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Financial Audit: Congressional Award Foundation's Fiscal Years 2011 and 2010 Financial Statements

Published by the Government Accountability Office on 2012-05-15.

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             United States Government Accountability Office

GAO          Report to the Chairman of the Board,
             Congressional Award Foundation



May 2012
             FINANCIAL AUDIT

             Congressional Award
             Foundation’s Fiscal
             Years 2011 and 2010
             Financial Statements




GAO-12-682
Contents


Letter                                                                                                            1


Auditor’s Report

                       Opinion on Financial Statements                                                           2
                       Consideration of Internal Control                                                         2
                       Compliance with Laws and Regulations                                                      4
                       Significant Matter                                                                        4
                       Objectives, Scope, and Methodology                                                        5
                       Foundation’s Comments                                                                     7


Financial Statements
                       Statements of Financial Position                                                           8
                       Statements of Activities                                                                   9
                       Statements of Cash Flows                                                                  10
                       Notes to Financial Statements                                                             11


Appendix I             Comments from the Congressional Award Foundation                                          19




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                       Page i                                        GAO-12-682 Congressional Award Foundation
United States Government Accountability Office
Washington, DC 20548




                                   May 15, 2012

                                   Mr. Paxton K. Baker
                                   Chairman of the Board
                                   Congressional Award Foundation

                                   Dear Mr. Baker:

                                   This report presents the results of our audits of the financial statements of
                                   the Congressional Award Foundation (the Foundation) as of and for the
                                   fiscal years ending September 30, 2011, and 2010. These financial
                                   statements are the responsibility of the Foundation. This report contains
                                   our (1) unqualified opinions on the Foundation’s financial statements,
                                   (2) results of our consideration of the Foundation’s internal control over
                                   financial reporting, and (3) conclusion that our tests of the Foundation’s
                                   compliance with selected provisions of laws and regulations disclosed no
                                   instances of reportable noncompliance during fiscal year 2011. The report
                                   also discusses a significant matter related to the Foundation’s fiscal year
                                   2010 annual federal information return filing.

                                   We conducted our audit pursuant to section 107 of the Congressional
                                   Award Act, as amended (2 U.S.C. § 807), and in accordance with U.S.
                                   generally accepted government auditing standards.

                                   If you or your office have any questions concerning this report, please
                                   contact me at (202) 512-3406 or sebastians@gao.gov. Contact points for
                                   our Offices of Congressional Relations and Public Affairs may be found
                                   on the last page of this report. Key contributors to this report were Peggy
                                   Smith, Assistant Director; Bethany Smith; Michael Bird; and Matthew
                                   Gardner.

                                   Sincerely yours,




                                   Steven J. Sebastian
                                   Managing Director
                                   Financial Management and Assurance




                                   Page 1                                 GAO-12-682 Congressional Award Foundation
United States Government Accountability Office
Washington, DC 20548



                                   Mr. Paxton K. Baker
                                   Chairman of the Board
                                   Congressional Award Foundation

                                   In accordance with section 107 of the Congressional Award Act, as
                                   amended (2 U.S.C. § 807), we are responsible for conducting audits of
                                   the Congressional Award Foundation’s (the Foundation) financial
                                   statements. In our audits of the Foundation’s financial statements for
                                   fiscal years 2011 and 2010, we found

                                   •   the financial statements are presented fairly, in all material respects,
                                       in conformity with U.S. generally accepted accounting principles;

                                   •   no material weaknesses 1 in internal control over financial reporting; and

                                   •   no reportable noncompliance with laws and regulations we tested.

                                   The following sections discuss in more detail (1) these conclusions; (2) a
                                   significant matter related to the Foundation’s fiscal year 2010 annual
                                   federal information return filing; (3) our audit objectives, scope, and
                                   methodology; and (4) the Foundation’s comments.


                                   The financial statements, including the accompanying notes, present
Opinion on Financial               fairly, in all material respects, in conformity with U.S. generally accepted
Statements                         accounting principles, the Foundation’s assets, liabilities, and net assets
                                   as of September 30, 2011, and 2010, and the results of its activities and
                                   its cash flows for the years then ended.


                                   In planning and performing our audit of the Foundation’s fiscal year 2011
Consideration of                   financial statements, we considered the Foundation’s internal control over
Internal Control                   financial reporting for the purpose of determining our procedures for
                                   auditing the financial statements, not to express an opinion on the



                                   1
                                     A material weakness is a deficiency, or a combination of deficiencies, in internal control
                                   such that there is a reasonable possibility that a material misstatement of the entity’s
                                   financial statements will not be prevented, or detected and corrected on a timely basis. A
                                   deficiency in internal control exists when the design or operation of a control does not
                                   allow management or employees, in the normal course of performing their assigned
                                   functions, to prevent or detect and correct misstatements on a timely basis.




                                   Page 2                                         GAO-12-682 Congressional Award Foundation
effectiveness of internal control. Accordingly, we do not express an
opinion on the Foundation’s internal control over financial reporting.
However, for the controls we tested, we found no material weaknesses in
internal control over financial reporting.

In our previous year’s audit of the Foundation’s fiscal year 2010 financial
statements, 2 we reported a significant deficiency 3 in the Foundation’s
internal control over financial reporting. Specifically, during fiscal year
2010, we found that the Foundation did not have comprehensive
accounting policies and procedures. In addition, the Foundation’s staff
lacked sufficient knowledge of not-for-profit accounting requirements. This
increased the Foundation’s risk of preparing financial statements that
were not fully accurate, complete, and in accordance with generally
accepted accounting principles.

During fiscal year 2011, the Foundation made substantial progress in
correcting the underlying control issues that comprised the significant
deficiency. Specifically, the Foundation completed a review of its
accounting policies and procedures and made significant revisions, and
added a requirement for staff responsible for any accounting or financial
functions to obtain recurring training in not-for-profit accounting. We found
that the actions taken by the Foundation have reduced the risk of
preparing financial statements and accompanying notes that are not fully
accurate, complete, and in accordance with U.S. generally accepted
accounting principles, and concluded that the Foundation had effectively
addressed the internal control issues that comprised the significant
deficiency we reported in our fiscal year 2010 audit.

Our audit would not necessarily disclose all deficiencies in internal control
that might be material weaknesses or significant deficiencies. We
considered the Foundation’s internal control over financial reporting in
determining the nature, timing, and extent of our audit procedures on the
financial statements and in forming our conclusions.




2
 GAO, Financial Audit: Congressional Award Foundation’s Fiscal Years 2010 and 2009
Financial Statements, GAO-11-597 (Washington, D.C.: May 12, 2011).
3
 A significant deficiency is a deficiency, or combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by
those charged with governance.




Page 3                                          GAO-12-682 Congressional Award Foundation
                       We identified other deficiencies in the Foundation’s internal control that
                       we do not consider to be material weaknesses or significant deficiencies,
                       but which nonetheless merit Foundation management’s attention and
                       correction. We have communicated these matters to Foundation
                       management.


                       Our tests of the Foundation’s compliance with selected provisions of laws
Compliance with        and regulations for fiscal year 2011 disclosed no instances of
Laws and Regulations   noncompliance that would be reportable under U.S. generally accepted
                       government auditing standards. 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.


                       During our audit of the Foundation’s fiscal years 2011 and 2010 financial
Significant Matter     statements, we identified a significant matter that we believe is relevant to
                       users and readers of the Foundation’s financial statements and therefore
                       warrants Foundation management’s attention. This matter concerns an
                       inconsistency between functional expenses reported in the Foundation’s
                       annual information return filed with the Internal Revenue Service (IRS)
                       and the audited financial statements for fiscal year 2010.

                       Specifically, the Foundation reported a statement of functional expenses
                       in its annual Form 990, Return of Organization Exempt from Income Tax 4,
                       filed with the IRS for fiscal year 2010 that differed from functional
                       expenses reported in its audited financial statements for the same year
                       and did not reconcile the differences on the Form 990 Schedule D, Part
                       XIII, Reconciliation of Expenses per Audited Financial Statements with




                       4
                        IRS Form 990 is used by tax-exempt organizations to provide the IRS with the
                       information required by section 6033 of the Internal Revenue Code (IRC). An
                       organization’s completed Form 990 generally is available for public inspection as required
                       by section 6104 of the IRC. Some members of the public rely on the Form 990 as the
                       primary or sole source of information about a particular organization. How the public
                       perceives an organization in such cases may be determined by the information presented
                       on its return. Therefore, the return should be complete, accurate, and fully describe the
                       organization’s programs and accomplishments. Form 990 is due by the 15th day of the 5th
                       month after the organization’s fiscal year ends. Upon request, the due date for filing the
                       990 can be extended for 3 months without showing cause.




                       Page 4                                       GAO-12-682 Congressional Award Foundation
                     Expenses per Return. 5 The Form 990 statement of functional expenses
                     reported program expenses of $390,563, administrative expenses of
                     $145,570, fundraising expenses of $75,362, and total functional expenses
                     of $611,494. In contrast, the audited financial statements for the same
                     period reported program expenses of $417,500, administrative expenses
                     of $140,321, fundraising expenses of $223,624, and total functional
                     expenses of $781,445.

                     The inconsistency in the presentation of functional expenses could
                     confuse readers of the audited financial statements and Form 990 as to
                     the Foundation’s program expenses, administrative expenses, fundraising
                     expenses, and total functional expenses. Foundation management
                     confirmed that the Form 990 contained errors and that the Foundation
                     intends to file an amended Form 990 for fiscal year 2010 to reflect
                     information on its functional expenses consistent with that reported in its
                     fiscal year 2010 financial statements.


                     The Foundation’s management is responsible for preparing the annual
Objectives, Scope,   financial statements in conformity with U.S. generally accepted
and Methodology      accounting principles, establishing and maintaining the Foundation’s
                     internal control over financial reporting to provide reasonable assurance
                     that the control objectives established in GAO’s Standards for Internal
                     Control in the Federal Government 6 are met, and complying with
                     applicable laws and regulations.

                     We are responsible for planning and performing the audit to obtain
                     reasonable assurance and provide our opinion about whether the
                     Foundation’s financial statements are presented fairly, in all material
                     respects, in conformity with U.S. generally accepted accounting
                     principles. We are also responsible for (1) obtaining a sufficient
                     understanding of internal control over financial reporting to plan the audit
                     and (2) testing compliance with selected provisions of laws and




                     5
                      The Foundation filed its Form 990 for fiscal year 2010 on July 20, 2011—approximately 2
                     months after our report on the results of our audit of the Foundation’s fiscal year 2010 and
                     2009 financial statements was released.
                     6
                      GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
                     (Washington, D.C.: November 1999).




                     Page 5                                        GAO-12-682 Congressional Award Foundation
regulations that have a direct and material effect on the financial
statements.

In order to fulfill these responsibilities, we

•   examined, on a test basis, evidence supporting the amounts and
    disclosures in the financial statements;

•   assessed the accounting principles used and significant estimates
    made by Foundation management;

•   evaluated the overall presentation of the financial statements and
    notes;

•   obtained an understanding of the Foundation and its operations,
    including its internal control over financial reporting;

•   assessed the risk that a material misstatement exists in the financial
    statements;

•   tested relevant internal controls over financial reporting for the
    purposes of planning and performing our other audit procedures;

•   tested compliance with selected provisions of the Congressional
    Award Act, as amended; and

•   performed such other procedures as we considered necessary in the
    circumstances.

An entity’s internal control over financial reporting is a process effected by
those charged with governance, management, and other personnel, the
objectives of which are to provide reasonable assurance that (1)
transactions are properly recorded, processed, and summarized to permit
the preparation of financial statements in conformity with U.S. generally
accepted accounting principles, and assets are safeguarded against loss
from unauthorized acquisition, use, or disposition and (2) transactions are
executed in accordance with laws and regulations that could have a direct
and material effect on the financial statements.

We did not evaluate all internal controls relevant to operating objectives,
such as controls relevant to ensuring efficient operations. We limited our
internal control testing to controls over financial reporting. Because of
inherent limitations, internal control may not prevent, or detect and



Page 6                                   GAO-12-682 Congressional Award Foundation
               correct, misstatements due to error or fraud, losses, or noncompliance.
               We also caution that projecting any evaluation of effectiveness to future
               periods is subject to the risk that controls may become inadequate
               because of changes in conditions or that the degree of compliance with
               controls may deteriorate. In addition, we caution that our consideration of
               internal control may not be sufficient for other purposes.

               We did not test compliance with all laws and regulations applicable to the
               Foundation. We limited our tests of compliance to those provisions of
               laws and regulations that have a direct and material effect on the
               Foundation’s financial statements for the fiscal year ended September 30,
               2011. We caution that noncompliance may occur and not be detected by
               these tests and that such testing may not be sufficient for other purposes.

               We performed our work in accordance with U.S. generally accepted
               government auditing standards. We believe our audit provides a
               reasonable basis for our opinion and other conclusions.


               In commenting on a draft of this report, the Foundation stated that it has
Foundation’s   made significant efforts over the past year to improve operations and
Comments       ensure that proper internal controls over financial reporting are in place.
               The Foundation also stated that it agreed that the IRS Form 990 for fiscal
               year 2010 should be amended to include a completed schedule to
               reconcile functional expenses reported on the IRS Form 990 with those
               reported on the audited financial statements for that period.

               A complete text of the Foundation’s comments is reprinted in appendix I.




               Steven J. Sebastian
               Managing Director
               Financial Management and Assurance

               May 9, 2012




               Page 7                                GAO-12-682 Congressional Award Foundation
Financial Statements
                                   Financial Statements




Statements of Financial Position




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                           Financial Statements




Statements of Activities




                           Page 9                 GAO-12-682 Congressional Award Foundation
                           Financial Statements




Statements of Cash Flows




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                                Financial Statements




Notes to Financial Statements




                                Page 11                GAO-12-682 Congressional Award Foundation
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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Appendix I: Comments from the
             Financial Statements




Congressional Award Foundation




(196251)


             Page 19                GAO-12-682 Congressional Award Foundation
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