District of Columbia:

Presentation of the Authority's Financial Information for Fiscal Years 1997 and 1996

AIMD-99-22: Published: Dec 2, 1998. Publicly Released: Dec 2, 1998.

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Gloria L. Jarmon
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Pursuant to a congressional request, GAO compared the audited financial statements and management letters of the District of Columbia Financial Responsibility and Management Assistance Authority for fiscal years (FY) 1996 and 1997 to the District's Comprehensive Annual Financial Report (CAFR) to determine: (1) whether there was agreement of amounts and consistency of presentation regarding the Authority's financial information; and (2) why the District's internal control weakness that relates to the Authority was not identified in the audit report on the Authority's financial statements. GAO also provided information on the: (1) Authority's use of interest income from escrow accounts established on behalf of the District; (2) Authority's purpose for the transaction entitled Taxable Equipment Lease/Purchase Agreement; and (3) status of the Authority's implementation of GAO's suggestions for its financial statements for fiscal years 1995 and 1996.

GAO noted that: (1) the Authority's audited financial statements and the District's audited CAFR for fiscal years 1996 and 1997 revealed that the financial statements included the same amounts for Authority operations; (2) the presentation and categorization of the Authority's amounts were in accordance with the appropriate sections of the Government Accounting Standards Board accounting principles for both sets of financial statements; (3) in the District's auditors' report on internal controls and compliance for FY 1997, they identified a material weakness concerning financial reporting controls over transactions involving the Authority; (4) the District's auditors recommended that the Authority, along with the District, implement procedures to provide monthly balances and the related support for all financial activity each month on behalf of the District; (5) the Authority's auditors stated that this weakness did not affect the Authority's internal controls over financial reporting; (6) while Authority officials stated their belief that there was sufficient documentation available within the District to record financial activity on its books, the Authority's role in District operations and the District's dependence on the Authority for data on certain transactions and balances would necessitate effective communication of financial activity between the two entities; (7) since the Authority established the escrow accounts on behalf of the District, the accounts have earned interest income of $9.8 million and $5.5 million for fiscal years 1997 and 1996; (8) during FY 1997, $5 million was paid directly to vendors, transferred from an escrow account, or used to finance the Authority's operations; (9) the Authority entered into an agreement, entitled Taxable Equipment Lease/Purchase Agreement; (10) Authority officials stated that the purpose of the agreement was to obtain needed financing and to free-up budget capacity; (11) GAO identified seven opportunities for improving the Authority's future financial statements; (12) the Authority has implemented six of GAO's seven suggestions; (13) the one exception was the inclusion of a Management Discussion and Analysis (MD&A) section as part of its audited financial statements; and (14) with the concept of MD&A expanding across all governmental entities and presently a requirement in the federal government and for publicly-traded private sector corporations, GAO believes that including a MD&A section in the Authority's audited financial statements is needed and would enhance its financial statements.

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