This is the accessible text file for GAO report number GAO-04-388 entitled 'Financial Audit: Daniel Webster Senate Page Residence Revolving Fund's Fiscal Year 2002 Financial Statements' which was released on March 31, 2004. This text file was formatted by the U.S. General Accounting Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Report to the Senate Sergeant at Arms: March 2004: FINANCIAL AUDIT: Daniel Webster Senate Page Residence Revolving Fund's Fiscal Year 2002 Financial Statements: GAO-04-388: 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 Daniel Webster Senate Page Residence 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, Erik Braun, Kimberley McGatlin, and Kara Scott. 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 Daniel Webster Senate Page Residence 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. * A significant number of the Fund's expense and accounts payable transactions were not recorded in the proper fiscal year using the accrual basis of accounting, and significant adjustments were made during the audit process in order to reflect balances based on the accrual basis of accounting. This was caused by the monthly and fiscal year-end financial statement closeout processes, which do not require recording (or accruing) of expense transactions associated with the particular fiscal year into the Fund's financial records after the closeout date. The Fund does not have structured year-end closeout procedures to ensure that transactions are recorded in the proper period under the accrual basis. Essentially, the Fund is following a modified cash basis of accounting during the year with conversion to accrual-based accounting for financial reporting 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 procedures for 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 misstatements will result from incorrect entries or posting errors and that these misstatements might not be detected or corrected on a timely basis. * During fiscal year 2002, staff authorized to use purchase cards on behalf of the Fund exceeded the annual spending limits established for card usage. The purchase card limits are established in Senate Procurement Regulations adopted by the Senate Committee on Rules and Administration as well as by Procurement Procedures issued by the Sergeant at Arms. Senate Procurement Regulations provide for the Committee to grant waivers from requirements in the regulations and procedures. Fund staff exceeded the fiscal year 2002 spending limits based on verbal approval received from Sergeant at Arms staff. Subsequently, the Sergeant at Arms sought and obtained ratification of the excess purchase card spending from the Committee. 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 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. 88b-7 (b), relating to collection of fees and moneys, and: * 2 U.S.C. 88b-7 (c), 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 four recommendations to the Sergeant at Arms to strengthen controls over financial reporting and recording of transactions for the Daniel Webster Senate Page Residence Revolving Fund. Specifically, we recommend that the Sergeant at Arms direct Fund management to: * evaluate whether the accrual basis is the basis of accounting that is 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; * improve policies and procedures to achieve the proper recording of transactions in accordance with the basis of accounting selected; * develop and implement procedures so that journal entries are properly reviewed; and: * improve controls so that purchase card spending limits are monitored and followed. 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] (194321): 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). GAO's Mission: The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. Obtaining Copies of GAO Reports and Testimony: The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO's Web site ( www.gao.gov ) contains abstracts and full-text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as "Today's Reports," on its Web site daily. The list contains links to the full-text document files. To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select "Subscribe to e-mail alerts" under the "Order GAO Products" heading. Order by Mail or Phone: The first copy of each printed report is free. Additional copies are $2 each. A check or money order should be made out to the Superintendent of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a single address are discounted 25 percent. Orders should be sent to: U.S. General Accounting Office 441 G Street NW, Room LM Washington, D.C. 20548: To order by Phone: Voice: (202) 512-6000: TDD: (202) 512-2537: Fax: (202) 512-6061: To Report Fraud, Waste, and Abuse in Federal Programs: Contact: Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov Automated answering system: (800) 424-5454 or (202) 512-7470: Public Affairs: Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S. General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C. 20548: