Financial Audit:

District of Columbia Highway Trust Fund's 1996 Financial Statements

AIMD-98-30: Published: Dec 15, 1997. Publicly Released: Dec 15, 1997.

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Pursuant to a legislative requirement, GAO reviewed the: (1) financial statements of the District of Columbia Highway Trust Fund for the 14-month period which ended September 30, 1996; (2) 5-year forecasted statements of the Fund's expected conditions and operations; and (3) Fund's internal controls and its compliance with the laws and regulations during that 14-month period.

GAO noted that: (1) GAO was unable to give an opinion on the financial statements of the Fund because the lack of adequate documentation limited the scope of its work; (2) specifically, the District did not provide evidence for $3.7 million (36 percent of the $10.3 million) in capital appropriated expenditures and the related liability to the Capital Operating account, thus the financial statements may be unreliable; (3) material weaknesses in internal controls resulted in ineffective controls over: (a) safeguarding assets, specifically revenue cash receipts and the related accounts receivable, from material loss; and (b) assuring that there were no material misstatements in amounts reported in the financial statements, specifically capital appropriated expenditures, the liability to the Capital Operating account, and revenue; (4) in addition, GAO identified material weaknesses in the computer system general controls over physical and logical security, segregation of duties, and service continuity; (5) GAO was unable to report on compliance with laws and regulations because the District lacked adequate documentation; and (6) also because of lack of adequate documentation, GAO was unable to give an opinion on whether the underlying assumptions and methodology used to develop the Fund's 5-year forecasted statements provide a reasonable basis for such statements or whether the statements are presented in conformity with guidelines established by the American Institute of Certified Public Accountants.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The District has eliminated the need for the yearend closing adjustments to capital appropriated expenditures. This procedure was eliminated by performing monthly reconciliations of FMS data to actual revenues and expenditures. During GAO's fiscal year 1998 audit it found that the District was able to adequately support all of the capital appropriated expenditures that GAO statistically selected.

    Recommendation: To address weaknesses in capital appropriated expenditures identified in this report, the Director, Department of Public Works, should revise procedures to require maintaining detailed support for all adjustments to capital appropriated expenditures. This should include detailed records to support: (1) yearend closing adjustments; and (2) any necessary schedules and reconciliations needed to provide an adequate audit trail from the financial management systems.

    Agency Affected: District of Columbia: Department of Public Works

  2. Status: Closed - Implemented

    Comments: During fiscal year 1998, GAO found that changes were made to the provision in Title 23 United States Code, Section 302 addressing construction engineering (CE) cost overruns. There is no longer a 15 percent ceiling on CE overruns. The total cost of construction engineering is now considered normal FHWA reimbursable operating costs. As of August 30, 2000, the District has been reimbursed for $2.4 million of the $2.6 million in CE overruns. The remaining $.4 million was billed to the Fund as a capital appropriated expenditure.

    Recommendation: To address weaknesses in capital appropriated expenditures identified in this report, the Director, Department of Public Works, should establish procedures to: (1) obtain detailed documentation for construction engineering cost overruns; (2) bill the Federal Highway Administration (FHwA) for those overruns up to 15 percent of aggregate annual construction costs; and (3) charge the remaining overruns to the District of Columbia Highway Trust Fund's capital appropriated expenditures.

    Agency Affected: District of Columbia: Department of Public Works

  3. Status: Closed - Implemented

    Comments: Based upon the eligibility of reimbursement from FHwA for up to 15 percent each year, the construction engineering costs of $2.4 million were determined to not be a valid expenditure of the Highway Trust Fund. As a result, the District restated its 1996 expenditures and recorded a prior-year adjustment that increased the Fund's opening fund balance and eliminated the $2.4 million from the Fund's 1996 yearend liability to the District.

    Recommendation: To address weaknesses in capital appropriated expenditures identified in this report, the Director, Department of Public Works, should obtain the detailed documentation to determine the validity of the $3.4 million yearend closing adjustment. If any portion of the $2.6 million of construction engineering cost overruns is valid, seek reimbursement from FHwA for amounts that do not exceed 15 percent of annual aggregate construction costs and reduce these amounts from those originally charged to the capital appropriated expenditures. If any portion of the $3.4 million is not valid, reduce the amounts charged to the capital appropriated expenditures.

    Agency Affected: District of Columbia: Department of Public Works

  4. Status: Closed - Implemented

    Comments: The District has improved its internal controls by segregating duties over the preparation, processing, and approval of journal entries and disbursements. GAO's fiscal year 1998 audit testing revealed no instances where journal entries and disbursements were not properly prepared, processed, and approved.

    Recommendation: To address weaknesses in capital appropriated expenditures identified in this report, the Director, Department of Public Works, should ensure the segregation of duties in the preparation, processing, and approval of journal entries and disbursements.

    Agency Affected: District of Columbia: Department of Public Works

  5. Status: Closed - Implemented

    Comments: District officials stated that all journal entries and disbursements would be reviewed and approved by a supervisor. In GAO's fiscal year 1998 financial statement audit, it found that supervisory reviews were performed on all journal entries and cash disbursements related to capital projects.

    Recommendation: To address weaknesses in capital appropriated expenditures identified in this report, the Director, Department of Public Works, should perform supervisory reviews of journal entries and disbursements related to capital projects.

    Agency Affected: District of Columbia: Department of Public Works

  6. Status: Closed - Implemented

    Comments: Based on receipts and revenue tests performed during its FY1997 audit work, GAO concluded that the District properly recognized revenue receipts from the August and September 1997 taxes in FY1997.

    Recommendation: To address weaknesses in revenue identified in this report, the Director, Office of Tax and Revenue, should enforce procedures to ensure the recognition of revenue in the month the tax is due if the revenue is measurable and available (that is, the amount of revenue can be determined and is collected within 60 days of the month-end due dates).

    Agency Affected: District of Columbia: Office of Tax and Revenue

  7. Status: Closed - Implemented

    Comments: OTR has implemented new procedures for processing and depositing motor fuel receipts. GAO's analysis of 67 statistically selected tax returns, out of a total of 707 submitted during fiscal year 1998, showed that the District took an average of 4 days--ranging from 1 day to 26 days--to log, endorse, and deposit the taxes into the bank. Sixty percent of the selected tax returns--40 tax returns-took more than 1 day. While the revised procedures decreased the time it takes OTR to deposit receipts, improvements are still needed to ensure that the revised procedures are followed at all times. However, GAO's fiscal year 1999 review involved 112 out of 831. GAO found that the District was averaging 1.63 days to deposit its receipts with 1 equaling same day deposit.

    Recommendation: To address weaknesses in revenue identified in this report, the Director, Office of Tax and Revenue, should revise procedures to require daily logging, endorsing, and depositing of fuel tax receipts received by the District or establish a lockbox system for the processing and depositing of such receipts to improve cash management and enhance the control environment.

    Agency Affected: District of Columbia: Office of Tax and Revenue

  8. Status: Closed - Implemented

    Comments: OTR's Audit Division began auditing motor fuel wholesalers during fiscal year 1999, 17 wholesalers were audited. These audits included two (Amoco Oil and Mobil Oil accounted for over 40 percent of FY1999 revenues) of the six major motor fuel tax contributors to the District during fiscal year 1999. Another 12 wholesaler audits were either ongoing or planned during fiscal year 2000. The audits resulted in over $.63 million of additional revenues during fiscal year 1999.

    Recommendation: To address weaknesses in revenue identified in this report, the Director, Office of Tax and Revenue, should establish procedures to verify the completeness of motor fuel tax receipts from wholesaler fuel sales to retailers or for fuel consumed by construction, bus, or other companies who buy at the wholesale level and consume that fuel within the District. On-site inspections and reviews of wholesaler shipping documents and confirmation with retailers and construction and bus companies annually or on a scheduled but random-sample basis are examples of such procedures.

    Agency Affected: District of Columbia: Office of Tax and Revenue

  9. Status: Closed - Implemented

    Comments: Based upon tests performed during its FY1997 audit work, GAO noted that another person is responsible for the deposit of receipts and that there is evidence of supervisory review on the related documents.

    Recommendation: To address weaknesses in revenue identified in this report, the Director, Office of Tax and Revenue, should segregate incompatible duties, if the District elects to administer collections in-house, by assigning separate individuals to deposit motor fuel tax receipts and perform recordkeeping functions.

    Agency Affected: District of Columbia: Office of Tax and Revenue

  10. Status: Closed - Implemented

    Comments: The weaknesses in physical security were associated with DC Department of Public Works (DPW) local area network, which supported DC's Highway Trust Fund financial system. In 1999, DC migrated its financial system to an IBM mainframe computer located at DC's SHARE computer center. In addition, DPW consolidated its local area network from 70 servers running in two data centers to 20 servers running in one location. The migration of the financial system to the mainframe location resolved the impact on the financial system that the previous logical security weaknesses posed to the financial data.

    Recommendation: To address weaknesses in computer system general controls, the Director, Office of Information Systems, should strengthen physical security over the facilities, system, and data by controlling all physical access to local area network (LAN) centers and protecting all backup files.

    Agency Affected: District of Columbia: Department of Public Works: Office of Information Systems

  11. Status: Closed - Implemented

    Comments: The logical access weaknesses were associated with DC Department of Public Works (DPW) local area network, which supported DC's Highway Trust Fund financial system. In 1999, DC migrated its financial system to an IBM mainframe computer located at DC's SHARE computer center. The migration of the financial system to the mainframe location resolved the impact on the financial system that the previous logical security weaknesses posed to the financial data. In addition, a recent DC OIG report found that actions taken by the District were sufficient to correct the previous logical security access issues identified by GAO.

    Recommendation: To address weaknesses in computer system general controls, the Director, Office of Information Systems, should strengthen logical security and better control the access to data and systems by conducting a security risk analysis, restricting access to security functions, maintaining security access files, and applying LAN modification updates uniformly.

    Agency Affected: District of Columbia: Department of Public Works: Office of Information Systems

  12. Status: Closed - Implemented

    Comments: The segregation of duties weaknesses were associated with DC Department of Public Works (DPW) local area network, which supported DC's Highway Trust Fund financial system. In 1999, DC migrated its financial system to an IBM mainframe computer located at DC's SHARE computer center. The migration of the financial system to the mainframe location resolved the previous segregation of duties weaknesses that had impacted the financial system.

    Recommendation: To address weaknesses in computer system general controls, the Director, Office of Information Systems, should segregate incompatible duties and provide the appropriate supervisory review and, if it is deemed necessary that any one person maintain complete access, establish controls to ensure that such activities are monitored.

    Agency Affected: District of Columbia: Department of Public Works: Office of Information Systems

  13. Status: Closed - Implemented

    Comments: The District has performed a risk assessment plan and has drafted a disaster recovery plan. In addition, the District is building two redundant data centers to support disaster recovery.

    Recommendation: To address weaknesses in computer system general controls, the Director, Office of Information Systems, should ensure service continuity by completing disaster recovery plans and testing at both LAN centers.

    Agency Affected: District of Columbia: Department of Public Works: Office of Information Systems

  14. Status: Closed - Implemented

    Comments: Based on GAO's test of 168 expenditure payment transactions during its fiscal year (FY) 1997 audit work, the District had the required supporting documentation for all of the voucher and intra-District payments.

    Recommendation: To address weaknesses in capital appropriated expenditures identified in this report, the Director, Department of Public Works, should enforce procedures that call for maintaining documentation for all voucher and intra-District payments made on federal aid and local highway projects.

    Agency Affected: District of Columbia: Department of Public Works

  15. Status: Closed - Implemented

    Comments: At the beginning of fiscal year 1999, the District began using its new financial management system - System of Accounting and Reporting (SOAR). SOAR was determined to be year 2000 compliant. In addition, the District developed year 2000 contingency plans for its operations, including SOAR.

    Recommendation: To address weaknesses in computer system general controls, the Director, Office of Information Systems, should assess the Year 2000 vulnerabilities and develop an evaluation and conversion plan.

    Agency Affected: District of Columbia: Department of Public Works: Office of Information Systems

 

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