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
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Address Correction Requested
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)