2 REPORT TO THE CONGRESS Audit Of Financial Statements Of The Veterans Canteen -Service For Fiscal Year 1970 B-114898 Veterans Administratlon BY THE COMPTROLLER GENERAL OF THE UNITED STATES “* * \ COMPTROLLER GENERAL OF THE UNITED STATES WASl-W4QJDN DC 20M8 B- 114818 To the Presrdent of the Senate and the Speaker of the House of Representatives This is our report on our audit of the financial statements of the Veterans Canteen Service, Veterans Admmlstratlon, for fls cal year 1970. Our audit was made pursuant to the act of August 7, 1946 (38 U S.G. 4207). Copies of this report are being sent to the Director, Office of Management and Budget; the Secretary of the Treasury, and the Administrator of Veterans Affairs Comptroller General of the United States Contents Pane DIGEST 1 GENERAL CUM?fENTS 3 SCOPE OF AUD3T 5 OPINION OF FINANCIAL STATEMENTS 5 FINANCIAL STATEMENTS Schedule 1 Statement of financial condition June 30, 1970 and 1969 9 2 Statement of Income and expenses for the fiscal years ended June 30, 1970 and 1969 10 3 Statement of sources and application of funds for fiscal years ended June 30, 1970 and 1969 11 GAO notes to financial statements 12 ABBREVIATIONS GAO General Accounting Office VA Veterans Administration vcs Veterans Canteen Service COMPTROLLERGENERAL'S AUDIT OF FINANCIAL STATEMENTS OF THE REPORTTO THE COiVGRESS VETERANS CANTEEN SERVICE FOR FISCAL YEAR 1970 Veterans Admlnlstration B-114818 DIGEST ------ WHYTHE AUDIT WASMADE The General Accounting Office (GAO) is required by law to audit annu- ally the flnanclal statements of the Veterans Canteen Service of the Veterans Admlnlstratlon. The Canteen Service is self-sustaining. Income 1s depossted into a revolving fund to finance its operations. All payments are made from that fund. Any balance at the close of the fiscal year in excess of the estimated requirements for the following fiscal year 1s to be deposited into the U.S. Treasury as miscellaneous receipts. FINDINGS AND CONCLUSIONS In GAO's opinion the financial statements in this report present fairly the financial position of the Veterans Canteen Service at June 30, 1970, and the results of its operations and the sources and application of its funds for the year then ended, ln conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year and with applicable Fed- eral laws. From inception to June 30, 1970, the Canteen Service had accumu- lated profits of $19,995,406 and had paid $12,068,086 into the gen- eral fund of the Treasury. No funds were paid into the Treasury in fiscal year 1970. Canteen Service officials forecast that no funds would be available for payment into the general fund of the Treasury during fiscal year 1971. In fiscal year 1970, net income amounted to $1,031,266, an in- crease of $125,088 over net income of the prior year. The Vet- erans Canteen Service attributed the increase primarily to in- creases in sales prices of selected items These price increases were made to generate funds for additional working capital. The additional capital was needed as a result of the conversion of the Canteen Service's manual payroll system to the Veterans Admin- istration's computerized payroll system during fiscal year 1970. The Canteen Service agreed to keep on deposit ln the Treasury funds equal to a 30-day payroll of all Canteen Service employees. As 1s common with most Government agencies, certain expenses, which GAO estimated to be about $167,000, were not borne by the Canteen Service. Those expenses included the cost of space and utllltles furnished wlthout charge by the General Services Admlnlstratlon and the cost of the GAO audit. RECOMMENDATIONS OR SUGGESTIONS None. AGENCYACTIONS AND UNRESOLVEDISSUES None. MATTERSFOR CONSIDERATIONBY THE CONGRESS This report contains no recommendations or suggestions requlnng action by the Congress. It 1s submitted to the Congress pursuant to the provlslons set forth ln the United States Code (38 U.S.C. 4207), which requires GAO to make an annual audit of the accounts of the Veterans Canteen Service. 1 2 GENERAL COMMENTS The General Accounting Mfice has made an audit of the financial statements of the Veterans Canteen Service (VCS) for the fiscal year ended June 30, 1970. VCS was created by the act of August 7, 1946 (60 Stat. 887; 38 U.S.C. 4201), as an instrumentality of the United States within the Veterans Administration (VA) for the pri- mary purpose of making available, at reasonable prices, merchandise and services essential to the comfort and well- being of veterans hospitalized or residing in hospitals and domiciliaries of VA,, At June 30, 1970, merchandise and services were available through canteens at 167 VA hospi- tals, domiciliaries, and centers located throughout the United States and in Puerto Rico. VCS is a self-sustaining operation. As provided by 38 U.S.C. 4204, all income is deposited into a revolving fund created to finance the establishment, maintenance, and operation of VCS, and all payments are made from this re- volving fund. Under 38 U.S.C. 4206, any balance in the fund at the close of the fiscal year in excess of estimated requirements for the ensuing fiscal year is to be deposited in the U.S. Treasury as miscellaneous receipts. From inception to June 30, 1970, VCS had accumulated profits of $19,995,406 and had paid $12,068,086 into the general fund of the Treasury. There were no excess funds available for payment to the Treasury in fiscal year 1970. VCS estimated that no funds would be available for payment into the general fund of the Treasury during fiscal year 1971. In fiscal year 1970, net income amounted to $1,031,266, an increase of $125,088 over net income of the prior year, VCS attributed the increase in net income primarily to in- creases in sales prices of selected items. These price in- creases were made to generate funds for additional working capital. We were advised by VCS officials that additional work- ing capital was required as a result of the conversion of VCS's manual payroll system to VA's computerized payroll 3 system during fiscal year 1970. Under the manual payroll system, VCS kept payroll funds on deposit in commercial banks and issued its own payroll checks. Under VA's com- puterized payroll system, the payroll is prepared by VA and checks are issued by the Treasury Department. VCS offi- cials stated that additional working capital was required because of the agreement to keep on deposit in the Treasury funds equal to one month's salary of all VCS employees. As of June 30, 1970, this amount totaled $1,640,128. As is common with most Government agencies, certain expenses relating to its activities are not borne by VCS \ and therefore are not included in its financial statements. These expenses include the cost of space and utilities fur- nished to VCS in buildings under the control of, or leased by, the General Services Administration and the cost of the annual audit by GAO. We estimated that the cost of space and utilities furnished to VCS was about $124,000 for fis- cal year 1970 and that the cost of the audit by GAO was about $43,000. SCOPE OF AUDIT Our review consisted primarily of an examination of VCS's statement of financial condition as of June 30, 1970, statement of income and expenses, and statement of sources and application of funds for the year then ended. Our ex- amination was made in accordance with generally accepted auditing standards and included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances and appropriate in view of the effectiveness of the system of internal control. The VCS internal audit staff makes selective audits of the canteens and annual audits of the field offices to de- termine the adequacy and effectiveness of the system of in- ternal control, reliability of the financial records and reports, and compliance with prescribed administrative and operating policies. During our review we examined the work performed by the VCS's internal auditors. As a result of our evaluation of the coverage and quality of the internal auditors' work, we were able to reduce our own tests of the accounting records of VCS. OPINION OF FINANCIAL STATEXFXl'S In our opinion, the accompanying financial statements (schs. 1, 2, and 31, which were prepared by VCS, present fairly the financial position of VCS at June 30, 1970, and the results of its operations and the sources and applica- tion of its funds for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year and with applicable Federal laws. 5 FINANCIAL STATEMENTS 7 SCHEDULE 1 VETERANS CANTEEN SERVICE STATEMENT OF l?INANCIAJ. CONDITION JUNE 30, 1970 AND 1969 June 30 1970 1969 AS5ETS CURRENT ASSETS Cash (note 1) Cash in U.S Treasury (note 2) $ 2,413,195 $ 547,337 Cash in banks and on hand 2,720.217 3,139,850 5,133,412 3,687,187 Accounts receivable 454,959 514,970 Merchandise inventories, at cost 6,683,430 6,602,866 Repaid expenses and other assets 12,566 20,230 Total current assets 12,284.367 lOs825.253 FIXED ASSETS (note 3) Furniture, fixtures, and equipment 9,051,198 8,960,256 Less accumulated deprecration 4,415,501 4,277,371 Net fixed assets 4.635,697 4,682,885 Total assets $16.920,064 $15.508.138 LIABILITIES AND EQUITY OF U S GOVERNMENT CURRENT LIABILITIES Accounts payable Trade creditors $ 848,007 $ 643,430 U S Government agancles 117,634 80,625 965,641 724,055 Employee's accrued annual leave 1,418,253 1,303,721 Accrued salaries and wages 767,926 676,113 Due other U S. Government agencies for employee's payroll deductions, accrued payroll taxes, and other payroll expenses 132,052 165,456 Unredeemed merchandise coupons 368,214 372,919 Other 6,441 36,389 Total current liabllltles 3,658.527 3,278,653 EQUITY OF U.S. CCVERNMgNT Appropriated funds--total capital advanced 4,965,OOO 4,965,OOO Donations of property, prlnclpally from VA 369,217 368,431 Accumulated net income--prior years 18,964,140 18,057,962 Net income--current year 1,031,266 906,178 25,329,623 24,297,571 Less excess funds paid into U S. Treasury from inception 12,068,086 12,068.086 Total equity of U S. Government 13,261,537 12,229.485 Total liabllitles and equity of U S Government $16,920,064 $15.508,138 The notes on page 12, which were prepared by the General Accounting Office, should be con- sidered when reading this statement 9 SCHEDULE2 VETERANS CANTEEN SERVICE STATlEMFNf OE INCOME AND EXPENSES FOR THE FISCAL YEARS ENDED JUNE 30, 1970 AXD 1969 Fiscal year ended June 30 1970 1969 RETAIL DEPARTMENT. Sales $43,644,221 $40,335,959 Cost of goods sold (note 4) 33,951,371 31,436,468 Gross profit 9,692,850 8,899,491 Expenses. Salaries and wages 6,185,964 5,717,211 Other 1,316,242 1,243,110 Total expenses 7,502,206 6,960,321 Profit, retail department 2,190,644 1,939,170 FCOD DEPARTMENT Sales 20,373,089 19,439,451 Cost of goods sold (note 4) 11,213,098 10,520,291 Gross profit 9,159,991 8,919,160 Expenses. Salaries and Wages 5,714,323 5,631,662 Other 2,410,851 2,341,610 Total expenses 8,124,974 7,973,272 Proflt, food department 1,035,017 945,888 SERVICE DEPARTMENT (profIts) Barber shops 99,642 134,455 Other 179,988 191,129 Prof 1t, service department 279,630 325,584 TOTAL OPERATING PROFIT 3,505,291 3,210,642 ADMINISTRATIVE EXPENSES (field offices and central office) Salaries and wages 2,137,475 1,949,897 Travel. and other expenses 466,645 482,226 Total admlnistratlve expenses 2,604,120 2,432,123 NET OPERATING PROFIT 901,171 778,519 OTHER INCOME--NET (note 4) 130,095 127,659 NET INCOME FOR YEAR (note 5) $ 1.031.266 $ 906,178 The notes on page 12, which were prepared by the General Accounting Office, should be consldered when reading thus statement 10 SCHEDULE 3 VETERANS CANTEEN SERVICE STATEMENT OF SOURCES AND APPLICATPON OF FUNDS FOR FISCAL YEARS ENDED JUNE 30, 1970 ARD 1969 Fiscal year ended June 30 1970 1969 FUNDS PROVIDED BY: Sales of merchandise, including food, and revenues from ser- vices furnished $67,336,523 $63,205,545 Purchase discounts and other revenues 217,885 217,111 Total funds provided $67,554,408 $63.4229656 FUNDS APPLIED TO: Cost of merchandise, including food sold $45,851,899 $42,639,645 Salaries and wages 16,031,159 15,368,354 Other expenses, excluding de- preciation which does not require expenditure of funds (fiscal year 1970--$600,671; fiscal year 1969--$554,762) 3,951,622 3,864,266 Increase in working capital 1,079,240 448,801 Total funds applied to cur- rent costs and expenses 66,913,920 62,321,066 Purchase of equipment 640,488 1,054,584 Payment of excess funds in U.S. Treasury 47,006 Total funds applied $67,554,408 $63,422,656 The notes on pages 12, which were prepared by the General Ac- counting Office, should be considered when reading this state- ment. 11 GAO NOTES TO FINANCIAL STATEMENTS 1. Under 38 U.S.@. 4206, any balance in the revolving fund at the close of the fiscal year in excess of the esti- mated requirements for the ensuing year shall be de- posited into the Treasury as miscellaneous receipts. No funds were paid into the Treasury in fiscal year 1970. 2. The amount shown as cash in U,S. Treasury includes $1,640,128 which VCS agreed to keep on deposit with the Treasury for payroll purposes* 3. Fixed assets are stated at cost with the exception of donated equipment which is stated at its appraised value at the time of acquisition, Depreciation is computed on a straight-line basis at an annual composite rate of 8-l/3 percent. Depreciation charges of $600,671 and $554,762 are included in expenses for fiscal years 1970 and 1969, respectively. 4. The canteen at Gulfport, Mississippi, was destroyed by a hurricane during fiscal year 1970. The total loss amounted to about $57,000. An inventory loss of about $45,000 was charged to retail and food department cost of goods sold, and an equipment loss of about $12,000 was charged to loss on disposition of fixed assets; the $12,00Oisincluded in OTHER INCOME--NET. 5. At June 30, 1968, VCS had not recorded on its books an accrued liability of $39,993 representing payments made by the Bureau of Employees* Compensation, Department of Labor, on account of injury or death of employees or persons under the jurisdiction of VCS during fiscal years 1967 and 1968. During fiscal year 1969 VCS recorded this liability and charged it to current year's opera- tions. Such costs are usually charged to the years in which they were incurred. Therefore, net income for fiscal year 1969 is understated bv $39.993. 12
Audit of Financial Statements of the Veterans Canteen Service for Fiscal Year 1970
Published by the Government Accountability Office on 1971-01-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)