United States GAO General Accounting Office 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 Imnroving 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 i996 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. 4 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-27670 1 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 from 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. GAO/AEMD-97-83R Authority’s Financial Statements 2 B-276701 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 F’ixed 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 Authority; 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. 4 cerely yours, Director, Governmentwide Audits Enclosure GAO/M&ID-97-83R Authority’s Financial Statements 3 B-27670 1 cc: The Honorable Charles H. Taylor, Chairman Subcommittee on the District of Columbia Committee on Appropriations House of Representatives GAO/A.IMD-97-83R Authority’s F’inancial Statements 4 ENCLOSURE ENCLOSURE COMMENTS FROM THE DISTRICT OF COLUMBIA FINANCIAL RESPONSIBILITY AND MANAGEMENT ASSISTANCE AUTHORITY District of Columbia Financial Responsibility and Management Assistance Authority Washington, D.C. May 13,1997 Mr. Gene L. Dodaro Assistant Comptroller General United StatesGeneralAccouuting Office Washington,D.C. 20548 Dear Mr. Dodaro: This is in responseto your letter datedApril 30,1997. Be advisedthat the District of Columbia Financial Responsibility and Management Assistance Authority (“Authority”) 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 governmentalentities. The Authority offers the following responsesto the observations made by GAO. . While we agree that a ManagementDiscussion and Analysis (MD&A) section enhancesen annual report,the auditedfinancial statementsare not intendedto addressthe Authority’s performanceand accomplishmentsduring the reporting year. As you know, the Authority is required under Sec. 224 of P.L. 104-Sto 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 statementsdescriptivenotes relating to certain balancesand accountsheld by the Authority for the benefit of the District. . We believe that the presentationof the Authority’s general fund revenuesand expendituresconforms with applicable accounting principles. We recognize, however, that usersof this information who are not familiar with those principles may requiremore explanation. . Concerningdisclosuresin Note 2 of the statements,the Authority agreesthat the referenceto the “Proprietary Fund” should be deletedand that the referenceshould have been to the “Combined Statement of Revenues,Expenditures and Changesin Fund Balance”. . We agree with Note 3, that more detailed information regarding the type of reimbursementsdue from the District could be useful to readers. One Thomas Circle, N.W. - Suite 900 * Washington. DC. Zoo05 - (202) 504-3400 5 GAO/AIMD-97-83R Authority’s Financial Statements ENCLOSURE ENCLOSURE L . While Note 5 conforms with the applicable accountingprinciples. 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 Authority‘s audited financial statements, please contact John Hill, Executive Director at (202)SO4-34OU. Sincerely, (901759) 6 GAO/AIMD-97-83R Authority’s Financial Statements Ordering Information The first copy of each GAO report and testimony is free. - -- --~-- Additional copies are $2 each. 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Opportunities for Improving the District of Columbia Authority's Financial Statements
Published by the Government Accountability Office on 1997-05-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)