Financial Audit: Senate Health Promotion Revolving Fund's Fiscal 
Year 2002 Financial Statements (31-MAR-04, GAO-04-389). 	 
                                                                 
This report presents the results of our audit of the financial	 
statements of the Senate Health Promotion 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.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-389 					        
    ACCNO:   A09602						        
  TITLE:     Financial Audit: Senate Health Promotion Revolving Fund's
Fiscal Year 2002 Financial Statements				 
     DATE:   03/31/2004 
  SUBJECT:   Accounting standards				 
	     Financial records					 
	     Financial statement audits 			 
	     Financial statements				 
	     Fund audits					 
	     Internal controls					 
	     Revolving funds					 
	     Internal audits					 
	     Senate Health Promotion Revolving Fund		 

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GAO-04-389

Report to the Senate Sergeant at Arms

March 2004

FINANCIAL AUDIT

Senate Health Promotion 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 Senate Health Promotion 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, John Saylor, Katherine Schirano, and Daniel Gaisin.

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
Senate Health Promotion 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 Significant adjustments were made during the audit process to correct
errors that had been made in posting transactions in order to properly
present the financial statement balances for accounts payable and cash.

The posting errors resulted in the improper elimination of accounts
payable, and were not detected during the preparation of the year-end
financial statements. Essentially, the Fund is following a modified cash
basis of accounting during the year, and then a conversion to the accrual
basis of accounting for financial reporting purposes 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 review
procedures for effectively 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 errors leading to
misstatements will result from incorrect entries or posting errors and
that these misstatements might not be detected or corrected on a timely
basis. Additionally, while existing procedures require that staff
accountants provide a schedule of adjusting journal entries to management
for review prior to issuance of the financial statements, the procedures
do not contain sufficient detail regarding the steps to be conducted as
part of the financial statement review.

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 of 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. S:121c (c), relating to the transfer of funds in excess of
$5,000 to the U.S. Treasury at the end of each fiscal year and

o 2 U.S.C. S:121c (d), 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 two recommendations to the Sergeant at Arms to strengthen
controls over financial reporting and recording of transactions for the
Senate Health Promotion 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 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; and

o improve policies and procedures for reviewing journal entries, in
particular key entries such as year-end accruals and adjustments, so that
such entries are properly calculated and recorded in accordance with the
basis of accounting selected.

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

(194366)
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