

Letter:

Auditor's Report:

Opinion on the Financial Statements:

Opinion on Internal Control:

Compliance with Laws and Regulations:

Objectives, Scope, and Methodology:

Recommendations for Executive Action:

Management's Comments and Our Evaluation:

Financial Statements:

Statement of Financial Position:

Statement of Revenue and Expenses and Changes in Fund Balance:

Statement of Cash Flows:

Notes to the Financial Statements:

Letter March 31, 2004:

The Honorable William H. Pickle: 
Senate Sergeant at Arms:

Dear Mr. Pickle:

This report presents the results of our audit of the financial 
statements of the Senate Health Promotion Revolving Fund (the Fund) as 
of and for the fiscal year ending September 30, 2002. This report also 
contains our opinion on the effectiveness of the Fund's related 
internal control as of September 30, 2002, and our evaluation of its 
compliance with selected provisions of laws and regulations we tested. 
We performed this audit at the request of the former Senate Sergeant at 
Arms.

We are sending copies of this report to the Chairmen and Ranking 
Minority Members of the Senate Committee on Rules and Administration; 
the Senate Committee on Appropriations; and the Senate Subcommittee on 
Legislative Branch, Committee on Appropriations. The report will also 
be available at no charge on GAO's Web site at [Hyperlink, 
http://www.gao.gov].

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-9471 or Keith Thompson, Assistant Director, at 
(202) 512-6328. You can also reach us by e-mail at [Hyperlink, 
franzelj@gao.gov] or [Hyperlink, thompsonk@gao.gov]. Key contributors 
to this report were Patricia Blumenthal, John Saylor, Katherine 
Schirano, and Daniel Gaisin.

Sincerely yours,

Signed by: 

Jeanette M. Franzel: 
Director: 
Financial Management and Assurance:

Auditor's Report To the Senate Sergeant at Arms:

We have audited the accompanying statement of financial position of the 
Senate Health Promotion Revolving Fund (the Fund) as of September 30, 
2002, and the related statement of revenue and expenses and changes in 
fund balance and statement of cash flows for the fiscal year then 
ended. In our audit, we found:

* the financial statements are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles;

* although certain internal controls should be improved, the Fund had 
effective internal control over financial reporting (including 
safeguarding of assets) and compliance with laws and regulations; and:

* no reportable noncompliance with selected provisions of laws and 
regulations we tested.

The following sections provide additional detail about our conclusions 
and the scope of our audit.

Opinion on the Financial Statements:

The accompanying financial statements, including the accompanying 
notes, present fairly, in all material respects, in conformity with 
U.S. generally accepted accounting principles, the Fund's financial 
position as of September 30, 2002, and the results of operations and 
cash flow for the fiscal year then ended.

Opinion on Internal Control:

Although certain internal controls should be improved, the Fund 
maintained, in all material respects, effective internal control over 
financial reporting (including safeguarding assets) and compliance as 
of September 30, 2002, that provided reasonable assurance that 
misstatements, losses, or noncompliance material in relation to the 
financial statements would be prevented or detected on a timely basis. 
Our opinion is based on criteria established in the Comptroller 
General's Standards for Internal Control in the Federal 
Government.[Footnote 1] Our work did identify the need to improve 
certain internal controls as described below. These weaknesses in 
internal control, although not considered material weaknesses, 
represent significant deficiencies in the design or operations of 
internal control, which could adversely affect the entity's ability to 
meet the internal control objectives.

* Significant adjustments were made during the audit process to correct 
errors that had been made in posting transactions in order to properly 
present the financial statement balances for accounts payable and cash.

The posting errors resulted in the improper elimination of accounts 
payable, and were not detected during the preparation of the year-end 
financial statements. Essentially, the Fund is following a modified 
cash basis of accounting during the year, and then a conversion to the 
accrual basis of accounting for financial reporting purposes at the end 
of the year. Although the Fund is not required to use the accrual basis 
of accounting to present its year-end financial statements, the Fund's 
management elected to present the financial statements on that basis. 
However, as described above, the Fund does not have proper review 
procedures for effectively converting to the accrual basis of 
accounting.

* Existing policies and procedures do not provide for a level of 
management review of journal entries sufficient to prevent or detect 
errors that could result in misstatements to the financial statements. 
Staff accountants can post journal entries that have not been reviewed 
or approved by Fund management into the Fund's financial records. 
Because the Fund does not have a policy that requires staff accountants 
to obtain management approval of journal entries before recording them 
into the financial records, there is an increased risk that errors 
leading to misstatements will result from incorrect entries or posting 
errors and that these misstatements might not be detected or corrected 
on a timely basis. Additionally, while existing procedures require that 
staff accountants provide a schedule of adjusting journal entries to 
management for review prior to issuance of the financial statements, 
the procedures do not contain sufficient detail regarding the steps to 
be conducted as part of the financial statement review.

Compliance with Laws and Regulations:

Our tests for compliance with selected provisions of laws and 
regulations disclosed no instances of noncompliance that would be 
reportable under U.S. generally accepted government auditing standards. 
However, the objective of our audit was not to provide an opinion on 
overall compliance with laws and regulations. Accordingly, we do not 
express such an opinion.

Objectives, Scope, and Methodology:

The Fund's management is responsible for (1) preparing the annual 
financial statements in conformity with U.S. generally accepted 
accounting principles, (2) establishing, maintaining, and assessing 
internal control to provide reasonable assurance that the objectives of 
internal control are met, and (3) complying with applicable laws and 
regulations.

We are responsible for obtaining reasonable assurance about whether (1) 
the financial statements are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles and (2) management maintained effective internal control, 
the objectives of which are as follows:

* Financial reporting: Transactions are properly recorded, processed, 
and summarized to permit the preparation of financial statements and 
stewardship information in conformity with U.S. generally accepted 
accounting principles, and assets are safeguarded against loss from 
unauthorized acquisition, use, or disposition.

* Compliance with laws and regulations: Transactions are executed in 
accordance with laws and regulations that could have a direct and 
material effect on the Fund's financial statements.

We are also responsible for testing compliance with selected provisions 
of laws and regulations that have a direct and material effect on the 
Fund's financial statements for the fiscal year ended September 30, 
2002.

In order to fulfill these responsibilities, we (1) examined, on a test 
basis, evidence supporting the amounts and disclosures in the financial 
statements, (2) assessed the accounting principles used and significant 
estimates made by management, (3) evaluated the overall presentation of 
the financial statements, (4) obtained an understanding of internal 
control related to financial reporting (including safeguarding of 
assets) and compliance with laws and regulations, (5) tested relevant 
internal controls over financial reporting and compliance, and 
evaluated the design and operating effectiveness of internal control, 
and (6) tested compliance with selected provisions of the following 
laws and regulations:

* 2 U.S.C. 121c (c), relating to the transfer of funds in excess of 
$5,000 to the U.S. Treasury at the end of each fiscal year and:

* 2 U.S.C. 121c (d), relating to approval of disbursements.

We did not evaluate all internal controls relevant to the effectiveness 
and efficiency of the Fund's operations. We limited our internal 
control testing to controls over financial reporting (including 
safeguarding of assets) and compliance. Because of inherent limitations 
in internal control, misstatements due to error or fraud, losses, or 
noncompliance may nevertheless occur and not be detected. We also 
caution that projecting our evaluation to future periods is subject to 
the risk that controls may become inadequate because of changes in 
conditions or that the degree of compliance with controls may 
deteriorate.

We did not test compliance with all laws and regulations applicable to 
the Fund. We limited our tests of compliance to those laws and 
regulations that we deemed to have a direct and material effect on the 
financial statements for the fiscal year ended September 30, 2002. We 
caution that noncompliance may occur and not be detected by these tests 
and that such testing may not be sufficient for other purposes.

We performed our work in accordance with U.S. generally accepted 
government auditing standards. We requested comments on our draft 
report from your financial management staff.

Recommendations for Executive Action:

In light of the internal control weaknesses identified during our 
audit, we are making two recommendations to the Sergeant at Arms to 
strengthen controls over financial reporting and recording of 
transactions for the Senate Health Promotion Revolving Fund. 
Specifically, we recommend that the Sergeant at Arms direct Fund 
management to:

* evaluate whether the accrual basis is the basis of accounting most 
useful to the Fund's management or whether the modified cash basis, 
which is essentially what is in place during the year, is most 
effective and adopt the most appropriate basis for presentation of the 
financial statements; and:

* improve policies and procedures for reviewing journal entries, in 
particular key entries such as year-end accruals and adjustments, so 
that such entries are properly calculated and recorded in accordance 
with the basis of accounting selected.

Management's Comments and Our Evaluation:

We provided copies of our draft report to the Chief Financial Officer 
of your office for review and comment. He generally agreed with the 
contents of this report and stated that he will initiate actions to 
address the recommendations contained herein.

Sincerely yours,

Signed by: 

Jeanette M. Franzel: 
Director: 
Financial Management and Assurance:

February 25, 2004:

[End of section]

Financial Statements:

Statement of Financial Position:

[See PDF for image]

[End of figure]

Statement of Revenue and Expenses and Changes in Fund Balance:

[See PDF for image]

[End of figure]

Statement of Cash Flows:

[See PDF for image]

[End of figure]

Notes to the Financial Statements:

[See PDF for image]

[End of figure]

[End of section]

(194366):

FOOTNOTES

[1] U.S. General Accounting Office, Standards for Internal Control in 
the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 
1999).

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