Auditing and Financial Management:
Report on Virgin Islands Corporation for Fiscal Year 1963
B-114822: Published: Apr 16, 1964. Publicly Released: Apr 16, 1964.
GAO made an audit of the Virgin Islands Corporation for the fiscal year ended June 30, 1963, pursuant to the Government Corporation Control Act (31 U.S.C. 841). Our audit included a review of applicable legislation, reviews of selected activities, and an examination of financial statements. Our examination of the financial statements was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary. The audit was conducted at St. Croix and St. Thomas, Virgin Islands.
There are plans to transfer the Corporation's electric power and salt water distillation facilities to the Government of the Virgin Islands at a price based on the facilities' appraised value, rather than on their fair market value as determined by competitive bidding processes. The facilities had a book value of $7.6 million at June 30, 1963, and were declared excess by the Board of Directors in August 1963. This action was a first step in disposing of the facilities to the Government of the Virgin Islands under the statutory authority vested in the Administrator of General Services to negotiate transfers of surplus Federal property to States, territories, and possessions in return for the fair market value thereof. The proposed transfer is expected to occur about July 1, 1964. We believe that the Board should have offered to sell the facilities to the highest responsible bidder under provisions of the Virgin Islands Corporation Act, as amended. That act authorizes the Government of the Virgin Islands to acquire corporate assets offered for public sale by matching the highest responsible bid therefore. Had such action been taken, the fair market value of the facilities could have been determined by competitive bidding processes and it would have been possible to compare the financial terms offered by responsible private enterprisers with the 20-year payment terms proposed by the Chairman of the Board. The Board voted in August 1963 to purchase a new generating unit estimated to cost about $600,000 and to expand the Corporation's salt water distillation facilities at an estimated cost of $200,000. Inasmuch as the Board had voted to transfer the power and water facilities to the Government of the Virgin Islands, we believe that the insular government should have been called on to finance these expenditures. Other comments in this report deal principally with (1) our recommendation to the Corporation that it return to the Treasury certain excess funds totaling about $120,000 as of June 30, 1963, (2) changes in the status of certain Navy-owned properties managed by the Corporation, and (3) the termination of the Corporation's sugar operations scheduled by the Board of Directors to occur on or about June 30, 1966. It is not practicable to evaluate the effects of the latter action on the value of the Corporation's assets devoted to sugar operations. The Corporation in its financial statements for the fiscal year ended June 30, 1963, reported that its net income from all revenue-producing activities totaled $247,000, compared with a net loss of $446,000 in the prior fiscal year. No provision was made, however, for writing down to net salvage value the capital costs associated with a 570 kilowatt diesel generating unit, installed at the St. Thomas power division, which became inoperable in March 1963 and which had a book value of $61,000 at June 30, 1963. If the undepreciated costs of the unit had been written off in fiscal year 1963, in accordance with generally accepted accounting principles and the Corporation's established accounting policies, net income from power operations would have been reduced by about $61,000 less the unit's salvage value. In our report we express the opinion that, subject to the effect of the situations with respect to sugar and power operations, the accompanying financial statements of the Virgin Islands Corporation present fairly its position at June 30, 1963, and the results of its operations and the sources and application of its funds for the year then ended.