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)

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Accounting and Information
      Management Division


      May 23, 1997

      Dr. Andrew F. Brimmer
      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

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

       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


                               GAO/M&ID-97-83R Authority’s    Financial Statements
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
ENCLOSURE                                                                                                  ENCLOSURE


                               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
            .      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
            .     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


             .     While Note 5 conforms with the applicable accountingprinciples. we recognize
            that readerswho are not familiar with accounting principles may welcome additional

                   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.



6                                           GAO/AIMD-97-83R               Authority’s      Financial Statements
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