Congressional Award Foundation: Management Action Still Needed to
Establish and Document Control Requirements and Related Procedures
(Correspondence, 07/28/2000, GAO/AIMD-00-266R).

Pursuant to a legislative requirement, GAO reviewed the Congressional
Award Foundation's efforts to address internal controls weaknesses
identified in GAO's 1999 financial audit.

GAO noted that: (1) the Foundation had made progress at the organization
and system levels in addressing internal control weaknesses; (2)
specifically, during fiscal year 1999, the Foundation hired a new
employee to help draft control objectives and procedures; (3) also, the
Foundation began implementing a new accounting system, which among other
things has the capability to flag duplicate facsimile invoices, one area
of control weakness previously reported; (4) however, Foundation
management has not yet established and documented internal control
requirements and related procedures as previously suggested for
management and staff to follow: (a) in the preparation and approval of
financial statements and related adjustments; (b) in following up on
reconciliations; and (c) to compensate for inadequate separation of
duties inherent in small organizations, like the Foundation; (5) also,
Foundation management has not yet documented, as previously suggested,
established internal control requirements and procedures it follows in
managing receivables and monitoring restricted contributions, and in
controlling facsimile invoices; and (6) without established and
documented control requirements and related procedures, the Foundation
faces the continuing risk that its processing of transactions and
preparation of financial reports may not be consistently performed,
monitored, and controlled.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-00-266R
     TITLE:  Congressional Award Foundation: Management Action Still
	     Needed to Establish and Document Control Requirements
	     and Related Procedures
      DATE:  07/28/2000
   SUBJECT:  Financial statement audits
	     Internal controls
	     Auditing procedures
	     Reporting requirements
	     Accounting standards
	     Financial management
	     Auditing standards
	     Financial records

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GAO/AIMD-00-266R

B-285870

July 28, 2000

Mr. James F. Manning

National Director

Congressional Award Foundation

Subject: Congressional Award Foundation: Management Action Still Needed to
Establish and Document Control Requirements and Related Procedures

Dear Mr. Manning:

In May 2000, we issued a report expressing our opinion on the Congressional
Award Foundation's fiscal year 1999 financial statements and on management's
assertions regarding the Foundation's system of internal control as of
September 30, 1999. We also reported on the results of our tests of the
Foundation's compliance with selected provisions of laws and regulations
during fiscal year 1999. We conducted our audit pursuant to the
Congressional Award Act, as amended (2 U.S.C. 807), and in accordance with
generally accepted government auditing standards. The purpose of this
management letter is to reemphasize the continuing need for the Foundation's
management to strengthen internal controls, especially in the five areas
previously reported to you in our July 1999 management letter.

Results in Brief

In conducting our 1999 audit, we found that the Foundation had made progress
at the organization and system levels in addressing internal control
weaknesses. Specifically, during fiscal year 1999, the Foundation hired a
new employee to help draft control objectives and procedures. Also, the
Foundation began implementing a new accounting system, which among other
things has the capability to flag duplicate facsimile invoices, one area of
control weakness previously reported. However, Foundation management has not
yet established and documented internal control requirements and related
procedures as previously suggested for management and staff to follow (1) in
the preparation and approval of financial statements and related
adjustments, (2) in following up on reconciliations, and (3) to compensate
for inadequate separation of duties inherent in small organizations, like
the Foundation. Also, Foundation management has not yet documented, as
previously suggested, established internal control requirements and
procedures it follows in managing

receivables and monitoring restricted contributions, and in controlling
facsimile invoices. Without established and documented control requirements
and related procedures, the Foundation faces the continuing risk that its
processing of transactions and preparation of financial reports may not be
consistently performed, monitored, and controlled.

In commenting on a draft of this letter, you agreed with our conclusions and
suggestions regarding the need to establish and document internal control
requirements and related procedures and expressed your intention to
implement our suggestions. In this regard, you informed us that the
Foundation has hired an independent public accounting firm to assist in
developing and documenting internal control requirements and procedures and
in implementing the new accounting system. Moreover, you told us that the
Foundation's Board of Directors established an audit committee as we
previously suggested to, among other things, oversee and monitor
management's progress in establishing, documenting, and implementing control
requirements and related procedures.

Preparation and Approval of Financial Statements
and Related Adjustments

In July 1999, we reported internal control weaknesses related to the
Foundation's preparation and approval of financial statements and related
adjustments. We suggested that Foundation management establish and document
internal control requirements and procedures to govern (1) the preparation
of year-end closing entries, (2) the development of supporting documentation
for all closing/adjusting entries, and (3) management review and approval.
During our fiscal year 1999 financial statement audit, we found that the
Foundation had not yet established such control requirements and related
procedures, which in part contributed to errors in both the year-end closing
and statement preparation for fiscal year 1999.

For example, we found that in closing the books for fiscal year 1999,
management had not booked an accounts payable item, which was in dispute, or
identified various errors in year-end adjusting entries and in the
preparation of draft financial statements. Near the end of fiscal year 1999,
the Foundation received an invoice related to fundraising activities for
$19,624, which management found to be wrong. Foundation management had
requested a corrected invoice from the vendor but failed to record the
transaction in the Foundation's accounting records prior to closing its
books because the responsible employee had left the Foundation in the
meantime. As a result, its accounting records at year-end understated its
liabilities and expenses. Upon an inquiry from the vendor, Foundation
management realized that the transaction had not been booked and identified
it to us. Internal control procedures for closing out the Foundation's books
and records could have promptly alerted Foundation management of the need to
record the payable. Also, Foundation management failed to identify an $8,386
error in accrued vacation and, similar to 1998, did not detect errors
related to its allocation of certain salary expenses needed for footnote
disclosure in the fiscal year 1999 financial statements. The error in
accrued vacation occurred because the bookkeeper used sick leave rather than
vacation leave to compute the accrued expense. The error in computing the
proper allocation of salaries occurred because the accountant used an
incorrect percentage factor and made an incorrect assumption about the role
of one of the employees. In both cases, internal control procedures for the
documentation, review, and approval of adjusting entries could have detected
these errors prior to the preparation of the draft financial statements.

Follow-up on Reconciliations

We reported in July 1999, that although bank reconciliations were performed,
Foundation management had not established and documented requirements and
procedures for (1) following up on outstanding unusual items or (2)
reviewing and approving completed reconciliations. Our review of completed
reconciliations in fiscal year 1998 found that because the Foundation lacked
internal controls in this area, it failed to follow up on a $1,050 check,
outstanding for about 8 months. Not following up on the outstanding check
prevented the Foundation from learning that the check had been voided. While
our 1999 audit did not identify new errors related to reconciliations, we
found that Foundation management had not yet established and/or documented
internal control requirements for the prompt follow-up of unusual
outstanding items identified as a result of the bank reconciliations.
Reconciling its cash balance to the bank's balance monthly is one of the
most important internal control techniques the Foundation can perform to
minimize risks that assets are not properly safeguarded and transactions are
not properly recorded and summarized.

Inadequate Separation of Duties

We discussed in our July 1999 letter that due to its size, the Foundation
has inherent weaknesses in its ability to establish internal control
procedures that separate duties, so that no one person has access to several
key aspects of a transaction or event and the risk of error or fraud is
reduced. For example, we noted in our July 1999 letter that the bookkeeper's
responsibilities, which included recording revenue and expense transactions
in the general ledger and required her to have access to the Foundation's
checkbook and register to perform reconciliations, represented inadequate
separation of duties. Therefore, we suggested that the Foundation establish
and document requirements and procedures for compensating controls.

During our fiscal year 1999 audit, we found that the Foundation had not yet
established and/or documented compensating controls in this area. Therefore,
we continue to suggest that management establish compensating controls as
reported previously. Such controls could require the National Director to
review monthly bank statements, canceled checks, and the results of the
monthly reconciliation process (also an important control requirement for
following up on reconciliations) and/or require the administrative assistant
to review the checkbook before and after (1) authorized disbursements have
been made and recorded and (2) the periodic bank reconciliation has been
performed.

Managing Receivables and Monitoring Restricted
Contributions and Controlling Facsimile Invoices

In July 1999, we reported that Foundation management had implemented
procedures for (1) managing receivables and monitoring restricted
contributions and
(2) controlling facsimile invoices but had not yet documented internal
control requirements and procedures for staff to follow. Specifically, in
managing its receivables and monitoring restricted contributions, the
Foundation established subsidiary databases and used the information in the
databases to help follow up on overdue receivables; assess the
collectability of older accounts receivable; and track the specific nature
and extent of donor-imposed restrictions and monitor events associated with
their release. Regarding the processing of facsimile invoices, the
Foundation initiated additional reviews of vendor files and its list of
previous invoices prior to approving facsimile invoices for payment.

While we did not identify any new errors related to managing receivables and
monitoring restricted contributions or identify any facsimile invoices
during our 1999 audit, we noted that the Foundation had not yet documented
control requirements and related procedures for Foundation staff to follow
in processing accounts receivable and monitoring restricted contributions
and processing invoices received by fax.

GAO's Standards for Internal Controls in the Federal Government requires
that internal control, transactions, and other significant events need to be
clearly documented, and the documentation should be readily available for
examination. Such documentation should appear in management directives,
administrative policies, or operating manuals.

Without documented control requirements and related procedures, the
Foundation increases the risk that recorded amounts may not be accurate,
properly classified, or reliably reported. Therefore, we continue to suggest
that the Foundation formally document control requirements and related
procedures for processing accounts receivable, monitoring restricted
contributions, and controlling facsimile invoices.

Because of the continuing need to establish and document internal control
requirements and related procedures, we are sending copies of this letter to
Thomas D. Campbell, Chairman, Board of Directors, and Debra Lawrence,
Foundation Treasurer and member of the Board of Directors, and members of
Congress. However, this letter is a matter of public record and as such will
be made available to other interested parties upon request.

- - - - -

We appreciate the cooperation and assistance Foundation management and staff
provided during our audit of the Foundation's fiscal year 1999 financial
statements. If you have any questions regarding this letter, please contact
me at (202) 512-9508 or John Reilly, Assistant Director, at (202) 512-9517.
Key contributors to this assignment were Charles Ego and Ben Smith.

Sincerely yours,

Linda M. Calbom

Director, Corporate Auditsand Standards(917785)

*** End of document. ***