oversight

Financial Audit: Panama Canal Commission's 1996 and 1995 Financial Statements

Published by the Government Accountability Office on 1997-07-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Congress




July 1997
                 FINANCIAL AUDIT
                 Panama Canal
                 Commission’s 1996 and
                 1995 Financial
                 Statements




GAO/AIMD-97-92
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States

      B-272998

      July 10, 1997

      To the President of the Senate and the
      Speaker of the House of Representatives

      This report presents the results of our audits of the Panama Canal
      Commission’s financial statements for the fiscal years ended
      September 30, 1996 and 1995, its assertion on internal controls, and its
      compliance with laws and regulations. The report also presents the results
      of our examination of the Commission’s September 30, 1996, financial
      forecast that it will be in a position to meet its financial liabilities on
      December 31, 1999.

      On October 1, 1979, the Commission was established as an executive
      agency to carry out the responsibilities of the United States with respect to
      the Panama Canal Treaty of 1977. In February 1996, the Panama Canal
      Amendments Act of 1995 (the 1995 Act)1 reconstituted the Commission as
      a wholly-owned government corporation. The Commission will operate
      the Canal until the Treaty terminates on December 31, 1999, when the
      Republic of Panama will assume full responsibility for the Canal.

      For fiscal year 1995, we were required by the Panama Canal Act of 1979 to
      conduct an annual audit of the Commission’s financial statements. For
      fiscal year 1996, the Board of Directors requested that GAO perform the
      audit.2 Our opinion states that the Panama Canal Commission’s financial
      statements present fairly, in all material respects, its financial position as
      of September 30, 1996 and 1995, and the results of its operations, changes
      in capital, and cash flows for the years then ended, in conformity with
      generally accepted accounting principles.

      In addition to auditing the financial statements of the Commission, we
      examined the Statement of Financial Viability as of September 30, 1996, in
      accordance with standards for an examination of a financial forecast
      established by the American Institute of Certified Public Accountants. Our
      opinion states that the underlying assumptions provide a reasonable basis
      for management’s assertion that the Commission will be in a position to
      meet its financial liabilities on December 31, 1999. However, there is no

      1
       Public Law 104-106, sec. 3522, 110 stat. 638 (1996).
      2
       Section 3526 of the 1995 Act amended section 1313 of the Panama Canal Act of 1979 to authorize the
      Board of Directors, at its discretion, to direct the Commission to hire independent auditors to conduct
      the audit in lieu of the Comptroller General. In addition to conducting the audit of the Commission’s
      financial statements, the auditor is to examine the Commission’s forecast that it will be in a position to
      meet its financial liabilities on December 31, 1999.



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assurance that the actual results will occur as forecasted. The ability to
cover all liabilities existing now and at December 31, 1999, depends on
(1) obtaining the budgeted levels of Canal operations and (2) future
economic events.

Also, our opinion states that management’s assertion is fairly stated that
internal controls in effect on September 30, 1996, provided reasonable
assurance that losses, noncompliance, or misstatements material to the
financial statements would be prevented or detected. Our 1996 tests for
compliance with selected provisions of certain laws and regulations
disclosed no reportable instances of noncompliance with laws and
regulations for the provisions tested. Our audit was conducted in
accordance with generally accepted government auditing standards.

The Commission operates as a rate-regulated utility. In fiscal year 1996,
approximately 75 percent of its operating revenues were obtained from
tolls and the remaining 25 percent, from nontoll revenues, such as
navigation services and electric power sales. Early retirement,
compensation benefits for work injuries, post-retirement medical care
costs, and Office of Transition Administration costs are being funded from
Canal revenues on an accelerated basis in order to be fully funded by 1999.
During the period of these statements, the Commission was given the
authority to prescribe the rules for measuring vessels and levying toll rates
for the Panama Canal.3 These rules and rates must establish the tolls at a
level calculated to recover the costs of operating and maintaining the
Canal. In order to continue to recover all costs and fund a number of
modernization and improvement projects, the Commission’s Board of
Directors approved a toll rate increase in November 1996. This increase is
in two phases—8.2 percent on January 1, 1997, with an additional increase
of 7.5 percent on January 1, 1998. A tonnage measurement rate change to
cover on-deck container capacity will also be implemented on July 1, 1997.

Regarding another transition related matter, the Commission recognized a
$10 million liability for severance pay in fiscal year 1995. This liability was
estimated based on a proposed rule by the Office of Personnel
Management (OPM) that would amend the severance pay regulations
applicable to the Commission. As discussed in note 10 to the financial
statements, management believes the proposed rule will be issued in final
in the near future. If the regulation is not issued as drafted, the total
severance pay liability could be as much as $68 million.

3
 Sections 3527 and 3528 of the 1995 Act amended sections 1601 and 1604 of the Panama Canal Act of
1979, respectively, to authorize the Commission to prescribe the rules for measuring vessels and
levying tolls for the Panama Canal.



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                        As provided by the Panama Canal Treaty of 1977, the Panama Canal
Scheduled               Commission will transfer the Panama Canal to the Republic of Panama on
Termination of the      December 31, 1999. At that time, the Republic of Panama will assume full
Commission              responsibility for the management, operation, and maintenance of the
                        Canal.

                        As discussed in note 14, the Republic of Panama is in the process of
                        establishing the entity that will assume control of the Canal on
                        December 31, 1999. The entity will be known as the Panama Canal
                        Authority.

                        The Treaty provides that the Canal be turned over in operating condition
                        and free of liens and debts, except as the two parties may otherwise agree.
                        As disclosed in the Statements of Financial Viability and in note 12 of the
                        financial statements, as of September 30, 1996, the Commission forecasts
                        that the present $71.5 million in unfunded liabilities should be recovered
                        by tolls over the remaining life of the Treaty. The Commission assumes
                        that all additional liabilities incurred between September 30, 1996, and
                        December 31, 1999, will be funded from revenues earned during that time.


                        The following is taken from management’s analysis of the Commission’s
Analysis of the         financial statements. The analysis generally explains the changes in major
Commission’s            financial statement line items from fiscal years 1995 through 1996. Our
Financial Statements    opinions on these financial statements do not extend to the analysis
                        presented below, and, accordingly, we express no opinion on this analysis.
                        While we do not express an opinion on the analysis, we found no material
                        inconsistencies with the financial statements taken as a whole.


Results of Operations   The Commission ended fiscal year 1996 with a net operating loss of
                        $1.9 million, compared to a breakeven operation for fiscal year 1995. The
                        net operating loss for 1996 was deferred as unearned costs to be recovered
                        from subsequent revenues.

                        From fiscal years 1992 through 1996, toll and nontoll revenues increased
                        an average of approximately 5.5 percent annually. Toll revenues increased
                        to $486.7 million, up 5.2 percent from fiscal year 1995, due mainly to an
                        increase in Canal traffic, principally larger vessels. Nontoll revenues,
                        which consist primarily of navigation services and electric power sales,
                        increased slightly to $165 million during fiscal year 1996, up less than
                        0.6 percent from fiscal year 1995.



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    During fiscal year 1996, no deductions from tolls revenue were made for
    working capital requirements because prior years deductions through
    fiscal year 1995 had substantially completed the financing of the
    Commission’s storehouse and fuel inventories. The remaining balance to
    be funded is scheduled for collection before the termination of the
    Panama Canal Treaty of 1977.

    The deduction from tolls revenue for contributions for capital
    expenditures decreased from $30.3 million in fiscal year 1995 to
    $24.0 million in fiscal year 1996. At fiscal year-end 1995, as directed by the
    Board of Directors, the Commission increased its capital contributions for
    capital expenditures by $8.3 million. The additional funding was necessary
    in order to provide for an increase in the Commission’s 1995 capital
    program due to the acquisition of several unbudgeted major plant items.
    Fiscal year 1996 capital fund requirements did not require this level of
    funding.

    A total of $2.0 million was deducted from tolls revenue in fiscal year 1996
    to provide funding for the office that will close out the affairs of the
    Commission after the termination of the Panama Canal Treaty of 1977. No
    contributions were programmed in fiscal year 1995.

    From fiscal years 1992 through 1996, total operating expenses increased
    an average of approximately 5.3 percent annually. Fiscal year 1996 total
    operating expenses increased to $627.2 million, up 7.0 percent over fiscal
    year 1995. The following were some of the highlights.

•   Tonnage payments to the Republic of Panama increased $4.4 million or
    5.5 percent in fiscal year 1996 due to an increase in the number of Panama
    Canal Universal Measurement System net tons passing through the Canal.
•   Navigation service and control costs increased $8.0 million or 7.6 percent,
    due mainly to the cost of additional resources required to service the
    record traffic levels experienced in fiscal year 1996 as well as increased
    costs for contract tug assistance requirements.
•   The increase in locks operation and maintenance costs of $19.4 million or
    28.6 percent reflected the cost of additional crews required for the
    increased level of traffic, additional locks maintenance and repair projects,
    and increased costs for locks overhaul projects.
•   Administrative and general costs increased 5.1 percent in fiscal year 1996.
    The increase was attributed principally to an increase in costs for advisory
    and assistance services related to treaty transition activities; employee
    incentive awards; and adjustments for minor items of property, originally



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                               purchased with capital funds but later determined not to meet the
                               Commission’s capitalization criteria.
                           •   Interest expense on the interest-bearing investment of the United States
                               decreased $3.6 million or 83.6 percent in fiscal year 1996 primarily because
                               the investment became fully amortized during the year. The larger average
                               cash balances maintained by the Commission in its U. S. Treasury
                               revolving fund account and lower interest rates also contributed to the
                               decrease.


Assets, Liabilities, and       By the end of fiscal year 1996, total assets of the Commission increased by
Capital                        2.8 percent to $875 million, and total liabilities and reserves increased by
                               3.0 percent to $271 million. Capital increased by 2.7 percent to
                               $604 million. The most significant changes in individual account balances
                               by the end of fiscal year 1996 were the following.

                           •   Property, plant, and equipment (excluding depreciation and valuation
                               allowances) increased by a net $32.2 million to $1,174 million. This
                               increase was due primarily to net capital expenditures of $50.2 million
                               offset in part by certain retirements and the transfer of assets to the
                               Republic of Panama and other U. S. Government agencies. Major capital
                               additions to plant from capital expenditures included $14.1 million for the
                               Gaillard Cut widening and straightening program; $13.1 million for the
                               replacement and addition of floating equipment; $5.3 million for
                               improvements to electric power, communication, and water systems;
                               $4.6 million for the replacement and addition of miscellaneous equipment;
                               $4.1 million for the replacement of motor vehicles; $3.6 million for the
                               replacement and improvement of facilities and buildings; $3.0 million for
                               the replacement and addition of tugboats; and $1.1 million for the
                               replacement of launches and launch engines.
                           •   Current assets increased by a net $35.4 million to $297 million due
                               principally to an increase in cash. Cash increased by $36.9 million as a
                               result of the net cash provided by operating activities exceeding the net
                               cash used in investing activities.
                           •   Deferred charges decreased by a net $21.2 million to $66 million. This was
                               due principally to the amortization of deferred charges for early
                               retirement, compensation benefits for work injuries, and post-retirement
                               medical care costs. These decreases were offset in part by the recognition
                               of the $5.0 million unfunded portion of the Office of Transition
                               Administration costs and the $1.9 million of unrecovered costs from fiscal
                               year 1996 operations.




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                       •   Liabilities and reserves increased by a net $8.0 million to $271 million
                           primarily due to increases of $4.2 million in accounts payable, $4.2 million
                           in the liability for employee’s leave, $7.0 million for the recognition of the
                           estimated cost for the Office of Transition Administration, $8.8 million in
                           the reserve for lock overhauls, and $10.0 million for the establishment of a
                           reserve for additional 1999 payroll costs. Offsetting these increases, in
                           part, was the amortization of $28.1 million for various employee benefits.
                       •   Capital increased by a net $15.7 million to $604 million, principally
                           because of a $15.4 million net increase in capital contributions for capital
                           expenditures being amortized.


                           The Panama Canal Act of 1979 requires that we include in our annual audit
Treaty Related Costs       report to the Congress a statement listing (1) all direct and indirect costs
                           incurred by the United States in implementing the 1977 Treaty, net of any
                           savings, and (2) the cost of any property transferred to the Republic of
                           Panama. The act also provides that direct appropriated costs of U.S.
                           Government agencies should not exceed $666 million, adjusted for
                           inflation over the life of the Treaty. As of September 30, 1996, the
                           inflation-adjusted target was $1,408 million.

                           U.S. Government agencies that provided services to the former Panama
                           Canal Company and Canal Zone Government provided the direct and
                           indirect cost information including the cost of property transferred to the
                           Republic of Panama as required under the 1977 Treaty. This information is
                           presented in unaudited supplementary schedules to the Commission’s
                           financial statements, and, accordingly, we express no opinion on these
                           schedules. From fiscal years 1980 through 1996, the net reported costs to
                           the U.S. Government under the Treaty amounted to $865 million, which is
                           less than the act’s inflation-adjusted target.




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As required by the Panama Canal Act of 1979, we are sending copies of
this report to the President of the United States and the Secretary of the
Treasury. We are also sending copies to the Director of the Office of
Management and Budget; the Secretaries of State, Defense, and the Army;
the Chairman of the Board of Directors of the Panama Canal Commission;
and the Administrator of the Panama Canal Commission.




James F. Hinchman
Acting Comptroller General
of the United States




Page 7                                 GAO/AIMD-97-92 Panama Canal Commission
Contents



Letter                                                                                           1


Opinion Letter                                                                                  10


Financial Statements                                                                            18
                       Statements of Financial Position                                         18
                       Statements of Operations                                                 20
                       Statements of Changes in Capital                                         21
                       Statements of Cash Flows                                                 22
                       Statements of Financial Viability                                        23
                       Notes to Financial Statements                                            24

Supplementary                                                                                   34
                       Schedules of Treaty Related Costs                                        34
Information            Schedule of Property, Plant, and Equipment                               38
(Unaudited)




                       Abbreviations

                       FECA       Federal Employees’ Compensation Act
                       FMFIA      Federal Managers’ Financial Integrity Act of 1982
                       GAAP       generally accepted accounting principles
                       OPM        Office of Personnel Management
                       PCA        Panama Canal Authority


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Page 9   GAO/AIMD-97-92 Panama Canal Commission
                                 United States
GAO                              General Accounting Office
                                 Washington, D.C. 20548

                                 Accounting and Information
                                 Management Division

                                 B-272998

                                 To the Board of Directors
                                 Panama Canal Commission

                                 In our audits of the Panama Canal Commission, we found

                             •   the fiscal years 1996 and 1995 financial statements were reliable in all
                                 material respects;
                             •   the underlying assumptions used to prepare the Statement of Financial
                                 Viability as of September 30, 1996, provide a reasonable basis for
                                 management’s assertion that the Commission will be in a position to meet
                                 its financial liabilities on December 31, 1999;
                             •   management fairly stated that internal controls in place on September 30,
                                 1996, were effective in safeguarding assets from material loss, assuring
                                 material compliance with laws governing the use of budget authority and
                                 with selected provisions of other relevant laws and regulations, and
                                 assuring that there were no material misstatements in the financial
                                 statements; and
                             •   there was no reportable noncompliance with the selected provisions of
                                 laws and regulations we tested for the fiscal year ended September 30,
                                 1996.

                                 Described below are significant matters considered in performing our
                                 audit and forming our conclusions.



Significant Matters

Estimated Severance Pay          The Commission recognized a $10 million liability for estimated severance
Liability                        pay in fiscal year 1995. This liability was calculated based on a proposed
                                 amendment to the severance pay regulation issued by OPM and was
                                 unchanged as of September 30, 1996. As described in note 10 to the
                                 financial statements, OPM has not yet issued the amendment as a final
                                 regulation. Management believes the amendment will be issued in the near
                                 future. The total liability could be as much as $68 million if the severance
                                 pay regulation applicable to the Commission is not amended. This
                                 additional liability would require the Commission to reprogram its
                                 budgetary resources.


Liquidation of Liabilities       The Panama Canal Treaty requires that the Commission transfer the Canal
                                 to the Republic of Panama on December 31, 1999, free of liens and debts,



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                           B-272998




                           except as the two parties may otherwise agree. To comply with this
                           provision, the Commission is required to identify and fully fund its
                           liabilities by that date. The Statement of Financial Viability and
                           accompanying note 12 are presented in accordance with the American
                           Institute of Certified Public Accountants standards for a partial
                           presentation of a financial forecast, and are intended to demonstrate the
                           Commission’s status in funding its liabilities. As of September 30, 1996, the
                           Commission had total liabilities and reserves of $271 million and total
                           resources of $199 million. The Commission forecasted that the net
                           difference of $72 million will be collected from future toll revenues over
                           the remaining life of the Treaty. The Commission assumes that any
                           additional liabilities incurred between September 30, 1996, and
                           December 31, 1999, will be funded from revenues earned during that time.


Dissolution Costs of the   During fiscal year 1996, the Commission completed a study to determine
Commission                 the costs associated with the dissolution of the Commission and, as a
                           result, established the Panama Canal Commission Dissolution Fund as
                           required by the Act. The Commission will establish the Office of Transition
                           Administration, which will be responsible for managing the dissolution
                           costs and liabilities. As discussed in note 8, the Commission estimated the
                           liability for the costs of dissolution at $7 million and has deposited
                           $2 million into the fund as of September 30, 1996. The Commission
                           programmed the remaining $5 million to be collected from toll revenues
                           before 1999. The Commission’s estimate for the dissolution fund is based
                           on the accomplishment of certain critical actions. These actions include
                           (1) statutory and regulatory changes to limit the time frames for some
                           activities that are necessary to close out the affairs of the Commission,
                           (2) the use of successor agency personnel, and (3) outsourcing to other
                           U.S. Government agencies. Management believes these actions will be
                           accomplished. However, if these planned actions do not occur,
                           management does not believe any additional costs will be significant. In
                           addition to the Dissolution Fund, the Commission has begun funding both
                           current and future liabilities as allowed by accounting principles for
                           regulated industries.

                           In addition to the severance pay liability discussed above, in fiscal year
                           1996, the Commission funded the first $10 million of a total expected
                           $30 million reserve for additional payroll costs anticipated in 1999. As
                           discussed in note 11, Commission management believes that many
                           employees will not take their normal leave during 1999 due to the
                           anticipated lump sum payout of annual leave balances early in the year



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                             2000. If employees do not use their accrued leave, additional payroll
                             expense will be incurred. In order to normalize expenses, the Commission
                             will fund the remaining $20 million reserve for this 1999 expense over a
                             2-year period and has programmed this reserve into its budgets.

                             The following sections provide our opinions on the Commission’s financial
                             statements, Statement of Financial Viability, assertion on internal controls,
                             and our report on the Commission’s compliance with laws and regulations
                             we tested. This section also discusses the information presented in the
                             Commission’s unaudited supplemental schedules and the scope of our
                             audit.


                             The financial statements including the accompanying notes present fairly,
Opinion on Financial         in all material respects, in conformity with generally accepted accounting
Statements                   principles, the Commission’s

                         •   assets, liabilities, and capital;
                         •   operating revenue and expenses;
                         •   changes in capital; and
                         •   cash flows.


                             We have examined the accompanying Statement of Financial Viability as
Opinion on Statement         of September 30, 1996 (the forecasted statement). Our examination was
of Financial Viability       made in accordance with standards established by the American Institute
                             of Certified Public Accountants and, accordingly, included such
                             procedures as we considered necessary to evaluate both the assumptions
                             used by management and the preparation and presentation of the
                             forecasted statement.

                             To the best of management’s knowledge and belief, resources from future
                             operations will permit the funding of current and future liabilities by
                             December 31, 1999, as shown on the forecasted statement. The forecasted
                             statement is not intended to be a forecast of financial position, results of
                             operations, or cash flows. The accompanying forecasted statement and
                             this report are required by the Panama Canal Amendments Act of 1995
                             (Public Law 104-106) for the purpose of demonstrating that the
                             Commission will be in a position to meet its financial liabilities on
                             December 31, 1999, and should not be used for any other purpose.




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                           In our opinion, the Statement of Financial Viability as of September 30,
                           1996, is presented in conformity with the guidelines for presentation of
                           forecasted information established by the American Institute of Certified
                           Public Accountants, and the underlying assumptions provide a reasonable
                           basis for management’s forecasted statement. However, there will usually
                           be differences between forecasted and actual results because events and
                           circumstances frequently do not occur as expected, and those differences
                           may be material. We have no responsibility to update this report for events
                           and circumstances occurring after the date of this report.

                           The Statement of Financial Viability as of September 30, 1995, is presented
                           for comparative purposes. We did not examine this forecasted statement
                           and, accordingly, express no opinion on the statement.


                           We evaluated management’s assertion about the effectiveness of its
Opinion on                 internal controls designed to
Management’s
Assertion About the    •   safeguard assets against loss from unauthorized acquisition, use, or
                           disposition;
Effectiveness of       •   assure the execution of transactions in accordance with laws governing
Internal Controls          the use of budget authority and with other selected provisions of laws and
                           regulations that have a direct and material effect on the financial
                           statements or that are listed in the Office of Management and Budget audit
                           guidance and could have a material effect on the financial statements; and
                       •   properly record, process, and summarize transactions to permit the
                           preparation of reliable financial statements and to maintain accountability
                           for assets.

                           Management of the Commission fairly stated that those controls in place
                           on September 30, 1996, provided reasonable assurance that losses,
                           noncompliance, or misstatements material in relation to the financial
                           statements would be prevented or detected on a timely basis. Management
                           made this assertion based on criteria established under the Federal
                           Managers’ Financial Integrity Act of 1982 (FMFIA) and the Office of
                           Management and Budget Circular A-123, Revised, June 21, 1995,
                           Management Accountability and Control.


                           Our tests for compliance with selected provisions of certain laws and
Compliance With            regulations disclosed no instances of noncompliance that would be
Laws and Regulations       reportable under generally accepted government auditing standards.



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                         However, the objective of our audit was not to provide an opinion on
                         overall compliance with laws and regulations. Accordingly, we do not
                         express such an opinion.


                         The Treaty related cost schedules are presented as required by the
Unaudited                Panama Canal Act of 1979, and the schedule of property, plant, and
Supplementary            equipment is presented for purposes of additional analysis. This
Information              information has not been subjected to the auditing procedures applied in
                         the audit of the financial statements, and, accordingly, we express no
                         opinion on these schedules. While we do not express an opinion on the
                         detailed schedule of property, plant, and equipment, we found no material
                         inconsistencies with the financial statements taken as a whole.


                         Management is responsible for
Objectives, Scope,
and Methodology      •   preparing the annual financial statements in conformity with generally
                         accepted accounting principles;
                     •   preparing the Statement of Financial Viability in accordance with the
                         American Institute of Certified Public Accountants standards for a partial
                         presentation of prospective financial information;
                     •   establishing, maintaining, and assessing the internal control structure to
                         provide reasonable assurance that the broad control objectives of FMFIA
                         are met; and
                     •   complying with applicable laws and regulations.

                         We are responsible for obtaining reasonable assurance about whether
                         (1) the financial statements are reliable (free of material misstatement and
                         presented fairly, in all material respects, in conformity with generally
                         accepted accounting principles), (2) management’s assertion that the
                         assumptions underlying the Statement of Financial Viability provide a
                         reasonable basis for the forecasted statement, and (3) management’s
                         assertion about the effectiveness of internal controls is fairly stated, in all
                         material respects, based on criteria established under FMFIA and the Office
                         of Management and Budget Circular A-123, Revised, June 21, 1995,
                         Management Accountability and Control. We are also responsible for
                         testing compliance with selected provisions of certain laws and
                         regulations and for performing limited procedures with respect to
                         unaudited supplementary information appearing in this report.

                         In order to fulfill these responsibilities, we



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•   examined, on a test basis, evidence supporting the amounts and
    disclosures in the financial statements and the Statement of Financial
    Viability;
•   assessed the accounting principles used and significant estimates made by
    management;
•   evaluated the overall presentation of the financial statements and the
    Statement of Financial Viability;
•   examined, on a test basis, evidence supporting the assumptions used in
    the preparation of the Statement of Financial Viability;
•   obtained an understanding of the internal control structure related to
    safeguarding of assets, compliance with laws and regulations, and
    financial reporting;
•   tested relevant internal controls over safeguarding, compliance, and
    financial reporting and evaluated management’s assertion about the
    effectiveness of internal controls;
•   tested compliance with selected provisions of the following laws and
    regulations:
    • Panama Canal Act of 1979,
    • Panama Canal Commission Authorization Act for Fiscal Year 1996,
    • Panama Canal Amendments Act of 1995,
    • Antideficiency Act,
    • Prompt Payment Act,
    • Civil Service Reform Act of 1978, as amended,
    • Fair Labor Standards Act, and
    • Law relating to severance pay and implementing regulations;
•   considered compliance with the process required by FMFIA for evaluating
    and reporting on internal control and accounting systems;
•   prepared treaty related costs schedules using unaudited information
    obtained from other federal agencies; and
•   compared the unaudited detailed schedule of property, plant, and
    equipment for consistency with the information presented in the financial
    statements.

    We did not evaluate all internal controls relevant to operating objectives as
    broadly defined by FMFIA, such as those controls relevant to preparing
    statistical reports and ensuring efficient operations. We limited our
    internal control testing to those controls necessary to achieve the
    objectives outlined in our opinion on management’s assertion about the
    effectiveness of internal controls. Because of inherent limitations in any
    internal control structure, losses, noncompliance, or misstatements may
    nevertheless occur and not be detected. We also caution that projecting
    our evaluation to future periods is subject to the risk that controls may



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             become inadequate because of changes in conditions or that the degree of
             compliance with controls may deteriorate.

             We did our work in accordance with generally accepted government
             auditing standards.


             In commenting on a draft of this report, Commission management
Commission   concurred with the facts and conclusions in our report.
Comments



             Robert W. Gramling
             Director, Corporate Audits
               and Standards

             January 24, 1997, except for
             note 14, as to which the date
             is June 11, 1997




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Financial Statements


Statements of Financial Position




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Financial Statements




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                           Financial Statements




Statements of Operations




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                                   Financial Statements




Statements of Changes in Capital




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                           Financial Statements




Statements of Cash Flows




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                                    Financial Statements




Statements of Financial Viability




                                    Page 23                GAO/AIMD-97-92 Panama Canal Commission
                                Financial Statements




Notes to Financial Statements




                                Page 24                GAO/AIMD-97-92 Panama Canal Commission
Financial Statements




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Financial Statements




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Financial Statements




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Financial Statements




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Financial Statements




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Financial Statements




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Financial Statements




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Financial Statements




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Financial Statements




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Supplementary Information (Unaudited)


Schedules of Treaty Related Costs




                                    Page 34   GAO/AIMD-97-92 Panama Canal Commission
Supplementary Information (Unaudited)




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Supplementary Information (Unaudited)




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Supplementary Information (Unaudited)




Page 37                                 GAO/AIMD-97-92 Panama Canal Commission
                                         Supplementary Information (Unaudited)




Schedule of Property, Plant, and Equipment




(917666)                                 Page 38                                 GAO/AIMD-97-92 Panama Canal Commission
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