Federal Research:

Assessment of the Financial Audit for SEMATECH's Activities in 1990

RCED-92-97: Published: Apr 9, 1992. Publicly Released: Apr 9, 1992.

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Pursuant to a legislative requirement, GAO reviewed an independent accountant's audit of SEMATECH, Inc.'s financial statements for the year ending December 31, 1990.

GAO found that the accounting firm: (1) stated that the SEMATECH financial statements were fairly presented in all material respects in conformance with generally accepted accounting principles; (2) did not disclose in its review any material internal control weaknesses or noncompliance with the applicable laws and regulations; and (3) issued a management letter making several recommendations to improve SEMATECH management efficiency and enhance its internal control structure. GAO also found that: (1) there was no indication that the accounting firm's opinion could not be relied upon; (2) in response to the GAO review of its 1989 statements, SEMATECH corrected immaterial overstatements in depreciation accounts and clarified depreciation policies and practices in its 1990 statements; (3) SEMATECH did not incorporate in its financial statements a previous suggestion that it disclose postemployment payments it made to a former operating officer; (4) one of two member firms who had included a portion of prior-year contributions as overhead costs changed its accounting practices; (5) during 1990, SEMATECH had an average daily balance of $30 million in unexpended federal grant funds to meet its projected expenses, while daily expenditures averaged about $280,000; and (6) SEMATECH reimbursed the Treasury the $2.5 million interest it earned on surplus government funds in 1990. GAO believes that SEMATECH has an unnecessarily large amount of on-hand funds.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD implemented the recommendation when it reviewed its grant to SEMATECH in October 1992. Under Grant Modification 12, SEMATECH's quarterly contributions statements must show the expenditure projection for the subsequent quarter. During each quarter, three equal monthly payments based on that quarterly expenditure plan will be made.

    Recommendation: If the Department of Defense continues to fund SEMATECH activities or participates in other joint industry-government consortia, the Secretary of Defense should require that funds be dispersed through a letter of credit rather than by making advanced payments to the consortium.

    Agency Affected: Department of Defense

 

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