-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-682		

TITLE:     Financial Audit: Congressional Award Foundation's 
Fiscal Years 2005 and 2004 Financial Statements

DATE:   05/15/2006 
				                                                                         
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GAO-06-682

     

     * Report to the Congress
          * May 2006
     * FINANCIAL AUDIT
          * Congressional Award Foundation's Fiscal Years 2005 and 2004
            Financial Statements
     * Contents
          * Opinion on Financial Statements
          * Opinion on Internal Control
          * Compliance With Laws and Regulations
          * The Foundation's Ability to Continue as a Going Concern
          * Objectives, Scope, and Methodology
          * Foundation's Comments and Our Evaluation
     * Financial Statements
     * Comments from the Congressional Award Foundation

Report to the Congress

May 2006

FINANCIAL AUDIT

Congressional Award Foundation's Fiscal Years 2005 and 2004 Financial
Statements

Contents

May 15, 2006Letter

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,
2005, and 2004. 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, 2005, and (2) our conclusion on the Foundation's compliance
in fiscal year 2005 with selected provisions of laws and regulations we
tested. We conducted our audit pursuant to section 107 of the
Congressional Award Act, as amended (2 U.S.C. S: 807), and in accordance
with U.S. generally accepted government auditing standards. This report
also includes our determination required under section 104(c)(2)(A) of the
Act (2 U.S.C. S: 804(c)(2)(A)) relating to the Foundation's financial
operations.

If you or your staff have any questions concerning this report, please
contact me at (202) 512-3406 or by e-mail at [email protected]. Contact
points for our Offices of Congressional Relations and Public Affairs may
be found on the last page of this letter. Key contributors to this report
were Amy Bowser, Ryan Geach, Julie Phillips, Zakia Simpson, and Patricia
Summers.

Steven J. Sebastian Director Financial Management and Assurance

May 15, 2006Auditor's Report

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

We have audited the statements of financial position of the Congressional
Award Foundation (the Foundation) as of September 30, 2005, and 2004, 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 during fiscal year 2005.

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, 2005,
and 2004, and the results of its activities and its cash flows for the
fiscal years then ended. However, material misstatements may nevertheless
occur in other  information reported by the Foundation on its financial
status to  its  Board of Directors and others as a result of the material

weakness1 in internal control over 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 difficulties
in meeting its financial obligations. The Foundation's continuing
financial difficulties  raise substantial doubt,  for the fourth
consecutive year, about its ability to continue as a going concern.2 The
financial statements have been prepared under the assumption that the
Foundation would continue as a going concern, and do not include any
adjustments that would need to be made if the Foundation were to  cease
operations.

Opinion on Internal Control

Because of the material weakness in internal control discussed below, the
Foundation did not maintain effective internal control over financial
reporting  (including safeguarding assets) but did have effective control
over compliance with laws and regulations. The Foundation's controls did
not provide reasonable assurance that losses and misstatements 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

In our report on the results of our audit of the Foundation's  fiscal year
2004 financial statements, we reported that the deteriorating financial
condition of the Foundation led to further deterioration in controls over
the financial reporting process, impeding its ability to prepare timely
and accurate financial statements. At the conclusion of our audit of the
Foundation's fiscal year 2004 financial statements, we stressed to the
Foundation's management the importance of documenting the Foundation's
financial reporting policies and procedures, and further stressed that the
policies and procedures should detail such functions as the monthly
closing process, preparation of the financial statements, and review of
financial data by management.

During fiscal year 2005, the Foundation hired an accountant4 to help
ensure that  accurate and timely accounting and reporting of financial
information occurred.  This enabled the Foundation to provide us with a
draft of the financial statements within 5 months after the fiscal
year-end, something the Foundation had been unable to do in each of the
preceding two financial statement audits. However, the Foundation
continued to lack appropriate written procedures during fiscal year 2005
for making closing entries in its financial records and for preparing
complete and accurate financial statements. The continued lack of written
policies and procedures during fiscal year 2005 contributed to errors we
identified during our audit of the Foundation's fiscal year 2005 financial
statements.  For example, the Foundation did not adequately perform its
year-end  bank reconciliation and misclassified the forgiveness by vendors
of some of its outstanding debt. Both of these issues resulted in audit
adjustments to the financial statements. In addition, numerous errors in
the financial statements were not detected by management's review. This
resulted in the need for management to make material adjustments to
correct errors we identified during our audit. The Foundation was
ultimately able to produce financial statements that were fairly stated in
all material respects for fiscal years 2005 and 2004, but not without
substantial adjustments identified during our audit.

Subsequent to fiscal year 2005, the Foundation's Board of Directors' newly
elected Treasurer worked with the National Office staff to improve
internal control over financial reporting and develop written fiscal
policies and procedures for financial operations and reporting. Since
these procedures were not drafted until after fiscal year 2005, and the
procedures related to financial reporting were not implemented in fiscal
year 2005, they had no effect on the fiscal year 2005 financial
statements. However, if properly implemented, they should lead to
improvements in financial management going forward. We will evaluate the
effectiveness of these new policies and procedures during our audit of the
Foundation's fiscal year 2006 financial statements.

Foundation management asserted that, with the exception of the material
weakness in financial reporting, its internal control during the period
was effective based on criteria established under GAO's Standards for
Internal Control in the Federal Government. In making its assertion,
Foundation management stated the need to improve control over financial
reporting. Although the weakness did not materially affect the final
fiscal year 2005 financial statements as adjusted for errors identified by
the audit process, deficiencies in internal control may adversely affect
any decision by management that is based, in whole or in part, on other 
information that is inaccurate because of the deficiencies. Unaudited
financial information reported by the Foundation may also contain
misstatements resulting from these deficiencies.

Compliance With Laws and Regulations

Our tests for compliance with relevant provisions of laws and regulations
for fiscal year 2005 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.

For the fiscal year 2004 audit, our tests for compliance with relevant
provisions of laws and regulations disclosed one area of material
noncompliance that was reportable under U.S. generally accepted government
auditing standards. This concerned the Foundation's ability to ensure that
it had appropriate procedures for fiscal control and fund accounting and
that its financial operations were administered by personnel with
expertise in accounting and financial management.

Specifically, section 104(c)(1) of the Congressional Award Act, as amended
(2 U.S.C. S: 804(c)(1)), requires the Director, in consultation with the
Congressional Award Board, to "ensure that appropriate procedures for
fiscal control and fund accounting are established for the financial
operations of the Congressional Award Program, and that such operations
are administered by personnel with  expertise in accounting and financial
management." The Comptroller General is required by section 104(c)(2)(A)
of the Congressional Award Act, as amended (2 U.S.C. S: 804(c)(2)(A)), to
(1) annually determine whether the Director has substantially complied
with the requirement to have appropriate procedures for fiscal control and
fund accounting for the financial operations of the Congressional Award
Program and to have personnel with  expertise in accounting and financial
management to administer the financial operations, and (2) report the
findings in the annual audit report.

For 2004, because the Foundation did not have appropriate fiscal
procedures and did not have an individual with expertise in accounting and
financial management to routinely administer the procedures and account
for the financial operations of the Foundation, we determined that the
Director did not substantially comply with the requirements in section
104(c)(1) of the Congressional Award Act, as amended (2 U.S.C. S:
804(c)(1)).

As discussed earlier, during fiscal year 2005, the Foundation hired an
accountant to focus on improving financial management. Subsequent to
fiscal year 2005, the newly elected Treasurer and Audit Committee Chair
worked with the National Office staff to improve internal control over
financial reporting and develop written fiscal policies and procedures for
financial operations and reporting. Due to these actions, we were able to
conclude that for the year under audit, the Foundation was in compliance
with the provisions of the Act.

The Foundation's Ability to Continue as a Going Concern

The Foundation incurred a gain (increase in net assets) of about $10,000
in fiscal year 2005 as compared to a loss (decrease in net assets) of
almost $168,000  in fiscal year 2004. This difference of approximately
$178,000 was due primarily to a reduction in salary expenses in fiscal
year 2005. Salary expenses were less in fiscal year 2005 because the
National Director, who  retired at the end of fiscal year 2004, was not
replaced during fiscal year 2005.  The Program Director functioned in two
positions,  serving as the Acting National Director as well as the 
Program Director. As a result, the Foundation's salary costs were reduced
by over $172,000 between fiscal years 2004 and 2005.

Although the Foundation's overall expenses decreased by over $130,000
between fiscal years 2004 and 2005, operating  revenues and other support 
decreased by over $134,000, attributable in part to a nearly $64,000
decline in contributions. The Foundation attributed this decline in
contributions to the fact that the Foundation was not reauthorized by the
Congress for fiscal year 2005 which, it believes, discouraged some donors
from contributing to the Foundation. The Foundation's previous
authorization expired on October 1, 2004. On December 22, 2005, the
President signed Public Law 109-143, which reauthorized the Congressional
Award Foundation through September 30, 2009.

During fiscal year 2002, the Foundation borrowed $100,000, the maximum
amount allowable against its revolving line of credit, due to ongoing cash
flow problems associated with its daily operations. This debt, partially
secured by a $50,000 certificate of deposit, remained outstanding at
September 30, 2005.

Note 12 to the financial statements acknowledges the Foundation's
difficulties in meeting its financial obligations. The Foundation has
taken steps to decrease its expenditures and liabilities. For example,
accounts payable at September 30, 2005, were approximately $16,000, down
from $135,500 in fiscal year 2004. This decrease in accounts payable was
due to the Foundation using funds from the Congressional Award Fellowship
Trust to pay off a substantial portion of its liabilities, and its ability
to negotiate with certain of its vendors to cancel about $63,000 in
liabilities to these vendors during fiscal year 2005. In addition, the
Foundation showed considerable cost reductions as evidenced by the
decrease in operating expenses (primarily salaries) from over $594,000 in
fiscal year 2004 to about $464,000 in fiscal year 2005. However, these
steps may not be sufficient to allow it to continue operations.

Unaudited financial data compiled by the Foundation as of March 31, 2006,
showed that its financial condition has not improved through the first
half of fiscal year 2006. While the Foundation has $112,000 in
contributions receivable as of March 31, 2006, $52,000 of this
contribution is to be used to cover costs associated with its planned
Congressional Award Golf Classic fundraising event in May, and $30,000 is
to be used to cover costs associated with the annual Gold Award ceremony
in June. The golf fundraising event resulted in net revenues for the first
time in fiscal year 2004, so its ability to raise funds annually cannot be
assured, and the Gold Award ceremony is not a fundraising event. There are
also indications that the Foundation is continuing to have difficulty
meeting its obligations; according to the minutes of the January 31, 2006,
Board of Directors' meeting, the Acting National Director and the
Controller delayed cashing their pay checks for two pay periods in January
2006 due to cash flow problems at the Foundation.

In addition, the Foundation has a $100,000 line of credit that is payable
upon demand. If this liability needed to be paid immediately, the
Foundation would have to liquidate its $55,000 certificate of deposit,
equity securities of about $36,000 (reported as outstanding at March 31,
2006), and its remaining cash balance of about $6,700.

In its plan to deal with its financial difficulties and increase its
revenues, the Foundation modified its approach to fundraising during the
past 2 years by holding more frequent but smaller and less expensive
fundraising events than in the past. However, these smaller fundraisers
did not increase contributions, which decreased by over $64,000, or 23
percent, from fiscal years 2004 to 2005.

In an effort to further improve fundraising efforts, the Foundation stated
that its Board created a Congressional Liaison Committee, Development
Committee, and Program Committee during fiscal year 2005. The Foundation
reported that these committees have raised the visibility of the
Foundation. In addition, the Development Committee has increased the
number of fundraisers from one in the first half of fiscal year 2005 to
three in the first half of fiscal year 2006. The newly elected Development
Chairperson is leading fundraising initiatives in the corporate community,
including pursuing grant opportunities, and the Foundation continues to
work with professional fundraisers to more actively involve congressional
members. The Foundation is currently 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.

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
are the  following.

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 read unaudited financial information for the Foundation for the first 6
months of fiscal year 2006;

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 control 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.

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, 2005. 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 and Our Evaluation

In commenting on a draft of this report, the Foundation stressed its
efforts to secure funds to adequately support the program. The Foundation
noted that contributions and pledges received through April 2006 showed
significant increases over funding received in fiscal year 2005. The
Foundation attributed this to both the recent reauthorization of the
program in December 2005, and the Congress reaffirming its commitment to
the Foundation, resulting in donors being more willing to contribute
financially. The Foundation also discussed its plans to hold more
fundraising events with Members of Congress. Additionally, the Foundation
noted its efforts to reduce its operating expenses in order to meet its
financial obligations. The Foundation also discussed efforts it has made
to improve its internal controls over accounting and financial reporting
through its development of written policies and procedures for financial
operations and reporting.

As we discuss in our report, these written policies and procedures were
not drafted until after the period covered by our fiscal year 2005
financial audit. Consequently, they had no impact on the preparation of
the Foundation's fiscal year 2005 financial statements. If properly
implemented, however, they should lead to improvements in the Foundation's
financial management. We will evaluate the effectiveness of these new
policies and procedures during our audit of the Foundation's fiscal year
2006 financial statements.

The complete text of the Foundation's comments is reprinted in appendix I.

Steven J. Sebastian Director Financial Management and Assurance

May 3, 2006

Financial Statements

Comments from the Congressional Award FoundationAppendix I

(196095)
*** End of document. ***