oversight

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)

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