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entitled 'Financial Audit: U.S. Senate Stationery Room Revolving Fund's 
Fiscal Years 2002 and 2001 Financial Statements' which was released on 
September 28, 2004.

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Report to the Secretary of the Senate:

August 2004:

FINANCIAL AUDIT:

U.S. Senate Stationery Room Revolving Fund's Fiscal Years 2002 and 2001 
Financial Statements:

GAO-04-905:

Contents:

Letter: 

Auditor's Report: 

Opinion on the Financial Statement: 

Opinion on Internal Control: 

Compliance with Laws and Regulations: 

Recommendations for Executive Action: 

Objectives, Scope, and Methodology: 

Management's Comments and Our Evaluation: 

Financial Statement: 

Statement of Receipts, Disbursements, and Fund Balance: 

Notes to the Financial Statement: 

Letter August 27, 2004:

The Honorable Emily J. Reynolds: 
Secretary of the Senate: 
United States Senate:

Dear Ms. Reynolds:

This report represents the results of our audit of the Senate 
Stationery Room's Statement of Receipts, Disbursements, and Fund 
Balance for the fiscal years ended September 30, 2002 and September 30, 
2001. This report also contains our opinion on the effectiveness of the 
Fund's related internal control as of September 30, 2002, and our 
evaluation of its compliance with selected provision of laws and 
regulations we tested. We performed this audit at your request.

As arranged with your office, we plan no further distribution of this 
report until 30 days after the date of this letter. At that time, we 
will provide copies of this report to the Chairmen and Ranking Minority 
Members of the Senate Committee on Rules and Administration; the Senate 
Committee on Appropriations; and the Senate Subcommittee on Legislative 
Branch, Committee on Appropriations. This report will also be available 
on GAO's home page at [Hyperlink, http://www.gao.gov].

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-9471 or Keith Thompson, Assistant Director, at 
(202) 512-6328. You can also reach us by e-mail at [Hyperlink, 
franzelj@gao.gov] or [Hyperlink, thompsonk@gao.gov]. Key contributors 
to this report were Chanetta Reed, Lindsay Saylor, Kara Scott, and 
Stacey Smith.

Sincerely yours,

Signed by: 

Jeanette M. Franzel: 
Director Financial Management and Assurance:

To the Secretary of the Senate:

We have audited the accompanying Statement of Receipts, Disbursements, 
and Fund Balance for the Senate Stationery Room Revolving Fund for the 
fiscal years ended September 30, 2002 and 2001. In our audit, we found:

* the statement is presented fairly in all material respects, on a cash 
basis;

* although certain internal controls should be improved, the Stationery 
Room had effective internal control over financial reporting (including 
safeguarding assets) and compliance with laws and regulations; and:

* no reportable noncompliance with the selected provisions of laws and 
regulations we tested, although an internal control weakness regarding 
the preference to purchase domestically made goods resulted in 
uncertainty about compliance for a limited number of transactions.

The following sections present each conclusion in more detail and 
discuss the scope of our audit.

Opinion on the Financial Statement:

The Statement of Receipts, Disbursements, and Fund Balance and the 
accompanying notes present fairly in all material respects, in 
conformity with the cash basis of accounting, the receipts, 
disbursements, and fund balance of the Stationery Room Revolving Fund 
for the fiscal years ended September 30, 2002 and 2001. As described in 
note 2 of the accompanying statement, the cash basis of accounting is a 
comprehensive basis of accounting that recognizes transactions when 
cash is received and disbursed. This basis of accounting differs from 
U.S. generally accepted accounting principles, which recognize revenue 
when earned and expenses when incurred.

Opinion on Internal Control:

Although certain internal controls should be improved, the Stationery 
Room maintained in all material respects effective internal control 
over financial reporting (including safeguarding assets) and compliance 
with laws and regulations as of September 30, 2002, that provided 
reasonable assurance that misstatements, losses, or noncompliance 
material in relation to the financial statement would be prevented or 
detected promptly. Our opinion is based on criteria established in the 
Comptroller General's Standards for Internal Control in the Federal 
Government.[Footnote 1]

Our work did identify the need to improve certain internal controls. 
These weaknesses in internal control, although not considered 
material,[Footnote 2] represent reportable conditions in the design or 
operation of internal control that could adversely affect the entity's 
ability to record, process, summarize, and report financial data 
consistent with the internal control objectives listed above. We 
reported on two of these reportable conditions in internal control in 
our prior audit, which was issued on December 21, 2001.[Footnote 3] In 
that report we provided the Stationery Room with five recommendations 
to address these issues, two of which were still open as of the date of 
this report. Still open were recommendations that Stationery Room 
management ensure that (1) individuals responsible for approving 
purchase orders sign each document to formally evidence their actions 
and (2) reconciliations of Stationery Room disbursement transactions 
and fund balance with amounts recorded by the Senate Disbursing Office 
are routinely completed in a timely manner. In addition to the two 
reportable conditions in internal control that we included in our last 
report, we identified a third issue --the lack of documentation 
supporting decisions to purchase foreign goods to support compliance 
with section 109 of title 2 of the United States Code, which 
establishes a preference for the Secretary to purchase domestic goods. 
Specifically, we found the following:

1. Authorized personnel did not always properly sign purchase orders 
documenting initial management approval; thus, several cash 
disbursement transactions lacked evidence of the proper level of 
approval as required by the Stationery Room's policies and procedures. 
The Stationery Room's policies and procedures manual requires that 
purchase orders be approved prior to execution. During fiscal year 
2001, we found that approvals were not documented for more than half of 
the purchase orders for disbursement transactions. Stationery Room 
management, in response to our fiscal year 2000 audit findings, 
implemented a policy whereby payment cannot be made without appropriate 
supporting documentation, including approved purchase orders. During 
fiscal year 2002, Stationery Room management improved controls in this 
area and we found a significantly reduced number of payments (4 out of 
100 tested) that were made without an approved purchase order.

2. The Stationery Room did not perform timely reconciliations for cash 
disbursement and receipt transactions to the Senate Disbursing Office 
records on a monthly basis. Stationery Room policies and procedures 
require that month-end reconciliations be performed for cash receipts 
and disbursements with appropriate accounting records. Instead, the 
monthly reconciliations for fiscal years 2002 and 2001 transactions 
were completed during our audit by an independent contractor. Without 
these monthly reconciliations being performed on a timely basis, the 
Stationery Room faces increased risk that misstatements in the 
financial records resulting from cash receipt and cash disbursement 
posting errors or invalid transactions might not be detected or 
corrected on a timely basis. The Keeper of Stationery informed us that 
automated reconciliation procedures will be incorporated into the 
Stationery Room's systems upgrade and modernization.

3. There were 8 instances for fiscal year 2002 and 10 instances for 
fiscal year 2001 in which the Stationery Room lacked supporting 
documentation to justify foreign purchases based on quality and price; 
and one instance in each fiscal year in which the Stationary Room staff 
was unaware that an item purchased from one of its United States 
distributors was manufactured in a foreign country. Section 109 of 
title 2 of the United States Code requires the Secretary of the Senate 
to purchase articles of United States origin, provided the domestic 
item can be purchased "upon as good terms as to the quality and price" 
as the foreign-made item. The Stationery Room does not have policies 
and procedures in place to determine and document the basis (sole 
supplier, quality, and price) for making decisions to purchase goods 
manufactured outside of the United States or to ensure that goods 
received from American distributors are not being manufactured in 
foreign countries in instances when comparable goods manufactured in 
the United States are available. The Keeper of Stationery has indicated 
that foreign purchases are only made in cases of single supplier, best 
price, and best quality, but did not maintain documentation to support 
that fact. Documentation of the facts is important to provide 
sufficient evidence that a decision to purchase foreign goods was made 
based on sole supplier, best price, and best quality. The Keeper of 
Stationery informed us that the Stationery Room is in the process of 
implementing documentation procedures to support decisions to purchase 
foreign goods.

Compliance with Laws and Regulations:

We found no instances of noncompliance with the selected provisions of 
laws and regulations we tested that would be reportable under U.S. 
generally accepted government auditing standards. As described in the 
previous section, while testing for compliance with section 109 of 
title 2 of the United States Code, which establishes a preference for 
the Secretary to purchase domestic goods, we identified an internal 
control weakness over the documentation of decisions regarding foreign 
purchases to show evidence of compliance with section 109. Although we 
were able to use alternative methods for testing compliance for the 
majority of the goods purchased from foreign manufacturers, we could 
not determine whether 8 transactions for fiscal year 2002 and 10 
transactions for fiscal year 2001, which were immaterial to the 
respective Statements of Receipts, Disbursements, and Fund Balance, 
complied with the requirements of section 109 of title 2 of the United 
States Code. The objective of our audit was not to provide an opinion 
on overall compliance with laws and regulations. Accordingly, we do not 
express such an opinion.

Recommendations for Executive Action:

In light of the reportable conditions identified during our audit, we 
are making three recommendations to Stationery Room management to 
strengthen internal control over transaction approvals and 
documentation and reconciliations of financial reports. Specifically, 
we recommend that the Secretary of the Senate direct the Stationery 
Room management to continue its efforts to strengthen internal control 
to provide assurance that:

* individuals responsible for approving purchase orders sign each 
document to formally evidence their approval;

* Stationery Room receipt and disbursement transactions as well as fund 
balance amounts are timely reconciled to the Senate Disbursing Office 
records on a monthly basis; and:

* policies and procedures are developed and implemented to document the 
basis (sole supplier, quality, and price) for decisions to purchase 
goods that are not of United States origin, including purchases from 
American distributors of goods manufactured in foreign countries, to 
ensure compliance with section 109 of title 2 of the United States 
Code.

Objectives, Scope, and Methodology:

The Stationery Room management is responsible for (1) preparing the 
Statement of Receipts, Disbursements, and Fund Balance in conformity 
with the cash basis of accounting; (2) establishing, maintaining, and 
assessing internal control to provide reasonable assurance that the 
objectives of internal control are met; and (3) complying with 
applicable laws and regulations.

We are responsible for obtaining reasonable assurance about whether (1) 
the Statement of Receipts, Disbursements, and Fund Balance is presented 
fairly in all material respects, in conformity with the cash basis of 
accounting and (2) management maintained effective internal control, 
the objectives of which are the following.

* Financial reporting: Transactions are properly recorded, processed, 
and summarized to permit the preparation of the Statement of Receipts, 
Disbursements, and Fund Balance in conformity with the cash basis of 
accounting, and assets are safeguarded against loss from unauthorized 
acquisition, use, or disposition.

* Compliance with laws and regulations: Transactions are executed in 
accordance with laws and regulations that could have a direct and 
material effect on the Statement of Receipts, Disbursements, and Fund 
Balance.

We are also responsible for testing compliance with selected provisions 
of laws and regulations that were determined to have a direct and 
material effect on the Stationery Room's Statement of Receipts, 
Disbursements, and Fund Balance for the fiscal years ended September 
30, 2002 and 2001.

In order to fulfill these responsibilities, we (1) examined, on a test 
basis, evidence supporting the amounts and disclosures in the Statement 
of Receipts, Disbursements, and Fund Balance; (2) assessed the 
accounting principles used and significant estimates made by 
management; (3) evaluated the overall presentation of the Statement of 
Receipts, Disbursements, and Fund Balance; (4) obtained an 
understanding of internal control related to financial reporting 
(including safeguarding assets) and compliance with laws and 
regulations; (5) tested relevant internal controls over financial 
reporting (including safeguarding assets) and compliance and evaluated 
the design and operational effectiveness of internal control; and (6) 
tested compliance with selected provisions of the following relevant 
laws and regulations:

* 2 U.S.C.  46a-1, relating to the establishment of the Stationery 
Room Revolving Fund, including deposit of sales receipts and 
disbursements from the fund,

* 2 U.S.C.  109, relating to preference to purchase American goods,

* 2 U.S.C.  68, relating to the approval of disbursements, and:

* the Antideficiency Act, relating to the disbursement of revolving 
fund assets.

We did not evaluate internal controls relevant to the effectiveness and 
efficiency of the Stationery Room's operations. We limited our internal 
control testing to relevant controls over financial reporting 
(including safeguarding assets) and compliance. Because of inherent 
limitations in any system of internal control, misstatements due to 
error or fraud, losses, or noncompliance may nevertheless occur and not 
be detected. We also caution that projecting our evaluation to future 
periods is subject to the risk that controls may become inadequate 
because of changes in conditions or that the degree of compliance with 
controls may deteriorate.

With respect to our tests of selected provisions of laws and 
regulations, we did not test compliance with all laws and regulations 
applicable to the Stationery Room, therefore, we caution that 
noncompliance may have occurred and not been detected by the tests we 
performed. Accordingly, the scope of our tests of noncompliance may not 
be sufficient for other purposes.

We performed our audit in accordance with U.S. generally accepted 
government auditing standards.

Management's Comments and Our Evaluation:

We provided drafts of this report to the management of the Stationery 
Room and representatives of the Office of the Secretary of the Senate 
for review and comment. In commenting on the draft report, they agreed 
with the report's findings and recommendations and stated that 
appropriate actions will be taken to address the recommendations 
contained herein.

Signed by:

Jeanette Franzel:

Director Financial Management and Assurance:

August 18, 2004:

[End of section]

Financial Statement:

Statement of Receipts, Disbursements, and Fund Balance:

[See PDF for image]

[End of figure]

Notes to the Financial Statement:

United States Senate Stationery Room Revolving Fund:
Notes to the Statement of Receipts, Disbursements, and Fund Balance:

Note 1. Description of Entity:

The United States Senate Stationery Room was established to provide 
stationery and office supplies to members of the Senate, Senate 
offices, and other Senate committees. The Stationery Room Revolving 
Fund (Fund) was established within the contingent fund of the Senate to 
support the activities of the Stationery Room. Any amounts received as 
proceeds from the sales of the Stationery Room are to be deposited into 
the Revolving Fund and are available until expended for the purpose for 
which the fund was established (2 U.S.C.  46a-1).

Note 2. Basis of Accounting:

Amounts received from and used for Stationery Room operations are 
accounted for and reported by the Fund on the cash basis. The cash 
basis of accounting recognizes transactions when the cash is received 
and disbursed. The cash basis is a comprehensive basis of accounting 
that differs from U.S. generally accepted accounting principles, which 
recognize revenues when earned and expenses when incurred.

All receipts from the sale of stationery items are deposited into the 
Fund. The fund balance is used to pay for purchases of (1) inventory 
items available for resale to customers of the Stationery Room and (2) 
equipment and related services that directly support Stationery Room 
operations. The fund balance was not used to pay for salaries and 
benefits of Senate employees who work in the Stationery Room, the costs 
of which are charged to the "Salaries, Officers, and Employees" 
appropriation account for the Senate. Additional incidental costs for 
the Fund such as rent and utilities cannot be readily determined and 
are covered by other appropriated funds.

Note 3. Sales Receipts:

Sales receipts consist of cash sales and collections for sales made on 
account. The various Senate offices purchase their stationery and 
office supplies from the Stationery Room on account. Each month,

following review and approval of these transactions, the Senate 
Disbursing Office makes an adjusting entry, which records the receipts 
in the Revolving Fund and the disbursements in the various Senate 
office accounts, thus paying each account in full.

Note 4. Disbursements:

Disbursements represent amounts paid to purchase goods for resale, 
special orders, and other goods and services needed to support 
Stationery Room operations.

Note 5. Fund Balance:

The beginning fund balances represents the balances at Treasury at 
October 1, 2000 and October 1, 2001, respectively, carried over from 
the prior period. The ending fund balances represent the balances at 
Treasury at September 30, 2002 and September 30, 2001, and are the 
amount of funds available for disbursement in a subsequent period. 

[End of section]

(194233):

FOOTNOTES

[1] GAO, Standards for Internal Control in the Federal Government (GAO/
AIMD-00-21.3.1, Washington, D.C., November 1999).

[2] A material weakness is a reportable condition in which the design 
or operation of one or more of the internal control components does not 
reduce to a relatively low level the risk that misstatements caused by 
error or fraud in amounts that would be material in relation to the 
financial statements being audited may occur and not be detected within 
a timely period by employees in the normal course of performing their 
assigned functions.

[3] GAO, Financial Audit: U.S. Senate Stationery Room Revolving Fund's 
Fiscal Year 2000 Financial Statement, GAO-02-130 (Washington, D.C.: 
Dec. 21, 2001). 

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