Panama Canal Commission's Financial Statements FY 1984 and 1983

AFMD-86-15: Published: Apr 8, 1986. Publicly Released: Apr 8, 1986.

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GAO reviewed the Panama Canal Commission's (PCC) financial statements as of September 30, 1984 and 1983 to assess whether PCC internal accounting controls and auditing procedures were in compliance with applicable laws and regulations.

GAO noted that: (1) PCC prepared its financial statements according to accounting principles prescribed in the Panama Canal Act, which differ in some respects from generally accepted accounting principles; and (2) the act requires PCC to compute the interest on the U.S. investment in the Panama Canal and provide a formula for determining and adjusting the amount of the investment. GAO found that: (1) PCC incorrectly reduced the U.S. interest-bearing investment by the amount of interest due each year; (2) incorrect interest reductions amounted to $52 million for the years 1979 through 1984; (3) although there were no material weaknesses in the PCC internal control system, the organizational location of its internal audit function did not meet generally accepted auditing standards for independence and impartiality; (4) navigational improvement project costs were expended in compliance with PCC-approved capitalization policies; and (5) except for the improper establishment of a reserve for future floating equipment repairs and the effects of computing interest on the U.S. investment in the canal, PCC complied with the laws and regulations for the transactions tested for the years ended September 30, 1984 and 1983.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: PCC included the reserve in its fiscal year 1990 toll rate submission which was approved by the President on August 15, 1989, thus resolving the issue.

    Recommendation: The Administrator, PCC, should include in the next PCC toll rate submission a proposal to fund the reserve for floating equipment repairs.

    Agency Affected: Panama Canal Commission

  2. Status: Closed - Implemented

    Comments: Subsequent congressional action was not indicated after the passage of the amendment of the Panama Canal Act of 1979, which resolves the prospective interest problem. However, the Omnibus Budget Act of 1987, effective December 22, 1987, converted PCC to a revolving fund and restored the interest-bearing investment by $67.1 million.

    Recommendation: The Administrator, PCC, should increase the interest-bearing United States investment account by $52 million to reflect the proper balance and establish a liability account in favor of the United States for the interest not collected.

    Agency Affected: Panama Canal Commission


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