Financial Audit: Congressional Award Foundation's Fiscal Years	 
2003 and 2002 Financial Statements (15-NOV-04, GAO-05-132).	 
                                                                 
This report presents our opinion on the financial statements of  
the Congressional Award Foundation for the fiscal years ended	 
September 30, 2003, and 2002. These financial statements are the 
responsibility of the Congressional Award Foundation. This report
also presents (1) our opinion on the effectiveness of the	 
Foundation's related internal control as of September 30, 2003,  
and (2) our conclusion on the Foundation's compliance in fiscal  
year 2003 with selected provisions of laws and regulations we	 
tested. We conducted our audit pursuant to section 8 of the	 
Congressional Award Act, as amended (2 U.S.C. 807), and in	 
accordance with U.S. generally accepted government auditing	 
standards.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-132 					        
    ACCNO:   A13597						        
  TITLE:     Financial Audit: Congressional Award Foundation's Fiscal 
Years 2003 and 2002 Financial Statements			 
     DATE:   11/15/2004 
  SUBJECT:   Audit reports					 
	     Financial management				 
	     Financial records					 
	     Financial statement audits 			 
	     Financial statements				 
	     Foundations (organizations)			 
	     Internal controls					 

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GAO-05-132

Report to the Congress

November 2004

FINANCIAL AUDIT

Congressional Award Foundation's Fiscal Years 2003 and 2002 Financial
Statements

Contents

November 15, 2004Letter

The President of the Senate The Speaker of the House of Representatives

This report presents our opinion on the financial statements of the
Congressional Award Foundation for the fiscal years ended September 30,
2003, and 2002. These financial statements are the responsibility of the
Congressional Award Foundation. This report also presents (1) our opinion
on the effectiveness of the Foundation's related internal control as of
September 30, 2003, and (2) our conclusion on the Foundation's compliance
in fiscal year 2003 with selected provisions of laws and regulations we
tested. We conducted our audit pursuant to section 8 of the Congressional
Award Act, as amended (2 U.S.C. 807), and in accordance with U.S.
generally accepted government auditing standards.

If you or your staff have any questions concerning this report, please
contact me at (202) 512-9521 or Julie Phillips, Assistant Director, at
(202) 512-5121. You can also reach us by e-mail at [email protected] or
[email protected]. Key contributors to this report were Greg Ziombra and
Charles Ego.

Steven J. Sebastian Director Financial Management and Assurance

The President of the Senate The Speaker of the House of
RepresentativesAuditor's Report

We have audited the statements of financial position of the Congressional
Award Foundation (the Foundation) as of September 30, 2003, and 2002, and
the related statements of activities and statements of cash flows for the
fiscal years then ended. We found

o the financial statements are presented fairly, in all material respects,
in conformity with U.S. generally accepted accounting principles, although
substantial doubt exists about the Foundation's ability to continue as a
going concern;

o the Foundation did not have effective internal control over financial
reporting  (including safeguarding assets) but did have effective control 
over  compliance with laws and regulations; and

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

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

Opinion on Financial Statements

The financial statements and accompanying notes present fairly, in all
material respects, in conformity with U.S. generally accepted accounting
principles, the Foundation's financial position as of September 30, 2003,
and 2002, and the results of its activities and its cash flows for the
fiscal years then ended. However, material misstatements may nevertheless
occur in information reported by the Foundation on its financial status to
its  Board of Directors as a result of the material weakness in financial
reporting described in this report.

As discussed in a later section of this report and in Note 12 to the
financial statements, the Foundation continues to experience increasing
difficulties in meeting its financial obligations. The Foundation's
continuing financial difficulties and deteriorating financial condition
raise substantial doubt, for the second consecutive year, about its
ability to continue as a going

concern.1 The financial statements have been prepared under the assumption
that the Foundation will continue as a going concern, and do not include
any adjustments that might need to be made if the operations of the
Foundation were to cease.2

Opinion on Internal Control

Because of the material weakness in internal controls discussed below, the
Foundation did not have effective internal control over financial
reporting  (including safeguarding assets) but did have effective control
over  compliance with laws and regulations. The Foundation did not provide
reasonable assurance that misstatements and losses material in relation to
the financial statements would be prevented or detected on a timely basis.
Our opinion is based on criteria established in our Standards for Internal
Control in the Federal Government.3

The deteriorating financial condition of the Foundation led to
deterioration in its controls over its financial reporting process,
impeding its ability to prepare timely and complete financial statements
without the need for significant revisions. The lack of a full-time
individual with financial management expertise, brought about by the
Foundation's lack of funds, prevented it from fulfilling this and other
key financial reporting responsibilities, and contributed to its inability
to maintain current and accurate financial records.

During fiscal year 2003, the Foundation's Director of Finance and
Administration resigned his paid  position at the Foundation and became
Treasurer of the Congressional Award Board of Directors, an unpaid
position. The former Finance and Administration Director continued to
perform some of the duties associated with his former position, on  a
volunteer basis.  The continued shortage of funds precluded the Foundation
from hiring a replacement. This resulted in the Foundation being unable to
fulfill its financial reporting responsibilities, particularly with
respect to preparing accurate and timely financial statements. For
example, because the Foundation did not always record transactions in its
general ledger as they occurred during the year, numerous entries and
adjustments had to be made to the general ledger after fiscal year-end to
ensure it was complete and accurate.

Additionally, the Foundation lacked appropriate written procedures for
making closing entries in its financial records and preparing complete and
accurate financial statements. The statements initially provided to us by
a contractor hired by the Foundation to compile the statements were not
reviewed by the Foundation, and contained incorrect balances for most line
items, many by significant amounts. The process of preparing complete and
accurate statements, including providing supporting schedules and
resolving audit issues, took over 6 months from when the Foundation
initially agreed to provide the statements and over 12 months from the
September 30, 2003, fiscal year end.

In addition to not preparing accurate and timely financial statements, not
having appropriate written procedures for preparing financial statements,
and not providing for a review of the statements prior to their being
provided to us, the lack of a full-time Director of Finance and
Administration caused by the Foundation's severe financial condition
prevented it from fulfilling  other key financial reporting
responsibilities, including (1) preparing timely and accurate interim
financial statements; (2) updating its financial management policies and
procedures; and (3) filing required Internal Revenue Service tax returns,
resulting in the Foundation potentially incurring a fine at a time when
its financial resources are already limited.

The Foundation was ultimately able to produce financial statements that
were fairly stated in all material respects for fiscal years 2003 and
2002. However, the process was long and laborious, due in part to the lack
of appropriate written procedures,  resulting in the need for substantial
corrections  between the first draft of the statements and the final
version. Additionally, the Foundation's lack of an effective financial
reporting process forced us to notify its congressional oversight
committees that we would be unable to meet our May 15, 2004, legislatively
mandated audit reporting date. Consequently, the Foundation's weakness in
internal controls over its financial reporting process resulted in its
inability to  prepare reliable financial statements on time and to produce
financial information to support management decision making.

Foundation management asserted that, with the exception of the material
weakness  in financial reporting, its internal control was effective based
on criteria established under Standards for Internal Control in the
Federal Government. In making its assertion, Foundation management stated
the need to improve controls over financial reporting. Although the
weakness did not materially affect the final fiscal year 2003 financial
statements, misstatements may nevertheless occur in other
Foundation-reported financial information as a result of this material 
internal control weakness.

Compliance with Laws and Regulations

Our tests for compliance with selected provisions of laws and regulations
for fiscal year 2003 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.

The Foundation's Ability to Continue as a Going Concern

The Foundation incurred losses (decreases in net assets) of $5,990 and
$330,726 in fiscal years 2003 and 2002, respectively. The decreases in net
assets were a result of a decline in revenues in fiscal year 2003, due to
decreased contributions.  In addition, the Foundation experienced
operating losses due to significant increases in expenses and unrealized
losses (due to equity market  declines) in the value of the Foundation's
investments in the Congressional Award Trust in  fiscal year 2002.

Due to ongoing cash flow problems associated with its daily operations
during fiscal year 2002, the Foundation borrowed $100,000, the maximum
amount allowable against its line of credit, which remained outstanding at
September 30, 2003. In addition, accounts payable at September 30, 2003,
were approximately $150,000, with 78 percent of that  amount representing
unpaid balances owed to  vendors  from expenses incurred in fiscal year
2002. Although the Foundation's expenses for fiscal year 2003 decreased by
nearly $956,000, revenues also decreased by about $474,000, largely
attributable to a nearly $300,000 decline in in-kind contributions.

At September 30, 2003, about one-third of the Foundation's total assets,
or about $160,000, consisted of contributions pledged by donors. The
majority of these contributions receivable were restricted from use until
the next fiscal year. As a result of these restrictions and decreases of
over $157,000 in total assets, the Foundation showed a deficit in its
unrestricted operating assets of about $250,000 at September 30, 2003.
This deficit prevented the Foundation from being able to pay off its
outstanding liabilities.

Note 12 to the financial statements acknowledges the Foundation's
increasing difficulties in meeting its financial obligations. While the
Foundation has taken steps to decrease its expenditures, those steps may
not be sufficient to allow it to continue operations. Unaudited financial
data compiled by the Foundation as of June 30, 2004, showed that the
Foundation's financial condition has not improved, thus raising
substantial doubt about the Foundation's ability to continue as a going
concern, absent a means of  generating additional funding.

As discussed earlier, during fiscal year 2003, the Director of Finance and
Administration resigned his position at the Foundation and became
Treasurer of the Congressional Award Board of Directors. This move was  in
part because of the Foundation's deteriorating financial condition. In
another effort to keep expenses to a minimum, the Foundation has reduced
its staff by over one-half since the end of fiscal year 2003.
Additionally, during the second half of fiscal year 2004, the Foundation's
Board directed the National Director to reduce his pay by 50 percent in
order to further control Foundation expenses.

In its plan to deal with its deteriorating financial condition and
increase its revenues, the Foundation has modified its approach to
fundraising by holding more frequent but smaller and less expensive
fundraising events than in the past, and is attempting to secure federal
funding. At present, the Foundation is prohibited from receiving federal
funds, but is permitted to receive certain in-kind and indirect resources,
as explained in Note 5 to the financial statements. On September 29, 2004,
the Senate passed S. 2639 to reauthorize the Congressional Award Board,
which terminated on October 1, 2004, until October 1, 2009.4 This bill
also would authorize appropriations to the Board of $750,000 per year for
fiscal years 2005 through 2009. The bill would remove the prohibition
regarding receipt of federal funds, replacing it with the stipulation that
the Foundation may not accept more than one-half of all funds from federal
sources. The bill has been referred to the House of Representatives. The
ultimate outcome of these efforts was unknown at the date of our report.

Objectives, Scope, and Methodology

The Foundation's management is responsible for

o preparing the annual financial statements in conformity with U.S.
generally accepted accounting principles;

o establishing, maintaining, and assessing the Foundation's internal
control to provide reasonable assurance that the Foundation's control
objectives are met; and

o 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
follow.

o Financial reporting - transactions are properly recorded, processed, and
summarized to permit the preparation of financial statements, 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 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
financial statements.

In order to fulfill these responsibilities, we

o examined, on a test basis, evidence supporting the amounts and
disclosures in the financial statements;

o assessed the accounting principles used and significant estimates made
by Foundation management;

o evaluated the overall presentation of the financial statements and
notes;

o reviewed the interim financial statements for the 9-month period ending
June 30, 2004;

o obtained an understanding of the internal control related to financial
reporting (including safeguarding assets) and compliance with laws and
regulations;

o tested relevant internal control over financial reporting and compliance
and evaluated the design and operating effectiveness of internal control;
and

o tested compliance with selected provisions of the Congressional Award
Act, as amended.

We did not evaluate internal controls relevant to operating objectives,
such as controls relevant to ensuring efficient operations. We limited our
internal control testing to 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
the results of our tests of internal control 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
Foundation. We limited our tests of compliance to those provisions of laws
and regulations that we deemed to have a direct and material effect on the
financial statements for the fiscal year ended September 30, 2003. We
caution that noncompliance may occur and not be detected by our 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.

Foundation's Comments

In commenting on a draft of this report, the Foundation noted that the
language used in the opinion on internal control may (1) imply the
Foundation has a material amount of assets that are left unguarded or
unaccounted for and subject to misappropriation or theft and (2) be
interpreted that the Foundation was reluctant or refused to provide
assurance on internal control.

We used language specified  by auditing standards for reporting on
material weaknesses in internal control. Our  opinion on the 
effectiveness of the Foundation's internal control describes the nature
and extent of the weaknesses we identified that create the potential for
such weaknesses to adversely affect the Foundation's ability to
effectively safeguard its assets. With respect to the Foundation's
assurance on the effectiveness of internal control, we note in our report
that Foundation management specifically asserted that, with the exception
of the material weakness in internal control, the Foundation's internal
control was effective based on criteria established under Standards for
Internal Control in the Federal Government. This assertion is embodied in
written representations provided to us as part of the financial statement
audit.

Steven J. Sebastian Director Financial Management and Assurance

October 15, 2004

Financial Statements

(196020)
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