Financial Audit: Congressional Award Foundation's Fiscal Years
2006 and 2005 Financial Statements (15-MAY-07, GAO-07-786).
This report presents our opinion on the financial statements of
the Congressional Award Foundation for the fiscal years ended
September 30, 2006 and 2005. 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, 2006,
and (2) our conclusion on the Foundation's compliance in fiscal
year 2006 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. 807), and in
accordance with U.S. generally accepted government auditing
standards.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-786
ACCNO: A69647
TITLE: Financial Audit: Congressional Award Foundation's Fiscal
Years 2006 and 2005 Financial Statements
DATE: 05/15/2007
SUBJECT: Accounting standards
Audit reports
Financial statement audits
Internal controls
Reporting requirements
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GAO-07-786
* [1]Report to the Congress
* [2]May 2007
* [3]FINANCIAL AUDIT
* [4]Congressional Award Foundation's Fiscal Years 2006 and 2005
Financial Statements
* [5]Contents
* [6]Opinion on Financial Statements
* [7]Opinion on Internal Control
* [8]Compliance with Laws and Regulations
* [9]Significant Matters
* [10]The Foundation's Ability to Continue as a Going Concern
* [11]Inconsistency between Information Return Filed with IRS
and Audited Financial Statements
* [12]Objectives, Scope, and Methodology
* [13]Foundation's Comments
* [14]Financial Statements
* [15]Comments from the Congressional Award Foundation
Report to the Congress
May 2007
FINANCIAL AUDIT
Congressional Award Foundation's Fiscal Years 2006 and 2005 Financial
Statements
Contents
May 15, 2007
Letter
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,
2006 and 2005. 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, 2006, and (2) our conclusion on the Foundation's compliance
in fiscal year 2006 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.
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 report. Key contributors to
this report were Amy Bowser, Jennifer Henderson, Julie Phillips, Bethany
Smith, and Peggy Smith.
Steven J. Sebastian
Director
Financial Management and Assurance
May 15, 2007
Auditor'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, 2006 and 2005, and
the related statements of activities and statements of cash flows for the
fiscal years then ended. We found
othe 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;
othe Foundation had effective internal control over financial reporting
(including safeguarding assets) and compliance with laws and regulations;
and
ono reportable noncompliance with laws and regulations we tested during
fiscal year 2006.
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, 2006
and 2005, and the results of its activities and its cash flows for the
fiscal years then ended.
As discussed in the Significant Matters section of this report and in note
13 to the financial statements, the Foundation continued to experience
difficulties in meeting its financial obligations during fiscal year 2006.
The Foundation's financial difficulties raise substantial doubt, for the
fifth consecutive year, about its ability to continue as a going concern.^1 The
financial statements have been prepared under the assumption that the
Foundation would continue as a going concern, and do not include any
adjustments necessary if the Foundation were to cease operations.
Opinion on Internal Control
The Foundation maintained, in all material respects, effective internal
control over financial reporting (including safeguarding assets) and
compliance with laws and regulations as of September 30, 2006. As such,
the Foundation's internal control 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 GAO's Standards for Internal
Control in the Federal Government.^2
In our previous report on the results of our audit of the Foundation's
fiscal year 2005 financial statements, we discussed the continued presence
of a material weakness in the Foundation's internal control over its
financial reporting process. This weakness was primarily caused by the
Foundation's lack of appropriate written procedures for making closing
entries in its financial records and for preparing complete and accurate
financial statements, as well as a lack of adequate review of the
financial records by management. The lack of policies and procedures
resulted in substantial adjustments to the fiscal year 2005 financial
statements prior to their issuance. During fiscal year 2006, the
Foundation improved its internal control over financial reporting by
developing written policies and procedures for financial operations and
reporting, and by implementing a review of financial records by
management. Consequently, we no longer consider this issue to be a
material internal control weakness.
1GAO, Financial Audit: Congressional Award Foundation�s Fiscal Years
2002 and 2001 Financial Statements, GAO-03-737 (Washington, D.C.:
May 15, 2003); Financial Audit: Congressional Award Foundation�s Fiscal
Years 2003 and 2002 Financial Statements, GAO-05-132 (Washington, D.C.:
Nov. 15, 2004); Financial Audit: Congressional Award Foundation�s Fiscal
Years 2004 and 2003 Financial Statements, GAO-06-168 (Washington, D.C.:
Nov. 4, 2005); and Financial Audit: Congressional Award Foundation�s
Fiscal Years 2005 and 2004 Financial Statements, GAO-06-682 (Washington,
D.C.: May 15, 2006).
2GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
Compliance with Laws and Regulations
Our tests for compliance with selected provisions of laws and regulations
for fiscal year 2006 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.
Significant Matters
During our audit of the Foundation's fiscal years 2006 and 2005 financial
statements, we identified two significant matters that we believe are
relevant to users and readers of the Foundation's financial statements.
These matters concern (1) the Foundation's ability to continue as a going
concern and (2) inconsistency between functional expenses reported in the
Foundation's annual information return filed with the Internal Revenue
Service (IRS) and the audited financial statements for fiscal year 2005.
The Foundation's Ability to Continue as a Going Concern
As discussed in note 13 to the financial statements, the Foundation
continued to experience difficulties in meeting its financial obligations
during fiscal year 2006, raising substantial doubt about the Foundation's
ability to continue as a going concern. The Foundation incurred a loss
(decrease in net assets) of almost $44,000 in fiscal year 2006 as compared
to a gain (increase in net assets) of about $10,000 in fiscal year 2005.
While operating revenue and other support increased in fiscal year 2006 by
$214,000, from approximately $442,000 to $656,000, or almost 49 percent,
operating expenses also increased by 49 percent, largely because of an
increase in salaries, benefits, and payroll taxes of almost $109,000. This
increase was in large part caused by the Foundation's hiring of two
additional staff during fiscal year 2006, as well as a salary increase for
the acting National Director. In addition, fund-raising expenses increased
from approximately $43,000 to over $148,000 from fiscal year 2005 to
fiscal year 2006.
During fiscal year 2006, two employees of the Foundation loaned funds to
the organization to cover operating costs and payroll needs. To fund
operating expenses during fiscal year 2006, the Foundation also sold
$15,000 worth of equity securities in January 2006. The Foundation sold an
additional $20,000 in equity securities in November 2006 to cover
operating costs.
In its plan to address its financial difficulties and increase its
revenues, the Foundation modified its approach to fund-raising during the
past 3 years to emphasize more frequent but smaller and less expensive
fund-raising events than in the past. While this initiative resulted in
increased revenues for fiscal year 2006, expenses increased by an even
greater amount, resulting in a net operating loss for the fiscal year.
As discussed in note 13 to the financial statements, financial data
compiled by the Foundation as of February 28, 2007, indicate that the
Foundation's financial condition showed some improvement during the first
5 months of fiscal year 2007. However, we have not audited these financial
data. It is uncertain at this time whether this improvement can be
sustained throughout the remainder of the fiscal year so that the
Foundation can continue as a going concern.
Inconsistency between Information Return Filed with IRS and Audited
Financial Statements
The Foundation reported a statement of functional expenses in its annual
Form 990, Return of Organization Exempt from Income Tax,^3 filed with IRS
for fiscal year 2005 that differed significantly from functional expenses
as reported in its audited financial statements for the same year.^4 The
Form 990 reported total program-related expenses of $392,605, while the
audited financial statements for the same period reported total program
expenses of $282,245--a difference of $110,360.
Financial Accounting Standards Board Statement No. 117, Financial
Statements of Not-for-Profit Organizations, specifies that a statement of
activities or notes to the financial statements should provide information
about expenses reported by their functional classification, such as major
classes of program services and supporting activities. Information about
expenses by function is necessary to understand the not-for-profit
organization's service efforts.
3IRS Form 990 is used by tax-exempt organizations to provide IRS with the
information required by section 6033 of the Internal Revenue Code (I.R.C.).
An organization�s completed Form 990 is available for public inspection as
required by section 6104 of the I.R.C. Some members of the public rely on
the Form 990 as the primary or sole source of information about a
particular organization. How the public perceives an organization in such
cases may be determined by the information presented on its return.
Therefore, the return should be complete and accurate and should fully
describe the organization�s programs and accomplishments. Form 990 is due
by the 15th day of the 5th month after the organization�s fiscal year ends.
An automatic 3-month extension of time to file can be requested.
4The Foundation filed its Form 990 for fiscal year 2005 on July 31, 2006�
approximately 2-1/2 months after our report on the results of our audit of
the Foundation�s fiscal year 2005 and 2004 financial statements was released.
IRS requires not-for-profit organizations to show expenses by functional
classification on the Form 990 information return. The instructions for
Form 990 state that functional expenses should be reported using the
organization's normal accounting method. Organizations should report the
same functional expenses on the Form 990 as they report in their audited
financial statements.
The inconsistency in the presentation of functional expenses could confuse
readers of the audited financial statements and Form 990 as to the
Foundation's program expenses. Readers of the audited financial statements
and Form 990 may view program expenses more favorably than administrative
and fund-raising expenses when making decisions regarding charitable
contributions. Hence, the accuracy of the functional allocation of
expenses may be an important factor to readers of both the financial
statements and the Form 990 information return. The Controller informed us
that the Foundation intends to file an amended Form 990 for fiscal year
2005.
Objectives, Scope, and Methodology
The Foundation's management is responsible for
opreparing the annual financial statements in conformity with U.S.
generally accepted accounting principles;
oestablishing, maintaining, and assessing the Foundation's internal
control to provide reasonable assurance that the Foundation's control
objectives are met; and
ocomplying 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:
oFinancial 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.
oCompliance 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
oexamined, on a test basis, evidence supporting the amounts and
disclosures in the financial statements;
oassessed the accounting principles used and significant estimates made by
Foundation management;
oevaluated the overall presentation of the financial statements and notes;
oread and made inquiries regarding unaudited financial information for the
Foundation for the first 5 months of fiscal year 2007;
oobtained an understanding of the internal control related to financial
reporting (including safeguarding assets) and compliance with laws and
regulations;
otested relevant internal control over financial reporting and compliance
and evaluated the design and operating effectiveness of internal control;
and
otested 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 with laws and regulations. Because of inherent limitations in
internal control, misstatements caused by 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
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, 2006. 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 stated that its
overall financial condition has improved and it continues to work
diligently to secure proper funding to adequately support the program. As
of April 30, 2007, the Foundation reported it had received over $494,000
in contributions and pledges for fiscal year 2007 and it expects to exceed
budgeted revenue of $600,000 for the fiscal year.
The complete text of the Foundation's comments is reprinted in appendix I.
Steven J. Sebastian
Director
Financial Management and Assurance
May 7, 2007
Financial Statements
Appendix I: Comments from the Congressional Award Foundation
(196159)
*** End of document. ***