Financial Audit: Daniel Webster Senate Page Residence Revolving  
Fund's Fiscal Year 2002 Financial Statements (31-MAR-04,	 
GAO-04-388).							 
                                                                 
This report presents the results of our audit of the financial	 
statements of the Daniel Webster Senate Page Residence Revolving 
Fund (the Fund) for the fiscal year ending September 30, 2002.	 
This report also contains our opinion on the effectiveness of the
Fund's related internal control as of September 30, 2002, and our
evaluation of its compliance with selected provisions of laws and
regulations we tested. We performed this audit at the request of 
the former Senate Sergeant at Arms.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-388 					        
    ACCNO:   A09598						        
  TITLE:     Financial Audit: Daniel Webster Senate Page Residence    
Revolving Fund's Fiscal Year 2002 Financial Statements		 
     DATE:   03/31/2004 
  SUBJECT:   Accounting standards				 
	     Accrual basis accounting				 
	     Cash basis accounting				 
	     Credit sales					 
	     Financial management				 
	     Financial statement audits 			 
	     Internal controls					 
	     Revolving funds					 
	     Internal audits					 
	     Daniel Webster Senate Page Residence		 
	     Revolving Fund					 
                                                                 

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GAO-04-388

Report to the Senate Sergeant at Arms

March 2004

FINANCIAL AUDIT

Daniel Webster Senate Page Residence Revolving Fund's Fiscal Year 2002
Financial Statements

Contents

March 31, 2004Letter

The Honorable William H. Pickle Senate Sergeant at Arms

Dear Mr. Pickle:

This report presents the results of our audit of the financial statements
of the Daniel Webster Senate Page Residence Revolving Fund (the Fund) as
of and for the fiscal year ending September 30, 2002. This report also
contains our opinion on the effectiveness of the Fund's related internal
control as of September 30, 2002, and our evaluation of its compliance
with selected provisions of laws and regulations we tested. We performed
this audit at the request of the former Senate Sergeant at Arms.

We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Rules and Administration; the Senate
Committee on Appropriations; and the Senate Subcommittee on Legislative
Branch, Committee on Appropriations. The report will also be available at
no charge on GAO's Web site at http://www.gao.gov.

If you or your staff have any questions concerning this report, please
contact me at (202) 512-9471 or Keith Thompson, Assistant Director, at
(202) 512-6328. You can also reach us by e-mail at [email protected] or
[email protected]. Key contributors to this report were Patricia
Blumenthal, Erik Braun, Kimberley McGatlin, and Kara Scott.

Sincerely yours,

Jeanette M. Franzel Director Financial Management and Assurance

To the Senate Sergeant at ArmsAuditor's Report

We have audited the accompanying statement of financial position of the
Daniel Webster Senate Page Residence Revolving Fund (the Fund) as of
September 30, 2002, and the related statement of revenue and expenses and
changes in fund balance and statement of cash flows for the fiscal year
then ended. In our audit, we found

o the financial statements are presented fairly, in all material respects,
in conformity with U.S. generally accepted accounting principles;

o although certain internal controls should be improved, the Fund had
effective internal control over financial reporting (including
safeguarding of assets) and compliance with laws and regulations; and

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

The following sections provide additional detail about our conclusions and
the scope of our audit.

Opinion on the Financial Statements

The accompanying financial statements, including the accompanying notes,
present fairly, in all material respects, in conformity with U.S.
generally accepted accounting principles, the Fund's financial position as
of September 30, 2002, and the results of operations and cash flow for the
fiscal year then ended.

Opinion on Internal Control

Although certain internal controls should be improved, the Fund
maintained, in all material respects, effective internal control over
financial reporting (including safeguarding assets) and compliance as of
September 30, 2002, that provided reasonable assurance that misstatements,
losses, or noncompliance material in relation to the financial statements
would be prevented or detected on a timely basis. Our opinion is based on
criteria established in the Comptroller General's Standards for Internal
Control in the Federal Government.1 Our work did identify the need to
improve certain internal controls as described below. These weaknesses in
internal control, although not considered material weaknesses, represent
significant deficiencies in the design or operations of internal control,
which could adversely affect the entity's ability to meet the internal
control objectives.

o A significant number of the Fund's expense and accounts payable
transactions were not recorded in the proper fiscal year using the accrual
basis of accounting, and significant adjustments were made during the
audit process in order to reflect balances based on the accrual basis of
accounting. This was caused by the monthly and fiscal year-end financial
statement closeout processes, which do not require recording (or accruing)
of expense transactions associated with the particular fiscal year into
the Fund's financial records after the closeout date. The Fund does not
have structured year-end closeout procedures to ensure that transactions
are recorded in the proper period under the accrual basis. Essentially,
the Fund is following a modified cash basis of accounting during the year
with conversion to accrual-based accounting for financial reporting at the
end of the year. Although the Fund is not required to use the accrual
basis of accounting to present its year-end financial statements, the
Fund's management elected to present the financial statements on that
basis. However, as described above, the Fund does not have proper
procedures for converting to the accrual basis of accounting.

o Existing policies and procedures do not provide for a level of
management review of journal entries sufficient to prevent or detect
errors that could result in misstatements to the financial statements.
Staff accountants can post journal entries that have not been reviewed or
approved by Fund management into the Fund's financial records. Because the
Fund does not have a policy that requires staff accountants to obtain
management approval of journal entries before recording them into the
financial records, there is an increased risk that misstatements will
result from incorrect entries or posting errors and that these
misstatements might not be detected or corrected on a timely basis.

o During fiscal year 2002, staff authorized to use purchase cards on
behalf of the Fund exceeded the annual spending limits established for
card usage. The purchase card limits are established in Senate Procurement
Regulations adopted by the Senate Committee on Rules and Administration as
well as by Procurement Procedures issued by the Sergeant at Arms. Senate
Procurement Regulations provide for the Committee to grant waivers from
requirements in the regulations and procedures. Fund staff exceeded the
fiscal year 2002 spending limits based on verbal approval received from
Sergeant at Arms staff. Subsequently, the Sergeant at Arms sought and
obtained ratification of the excess purchase card spending from the
Committee.

Compliance with Laws and Regulations

Our tests for compliance with selected provisions of laws and regulations
disclosed no instances of noncompliance that would be 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 Methodology

The Fund's management is responsible for (1) preparing the annual
financial statements in conformity with U.S. generally accepted accounting
principles, (2) establishing, maintaining, and assessing internal control
to provide reasonable assurance that the objectives of internal control
are met, and (3) complying with applicable laws and regulations.

We are responsible for obtaining reasonable assurance about whether (1)
the financial statements are presented fairly, in all material respects,
in conformity with U.S. generally accepted accounting principles and (2)
management maintained effective internal control, the objectives of which
are as follows:

o Financial reporting: Transactions are properly recorded, processed, and
summarized to permit the preparation of financial statements and
stewardship information in conformity with U.S. generally accepted
accounting principles, and assets are safeguarded against loss from
unauthorized acquisition, use, or disposition.

o Compliance with laws and regulations: Transactions are executed in
accordance with laws and regulations that could have a direct and material
effect on the Fund's financial statements.

We are also responsible for testing compliance with selected provisions of
laws and regulations that have a direct and material effect on the Fund's
financial statements for the fiscal year ended September 30, 2002.

In order to fulfill these responsibilities, we (1) examined, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, (2) assessed the accounting principles used and significant
estimates made by management, (3) evaluated the overall presentation of
the financial statements, (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 and compliance, and evaluated the design
and operating effectiveness of internal control, and (6) tested compliance
with selected provisions of the following laws and regulations:

o 2 U.S.C. 88b-7 (b), relating to collection of fees and moneys, and

o 2 U.S.C. 88b-7 (c), relating to approval of disbursements.

We did not evaluate all internal controls relevant to the effectiveness
and efficiency of the Fund's operations. We limited our internal control
testing to controls over financial reporting (including safeguarding of
assets) 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
compliance with controls may deteriorate.

We did not test compliance with all laws and regulations applicable to the
Fund. We limited our tests of compliance to those laws and regulations
that we deemed to have a direct and material effect on the financial
statements for the fiscal year ended September 30, 2002. We caution that
noncompliance may occur and not be detected by these tests and that such
testing may not be sufficient for other purposes.

We performed our work in accordance with U.S. generally accepted
government auditing standards. We requested comments on our draft report
from your financial management staff.

Recommendations for Executive Action

In light of the internal control weaknesses identified during our audit,
we are making four recommendations to the Sergeant at Arms to strengthen
controls over financial reporting and recording of transactions for the
Daniel Webster Senate Page Residence Revolving Fund. Specifically, we
recommend that the Sergeant at Arms direct Fund management to

o evaluate whether the accrual basis is the basis of accounting that is
most useful to the Fund's management or whether the modified cash basis,
which is essentially what is in place during the year, is most effective
and adopt the most appropriate basis for presentation of the financial
statements;

o improve policies and procedures to achieve the proper recording of
transactions in accordance with the basis of accounting selected;

o develop and implement procedures so that journal entries are properly
reviewed; and

o improve controls so that purchase card spending limits are monitored and
followed.

Management's Comments and Our Evaluation

We provided copies of our draft report to the Chief Financial Officer of
your office for review and comment. He generally agreed with the contents
of this report and stated that he will initiate actions to address the
recommendations contained herein.

Jeanette M. Franzel Director Financial Management and Assurance

February 25, 2004

Financial Statements

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