Financial Audit: District of Columbia Highway Trust Fund's Fiscal Year
1999 and 1998 Financial Statements (Letter Report, 10/31/2000,
GAO/GAO-01-41).

GAO audited the District of Columbia's Highway Trust Fund's fiscal year
1999 and 1998 financial statements. GAO found that the District of
Columbia did not maintain effective internal control over financial
reporting related to the District of Columbia's Highway Trust Fund as of
September 30, 1999. Material weaknesses related to accounting for
expenditures were found in addition to weaknesses in computer system
general controls.

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

 REPORTNUM:  GAO-01-41
     TITLE:  Financial Audit: District of Columbia Highway Trust Fund's
	     Fiscal Year 1999 and 1998 Financial Statements
      DATE:  10/31/2000
   SUBJECT:  Computer security
	     Financial statement audits
	     Federal aid for highways
	     Accounting procedures
	     Trust funds
	     Fund audits
	     Auditing standards
	     Internal controls
	     Municipal governments

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GAO-01-41

A Report to Congressional Committees and Subcommittees

October 2000 FINANCIAL AUDIT District of Columbia Highway Trust Fund's
Fiscal Year 1999 and 1998 Financial Statements

GAO-01-41

Letter 3 Opinion Letter 6 Financial Statements 20

Balance Sheets 20 Statements of Revenues, Expenditures, and Change in Fund
Balance 21 Notes to the Financial Statements 22 Forecasted Statements 28

Appendixes Appendix I: Comments From the District of Columbia 32 Appendix
II: Status of Prior Years' Audit Recommendations 35 Appendix III: GAO
Contacts and Staff Acknowledgments 38

Tables Table 1: Status of Our 1998, 1997, and 1996 Recommendations 36

Abbreviations

AICPA American Institute of Certified Public Accountants CAFR Comprehensive
Annual Financial Report CFO Chief Financial Officer CIP capital improvement
plan DPW Department of Public Works DCFO Deputy Chief Financial Officer FHWA
Federal Highway Administration FMFIA Federal Managers' Financial Integrity
Act of 1982 LAN local area network OBP Office of Budget and Planning OMB
Office of Management and Budget OTR Office of Tax and Revenue SOAR System of
Accounting and Reporting Y2K Year 2000

Lett er

October 31, 2000 Congressional Committees and Subcommittees This report
presents the results of our audits of the financial statements of the
District of Columbia Highway Trust Fund (Fund) for the fiscal years ended
September 30, 1999 and 1998, and our examination of the forecasted
statements of the Fund's expected conditions and operations for the next 5
years. These financial statements and the forecasted statements are the
responsibility of the District's Chief Financial Officer. This report also
presents (1) our opinion on the effectiveness of the District's internal
control related to the Fund as of September 30, 1999, and (2) the results of
our evaluation of the District's fiscal year 1999 compliance with laws and
regulations as they relate to the Fund.

We conducted our work pursuant to the provisions of section 3( e) of the
District of Columbia Emergency Highway Relief Act and in accordance with
generally accepted government auditing standards.

We are sending copies of this report to Senator Robert C. Byrd, Senator
Richard Durbin, Senator Kay Bailey Hutchinson, Senator Joseph I. Lieberman,
Senator Ted Stevens, Senator Fred Thompson, Representative Dan Burton,
Representative Thomas M. Davis, Representative Ernest J. Istook,
Representative James P. Moran, Representative Eleanor Holmes Norton,
Representative David R. Obey, Representative Henry A. Waxman, and
Representative C. W. Bill Young in their capacities as Chairmen and Ranking
Minority Members of Senate and House Committees and Subcommittees. We will
also send copies to the Honorable Kenneth R. Wykle, Administrator of the
Federal Highway Administration; the Honorable Anthony Williams, Mayor of the
District of Columbia; Natwar Gandhi, Chief Financial Officer of the District
of Columbia; Charles Maddox, Inspector General of the District of Columbia;
Deborah K. Nichols, District of Columbia Auditor; and Alice Rivlin, Chairman
of the District of Columbia Financial Responsibility and Management
Assistance Authority.

If you have any questions regarding this report, please contact Gloria L.
Jarmon, Director, Health, Education, and Human Services, Accounting and
Financial Management Issues, at (202) 512- 4476. Key contacts and
contributors to this report are in appendix III.

David M. Walker Comptroller General of the United States

Congressional Committees and Subcommittees

The Honorable Robert C. Smith Chairman The Honorable Max Baucus Ranking
Minority Member Committee on Environment and Public Works United States
Senate

The Honorable George V. Voinovich Chairman Subcommittee on Transportation
and Infrastructure Committee on Environment and Public Works United States
Senate

The Honorable Bud Shuster Chairman The Honorable James L. Oberstar Ranking
Minority Member Committee on Transportation and Infrastructure House of
Representatives

The Honorable Thomas E. Petri Chairman The Honorable Nick J. Rahall, II
Ranking Minority Member Subcommittee on Ground Transportation Committee on
Transportation and Infrastructure House of Representatives

To the Mayor of the

Lett er

District of Columbia This report presents the results of our audits of the
financial statements of the District of Columbia Highway Trust Fund for the
fiscal years ended September 30, 1999 and 1998, and our examination of the
forecasted statements of the Fund's expected conditions and operations for
the next 5 years, as required by section 3( e) of the District of Columbia
Emergency Highway Relief Act. 1 This report also presents (1) our opinion on
the effectiveness of the District's internal control related to the Fund as
of September 30, 1999, and (2) the results of our evaluation of the
District's compliance with laws and regulations during fiscal year 1999 as
they relate to the Fund.

In 1995, the Department of Transportation's Federal Highway Administration
(FHWA) expressed concerns about the District's ability to provide matching
funds for federal aid highway projects and maintain its existing highway
system. 2 To address these concerns, section 2( a) of the act 3 temporarily
waived the requirement that the District provide matching funds for federal
aid highway projects for fiscal years 1995 and 1996. In addition, section 3(
a) of the act 4 required the District to establish by December 31, 1995, a
dedicated highway trust fund consisting of revenues to be used to repay the
temporarily waived amounts and provide matching funds for the District's
federal aid highway projects financed by FHWA. This dedicated trust fund is
required to include amounts equivalent to receipts from motor fuel taxes 5
and to be separate from the District's

1 Public Law 104- 21, 109 Stat. 257 (1995), D. C. Code Ann. section 7- 134.
2( e) (2000 Supplement). 2 Approximately 423 of the 1, 020 miles of streets
and highways and most of the bridges under the District's jurisdiction are
eligible for federal aid. 3 D. C. Code Ann. section 7- 134. 1( a) (2000
Supplement).

4 D. C. Code Ann. section 7- 134. 2( a) (2000 Supplement). 5 The District of
Columbia levies and collects a tax of 20 cents per gallon on motor vehicle
fuels sold or otherwise disposed of by an importer or by a user or used for
commercial purposes within the District of Columbia (D. C. Code Ann. section
47- 2301( 1981, 1995 Replacement Vol.)).

General Fund. 6 The District established the trust fund as required by the
act. 7 Motor fuel tax revenues were reported at $31 million for fiscal year
1999.

The act establishes priorities for using the Fund's revenues to pay the
District's portion of federal aid highway project costs. The first priority
of the Fund is to repay FHWA for the District's share of federal aid highway
project costs temporarily waived during fiscal years 1995 and 1996. For the
$10.2 million temporarily waived during fiscal years 1995 and 1996, the act
provided a repayment schedule with the final payment made by the District of
Columbia Department of Public Works (DPW) on September 4, 1998. 8

The remaining priorities of the Fund are to reimburse the District for local
capital appropriated expenditures, which are (1) the District's share
(normally at 20 percent) of federal aid highway project costs, (2) the
salaries of District personnel working directly on transportation capital
projects, overhead costs associated with federal aid projects, and other
nonparticipating costs, 9 and (3) the funding for local (100 percent
District) capital and maintenance projects. All federal and local capital
appropriated expenditures are to be paid out of DPW's Capital Operating
account and then reimbursed by either FHWA or the Fund.

In addition to establishing the Highway Trust Fund account, as required by
section 3( a) of the act, the District was required by section 4( b) 10 to

6 Unless prohibited by law (as in the case of the Fund under the act), the
District's cash from all funds is combined into the General Fund's cash
management pool, which is used to make transfers to all the District's
checking accounts as needed. Any cash not needed for immediate disbursement
is invested.

7 D. C. Code Ann. section 7- 134. 4 (2000 Supplement). 8 As required by
section 3( c) of the act, D. C. Code Ann. section 7- 134. 2( c) (2000
Supplement), half of the balance of these amounts was repaid in each of the
2 fiscal years following those in which the amounts were temporarily waived.
One- half of the $2. 2 million waived in fiscal year 1995 was due and repaid
as of September 30, 1996, and the remaining half was due and repaid at the
end of fiscal year 1997. Likewise, of the $8 million waived in fiscal 1996,
half was due and repaid at the end of fiscal year 1997, with the remaining
half due and paid at the end of fiscal year 1998.

9 These include the District's expenditures for costs not eligible under the
federal aid highway program, such as the costs for sewer cleaning, storm
drain improvements, and retaining walls.

10 D. C. Code Ann. section 7- 134. 3( b) (2000 Supplement).

establish an independent revolving fund account, separate from its Capital
Operating account, to make prompt payments to contractors working on federal
aid highway projects. On May 28, 1996, the District established the
Revolving Fund account by transferring $5 million from the Capital Operating
account. According to District officials, they do not intend to reimburse
the Capital Operating account until fiscal year 2004 or at such time that it
is determined that funds in the Highway Trust Fund are sufficient to
maintain operations.

We are required by section 3( e) of the act 11 to audit the Fund and submit
a report to the Congress by December 31 of each year, or 3 months after the
close of the fiscal year, beginning in 1996. The audit is of the Fund's
Balance Sheet and Statement of Revenues, Expenditures, and Change in Fund
Balance for the fiscal year ending September 30 and an examination of the
District's forecasted statements of the Fund's expected condition and
operations for the next 5 years. We issued our initial report on this Fund
due December 1996 in December 1997 12 followed by the second and third
years' reports due December 1997 and 1998 in September 1998 and 1999,
respectively. 13 As we noted in those reports and in an earlier letter to
congressional Committees dated November 4, 1996, due to the timing regarding
the District- wide financial statements (due February 1, after the September
30 year- end close), the submission of the forecasted statements (due June
15, after year- end close), and the availability of supporting documentation
from the District, we will not be able to meet the future December 31
reporting deadlines required by the act. 14

11 D. C. Code Ann. section 7- 134. 3( e) (2000 Supplement). 12 Financial
Audit: District of Columbia Highway Trust Fund's 1996 Financial Statements
(GAO/ AIMD- 98- 30, December 15, 1997). We were unable to give an opinion on
the financial statements of the Fund because of a lack of evidence
supporting $3. 7 million or 36 percent of capital appropriated expenditures
that limited the scope of our work.

13 Financial Audit: District of Columbia Highway Trust Fund's Fiscal Year
1997 Financial Statements( GAO/ AIMD- 98- 254, September 30, 1998) and
Financial Audit: District of Columbia Highway Trust Fund's Fiscal Year 1998
and 1997 Financial Statements (GAO/ AIMD- 99- 263, September 28, 1999). 14
For fiscal year 1999, which ended September 30, 1999, the District did not
issue its Comprehensive Annual Financial Statements (CAFR) until April 28,
2000, and the Fund's financial and forecasted statements until September 18,
2000.

In our audits, we found the following. The financial statements for fiscal
years 1999 and 1998 are presented

fairly in conformity with generally accepted accounting principles. The
District did not maintain effective internal control over financial

reporting (including safeguarding of assets) related to the Fund as of
September 30, 1999. We found a new material weakness related to accounting
for expenditures and continued to find weaknesses in computer system general
controls. There was a reportable noncompliance with one of the laws we
tested

relating to the licensing and bonding of motor vehicle fuel wholesalers/
businesses. The underlying assumptions made and methodology used to develop
the

Fund's revised forecasted statements provided a reasonable basis for such
statements, and the statements were presented in conformity with guidelines
established by the American Institute of Certified Public Accountants
(AICPA).

The following sections outline each finding in more detail and discuss our
conclusions and the scope of our audit.

Opinion on Financial In our opinion, the financial statements present
fairly, in all material

Statements respects, in conformity with generally accepted accounting
principles, the

Fund's assets and liabilities as of September 30, 1999 and 1998 and its
revenues, expenditures, and changes in fund balance for the years then
ended. However, misstatements may nevertheless occur in other financial
information reported by the Fund as a result of the internal control
weaknesses described in the following section.

Adverse Opinion on We have examined management's assertion that the District
maintained

Internal Control effective internal control related to the Fund as of
September 30, 1999.

Management based its assertion on criteria established under the Federal
Managers' Financial Integrity Act of 1982 (FMFIA) 15 and Office of
Management and Budget (OMB) Circular A- 123, Internal Control Systems.

15 FMFIA requires agency managers to evaluate and report annually to the
President and the Congress on the adequacy of their internal controls and
accounting systems and what is being done to correct identified problems.

Management asserted that its internal control structure was effectively
designed to meet the following control objectives:

reliability of financial reporting- transactions are properly recorded,
processed, and summarized to permit the preparation of financial statements
and stewardship information in conformity with generally accepted accounting
principles, and assets are safeguarded against loss from unauthorized
acquisition, use, or disposition and compliance with applicable laws and
regulations- transactions are

executed in accordance with the laws governing the use of budget authority
and with other laws and regulations that could have a direct and material
effect on the Fund's financial statements.

In our opinion, because of the effect of the material weaknesses relating to
controls over the Fund's expenditures and information system controls, the
District did not maintain effective internal control related to the Fund as
of September 30, 1999, based on FMFIA and OMB established criteria.

A material weakness is a 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 errors, fraud, or noncompliance in amounts that
would be material to the financial statements may occur and not be detected
on a timely basis by employees in the normal course of performing their
duties. Our examination disclosed material weaknesses in the design and
operation of the District's internal control components as of September 30,
1999. These conditions were considered in determining the nature, timing,
and extent of audit tests applied in our audit of the fiscal year 1999
financial statements, and our opinion on the District's internal control
related to the Fund does not affect our opinion on the financial statements
dated September 22, 2000. Unaudited information of the Fund, as reported by
the District, may also contain misstatements resulting from these
weaknesses.

Expenditures DPW lacked the controls to ensure that capital expenditure
costs were properly allocated and billings to the Fund were accurate and
valid expenses. These weaknesses in expenditure procedures resulted in the
District not taking advantage of the reimbursements available from FHWA.
Thus, the District over billed the Fund almost $2.4 million when those costs
should have been billed to and reimbursed by FHWA.

Our test of 111 statistically selected expenditure transactions revealed
that 11 transactions totaling $1. 6 million were not allocated to ensure
that the proper amounts were charged to the Fund or billed to FHWA. As with
most federal highway related projects, there is a federal share and local
match of total project costs, with the Fund usually responsible for 20
percent and the FHWA with the remaining 80 percent. In the 11 instances
noted above, the cost allocations were not performed properly to ensure that
correct costs were billed to the Fund and reimbursements sought for the FHWA
share. For example, for one contractor bill of $521, 855, 20 percent was
payable by the Fund and the remaining 80 percent by FHWA. However, the
entire amount was billed to the Fund, resulting in a $417,484 overstatement
of expenditures charged to the Fund. When DPW officials were notified of
these errors, they reviewed all fiscal year 1999 expenditure transactions
over $50,000. Along with our statistically selected items, more than 70
percent of the expenditure population was tested and reviewed for accurate
cost allocations. As a result of the DPW review, another $768, 000 of costs
that were not accurately allocated between FHWA and the Fund were
identified.

According to our analysis, either operator or system errors caused these
improper billings. DPW officials attributed the problems to unfamiliarity
with the new financial management system and system setup errors. As a
result of these findings, we noted the need for DPW to perform a similar
review of its fiscal year 2000 transactions to ensure that this problem does
not continue in future years. DPW officials agreed to perform the review. We
will evaluate the status of that review during our fiscal year 2000 audit.

Information System DPW relies extensively on computerized information
systems to process,

Controls account for, and report on the Fund's financial activities.
Therefore,

effective information system general controls 16 are essential to ensure
that the Fund's financial information systems and data are adequately
protected from inadvertent or deliberate modification, fraudulent use,
improper disclosure, and disruption of operations. For fiscal year 1999, as
in

16 Information system general controls affect the overall effectiveness and
security of computer operations as opposed to being unique to any specific
computer application. They include security management, operating
procedures, software security features, and physical protection designed to
ensure that access to data and programs is appropriately restricted, only
authorized changes are made to computer programs, computer security duties
are segregated, and backup and recovery plans are adequate to ensure
continuity of essential operations.

subsequent years, our audit identified serious and pervasive control
weaknesses in all information system general control areas. Consequently,
the Fund's information system general controls remain ineffective. These
information system general control weaknesses also place other District
financial, payroll, personnel, and tax information that is maintained on the
same computer system at risk.

On October 1, 1998, the District implemented a new financial management
system- the System of Accounting and Reporting (SOAR), which is processed on
a mainframe computer at the District's SHARE data center. DPW uses SOAR,
which also supports other District financial operations, to process, account
for, and report on the financial activities of the Fund. In addition, DPW
relies on its local area network, the District's wide area network, and the
Internet to transmit information to SOAR. As a consequence, responsibility
for computer security for DPW files and applications is shared between
several District functions including (1) DPW for local area network support,
(2) SHARE for mainframe and network services, and (3) the Office of the
Chief Technology Officer for wide area network functions.

For fiscal year 1999, we found serious and pervasive weaknesses in controls
over access to District systems, including DPW. For example, the District
did not adequately limit the access of authorized users or effectively
manage user identifications and passwords. The District also had not
established effective controls to prevent individuals from gaining
unauthorized access to District systems. The District's access control
weaknesses were further compounded by ineffective procedures for overseeing
and monitoring systems for unusual or suspicious access activities. In
addition, the District was not (1) providing adequate physical security for
its computer and network facilities, (2) assigning duties in such a way as
to segregate incompatible functions, (3) controlling changes to powerful
system software and key financial applications, or (4) developing and
testing disaster recovery plans to maintain or regain critical functions in
emergency situations. If the District does not adequately mitigate these
weaknesses, unauthorized individuals could gain access to critical hardware
and software where they may intentionally or inadvertently add, alter, or
delete sensitive financial data or computer programs. Such individuals could
also obtain District taxpayer information and use it to disrupt operations
or engage in fraudulent activities using names and related personal
information.

A primary reason for the District's information system control problems is
that it does not have a comprehensive computer security management program.
Our study of security management best practices 17 found that organizations
successfully managed their information security risks through an ongoing
cycle of activities coordinated by a central focal point. This management
process involves (1) assessing risk to determine computer security needs,
(2) developing and implementing policies and controls that meet these needs,
(3) promoting awareness to ensure that risks and responsibilities are
understood, and (4) instituting an ongoing program of tests and evaluations
to ensure that policies and controls are appropriate and effective. However,
the District had not instituted a framework that included any of these key
elements of a security management program. Such a program, if properly
implemented, would provide the District with a foundation for resolving
existing computer security problems and effectively managing its information
security risks on an ongoing basis. The District's program should integrate
the unique security requirements and procedures of DPW and other District
entities.

We plan to describe the weaknesses, summarized above, in more detail in a
separate report to the Mayor. Because the objective of our work was to
assess the overall effectiveness of information general controls, we did not
fully assess all computer controls. Consequently, additional vulnerabilities
could exist.

Compliance With Laws and Except as noted below, our tests for compliance
with the provisions of

Regulations selected laws and regulations disclosed no other instances of

noncompliance that would be reportable under generally accepted government
auditing standards. However, 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.

D. C. Code Ann. section 47- 2303 requires that wholesalers/ businesses
obtain import licenses to distribute motor vehicle fuel within the District.
The law requires that an applicant for a license pay an annual license fee
of $5 and obtain a motor vehicle fuel bond in the approximate sum of three
times the average monthly motor fuel tax due from the applicant during the
preceding 12 months or estimated for the succeeding 12 months, but in no

17 Information Security Management: Learning From Leading Organizations(
GAO/ AIMD- 98- 68, May 1998).

event less than $5, 000 or more than $100, 000. Similar to our prior year's
finding, we continued to find that the District had been accepting bonds
filed by wholesalers for amounts less than the amounts required by the law.
We found that seven wholesalers were underbonded by a total of $94,500.
These errors were due to incorrect calculations in determining the average
monthly motor fuel tax. Office of Tax and Revenue (OTR) officials agreed and
stated that they would reevaluate their bond calculation procedures to
ensure that averages are calculated properly.

Unqualified Opinion on The act requires that the District prepare and that
we examine the

Forecasted Statements forecasted statements of the Fund's expected
conditions and operations

for the next 5 years. These forecasts are required to determine the
District's ability to meet future local matching requirements under the
federal highway program for capital improvements to the District's
transportation system. On June 9, 2000, the District prepared the Fiscal
Year 2001 to 2006 Highway Trust Fund Capital Improvements Plan (CIP) and
Fiscal Year 2001 Capital Budgetand submitted it to the Congress for review
and approval. The budget included a 7- year financial forecast for the Fund.

Our examination of the CIP submitted in June 2000 identified that the
District continues to lack an adequate review process of its forecasted
statements prior to submission to the Congress. While the District has
developed procedures governing the preparation, coordination, and approval
of its forecasts, we noted that additional procedures are needed to ensure
that changes made to projected amounts during the review process are
communicated to the originating offices or agencies. For example, we noted
that the Office of Budget and Planning (OBP) did not approve $528, 000 of
DPW's projected expenditures during its review process and the amounts were
removed from DPW's original projections. Consequently, these reductions were
not considered in the calculation of the projected interest earnings. OBP
did not communicate this reduction with DPW, nor were interest earnings
recalculated based on OBP's adjusted expenditure amounts. As a result, the
ending cash balance projections submitted to the Congress were understated.
This is the third consecutive year that revisions were needed to the CIP
submitted to the Congress to reflect a proper presentation of projections in
accordance with AICPA guidelines. While the impact of the above revisions
were insignificant (averaging $37,000 per year), we are concerned about the
continual need to revise the forecasts after submission to the Congress.

In our opinion, the accompanying forecasted statements, as revised on
September 22, 2000, are presented in conformity with guidelines for
presentation of forecasted information established by AICPA. The underlying
assumptions made and methodology used to develop the statements provided a
reasonable basis for the first 5 years of the 7- year forecast. However,
there will usually be differences between forecasted and actual results
because events and circumstances frequently do not occur as expected, and
those differences may be material. We have no responsibility to update this
report for events and circumstances occurring after the date of this report.

Objectives, Scope, and Management is responsible for

Methodology preparing the Fund's financial statements in conformity with
generally

accepted accounting principles, maintaining effective internal control,
complying with applicable laws and regulations, and preparing 5- year
forecasted statements of the Fund's expected

conditions and operations in accordance with standards established by AICPA.

We are responsible for (1) obtaining reasonable assurance about whether the
financial statements are free of material misstatement and presented fairly
in all material respects, in conformity with generally accepted accounting
principles, and (2) expressing an opinion on the effectiveness of the
District's internal control related to the Fund based on our examination.

We are also responsible for testing compliance with selected provisions of
laws and regulations that have a direct and material effect on the financial
statements. In addition, we are responsible for expressing an opinion on
whether the forecasted statements are presented in conformity with AICPA
guidelines and for determining whether the assumptions used provide a
reasonable basis for the preparation of the statements.

In order to fulfill these responsibilities, we examined, on a test basis,
evidence supporting the amounts and

disclosures in the financial statements; assessed the accounting principles
used and significant estimates made

by management;

evaluated the overall presentation of the financial statements and the 5year
forecasted statements; obtained a sufficient understanding of internal
control related to

financial reporting, including safeguarding assets and compliance with laws
and regulations; tested relevant internal controls over financial reporting,
including

safeguarding assets and compliance with laws and regulations, and examined
management's assertion about the effectiveness of internal control; tested
compliance with selected provisions of the following laws:

(1) D. C. Procurement Practices Act of 1985, (2) D. C. Quick Payment Act of
1984, (3) D. C. Emergency Highway Relief Act, and (4) D. C. Code Ann.
section 47- 2303; and examined the assumptions made and methodology used for
the first 5

years of the District's 7- year forecast of the Fund's expected conditions
and operations and the preparation and presentation of the forecasted
statements.

We did not evaluate all internal controls relevant to operating objectives
as broadly defined by FMFIA, such as those controls relevant to preparing
statistical reports and ensuring efficient operations. We limited our
internal control testing to those controls necessary to achieve the
objectives outlined in our opinion on internal control.

We did not test compliance with all laws and regulations applicable to the
Fund. We limited our tests of compliance to those that we deemed applicable
to the financial statements of the Fund. We caution that noncompliance other
than that discussed in this report may occur and not be detected by these
tests and that such testing may not be sufficient for other purposes.

We conducted our work in accordance with generally accepted government
auditing standards. We requested comments on a draft of this report from the
Mayor of the District of Columbia or his designee. The District's CFO
provided us with written comments that are discussed in the “District
Comments and Our Evaluation” section and are reprinted in appendix I.

Recommendations The follow- up procedures we conducted identified that 13 of
14 recommendations outstanding from our fiscal year 1998 and 1997 and 1996

audit reports were implemented or are no longer applicable. Appendix II
indicates the current status of those recommendations. We reaffirm the

open recommendation made to OTR's CFO that it enforce the implementation of
the bond licensing requirements for motor fuel wholesalers operating in the
District.

To address the newly reported capital expenditure related material weakness
identified in this report, we recommend that DPW's CFO

establish procedures to properly calculate the percentage of project costs
to be charged to the Fund or billed to the Federal Highway Administration
and examine all expenditure transactions for fiscal year 2000 to ensure that

the capital expenditure costs that were charged to the Fund or billed to the
Federal Highway Administration are correct.

To address the weakness identified in the District's preparation of
forecasted statements to the Congress, we recommend that the CFO establish
additional procedures requiring the communication and evaluation of all
changes made during the review process to the appropriate officials or
agencies involved in preparing the revised data. This communication should
ensure that the impact of any changes made during the review process are
evaluated and applied throughout the forecasted statements.

The recommendations to address the material weaknesses in information system
controls identified in this report will be included in the separate report
to the Mayor along with a detailed description of those weaknesses.

District Comments and The District's CFO agreed with our recommendations.
The CFO also

Our Evaluation described actions taken or planned by the District to address
each finding.

The effectiveness of the actions taken by the District will be evaluated as
part of the annual audit of the Fund's fiscal year 2000 financial
statements.

The District's CFO, while agreeing with our recommendation to establish
procedures to properly calculate the percentage of project costs charged to
the Fund and FHWA, pointed out that DPW had identified billing discrepancies
during fiscal year 1999 prior to our audit. He pointed out that the
accounting and billing adjustments for these errors were not made until the
project codes used for allocating costs in the SOAR biller module were
reprogrammed in fiscal year 2000. However, as previously discussed in this
report, our audit of capital expenditures for fiscal year 1999 identified
additional project costs throughout the year that were improperly allocated

and not previously discovered by DPW. We therefore recommended that DPW
review all capital expenditure transactions for fiscal year 1999 to
determine that project costs were properly charged to the Fund or billed to
FHWA. DPW's follow- up review in response to this recommendation identified
additional errors. In order to provide assurances that future project costs
will be charged to the District or billed to the federal government, the
District must establish and accurately apply procedures to properly allocate
project costs between the Fund and FHWA.

David M. Walker Comptroller General of the United States

September 22, 2000

Financial Statements

Balance Sheets

Statements of Revenues, Expenditures, and Change in Fund Balance

Notes to the Financial Statements

Forecasted Statements

Appendi Appendi xes xI Comments From the District of Columbia

Appendi xII

Status of Prior Years' Audit Recommendations The results of our efforts to
audit the Fund's fiscal year 1998, 1997, and 1996 Financial Statements were
presented in our reports entitled Financial Audit: District of Columbia
Highway Trust Fund's Fiscal Years 1998 and 1997 Financial Statements( GAO/
AIMD- 99- 263, September 28, 1999), Financial Audit: District of Columbia
Highway Trust Fund's Fiscal Year 1997 Financial Statements( GAO/ AIMD- 98-
254, September 30, 1998), and Financial Audit: District of Columbia Highway
Trust Fund's 1996 Financial Statements( GAO/ AIMD- 98- 30, December 15,
1997). The three reports included a total of 23 recommendations addressing
internal control weaknesses. Four of these recommendations were implemented
during the fiscal year 1998 audit period and five were implemented during
the 1997 audit period. We determined the status of the remaining 14
recommendations, which are listed below, based on our fiscal year 1999 audit
work and discussions with District officials. We plan to update our
assessment of the District's responses as part of our fiscal year 2000
audit.

Table 1: Status of Our 1998, 1997, and 1996 Recommendations Year( s)
Recommendation Status To the Deputy Chief Financial Officer (DCFO) for the
Office of Finance and Treasury

1998 Enforce the segregation of duties between the AC

preparer of daily reconciliations and the reviewer.

Require that a supervisor independently review AC all teller
reconciliations. To the CFO

1998 Establish written procedures governing the AC

processes for preparing, coordinating, and approving the financial forecasts
prior to submission to the Congress. These procedures should identify the
parties responsible and time frames for the (1) development of the
underlying assumptions and methodologies for each line item and (2) overall
preparation and presentation of the financial forecasts.

To the DCFO for the Office of Tax and Revenue

1998 Enforce procedures to require monthly AC

transfers of motor fuel receipts from the General Fund to the Highway Trust
Fund and require the District to reimburse the Fund for potential lost
interest if the receipts are transferred after 30 days.

Enforce implementation of the licensing AP

requirement (D. C. Code Ann. Section 47- 2303) for a bond in the approximate
sum of three times the average monthly motor fuel tax due from each
wholesaler during the preceding 12 months or an estimate of the succeeding
12 months.

1997 Establish control procedures to investigate AC

instances in which unlicensed wholesalers submit tax returns or licensed
wholesalers do not submit monthly returns.

Establish control procedures to (1) review each AC

monthly tax return for completeness and accuracy, (2) reject incomplete and
erroneous monthly tax returns, and (3) contact wholesalers if returns are
rejected and follow up to ensure complete, accurate, and adequately
documented monthly tax returns.

Year( s) Recommendation Status

1996 Revise procedures to require daily logging, AC

endorsing, and depositing of motor fuel tax receipts received by the
District or establish a lockbox system for the processing and depositing of
such receipts to improve cash management and enhance the control
environment.

Establish the procedures to verify the AC

completeness of motor fuel tax receipts from wholesaler fuel sales to
retailers or for fuel consumed by construction, bus, and other companies
that buy at the wholesale level and consume that fuel within the District.
Examples of such procedures are on- site inspections and reviews of
wholesaler shipping documents and confirmation with retailers and
construction and bus companies annually or on a scheduled but random- sample
basis.

To the Director of the Office of Information Systems

1998, 1997, and Strengthen physical security over the facilities,

NA 1996 systems, and data by controlling all physical

access to LAN centers and protecting all backup files.

Strengthen logical security and better control NA

the access to data and systems by conducting a security risk analysis,
restricting access to security functions, maintaining security access files,
and applying LAN modification updates uniformly.

Segregate incompatible duties and provide the NA

appropriate supervisory review and, if it is deemed necessary that any one
person maintain complete access, establish controls to ensure that such
activities are monitored.

Ensure service continuity by completing NA disaster recovery plans and
testing them at both LAN centers.

Assess the Y2K vulnerabilities and develop an NA evaluation and conversion
plan. Legend:

AC - action complete AP - action in progress NA - no longer applicable (new
recommendations will be issued in a separate report)

Appendi xI II

GAO Contacts and Staff Acknowledgments GAO Contacts Steven R. Haughton,
(202) 512- 5999 John D. Sawyer, (202) 512- 9566 Acknowledgments In addition
to those named above, Richard Cambosos, Julia Ziegler,

Deborah Silk, Jamie Sullivan, and Robert Preshlock made key contributions to
this report.

(916324) Lett er

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GAO United States General Accounting Office

Page 1 GAO- 01- 41 D. C. Highway Trust Fund

Contents

Page 2 GAO- 01- 41 D. C. Highway Trust Fund

Page 3 GAO- 01- 41 D. C. Highway Trust Fund United States General Accounting
Office

Washington, D. C. 20548 Comptroller General

of the United States

Page 4 GAO- 01- 41 D. C. Highway Trust Fund

Page 5 GAO- 01- 41 D. C. Highway Trust Fund

Page 6 GAO- 01- 41 D. C. Highway Trust Fund United States General Accounting
Office

Washington, D. C. 20548 Comptroller General

of the United States

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Financial Statements Page 21 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 22 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 23 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 24 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 25 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 26 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 27 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 28 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 29 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 30 GAO- 01- 41 D. C. Highway Trust Fund

Financial Statements Page 31 GAO- 01- 41 D. C. Highway Trust Fund

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Appendix I

Appendix I Comments From the District of Columbia

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Appendix I Comments From the District of Columbia

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Appendix II

Appendix II Status of Prior Years' Audit Recommendations

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Appendix II Status of Prior Years' Audit Recommendations

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Appendix III

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