Terminating the Audit of the National Flood Insurance Program's Fiscal 1980 Financial Statements

AFMD-81-93: Published: Sep 21, 1981. Publicly Released: Sep 21, 1981.

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In July 1980, GAO began auditing the Federal Insurance Administration's (FIA) National Flood Insurance Program (NFIP). The objective of the audit was to express an opinion on the NFIP fiscal 1980 financial statements. GAO will not meet this objective because the Federal Emergency Management Agency (FEMA) has been unable to produce financial statements for NFIP. Pursuant to federal regulations, the GAO report to Congress on NFIP was due April 15; 6.5 months after the close of the fiscal year. Since that date has passed, it is no longer useful for GAO to continue auditing the 1980 statements. Accordingly, GAO stopped the 1980 audit and redirected its efforts toward a more in-depth study of the internal control system.

The Government Corporation Control Act requires annual financial statements, and NFIP is subject to this requirement. No financial statements have been prepared since the last GAO audit in 1977, and FEMA has been unable to supply GAO with satisfactory fiscal 1980 financial statements. The inability to provide the statements was caused by the FEMA Accounting Branch's failure to carry out its accounting control and reporting responsibilities. FEMA was further deficient in not having personnel with the expertise necessary to prepare financial statements in accordance with generally accepted accounting principles. Additional problems arose because the contract did not contain a provision requiring the contractor to account for and report transactions in accordance with generally accepted accounting principles and the contractor failed to maintain proper controls over its financial reporting. FIA compounded these problems by failing to adequately monitor the contractor's accounting and reporting performance. The parties involved are trying to correct the account balance discrepancies. GAO concluded that, although this needs to be done, it will not resolve the fundamental weaknesses in accounting for NFIP operations.

Recommendations for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Federal Emergency Management Agency should staff the Accounting Branch with qualified accountants and charge them to improve the National Flood Insurance Program accounting and reporting system.

    Agency Affected: Federal Emergency Management Agency

  2. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Federal Emergency Management Agency should require the contractor to use an accounting system which provides for financial statements prepared in accordance with generally accepted accounting principles and standards.

    Agency Affected: Federal Emergency Management Agency

  3. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Federal Emergency Management Agency (FEMA) should require the contractor, as insurance program operator, to establish and maintain recordkeeping procedures sufficient to provide FEMA and the Federal Insurance Administration with accurate, complete, and timely information.

    Agency Affected: Federal Emergency Management Agency

  4. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Federal Emergency Management Agency should emphasize to Federal Insurance Administration financial monitors that they are responsible for insuring that adequate control is maintained over Federal funds, and that their duties include monitoring all contractor accounting controls and financial reporting procedures.

    Agency Affected: Federal Emergency Management Agency

 

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