Financial Audit: U.S. Senate Stationery Room Revolving Fund's	 
Fiscal Years 2002 and 2001 Financial Statements (27-AUG-04,	 
GAO-04-905).							 
                                                                 
This report presents the results of our audit of the Senate	 
Stationery Room's Statement of Receipts, Disbursements, and Fund 
Balance for the fiscal years ended September 30, 2002 and	 
September 30, 2001. 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 provision of laws and regulations we tested.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-905 					        
    ACCNO:   A11956						        
  TITLE:     Financial Audit: U.S. Senate Stationery Room Revolving   
Fund's Fiscal Years 2002 and 2001 Financial Statements		 
     DATE:   08/27/2004 
  SUBJECT:   Accounting procedures				 
	     Accounting standards				 
	     Financial records					 
	     Financial statement audits 			 
	     Financial statements				 
	     Fund audits					 
	     Internal audits					 
	     Internal controls					 
	     Revolving funds					 
	     Senate Stationery Room Revolving Fund		 

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GAO-04-905

Report to the Secretary of the Senate

August 2004

FINANCIAL AUDIT

U.S. Senate Stationery Room Revolving Fund's Fiscal Years 2002 and 2001
Financial Statements

Contents

August 27, 2004Letter

The Honorable Emily J. Reynolds Secretary of the Senate United States
Senate

Dear Ms. Reynolds:

This report presents the results of our audit of the Senate Stationery
Room's Statement of Receipts, Disbursements, and Fund Balance for the
fiscal years ended September 30, 2002 and September 30, 2001. 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 provision of laws and regulations we tested. We
performed this audit at your request.

As arranged with your office, we plan no further distribution of this
report until 30 days after the date of this letter. At that time, we will
provide 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. This report will also be available on GAO's
home page 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 Chanetta Reed,
Lindsay Saylor, Kara Scott, and Stacey Smith.

Sincerely yours,

Jeanette M. Franzel Director Financial Management and Assurance

To the Secretary of the SenateAuditor's Report

We have audited the accompanying Statement of Receipts, Disbursements, and
Fund Balance for the Senate Stationery Room Revolving Fund for the fiscal
years ended September 30, 2002 and 2001. In our audit, we found

o the statement is presented fairly in all material respects, on a cash
basis;

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

o no reportable noncompliance with the selected provisions of laws and
regulations we tested, although an internal control weakness regarding the
preference to purchase domestically made goods resulted in uncertainty
about compliance for a limited number of transactions.

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

Opinion on the Financial Statement

The Statement of Receipts, Disbursements, and Fund Balance and the
accompanying notes present fairly in all material respects, in conformity
with the cash basis of accounting, the receipts, disbursements, and fund
balance of the Stationery Room Revolving Fund for the fiscal years ended
September 30, 2002 and 2001. 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 Control

Although certain internal controls should be improved, the Stationery Room
maintained in all material respects effective internal control over
financial reporting (including safeguarding assets) and compliance with
laws and regulations as of September 30, 2002, that provided reasonable
assurance that misstatements, losses, or noncompliance material in
relation to the financial statement would be prevented or detected

promptly. 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. These
weaknesses in internal control, although not considered material,2
represent reportable conditions in the design or operation of internal
control that could adversely affect the entity's ability to record,
process, summarize, and report financial data consistent with the internal
control objectives listed above. We reported on two of these reportable
conditions in internal control in our prior audit, which was issued on
December 21, 2001.3 In that report we provided the Stationery Room with
five recommendations to address these issues, two of which were still open
as of the date of this report. Still open were recommendations that
Stationery Room management ensure that (1) individuals responsible for
approving purchase orders sign each document to formally evidence their
actions and (2) reconciliations of Stationery Room disbursement
transactions and fund balance with amounts recorded by the Senate
Disbursing Office are routinely completed in a timely manner. In addition
to the two reportable conditions in internal control that we included in
our last report, we identified a third issue - the lack of documentation
supporting decisions to purchase foreign goods to support compliance with
section 109 of title 2 of the United States Code, which establishes a
preference for the Secretary to purchase domestic goods. Specifically, we
found the following:

1.Authorized personnel did not always properly sign purchase orders
documenting initial management approval; thus, several cash disbursement
transactions lacked evidence of the proper level of approval as required
by the Stationery Room's policies and procedures. The Stationery Room's
policies and procedures manual requires that purchase orders be approved
prior to execution. During fiscal year 2001, we found that approvals were
not documented for more than half of the purchase orders for disbursement
transactions. Stationery Room management, in response to our fiscal year
2000 audit findings, implemented a policy whereby payment cannot be made
without appropriate supporting documentation, including approved purchase
orders. During fiscal year 2002, Stationery Room management improved
controls in this area and we found a significantly reduced number of
payments (4 out of 100 tested) that were made without an approved purchase
order.

2.The Stationery Room did not perform timely reconciliations for cash
disbursement and receipt transactions to the Senate Disbursing Office
records on a monthly basis. Stationery Room policies and procedures
require that month-end reconciliations be performed for cash receipts and
disbursements with appropriate accounting records. Instead, the monthly
reconciliations for fiscal years 2002 and 2001 transactions were completed
during our audit by an independent contractor. Without these monthly
reconciliations being performed on a timely basis, the Stationery Room
faces increased risk that misstatements in the financial records resulting
from cash receipt and cash disbursement posting errors or invalid
transactions might not be detected or corrected on a timely basis. The
Keeper of Stationery informed us that automated reconciliation procedures
will be incorporated into the Stationery Room's systems upgrade and
modernization.

3.There were 8 instances for fiscal year 2002 and 10 instances for fiscal
year 2001 in which the Stationery Room lacked supporting documentation to
justify foreign purchases based on quality and price; and one instance in
each fiscal year in which the Stationary Room staff was unaware that an
item purchased from one of its United States distributors was manufactured
in a foreign country. Section 109 of title 2 of the United States Code
requires the Secretary of the Senate to purchase articles of United States
origin, provided the domestic item can be purchased "upon as good terms as
to the quality and price" as the foreign-made item. The Stationery Room
does not have policies and procedures in place to determine and document
the basis (sole supplier, quality, and price) for making decisions to
purchase goods manufactured outside of the United States or to ensure that
goods received from American distributors are not being manufactured in
foreign countries in instances when comparable goods manufactured in the
United States are available. The Keeper of Stationery has indicated that
foreign purchases are only made in cases of single supplier, best price,
and best quality, but did not maintain documentation to support that fact.
Documentation of the facts is important to provide sufficient evidence
that a decision to purchase foreign goods was made based on sole supplier,
best price, and best quality. The Keeper of Stationery informed us that
the Stationery Room is in the process of implementing documentation
procedures to support decisions to purchase foreign goods.

Compliance with Laws and Regulations

We found no instances of noncompliance with the selected provisions of
laws and regulations we tested that would be reportable under U.S.
generally accepted government auditing standards.  As described in the
previous section, while testing for compliance with section 109 of title 2
of the United States Code, which establishes a preference for the
Secretary to purchase domestic goods, we identified an internal control
weakness over the documentation of decisions regarding foreign purchases
to show evidence of compliance with section 109. Although we were able to
use alternative methods for testing compliance for the majority of the
goods purchased from foreign manufacturers, we could not determine whether
8 transactions for fiscal year 2002 and 10 transactions for fiscal year
2001, which were immaterial to the respective Statements of Receipts,
Disbursements, and Fund Balance, complied with the requirements of section
109 of title 2 of the United States Code. 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.

Recommendations for Executive Action

In light of the reportable conditions identified during our audit, we are
making three recommendations to Stationery Room management to strengthen
internal control over transaction approvals and documentation and
reconciliations of financial reports. Specifically, we recommend that the
Secretary of the Senate direct the Stationery Room management to continue
its efforts to strengthen internal control to provide assurance that

o individuals responsible for approving purchase orders sign each document
to formally evidence their approval;

o Stationery Room receipt and disbursement transactions as well as fund
balance amounts are timely reconciled to the Senate Disbursing Office
records on a monthly basis; and

o policies and procedures are developed and implemented to document the
basis (sole supplier, quality, and price) for decisions to purchase goods
that are not of United States origin, including purchases from American
distributors of goods manufactured in foreign countries, to ensure
compliance with section 109 of title 2 of the United States Code.

Objectives, Scope, and Methodology

The Stationery Room management is responsible for (1) preparing the
Statement of Receipts, Disbursements, and Fund Balance in conformity with
the cash basis of accounting; (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 Statement of Receipts, Disbursements, and Fund Balance is presented
fairly in all material respects, in conformity with the cash basis of
accounting and (2) management maintained effective internal control, the
objectives of which are the following.

o 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.

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 Statement of Receipts, Disbursements, and Fund Balance.

We are also responsible for testing compliance with selected provisions of
laws and regulations that were determined to have a direct and material
effect on the Stationery Room's Statement of Receipts, Disbursements, and
Fund Balance for the fiscal years ended September 30, 2002 and 2001.

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 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:

o 2 U.S.C. S: 46a-1, relating to the establishment of the Stationery Room
Revolving Fund, including deposit of sales receipts and disbursements from
the fund,

o 2 U.S.C. S: 109, relating to preference to purchase American goods,

o 2 U.S.C. S: 68, relating to the approval of disbursements, and

o the Antideficiency Act, relating to the disbursement of revolving fund
assets.

We did not evaluate internal controls relevant to the effectiveness and
efficiency of the Stationery Room's operations. We limited our internal
control testing to relevant controls over financial reporting (including
safeguarding assets) and compliance. Because of inherent limitations in
any system of 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.

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
Stationery Room, therefore, 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 Comments and Our Evaluation

We provided drafts of this report to the management of the Stationery Room
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 and recommendations and stated that appropriate
actions will be taken to address the recommendations contained herein.

Jeanette Franzel

Director Financial Management and Assurance

August 18, 2004

Financial Statement

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