Financial Audit: U.S. Senate Gift Shop Revolving Fund's Fiscal	 
Year 2000 Financial Statement (22-JUN-01, GAO-01-670).		 
								 
GAO audited the fiscal year 2000 financial statement for the	 
Senate Gift Shop Revolving Fund for the fiscal year ended	 
September 30, 2000. GAO found (1) the statement is presented	 
fairly in all material respects, (2) although internal control	 
should be improved, the Gift Shop had effective internal controls
over financial reporting and compliance with laws and		 
regulations, and (3) no reportable noncompliance with selected	 
provisions of laws and regulations GAO tested.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-670 					        
    ACCNO:   A01234						        
  TITLE:     Financial Audit: U.S. Senate Gift Shop Revolving Fund's  
             Fiscal Year 2000 Financial Statement                             
     DATE:   06/22/2001 
  SUBJECT:   Financial statement audits 			 
	     Internal controls					 
	     Financial management				 
	     Revolving funds					 
	     Senate Gift Shop Revolving Fund			 

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GAO-01-670
     
A

Report to the Secretary of the Senate

June 2001 FINANCIAL AUDIT U. S. Senate Gift Shop Revolving Fund?s Fiscal
Year 2000 Financial Statement

GAO- 01- 670

Letter 3 Auditor?s Report 5 Financial Statement Statement of Receipts,
Disbursements, and Fund Balance 11

Notes to the Statement of Receipts, Disbursements, and Fund Balance 12

Lett er

June 22, 2001 The Honorable Gary Sisco Secretary of the Senate

Dear Mr. Sisco: In response to your request that we audit the Senate Gift
Shop Revolving Fund, enclosed is our report on the Senate Gift Shop
Revolving Fund?s Statement of Receipts, Disbursements, and Fund Balance for
the fiscal year ended September 30, 2000. This report presents our opinion
on the financial statement, the effectiveness of the Gift Shop?s related
internal controls, and our conclusion on compliance with selected provisions
of laws and regulations we tested.

We are sending copies of this report to the Majority and Minority Leaders of
the Senate, and the Chairmen and Ranking Minority Members of the Senate
Committee on Rules and Administration and the Subcommittee on Legislative
Branch, Senate Committee on Appropriations. We will send copies to other
interested parties upon request. This report was prepared under the
direction of Jeanette M. Franzel, Acting

Director, Financial Management and Assurance, who can be reached at (202)
512- 9406. If I can be of further assistance, please call me at (202) 512-
2600. Sincerely yours,

Jeffery C. Steinhoff Managing Director Financial Management and Assurance

Opi ni on Let ter

To the Secretary of the Senate We have audited the accompanying Statement of
Receipts, Disbursements, and Fund Balance for the Senate Gift Shop Revolving
Fund for the fiscal year ended September 30, 2000. We found

 the statement is presented fairly in all material respects;

 although internal control should be improved, the Gift Shop had effective
internal controls over financial reporting (including safeguarding assets)
and compliance with laws and regulations; and

 no reportable noncompliance with selected provisions of laws and
regulations we tested.

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

Opinion on the The Statement of Receipts, Disbursements, and Fund Balance
and the

Financial Statement accompanying notes present fairly, in conformity with
the cash basis of accounting, the receipts, disbursements, and fund balance
of the Gift Shop

Revolving Fund for the fiscal year ended September 30, 2000. 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 The Gift Shop maintained in all material respects
effective internal control Control

over financial reporting (including safeguarding assets) and compliance as
of September 30, 2000, that provided reasonable assurance that
misstatements, losses, or noncompliance material in relation to the
financial statement would be prevented or detected promptly. Management
asserted that its internal control is effective based on the Comptroller
General?s Standards for Internal Control in the Federal Government. 1 1
Standards for Internal Control in the Federal Government (GAO/ AIMD- 00-
21.3.1, November

1999).

Our work did identify the need to improve certain internal controls related
to the Gift Shop?s disbursements and cash handling. We noted disbursement-
related weaknesses associated with the approval and documentation of
purchase orders, the receipt and acceptance of goods and services, and the
approval of payment vouchers. In addition, our work found weaknesses in the
Gift Shop?s processing and deposit of cash and check receipts.  With
respect to disbursement- related control weaknesses, purchase orders issued
to vendors were routinely approved using rubber- stamp

signatures and access to the signature stamps was not tightly controlled. In
addition, those making changes to previously approved purchase order amounts
(quantities and prices) or to quantities of goods received did not always
clearly document who made and authorized each change, when the change was
made, or in the case of goods received, why the change was made. Those
involved in certifying the receipt of goods and approving vouchers for
payment also did not sign the vouchers. Certification and approval of
payment vouchers was documented by affixing rubber- stamp signatures to each
voucher.  With respect to weaknesses in cash handling controls, our work
found instances of small, unexplained differences between weekly deposits
and the amount of cash generated from weekly sales. We also found

errors in the recording of daily credit card and check receipts. In
addition, we found insufficient segregation of cash handling duties, a lack
of review and approval of daily cash handling, and ineffective review and
approval of weekly deposit processing.

However, based on the results of our overall tests of disbursements and
receipt processing, taken together, these internal control weaknesses did
not result in a material misstatement in the Gift Shop?s Statement of
Receipts, Disbursements, and Fund Balance. Although these weaknesses

taken together are not considered a material weakness, 2 they represent a
reportable condition. A reportable condition is a significant deficiency in
the design and/ or operation of internal control, which could adversely
affect the Gift Shop?s ability to meet internal control objectives. These 2
A material weakness is a reportable condition that 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 promptly
by employees in the normal course of performing their duties.

weaknesses increase the Gift Shop?s potential exposure to loss and errors or
irregularities that may occur and not be detected. In light of the internal
control weaknesses identified during our audit, we recommended that Gift
Shop management strengthen disbursement and cash handling internal controls
by ensuring that  individuals responsible for approving purchase orders and
approving

and certifying payment vouchers sign each document to formally evidence
their approval and certification;

 those responsible for making changes to previously approved purchase order
amounts clearly document who made and authorized each change and when the
change was made;

 all changes to records of goods received are documented and explained in
writing by those responsible for each change to clearly document who made
and authorized the change, and when and why the change was made;

 sufficient staff resources be dedicated to the handling of cash, recording
of daily sales activities, and the processing of cash, check, and credit
card deposits to provide adequate (1) segregation of duties and

(2) review and approval of cash handling and sales/ deposit activities; and

 the Gift Shop?s financial and compliance activities are monitored for
compliance with internal controls. During our audit, Gift Shop management
acknowledged the internal control weaknesses and initiated actions to
address the weaknesses and limit the Gift Shop?s potential exposure to loss
and errors or irregularities. Specifically, Gift Shop management has begun
signing purchase orders and vouchers and no longer uses rubber- stamp
signatures. In addition, individuals who make changes to purchase, receipt,
and payment documents or records are documenting who made and approved each
change, when the change was made, and in the case of goods received, why the
change was made. Also, to address the need to separate cash handling,
recording, and reviewing duties, Gift Shop management obtained approval to
hire an office manager and is in the process of filling the new position. In

addition, to help ensure effective segregation of cash handling functions,
management has established a policy that, when fully implemented, will
separate the preparation and review of daily and weekly cash records.

Compliance With Laws Our tests for compliance with selected provisions of
laws and regulations

and Regulations disclosed no instances of noncompliance reportable under U.
S. 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.

Objectives, Scope, and Management of the Gift Shop is responsible for

Methodology

 preparing the Statement of Receipts, Disbursements, and Fund Balance in
conformity with the cash basis of accounting;

 establishing, maintaining, and assessing internal control to provide
reasonable assurance that the objectives of internal control 3 are met; and

 complying with applicable laws and regulations. We are responsible for

 obtaining reasonable assurance about whether the Statement of Receipts,
Disbursements, and Fund Balance is presented fairly in all material
respects, in conformity with the cash basis of accounting;

 obtaining reasonable assurance about whether management maintained
effective internal control over financial reporting and compliance, 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 and

 compliance with laws and regulations: transactions are executed in
accordance with laws and regulations that could have a direct and material
effect on the financial statement; and

3 Management?s internal control responsibility encompasses controls related
to (1) the effectiveness and efficiency of operations, including the use of
resources, (2) the reliability of financial reporting, including internal
and external reports on the use of resources and financial statements, and
(3) compliance with laws and regulations. Within each of these categories,
management is responsible for establishing controls to prevent or promptly
detect unauthorized acquisition, use, or disposition of assets (safeguarding
assets).

 testing compliance with selected provisions of laws and regulations that
were determined to have a direct and material effect on the Gift Shop?s
financial statement for the fiscal year ended September 30, 2000.

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 of 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. Sec. 121d relating to the establishment of the Senate Gift Shop
and Revolving Fund, including deposit of sales receipts and disbursements
from the Fund,

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

 2 U. S. C. Sec. 68 relating to the approval of disbursements, and

 the Antideficiency Act relating to the disbursement of revolving fund
assets.

We also reviewed evidence of actions taken by management in response to the
reportable condition identified during the audit. We did not evaluate
internal controls relevant to the effectiveness and

efficiency of the Gift Shop?s operations. We limited our internal control
testing to relevant controls over financial reporting and compliance.
Because of inherent limitations in 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 the 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 Gift
Shop. 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 We provided copies of our draft report to the management of the
Gift Shop

Comments 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, conclusions, and recommendations. With respect to the
need to improve internal controls, they noted that the Gift Shop has
historically operated with a small staff, making it a challenge to
adequately

segregate otherwise incompatible duties and responsibilities, which larger
organizations can more readily support. In response to the need to improve
controls, the Secretary of the Senate has authorized the establishment of a
new staff position- office manager for the Gift Shop- which, when filled,
will enable adequate segregation of duties.

Jeffrey C. Steinhoff Managing Director Financial Management and Assurance

May 18, 2001

Financial Statement

Statement of Receipts, Disbursements, and Fund Balance

United States Senate Gift Shop Revolving Fund Statement of Receipts,
Disbursements, and Fund Balance

Fiscal year ended September 30,

2000

Receipts

Sales (note 3) $1,416,354

Total receipts $1,416,354 Disbursements (note 4) Inventory and supplies
$1,082,836 Professional and other services 20,390 Equipment 5,425

Total disbursements $1,108,651 Net receipts $307,703 Beginning fund balance
(note 5) $824,771 Ending fund balance (note 5) $1,132,474

The accompanying notes are an integral part of this financial statement.

Notes to the Statement of Receipts, Disbursements, and Fund Balance United
States Senate Gift Shop Revolving Fund Notes to the Statement of Receipts,
Disbursements, and Fund Balance

Note 1. Description of the Entity

The United States Senate Gift Shop was established to provide for the sale
of gift items to Members of the Senate, staff, and the general public. To
support the operation of the Senate Gift Shop, the Senate Gift Shop
Revolving Fund was established within the contingent fund of the Senate. All
amounts collected or received from the sales and services of the Gift Shop
are to be deposited into the Fund. The balance of the Fund is available,
without fiscal year limitation, for disbursement by the Secretary of the
Senate in connection with the operation of the Senate Gift Shop, including
supplies, equipment, and other expenses (2 U. S. C. 121d).

Note 2. Basis of Accounting

Amounts received from and used for Gift Shop 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, which is a comprehensive basis of accounting, differs from U. S.
generally accepted accounting principles, which recognize revenues when
earned and expenses when incurred.

All receipts from the sale of gift items and related services by the Gift
Shop are deposited in the Fund. The Fund balance is used to pay for
purchases of (1) inventory items available for resale to customers of the
Gift Shop and (2) equipment and related services, which directly support
Gift Shop operations. The Fund balance was not used to pay for salaries and
benefits of Senate employees who work in the Gift Shop, the costs of which
are charged to the ?Salaries, Officers, and Employee? appropriation account
for the Senate. The value of other expenses incidental to Gift Shop
operations, including space and utilities, is not readily identifiable. Any
costs associated with these expenses are charged to other applicable
appropriations.

Note 3. Sales Receipts

Sales receipts-- consisting of proceeds from cash, checks, and credit card
purchase transactions-- are deposited into the Gift Shop revolving fund.

Note 4. Disbursements

Disbursements represent amounts paid to purchase gift items for resale and
acquire services and equipment needed to support Gift Shop operations.

Lett er

Note 5. Fund Balance

The Beginning Fund Balance represents the balance at October 1, 1999,
carried over from the prior period. The Ending Fund Balance represents the
balance at September 30, 2000, and is the amount of funds available for
disbursement in a subsequent period.

(917657) Lett er

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Contents

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