Examination of the Panama Canal Commission's Fiscal Year 1980 Financial Statements and Treaty-Related Issues

ID-81-49: Published: Jun 29, 1981. Publicly Released: Jun 29, 1981.

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The Panama Canal Act of 1979 assigned GAO responsibility for: (1) auditing financial transactions of the Panama Canal Commission; (2) auditing the annual $10 million payment by the Commission to Panama for public services rendered; (3) certifying the estimated revenues in the Commission's annual budget at the time it is submitted to Congress; (4) approving the Commission's new accounting system; and (5) presenting annual statements of property transfers and all direct and indirect costs incurred by the United States in implementing the Panama Canal Treaty of 1977. Accordingly, an examination was made of the Commission's financial statements for fiscal year 1980.

The Panama Canal Commission was established as an appropriated fund agency which necessitates a certain approach to accounting policy and practice, particularly with respect to fund control. The Commission, which must continue to be self-supporting, saw a need to retain many of the accounting policies and practices of the Panama Canal Company. Combining these two accounting approaches will result in a unique and complex accounting system. The Commission has made progress in integrating these diverse requirements. However, more needs to be done in regard to fund control. As a consequence of the Treaty, Canal organization and DOD properties and other assets with a net book value of about $86.2 million and $33.5 million, respectively, have been transferred to Panama. Net Treaty costs to September 30, 1980, totaling about $82.0 million, have been reported by DOD and other executive branch agencies. In the opinion of GAO, the financial statements present fairly the financial position of the Panama Canal Commission at September 30, 1980, and the results of its first year of operations, changes in the investment of the United States, and changes in financial position for the fiscal year then ended. GAO supports proposed legislation that would change the Commission to a Government corporation rather than remaining an appropriated fund agency. This would eliminate much of the inconsistency in accounting principles without decreasing congressional control or oversight.

Matters for Congressional Consideration

  1. Status: Closed

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

    Matter: GAO has been informed that the Panama Canal Commission plans to submit legislation seeking a change to a Government corporation rather than remaining an appropriated fund agency. If this proposal is favorably received, much of the inconsistency in accounting principles would be eliminated as the Corporation Control Act requires adherence to generally accepted accounting principles. In hearings preceding passage of the Panama Canal Act of 1979, GAO supported the corporate form of organization. GAO continues to prefer the corporate form because of its inherent flexibility as a revenue-producing, self-supporting operation. GAO sees no decrease in congressional control or oversight under the corporate form. Without some legislative changes, the inconsistency in accounting principles will remain.

  2. Status: Closed

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

    Matter: Congress should reconsider and amend the cost reporting requirements in the Panama Canal Act of 1979 to limit them to the Department of the Army.

  3. Status: Closed

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

    Matter: Congress should reconsider the requirement for an annual audit and, instead, provide for cost audits to coincide with opportunities to adjust the payments.

  4. Status: Closed

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

    Matter: Congress should make an explicit statement of intent because the Act is not clear whether there should be a distinction between interest-bearing and noninterest-bearing investment of the United States. If the Commission is incorrect, toll rates will need to be increased to assure recovery of the additional interest.

  5. Status: Closed

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

    Matter: If it was the intent of Congress that interest be paid into the Miscellaneous Receipts Account of the Treasury, legislative action will be necessary.

Recommendation for Executive Action

  1. Status: Closed

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

    Recommendation: The Administrator of the Panama Canal Commission should act to (1) develop and implement a procedure to assure fund availability prior to obligation; and (2) appoint and instruct, in the manner prescribed by law and regulation, the minimum number of authorized certifying officers.

    Agency Affected: Panama Canal Commission

 

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