GAO United States General Accounting Office Washington, D.C. 20548 Accounting and Information Management Division B-276701 May 23, 1997 The Honorable Charles H. Taylor Chairman, Subcommittee on the District of Columbia Committee on Appropriations House of Representatives Subject: Analvsis of the District of Columbia Author-it-v’s Financial Statements for Fiscal Years 1995 and 1996 Dear Mr. Chairman: Your office requested that we review the fiscal years 1995 and 1996 audited financial statements of the District of Columbia F’inancial Responsibility and Management Assistance Authority (Authority) for completeness and adherence to generally accepted accounting principles. We reviewed the financial statements and found that the Authority’s audited financial statements for fiscal years 1995 and 1996 were prepared in accordance with generally accepted accounting standards used by state and local governmental entities (Governmental Accounting Standards). However, we identified several opportunities for improving the Authority’s future financial statements that we are reporting separately to the Authority. (A copy of our letter to the Authority is enclosed.) To perform our analysis, we reviewed the Authority’s fiscal years 1995 and 1996 financial statements and relevant authoritative accounting and financial reporting standards for state and local governments. We also assessed whether those statements were prepared in accordance with the applicable standards. We reviewed the 1996 annual report of the Pennsylvania Intergovernmental Cooperation Authority, an entity whose mission is similar to that of the District’s Authority. In addition, we spoke with a partner at the firm of Thompson, Cobb, Bazilio & Associates, P. C., the Authority’s auditor of record GAOIAIMD-9’7-80R Analysis of Authority’s F’inancial Statements /3TTb B-27670 1 for the fiscal years 1995 and 1996 financial statements, to obtain information and clarification on the scope of the audit and the general purpose’ financial statements. We conducted our work in March 1997 in accordance with generally accepted government auditing standards. We are sending copies of this letter to the Ranking Minority Member of your Subcommittee and the Chairmen and Ranking Minority Members of the Subcommittee on the District of Columbia, Senate Committee on Appropriations; Subcommittee on Oversight of Government Management, Restructuring and the District of Columbia, Senate Committee on Governmental Affairs; and Subcommittee on the District of Columbia, House Committee on Government Reform and Oversight. We are also sending a copy to the District of Columbia Financial Responsibility and Management Assistance Authority. If you need further information, please contact me at (202) 512-9510 or Gary el, Acting Associate Director, at (202) 5128815. Director, Governmentwide Audits Enclosure (901756) ‘The Authority’s general purpose financial statements included a (1) Combined Balance Sheet, (2) Combined Statement of Revenues, Expenditures and Changes in Fund Balance, and (3) Combined Statement of Changes in Assets and Liabilities - All Agency Funds. 2 GAO/AND-97-80R Analysis of Authority’s F’inancial Statements GAO United States General Accounting Offke Washington, D-C. 20548 Accounting and Information Management Division B-276701 May 23, 1997 Dr. Andrew F. Brimmer Chairman District of Columbia Financial Responsibility and Management Assistance Authority One Thomas Circle Washington, D.C. 20005 Subject: Onnortunities for litmroving the District of Columbia Authoritv’s Financial Statements Dear Dr. Brimmer: The Subcommittee on the District of Columbia, House Committee on Appropriations, requested that we review the fiscal years 1995 and 1996 audited financial statements of the District of Columbia Financial Responsibility and Management Assistance Authority (Authority) for completeness and adherence to generally accepted accounting principles. We found that the statements were prepared in accordance with generally accepted accounting principles used by state and local governmental entities. We offer the following observations for the Authority’s consideration in preparing its future financial statements. First, including a Management Discussion and Analysis (MD&A) section could enhance the annual report by providing a brief and objective analysis of the Authority’s performance and accomplishments during the reporting period. , Although inclusion of an MD&A section is not a current requirement for state and local governmental entities, both the Federal Accounting Standards Advisory Board and the Governmental Accounting Standards Board have recently issued exposure drafts that if adopted, will require that an MD&A section be included in a reporting entity’s financial statements. Further, Office of Management and Budget (OMB) Bulletin 97-01 requires an overview section, similar to an MD&A section, in the financial statements of federal agencies. GAO/AIMD-97-83R Authority’s Financial Statements . - .. ,:,. !.-. B-276701 Second, in accordance with governmental accounting standards, a reporting entity can either present balances and activity for which it has fiduciary responsibility in the primary financial statements or in a separate statement. The Authority opted to present balances and activity relating to the District’s Federal Payment, Federal Appropriation for the Police Department, and the District Bond Proceeds, for which it has fiduciary responsibility, in a separate statement, entitled Combined Statement of Changes in Assets and Liabilities - All Agency Funds. We suggest that the Authority consider clearly labeling and describing in the notes to the financial statements (1) why the information was presented in a separate statement, (2) what the information represents, and (3) how the combined statement of changes in assets and liabilities for “all agency funds” relates to the amounts reported for the Authority in its financial statements. In addition, in its fiscal year 1996 Combined Statement of Revenues, Expenditures and Changes in Fund Balance, the Authority reported its general fund revenues and expenditures using three reporting bases-actual, actual (budgetary basis), and budgeted. The Statement could be enhanced by clearly labeling or noting the distinction between these reporting bases so a reader can readily determine, for each reporting basis, what the information means and how it can be used. Third, we offer several observations for your consideration regarding disclosures in the notes to the Authority’s fiscal year 1996 financial statements. - Note 2, entitled Summary of Significant Accounting Policies, indicated that for fund accounting purposes there are three categories of funds- Governmental, Proprietary, and Fiduciary. However, since the Authority did not report on the Proprietary Fund, deleting reference to this fund category in the notes could avoid any possible confusion to users. - Note 2 indicated that the Schedule of Revenue and Expenditures, Budget and Actual (Budgetary Basis) was prepared on a basis not consistent with generally accepted accounting principles because of timing differences resulting fiorn encumbrances. However, this Schedule was not part of the financial statements. It appears that note 2 refers to the Combined Statement of Revenues, Expenditures and Changes in Fund Balance. In addition, the note discusses encumbrances even though there were no encumbrances reported at the end of fiscal year 1996. GAOIAIMD-97-83R Authority’s Financial Statements 2 B-27670 1 Note 3, entitled Accounts Receivable, indicated that the amount represents reimbursement due from the District for payments made by the Authority on its behalf. Based on the Authority’s mission, more detailed information on the types of reimbursement due from the District would be useful. Note 5, entitled Fixed Assets, explained how the accumulated depreciation amount was derived, including the depreciation method and the acquisition cost of the assets. However, the note did not explain that in accordance with governmental accounting standards, the fixed assets are reported on the Combined Balance Sheet at their net value (acquisition cost less accumulated depreciation) and, accordingly, that depreciation expense is not reported on the Statement of Revenues, Expenditures and Changes in Fund Balance. The Authoritv’s Comments We obtained comments on a draft of this letter from the Author-i@; the comments are included in the enclosure to this letter. The Authority agreed with the letter’s findings and stated that it will consider our observations during the preparation of its future financial statements. If you have any questions, please contact me at (202) 512-9510 or Gary Engel, Acting Associate Director, at (202) 512-8815. Director, Governmentwide Audits Enclosure GAO/AIMD-97-83R Authority’s Financial Statements 3 B-276701 cc: The Honorable Charles H. Taylor, Chairman Subcommittee on the District of Columbia Committee on Appropriati.ons House of Representatives GAO/AI&ID-97-83R Authority’s F’inancia3 Statements ENCLOSURE ENCLOSURE COMMENTSFROMTHE DISTRICTOFCOLUMB~FFJANCIALRESP~NSIBILITYAND MANAGEMENTASSTSTmCEAUTHORITY District of Columbia Financial Responsibility and Management Assistance Authority Washington, D.C. May 13.1997 Mr. Gene L. Dodaro Assistant Comptroller General United StatesGeneralAccounting Offke Washington, D.C. 20548 Dear Mr. Dodaro: This is in responseto your letter datedApril 30,1997. Be advised that the District of Columbia Financial Responsibility and Management Assistance Authority (“Aurhoriry”) has reviewed the draft report of the General Accounting Office (“GAO”) on the GAO review of the Authority’s audited financial statementscovering Fiscal Years 1996 and 1995. We appreciate your finding that the statements were prepared in accordance with generally accepted accounting principles used by state and local governmental entities. The Authority offers the following responsesto the observations made by GAO. . While we agree &at a ManagementDiscussion and Analysis (MD&A) section enhancesan annual report,the audited financial statementsare not intended to addressthe Authority’s performanceand accomplishmentsduring the reporting year. As you know, the Authority is required under Sec. 224 of P.L. 104-8 to provide to the Congressan annual report on the progress and activities of the Authority toward meeting the objectives of the D.C. Financial Responsibility and ManagementAssistanceAct. . The Authority will consideradding to future statementsdescriptive notes relating to certain balancesand accountsheld by the Authority for the benefit of the District. . We believe that the presentationof the Authority’s general fimd revenues and expenditures confoxms with applicable accounting principles. We recopnize, however, that usersof this information who arenot familiar with thoseprinciples may require more explanation. . Concerning disclosuresin Note 2 of the statements,the Authoriry agreesthat the referenceto the ‘T~~prietaxyFund” should be deleted and that the referenceshould have been to the “Combined Statementof Revenues,Expenditures and Changes in Fund Balance”. . We agree with Note 3, that more detailed information regarding the type of reimbursementsdue from the District could be useful to readers. Ona TbomvCirtlr N.W. - Suiu 900 - Washington. D.C. 2WlU * (202) 9%3400 GAO/AIMD-97-83RAuthority's Financial Statements ENCLOSURE ENCLOSURE . While Note 5 conforms with the applicable accounting principles. we recognize that readerswho are not familiar with accounting principles may welcome additional information. We hope that our responseis helpful and we will consider your observations during the preparation of our future statements.Should you have further questions concerning the huthority’s audited financial statements. please contact John Hill, Executive Director at (202) 504-3400. Sincerely, (901759) 6 GAO/AIMD-97-83RAuthority’s F’inancialStatements Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. 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Analysis of the District of Columbia Authority's Financial Statements for Fiscal Years 1995 and 1996
Published by the Government Accountability Office on 1997-05-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)