Financial Statement Audit for the Library of Congress for Fiscal Year
1995 i Executive Summary of Reports of Independent Accountants
We have audited the Consolidated Statement of Financial Position of the
Library of Congress as of September 30, 1995, and have examined
assertions by Library management concerning the effectiveness of internal
controls over financial reporting and over safeguarding the Library s
Collections as of that date. Our work represents the first financial
statement audit of the Library since GAO issued its 1991 report on its
efforts to audit the Library s fiscal 1988 financial statements. We were
engaged to conduct this audit one year ahead of the schedule set forth in
the Library s financial management improvement plan.
This Executive Summary presents an overview of our key findings on the
Library s financial statements and financial management and on the
safeguarding of its collections. Our full reports are presented in
Section 6, and should be read in their entirety to understand the context
of our findings and related recommendations, as well as the objectives
and scope of our work.
In our audit of the Library of Congress for fiscal year 1995, we found:
Except for the effects of such adjustments, if any, as might have been
determined to be necessary had we been able to examine evidence regarding
property and equipment balances, the Consolidated Statement of Financial
Position presents fairly, in all material respects, the Library s
financial position as of September 30, 1995, in conformity with the basis
of accounting described in Note 1 to the Consolidated Statement of
Financial Position;
Management fairly stated that it cannot provide reasonable assurance that
internal controls in place at September 30, 1995, met two objectives
(that assets are safeguarded against loss from unauthorized acquisition,
use, or disposition and that transactions are properly recorded,
processed, and summarized to permit the preparation of reliable financial
statements and to maintain accountability for assets), but that internal
controls were effective in assuring material compliance with relevant
laws and regulations;
Reportable noncompliance with certain laws and regulations we tested
concerning the Library s revolving fund operations and investment of gift
securities that were not material to the Consolidated Statement of
Financial Position; and
Management fairly stated that it cannot provide reasonable assurance that
the internal control structure over safeguarding of collection assets
against unauthorized acquisition, use, or disposition was generally
effective at September 30, 1995.
Executive Summary of Reports of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 ii Financial Statements and Financial Management
The Library has had mixed results in implementing recommendations GAO
made in its 1991 report. Improvements include resolution of significant
compliance and control problems in the FEDLINK program and implementation
of a new financial management system in fiscal 1995. However, the Library
has not supplemented that system with the processes necessary to generate
complete, auditable financial statements. For example:
The system has not been configured to generate detail trial balances
necessary for an audit. Significant account balances, including property
and equipment and advances from others, were not tracked in the system
during the year. Significant accounting entries, including those
converting balances from the old system, were not recorded in sufficient
detail to permit effective audit analysis of the accounts. This, together
with the lack of comparable prior year information and of audited opening
balances, precluded us from auditing the Library s fiscal 1995 operating
statement, and, accordingly we express no opinion on it.
The Library had made limited progress in correcting weaknesses in its
controls over property and equipment, and these weaknesses led us to
qualify our opinion on the Consolidated Statement of Financial Position.
Also, the Library had not kept current its reconciliations of cash
accounts with the Department of the Treasury, nor of its general ledger
balances with those in subsidiary records. The Library also needs to
improve its controls over access to its Electronic Data Processing (EDP)
systems and establish a continuity plan in case its systems or data are
damaged; take full advantage of controls in its new financial management
system that can prevent individuals from both entering and approving
transactions; improve controls over handling of cash receipts; and
increase oversight of trust fund accounting and investing.
We found that the Library continues to accumulate surpluses in the gift
funds that it operates as revolving funds, even though it does not have
the statutory authority to do so. We also found that it violated 2 U.S.C.
158a, which prohibits the Library from investing or reinvesting a gift of
securities offered to the Library until acceptance of the gift has been
approved by the Joint Committee on the Library.
We have made a number of recommendations that the Library should
implement before the end of fiscal 1996 if it is to fulfill its plan of
having a full set of audited financial statements for this year. These
recommendations concern the financial reporting preparation process,
reconciliations of accounting records, accounting for property and
equipment, EDP security practices, enhancing the meaningfulness of
information provided to management, financial services staffing, controls
over the new financial management system application security, internal
self-assessment of internal controls, computer operations disaster
recovery plan, controls over cash handling and check processing, and
trust fund accounting. With current financial management staffing, the
Library will be challenged in
Executive Summary of Reports of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 iii doing all the things necessary to get ready for an audit of its
1996 financial statements, as well as staying current with its
reconciliations and establishing control over property and equipment.
Preparing auditable annual financial statements is a critical part of
having effective financial management. A major component of the process
is being able to provide reliable information about the costs of the
Library s programs, projects, outputs, and outcomes. This requires the
Library s financial managers to be involved with operating managers in
developing meaningful performance measures for the Library and
associating costs with these measures. The Library s new financial
management system has the capability to track these costs, but it will
require additional programming to tap that capability and additional
financial management staff with the right skills to take advantage of it.
Without these additional staff, the Library will not be able to move to
the more sophisticated level of financial management necessary for senior
management and the Congress to make fully informed decisions about the
Library s priorities.
Safeguarding the Library s Collections
Since the GAO audit, the Library has taken a number of significant steps
to improve the security over its collections, including closing the book
stacks to the public, installing cameras in many reading rooms,
installing theft detection devices in many books, and continuing to
reduce its arrearage of uncatalogued items. However, the Library has not
completed a comprehensive risk assessment and collection security plan to
identify the risks to its collections, the proposed or established
control activities to address the risks, the required management
information it needs to carry out its responsibilities, and the methods
by which management will monitor the effectiveness of control procedures.
Until it has performed a risk assessment, implemented a comprehensive
security plan, and established mechanisms to monitor the implementation
of that plan, Library management will not have reasonable assurance that
the risk of unanticipated loss (theft, mutilation, destruction, or
misplacement) of collection items of significant market value, cultural
or historical importance, or with significant information content is
reduced to an acceptable level. In addition, the Library has acknowledged
that it has a number of significant weaknesses in preservation controls,
inventory controls, and physical security controls over collection assets
as of September 30, 1995.
In establishing a comprehensive plan for safeguarding its collections, we
are recommending the Library weigh the costs and potential benefits of
safeguarding controls. The Library should define and apply specific
standards of care (in terms of risks that are acceptable and costs of
mitigating them) to reasonably assure itself that risks from the
following sources are reduced to an acceptable level:
Risks from users would be effectively controlled when the Library can
tell what it served to them and what they gave back; when reading rooms
are under reasonable level of surveillance and users know they are being
watched; when the Library knows who its
Executive Summary of Reports of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 iv users are; when the Library limits what users bring into the
reading rooms and knows what they take out.
Risks from staff would be effectively controlled when the Library can be
sure that only those with need to be there have access to the
collections; when the Library has identified its most at risk collections
and has secured them in a way that it knows who went in and out of its
secured areas; when it has established procedures for periodic counting
of key items in the collections; when staff are precluded from bringing
bags and other personal items into storage areas; when it has reduced the
number of non-emergency exits from collection areas; when it has regular
reporting, tracking, and follow up of missing items; when it has
established a coordinated approach to access by its own maintenance
personnel and those of the Architect of the Capitol; and when it has
sufficient surveillance cameras in areas where high value items are
stored.
Risks from environment would be effectively controlled when the Library
has determined that high value, irreplaceable, items have been placed out
of harm s way from fire and water damage in the building, and that its
preservation program is targeting and treating its highest priority items
in a timely fashion.
Library s Comments on Our Draft Report
In response to a draft of our report, which was provided to the Library
on April 19, 1996, the Library prepared written comments, which are
presented beginning on page 6-65. These comments express general
agreement with the findings and recommendations resulting from our
financial statement audit. In its separate response to a draft Management
Review of the Library of Congress, prepared by a management consulting
firm engaged by the GAO, the Library stated that critical data from a
study by the Library s security consultants, due to be reported on June
7, 1996, will enable the Library to proceed with risk assessment and
overall formulation of a complete policy on the safeguarding of the
Library s collections. Library management has advised us that this
response also applies to the recommendations resulting from our
examination of the Library s assertion about internal controls over the
safeguarding of its collections.
Subsequent to the issuance of our draft report, the Library amended its
assertions about the effectiveness of internal controls to state that it
cannot provide reasonable assurance that its internal controls in place
at September 30, 1995, met certain objectives. As a result of those
revisions, we updated our reports to express opinions that those
assertions are fairly stated. Where appropriate, we have made other
revisions to our report based on oral comments from the Library.
T H E L I B R A R Y O F C O N G R E S S
FINANCIAL STATEMENTS FOR FISCAL YEAR 1995
T A B L E O F C O N T E N T S
PAGE
i OVERVIEW OF THE LIBRARY OF CONGRESS 1
Agency Mission 1-1
Strategic Plan and Priorities 1-1
Brief History 1-1
Financial Resources and Results of Operations 1-2
Key Performance Measures 1-10
Major Accomplishments in Fiscal Year 1995 1-11
Stewardship Reporting 1-17
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND NOTES 2
Consolidated Statement of Financial Position 2-1
Notes to the Consolidated Statement of Financial Position 2-2
SUPPLEMENTAL SCHEDULES 3
Statement of Financial Position by Fund Type 3-1
Consolidated Operating Statement and Changes in Net Position (Unaudited)
3-3
Statement of Operations and Changes in Net Position by Fund Type
(Unaudited) 3-4
T H E L I B R A R Y O F C O N G R E S S
FINANCIAL STATEMENTS FOR FISCAL YEAR 1995
T A B L E O F C O N T E N T S
PAGE
ii STEWARDSHIP REPORT 4
Library Collections 4-1
Collections Policy 4-1
Preservation and Conservation 4-3
Service 4-6
Collections Security 4-6
Arrearage Reduction 4-8
Financial Reporting 4-8
Additions to the Collections 4-10
MANAGEMENT REPORTS 5
Management Report on Financial Controls 5-1
Management Assertion on Controls for the Collections 5-4
REPORT OF INDEPENDENT ACCOUNTANTS 6
1-1 THE LIBRARY OF CONGRESS FINANCIAL STATEMENTS Fiscal Year Ended
September 30, 1995
Overview of Operations and Financial Management
THE LIBRARY OF CONGRESS AND ITS MISSION
The Library of Congress, a part of the Legislative branch of the
government, is the world's largest and most comprehensive library
maintaining a collection of over 108 million items -- many of them unique
and irreplaceable -- in more than 450 languages.
The Library's mission is to make its resources available and useful to
the Congress and the American people and to sustain and preserve a
universal collection of knowledge and creativity for future generations.
STRATEGIC PLAN AND PRIORITIES
The Library of Congress faces the fundamental challenge of sustaining and
making more efficient its basic services to the Congress and the nation
while effecting a transition into the new electronic services required
for the information age. The Library developed a broad strategic plan in
December 1992 which assigned top priority for 1993-96 to certain
longstanding core needs of the traditional library -- arrearage reduction
(in cataloging), collections security, and infrastructure improvements.
The second phase (1997-2000) adds the need for planning, testing, and
then developing the "electronic Library" to serve Congress and the nation
in the 21st Century. A recent restatement of the Library's mission and
strategic priorities will help to guide implementation of the plan. The
Library's strategic priorities are:
1. to serve the information and research needs of the United States
Congress;
2. to preserve, secure, and sustain for the present and future of the
Congress and the nation a universal collection of human knowledge
including a comprehensive record of American history and creativity;
3. to make its collections maximally accessible to the Congress, the U.
S. Government, and the public; and
4. to add interpretive and educational value to the basic resources of
the Library.
BRIEF HISTORY
The Library of Congress is a living monument to the remarkable wisdom of
the Founding Fathers who saw access to an ever-expanding body of
knowledge as essential to a dynamic democracy. Its three buildings are
named for Thomas Jefferson, John Adams, and James Madison. With their
support, the Congress established the Library in 1800 as it prepared to
move to the new capital city of Washington and created the Joint
Committee on the Library as the first Joint Committee of the Congress in
1802.
1-2 Thomas Jefferson, in particular, took a keen interest in the new
institution. After the British burned the Capitol and the Library during
the War of 1812, Congress accepted Jefferson's offer to "recommence" the
Library with his own 6,487-volume collection (then the finest in America)
at a price of $23,950. It contained volumes on everything from
architecture to geography and the sciences. Anticipating the argument
that his collection might seem too comprehensive for Congress, Jefferson
said that there was "no subject to which a Member of Congress might not
have occasion to refer."
Jefferson's ideals of a "universal" collection and of sharing knowledge
as widely as possible still guide the Library. With Congressional
blessing, it has grown to serve the Congress and the nation -- largely as
a result of four milestone laws: (1) the copyright law of 1870, which
stipulated that two copies of every book, pamphlet, map, print,
photograph, and piece of music registered for copyright in the United
States be deposited with the Library; (2) the 1886 authorization of a
separate Library building that contained book stacks, public reading
rooms, and exhibition space to serve and house the large collections
accumulated through copyright deposits; (3) a 1902 law which authorized
the Library to sell its cataloging records inexpensively to the nation's
libraries; and (4) a law in 1931 that established a program that creates
and supplies free library materials to blind and physically handicapped
readers throughout the country. Congress thereby established the basis
both for the continued growth of the collections and for the extension of
the Library's services to citizens everywhere.
As the Library evolved into a national institution, Congress decided to
create a separate entity in 1914: the Legislative Reference Service
(LRS), which was authorized to provide specialized services to "Congress
and committees and Members thereof." In 1946, the Congress granted LRS
permanent status as a separate department of the Library and directed it
to employ specialists to cover several broad subject areas. Finally, in
the Legislative Reorganization Act of 1970, Congress renamed the LRS the
Congressional Research Service (CRS) and enhanced its analytical research
capabilities by adding additional staff and placing more emphasis on
research support to the committees of Congress.
More recently, laws creating the American Folklife Center (1976), the
American Television and Radio Archives (1976), the National Center for
the Book (1977), and the National Film Preservation Board (1988), have
further extended the Library of Congress' national role.
FINANCIAL RESOURCES AND RESULTS OF OPERATIONS
In 1990, the Library developed a strategic plan for financial management
which called for improved policies and procedures, improved professional
staffing, and an integrated financial management system which conforms to
the systems requirements of the Joint Financial Management Improvement
Program (JFMIP) and other Federal financial system standards. The
Library's agency-wide strategic plan, developed in 1992, provided for the
continued implementation of the financial management improvement plan.
The Library purchased the Federal Financial System (FFS), an off-the-
shelf software package, on December 1, 1993. The new system, a major
element of the Library's strategic plan, became operational on October 1,
1994.
1-3 To permit complete implementation and refinement of the new system,
the financial management strategic plan called for formal audited
financial statements for fiscal year 1996, prepared in fiscal year 1997.
However, the Congress has requested that the Library prepare and have
audited the fiscal year 1995 financial statements in fiscal year 1996, a
year earlier than originally planned. The Library began preparing fiscal
1995 financial statements in November 1995; the independent auditors also
initiated audit steps in late November 1995. The Congress requested that
the audit be completed by March 31, 1996. As a result of the audit's late
start, the lack of prior planning for the preparation of the financial
statements and for the audit, and the fact that fiscal year 1995 marked
both the initial audit of and the first operating year for the Library's
new financial system, the auditors, Price Waterhouse, were only able to
express an opinion on the Library's Statement of Financial Position. The
Library prepared a Statement of Operations and Changes in Net Position
which is included as an unaudited supplemental schedule to the financial
statements.
The assets, as reported on the Statement of Financial Position, total
nearly $700 million. Non-entity assets (e.g., funds held and invested for
future distribution to copyright owners) comprise 60 percent of all
assets. The fund balance with the Department of the Treasury is the
Library's largest entity asset and primarily represents the balance of
unexpended appropriations. The largest class of property totaling $37.3
million (net), is talking book machines on loan to blind and physically
handicapped individuals. The largest liabilities relate to custodial and
deposit account activities (e.g., funds held for future distribution to
copyright owners). Other large liabilities include funds advanced from
other governmental agencies for the FEDLINK program and accounts payable
for various operating expenses. The accompanying Statement of Financial
Position does not include the acquisition and improvement costs of the
Library's buildings and grounds. By law, these buildings and grounds are
owned and maintained by the Architect of the Capitol.
For reporting purposes, Library operations have been divided into five
fund groups: Appropriated and General Funds; Reimbursable Funds;
Revolving Funds; Gift and Trust Funds; and Custodial Funds. Funding
sources of Library functions for fiscal year 1995, excluding custodial
activity, total approximately $437.8 million. Appropriations from the
Congress accounted for 80.6 percent. The remainder came from gift, trust,
and revolving funds and reimbursements for services provided to other
entities.
MAJOR CATEGORIES OF FUNDING:
Total All Sources - $437.8 Million
1-4 APPROPRIATED AND GENERAL FUNDS - Appropriations account for $353.2
million (80.6 percent) of Library available funding and include both
annual and no-year funds. The annual appropriations are: Library of
Congress Salaries and Expenses (LC S&E), Congressional Research Service
(CRS S&E), Copyright Office (CO S&E), National Library Service for the
Blind and Physically Handicapped (NLS/BPH S&E), and Furniture and
Furnishings (F&F). The LC S&E appropriation includes no-year funds for
library materials, deacidification preservation projects, and secondary
storage. The NLS/BPH appropriation includes a no-year account for the NLS
program machines, and the Furniture and Furnishings appropriation has a
no-year account for restoration and renovation.
Total Appropriations Used - $353.2 Million
* Includes $6.5 million of offsetting collections ** Includes $17.5
million of offsetting collections
Library of Congress (LC S&E) - This appropriation funds the
infrastructure support (i.e., agency management, Human Resources,
Information Technology Services, Financial Services, Integrated Support
Services) for the Library's three other salaries and expenses (S&E)
appropriations -- Congressional Research Service, Copyright Office, and
the National Library Service for the Blind and Physically Handicapped.
This appropriation also funds a wide range of National Library and
Congressional Services including:
Cataloging - The Library produces bibliographic records and related
products for libraries and bibliographic utilities in all 50 states and
territories -- cataloging that saves America's libraries in excess of
$268 million annually, the money it would cost them if they had to
catalog the materials themselves.
1-5 Research and Reference - The Library makes available to scholars and
other researchers vast information resources, many of which are unique,
covering almost all formats, subjects, and languages -- each year serving
over 750,000 readers in the 20 reading rooms in Washington, D.C. open to
the public and responding to nearly 1.1 million information requests a
year from all over the nation. In addition, the Library responds to more
than 38,000 free interlibrary loan requests a year from every state in
the nation and to over 30,000 requests for book loans to Congress each
year.
On-line Services - The Library provides on-line, free access, via
Internet, to its automated information files which contain more than 40
million records -- to Congressional offices, Federal agencies, libraries,
and the public. Through THOMAS, the user-friendly and searchable World-
Wide Web site supporting Internet access to the Congress, the Library
freely provides the full text of Congressional bills, the Congressional
Record, and other legislative information.
American Creativity - The Library manages the nation's most important
archival collections of motion pictures, sound recordings, maps, prints,
photographs, manuscripts, music, and folklore covering a wide range of
ethnic and geographic communities; provides reference assistance to
researchers and the general public; conducts field research and promotes
the preservation of American culture throughout the United States.
Preservation - The Library manages a preservation program that covers the
many materials and formats in the Library - including preservation
treatment for over 300,000 items a year, assuring that staff are trained
and equipped to handle emergencies; conducts research on new preservation
technologies (e.g., mass deacidification of paper); develops preservation
standards for American libraries; administers the National Film
Preservation Board; and runs the only full-time film restoration
laboratory in the country, reconstructing two-thirds of the archival-
quality restorations in the United States.
Legal Information - The Law Library of Congress supplies law research
covering over 200 foreign jurisdictions to Congress, the Judiciary,
Federal agencies, and the public -- serving 100,000 users annually
Reading Promotion and Outreach - The Library promotes books, reading, and
literacy through the Library's Center for the Book and its 30 affiliated
State Centers for the Book and its 121 national organizational partners -
- and encourages knowledge and use of the collections through other
Library outreach programs (cable TV programs, traveling exhibits,
publications, conferences and symposia, poetry readings, electronic
information dissemination), often with private funding. The Library also
gives some 69,000 surplus books and serials annually to qualified
libraries through a nation-wide donation program.
1-6 Congressional Research Service (CRS S&E) - This appropriation funds
the exclusive and impartial, on-demand analytical research and
information to all Members and committees of Congress. CRS works directly
for Congress in support of its legislative, oversight, and representative
functions. CRS maintains a cost-effective shared pool of expertise to
provide timely, balanced analyses of public policy issues and legislative
proposals, tailored confidential memoranda, personal consultations, and
briefings; and is a source of information and resource materials on
almost any subject. During the past year, CRS delivered nearly 600,000
research responses and services; of these, about 235,000 were responses
to requests for analysis, information, and research. CRS delivered to
Congress upon request almost 785,000 copies of CRS reports and other CRS
general distribution products.
CRS S&E also supports the Parliamentary Assistance Programs, non-
expenditure transfer programs undertaken by the Congress to provide
assistance to emerging democratic legislatures in Eastern Europe, the
former Soviet Union and Egypt through the use of research, information,
and modern equipment. The programs, totaling $3.8 million in fiscal year
1995, are funded by the Agency for International Development (USAID) and
conducted through CRS under the auspices of the House Special Task Force
on the Development of Parliamentary Institutions in Eastern Europe or the
Joint Committee on the Library. All Parliamentary Assistance Programs
will be completed by December 1996.
Copyright Office (CO S&E) - The Library administers the U.S. copyright
laws and actively promotes international protection for intellectual
property created by U.S. citizens -- processing more than 600,000 claims
for copyright registration and 500,000 requests for information annually.
Most of the Copyright Office is funded by registration fees and
authorized deductions from royalty receipts. The copyright deposits form
the core of the Library's Americana collections.
National Library Service for the Blind and Physically Handicapped (Books
for the Blind and Physically Handicapped S&E) - The Library manages a
free national reading program for blind and physically handicapped people
-- circulating at no cost to users approximately 23 million items a year;
audio and braille books and magazines through regional and subregional
libraries and two multistate centers. This program consists of three
segments:
1. The Library of Congress, with the cooperation of authors and
publishers who grant permission to use copyrighted works, selects and
produces full-length books and magazines in braille and on recorded disc
and cassette and contracts for the production of talking book machines.
2. A cooperating network of over 140 regional and subregional (local)
libraries distribute the machines and library materials provided by the
Library of Congress.
3. The U.S. Postal Service receives an appropriation to support postage-
free mail for magazines, books, and machines which are sent directly to
readers. Reading materials (books and magazines) and playback machines
are sent to a readership of over 770,000.
1-7 REIMBURSABLE FUNDS - Reimbursable programs accounted for $55.1
million (12.6 percent) of Library funding in fiscal 1995. Intra-Library
revenue of $2.7 million was eliminated for consolidation purposes. Two
major reimbursable programs make up the major portion of the reimbursable
revenues: the Federal Library and Information Network (FEDLINK) and the
Federal Research Division (FRD). The Library also provides accounting
services for four Legislative agencies under cross-servicing agreements
(i.e., the Congressional Budget Office, the Office of Technology
Assessment, the John C. Stennis Center, and the Capitol Preservation
Commission).
Reimbursable Funds - $55.1 Million
FEDLINK - FEDLINK is a program which was designed to support the Federal
Library and Information Center Community (FLICC) in the cost-effective
procurement of books, serials, and computer-based information retrieval
services. Under this program, the consolidated purchasing power of more
than 1,300 Federal libraries across the government permit the Library to
negotiate economical contracts with some 80 vendors resulting in savings
to Federal agencies of an estimated $15 million annually. Most of the
funds transferred from agencies participating in the program are for
services provided by these vendors.
Federal Research Division (FRD) - The Federal Research Division provides
customized research services that the Library is uniquely able to perform
as a result of its collections and subject and language expertise of its
staff. A popular FRD product, available on-line via the Library's World
Wide Web (WWW) homepage, is the country study series of books. These
books are produced as a result of a reimbursable agreement with the
Department of Defense.
GIFT AND TRUST FUNDS - Under the authority of 2 U.S.C. 175; 20 U.S.C.
2106; and the Trust Fund Board Act of 1925, as amended (2 U.S.C. 154-
163), the Library operates 230 Gift and Trust Funds which made up
approximately 5.8 percent of the Library's funding in fiscal 1995. Gifts
to the Library for immediate use may be accepted by the Librarian of
Congress. The Trust Fund Board receives, administers, and invests gifts,
bequests, and devises of property for the benefit of the Library, its
collections, or its services. The Trust Fund Board consists of thirteen
members: three ex-officio members, the Librarian of Congress, the
Secretary of Treasury, and the Chairman of the Joint Committee on the
Library; two members appointed by the President of the United States;
four members appointed by the House of Representatives; and four
appointed by the Senate.
1-8 Activities supported by gift and trust funds include:
acquisition of library materials, including obtaining hard-to-acquire
research materials on behalf of participating U.S. research libraries and
the maintenance and development of a Japan Documentation Center to
increase knowledge of and access to current Japanese public policy
information;
research, reader and reference services, including the Library's National
Digital Library, the Film Preservation Program, and activities related to
acquisition and maintenance of research materials from Korea;
organization (e.g., cataloging) of the collections, including the
centralized services of Documents Expediting Project, Dewey Decimal
classification, and maintenance and development of the Caroline and Erwin
Swann Collections and the Charles and Ray Eames Collections; and
public programs, including Library exhibitions, music programs and
performances, and public outreach presentations through lectures,
symposia, publications, special events and electronic distribution of
information.
Gift and Trust Funds - $25.6 Million
Major trust funds include: the Madison Council Fund, the National Digital
Library (see Major Accomplishments), the Carolyn R. Just Fund, and the
Leonora J. McKim Fund. Gift and trust fund revenue for fiscal 1995
totaled $25.6 million which includes $6.7 million in pledges.
James Madison Council Fund - The James Madison National Council is an
advisory body of public spirited individuals that contributes ideas,
expertise, and financial support to promote the Library's collections and
programs. The Fund was begun in 1989 by Dr. James Billington, the
Librarian of Congress, to encourage donations and counsel. Since the
initial contribution from the Encyclopedia Britannica, the Fund has
benefitted from the many donations of the Council members. The money is
used for special programs of the Library. At the end of fiscal year 1995,
the value of the Fund was $2 million and revenue for the year, including
donations and interest, was $1.2 million.
1-9 Carolyn R. Just Fund - The purpose of the Carolyn R. Just Fund is for
performances or broadcasting of concerts of classical chamber music at
the Library of Congress in the Coolidge Auditorium. The value of the Fund
at September 30, 1995, was $2.7 million. Leonora Jackson McKim Fund - The
McKim Fund's purpose is for furtherance of original violin compositions
with piano accompaniment, composed by American students of the violin,
and to advance student studies in the United States and abroad through
payment of tuition and travel. The value of the Fund was $3 million at
September 30, 1995.
REVOLVING FUNDS - Under the authority of 2 U.S.C. 160, the Library of
Congress operates eleven gift revolving fund activities to provide, in
various formats, duplication and preservation services, exhibits and
other special programs, and retail marketing, to other Government
agencies, libraries, other institutions, and the general public. Through
these activities, the Library is able to further its programs dealing
with the acquisition of library materials, reader and reference services,
and support for public programs.
Although these funds were created by gifts which donors designated to be
used for self-sustaining activities, the General Accounting Office (GAO)
believes that the Library has exceeded its authority by operating
revolving funds with gift monies which generate revenues exceeding the
original gifts. Therefore, as recommended by GAO, the Library has
requested specific statutory authority to operate the gift revolving
funds. The revolving fund legislation has been submitted to the Congress
annually since 1991.
After eliminating intra-Library transactions, revolving fund activities
accounted for $3.9 million (1 percent) of the funding in fiscal 1995. The
major funds are: Photoduplication Service, Recording Laboratory, and the
Constance Green Fund.
Gift Revolving Funds - $3.9 Million
Photoduplication Service - The Photoduplication Service provides
preservation microfilming services for the Library's collections and
reprographic services to other libraries, research institutions,
government agencies, and individuals in the United States and abroad.
Revenues were $5.9 million in fiscal year 1995 and intra-Library
transactions of $3.4 million were eliminated during consolidation.
1-10 Recording Laboratory - The Recording Laboratory provides
preservation services for the Library's collections and audio and video
duplication services for the general public. Audio and video products are
also produced for sale to the general public. Revenue for fiscal year
1995 was $501 thousand of which $312 thousand was for intra-Library
transactions which were eliminated in the consolidated statements.
Constance Green Fund - The Constance Green Fund supports the Library's
retail marketing sales shop activities. Revenue for fiscal year 1995 was
$867 thousand before elimination of intra-Library revenues of
approximately $5 thousand.
CUSTODIAL FUND - The Library administers the national compulsory and
statutory licensing provisions in the Copyright Act (Title 17 of the
United States Code). These are:
Compulsory license for secondary transmissions by cable systems (section
111);
Compulsory license for making and distributing phonorecords (section
115);
Compulsory license for the use of certain works in connection with
noncommercial broadcasting (section 118);
Statutory license for secondary transmissions by satellite carriers for
private home viewing (section 119);
Compulsory license for public performances on coin-operated phonorecord
players (section 116, [1978-1989, 1993-], section 116A (1990-1993);
Statutory obligation for distribution of digital audio tape recorders and
media (chapter 10).
The Library's Copyright Office Licensing Division collects royalty fees
from cable operators for retransmitting television and radio broadcasts
(section 111), from satellite carriers for retransmitting "superstation"
and network signals (section 119), and from importers or manufacturers
for distributing digital audio recording products. The Library deducts
its full operating costs from the royalties (as appropriated by Congress
as offsetting collections), and invests the balance in interest-bearing
securities with the U.S. Treasury for later distribution to copyright
owners. The Library of Congress held $420 million at September 30, 1995,
for distribution to copyright owners.
KEY PERFORMANCE MEASURES
In the 15 years since fiscal 1980, the Library has increased: (1) the
number of Congressional requests annually answered by the Congressional
Research Service (CRS) from some 340,000 to almost 600,000; (2) the
number of print materials cataloged annually for the nation's libraries
from 206,000 to 276,000; (3) the annual number of registrations in the
Copyright Office from some 465,000 to nearly 610,000 and the number of
copyright inquiries answered from 170,000 to over 500,000; and (4) the
number of free reading materials delivered across the country each year
to the blind and physically handicapped from 16.9 million to nearly 23
million.
1-11 The Library's electronic transactions have grown from almost zero in
fiscal 1980, to eight million a month in fiscal 1992, to 21 million a
month in fiscal 1995. This rapid growth is the result of putting large
portions of the Library's card catalog and copyright records online,
along with Congressional information through the THOMAS system, and the
contents of all the major exhibits since 1991. These numbers will almost
certainly continue to increase. The Library has just begun to put online
American history collections as the core of a National Digital Library.
This program seeks to make five million items from these unique
collections locally available in electronic form throughout the country
by the year 2000.
To have accomplished so much despite a steadily downsized work force is a
good example of doing more with less in a public agency. The Library has
dramatically increased private-sector support for funding outreach
projects and other areas not covered fully by federal appropriations
(e.g., exhibits, leadership training). The additional appropriated
support of $3 million approved for fiscal year 1996 by the Congress for
the National Digital Library Program has provided an incentive for
private-sector support which now stands at $19 million of the $45 million
needed by the year 2000 to complete the initial project.
MAJOR ACCOMPLISHMENTS IN FISCAL YEAR 1995
During fiscal 1995, the Library radically improved services to the
Congress and the nation through technology, succeeded in gaining
permission to microfilm the hitherto inaccessible papers of the Marquis
de Lafayette, reduced the backlog of uncataloged items by another 2.9
million, continued to implement elements of its Plan for Enhancing
Collections Security , trained all managers and supervisors in diversity
awareness, and implemented a modern financial management system.
Consistent with the Library's mission, the major achievements are listed
below:
1-12 CRS Legislative Support to Congress - The congressional agenda
during fiscal year 1995 was fast-paced and characterized by complex and
controversial domestic legislative proposals concerning reform of the
welfare system and health care, food and agriculture policy, regulatory
reform, environmental protection programs, and the federal government's
role in education. Equally challenging were foreign policy debates in
Congress regarding Bosnia, possible NATO expansion, the Israeli-
Palestinian Agreement, changes in Russia, aid to Africa, and Mexico's
financial crisis. CRS attorneys, analysts, and information specialists
provided Congress with assistance on, among other issues, the balanced
budget constitutional amendment, the legislative line-item veto,
congressional term limits, election law, and immigration, as well as
banking and securities laws, changes in R&D funding and organization,
transportation and energy concerns, and telecommunications reform
legislation.
Copyright Office Legislative Support to Congress - Congress faced a
number of significant copyright challenges during fiscal 1995 including
the effect of the National Information Infrastructure (NII) on copyright
law and policy. The Office began a series of conferences for
congressional staff to provide background information on proposed
legislation on copyright and the NII and explore the future of copyright
policy in a digital information and technology age. The Office also
advised Congress on a bill that created a performance right in digital
transmissions of sound recordings, a proposal to extend the copyright
term, and a number of other bills that would amend existing provisions.
CRS Legislative Alert Service - The Legislative Alert, a new CRS service,
was created early in fiscal 1995 to assist congressional staff in quickly
identifying CRS products that directly relate to legislation up for
immediate floor consideration in the House and Senate. The Alert is
available in printed copy at the beginning of the week to every
congressional office while Congress is in session and is accessible
through the CRS World Wide Web Home Page (available to congressional
offices only), CRS Reference Centers, the Product Distribution Center,
and selectively through the fax-on-demand system.
Budget and Appropriations Report Series - To respond to congressional
work on federal budget and appropriations issues, CRS inaugurated a
series of reports specifically covering each of the thirteen annual
appropriations bills as well as a special report covering issues in the
reconciliation deliberations. The objective for developing the
appropriations and budget reconciliation reports was to ensure the timely
and systematic availability to Members of comprehensive summaries of
appropriations legislation at each stage of the legislative process.
Approximately 7000 copies of these reports have been distributed to
congressional offices in response to their requests. After assessing this
pilot, CRS concluded that, while some reports met the needs of
congressional requests, others were not useful. Therefore, the series
will not be continued for the fiscal year 1997 cycle, and CRS will
continue to analyze budget and appropriations issues as they affect
federal programs and activities.
Providing Better Services to the Congress and the Nation Through
Technology:
THOMAS Internet System - In January 1995, at the request of the House
1-13 Congressional Leadership, the Library of Congress implemented
THOMAS, a world-wide- web (WWW) site that provides searching and access
to the full-text of bills and the Congressional Record for the 103rd and
104th Congresses. THOMAS is available free of charge, 24 hours a day, to
Internet users throughout the world. Work is continuing to expand and
improve this system. By October 31, 1995, nearly 11 million transactions
had been processed by the THOMAS system.
CRS Innovations in Service Delivery - In fiscal 1995, CRS expanded use of
new technology-based information systems to improve congressional access
to CRS services, such as a fax-on-demand system and an on-line system
that provides access to the full text of selected CRS products, and the
development of a CRS Home Page on the secure Capitol Hill Internet
network. These efforts continue to enable the Library to provide more
effective service to Congress.
Internet Access - The Library is providing more information to the
Congress and the public via its Internet-based systems including three
world-wide-web services (THOMAS, LC-Web, and CRS-Web), gopher services
(LC-MARVEL), the Library of Congress Information System (LOCIS), and
various file transfer options. Public LC-Web transactions have grown from
391,000 per month in October 1994 to over 3 million per month in October
1995.
National Digital Library - A major priority of the Library of Congress is
to make parts of its historical collections maximally accessible to the
general public through the creation of a National Digital Library. The
Library's goal is to digitize a critical mass of five million items from
its core American history collections by the year 2000 -- the Library's
bicentennial. A private-public partnership is the key strategy for
raising the $60 million to cover the five-year period needed to achieve
the goal -- $45 million from the private sector and $15 million from
additional Federal appropriations. During fiscal 1995, the Congress
approved the first of five installments of $3 million (starting in fiscal
1996) to meet the public commitment to this initiative, and the private
sector made gifts and pledges totalling $19 million as of December 20,
1995.
ACCESS System - The Library's ACCESS system, a user-friendly way for
patrons visiting a reading room to access the Library's information files
electronically without training and without assistance, was expanded to
include the Bill Digest for the 104th Congress. ACCESS now operates in 14
locations at the Library and at several House and Senate locations.
Future development of ACCESS will focus on an Internet model.
Geographic Information System - The Geography and Map (G&M) Division
established itself as a leader in the cartographic and geographic
communities through its work in geographic information systems (GIS).
Through G&M's initiative, the Center for Geographic Information was
founded with the support of private sector firms. Under the auspices of
the Center, G&M received donations of funds, hardware, and software, in
fiscal year 1996, valued in excess of $670,000 for scanning National
Digital Library materials.
1-14 Projects in Test Status:
The Copyright Office Electronic Registration, Recordation and Deposit
System (CORDS), a project sponsored by the Advanced Research Projects
Agency (ARPA) and the U.S. Copyright Office at the Library, in
cooperation with the Corporation for National Research Initiatives, will
allow the electronic registration and deposit of works and provide
electronic access to copyright ownership information. Status: in fiscal
year 1995, the software programming for the registration testbed system
neared completion, and the initial testing of the system will begin early
in calendar year 1996. Planning began for development of the system for
recording documents concerning ownership and licensing of copyright
works.
The Electronic Cataloging in Publication (CIP) project is testing the
feasibility of the electronic transmission of manuscripts for cataloging
via the Internet in lieu of mailing them. At the end of fiscal year 1995,
26 publishers were participating in the test phase. This project will
improve the timeliness, cost, and efficiency of cataloging by sharply
limiting the number of keystrokes required to create a record, by
eliminating mail time and postage costs, and by improving the quality of
cataloging. Status: the number of participants increased in fiscal year
1995 from six to 26; and the Library processed 375 manuscripts
electronically. A survey was distributed to all CIP publishers to
determine their interest and capability in joining Electronic CIP; the
responses were decidedly favorable.
The Global Legal Information Network (GLIN) is a cooperative
international network in which nations are contributing the full text of
statutes and regulations to a database hosted by the Law Library of
Congress. Status: the prototype is complete and there are eleven partners
participating via the Internet. The Library projects that GLIN membership
will increase to 15-20 nations in the near future. A satellite
uplink/downlink capability to upgrade telecommunications capabilities of
GLIN members that have no direct access to Internet is being implemented.
Security of Staff and Collections - The Library engaged experts at the
end of fiscal 1995 to assess its collections security program and began
to centralize security policy oversight to improve accountability and to
ensure that elements of the Library's Plan for Enhancing Collections
Security continue to be implemented in an effective manner. Major
accomplishments during fiscal year 1995 include the following:
heightened perimeter security was implemented consistent with that for
other Capitol Hill buildings;
all book stacks in the John Adams and Thomas Jefferson buildings are
controlled by an electronic access system;
police patrols of the book stacks have been intensified;
1-15 the number of people authorized access to the general collection
stacks has been reduced by more than 50 percent;
anti-theft devices were placed in an additional 1.8 million books
bringing the number of targeted volumes to more than 3 million; and
an additional 250,000 volumes were barcoded and linked to the automated
Collections Control Facility system and a contract awarded for another
600,000 volumes.
In the test stage are pilots to use a theft detection gate at the exit of
the Newspaper and Current Periodical reading room and an automated reader
registration system which issues patron photo-identification cards upon
verification of name and address to control access to the collections in
any of the Library's 20 public reading rooms. The system also maintains a
database of patron information to facilitate follow up or investigation
requirements.
Arrearage Reduction/Cataloging - The Library continues to reduce its
arrearage of unprocessed materials as demonstrated by another cut of 2.9
million items during fiscal 1995--achieving a cumulative 43 percent
decrease since the unprocessed items were counted and totalled in
September 1989. Selected arrearages such as the Altshuler Jazz Collection
were reduced by over half by the end of fiscal year 1995. As arrearage
goals for 1996-2000 are pursued, the Library continues to implement
changes in procedures and technology that will increase productivity and
throughput. Replacing dumb terminals used by cataloging staff with
intelligent PC-based workstations has bolstered output and enabled
additional automation enhancements in support of more efficient
cataloging. Major progress was achieved in processing print materials,
including cataloging 276,348 titles, a near record.
Off-Capitol Hill Collections Storage - During fiscal 1995, the Architect
of the Capitol (AOC) initiated site development of the approximately 100
acres of land and improvements, located at Fort Meade, Maryland, that
were transferred from the Department of the Army in 1994. The Library and
the AOC are now completing plans for the construction of the first
collections storage facility to be ready for occupancy by mid-1998.
Important New Acquisitions - The Library receives millions of pieces each
year, from copyright deposits, from Federal agencies, and from purchases,
exchanges, and gifts. Notable acquisitions during fiscal 1995 include:
the archives of Gordon Parks, noted photographer and creative artist; the
music, papers, and photographs of jazz musicians by William Gottlieb, the
gift of architectural drawings and maps from the Engineering Societies
Library; the Lafayette papers from LaGrange, microfilmed on site in
France; and a collection assembled by William Gladstone of nearly 800
manuscripts, photographs, and other original documents relating primarily
to the African-American participation in the United States Military from
the Revolutionary War until the turn of the century. Other important
acquisitions included rare books, films, and other audio visual items.
Recovered by the Library after a disappearance of fifty years, four
notebooks of Walt Whitman and a cardboard butterfly produced great
excitement for Whitman scholars.
1-16 Preservation Improvements - The Library took action during 1995 to
improve the preservation of its vast and diverse collections by (1)
contracting for a new audio system that will significantly improve
capability for preservation reformatting and creation of preservation
masters of audio materials; (2) protecting the Top Treasures by designing
and constructing oxygen-free, closed system display and housing cases and
an environmentally stable room in which to store them; (3) developing an
emergency preparedness and rapid-response plan for stabilizing and
recovering collections in the event of disaster; (4) continuing the
testing of the Bookkeeper mass deacidification process and initiating a
pilot project that will treat 36,000 books in the general collections in
fiscal 1996; (5) increasing the capacity to produce protective book boxes
by installing a computer-operated automated box-making machine; (6)
contributing to the National Digital Library by initiating procedures for
the preparation, treatment, and scanning of fragile rare materials; and
(7) publishing research results that contribute to the electronic
preservation of visual materials.
Copyright Arbitration Royalty Panels (CARPs) - The Copyright Office
completed the absorption of the functions of the former Copyright Royalty
Tribunal (CRT) by publishing final regulations governing all CARP royalty
distribution and rate adjustment proceedings. With the new rules in
place, the Office initiated distribution proceedings for royalties
collected under the cable compulsory license and the digital audio
recording (DART) license. On March 21, 1995, the Office published a
notice consolidating the distribution of the 1990, 1991 and 1992 cable
royalty funds and setting the precontroversy discovery schedule. The
Copyright Office also administered distribution of the 1992, 1993, and
1994 DART royalty funds, and a partial distribution of 1992 and 1993
cable royalty funds.
National Library Service for the Blind and Physically Handicapped (NLS) -
During 1995, NLS published its 10,000th numbered braille book -- Brother
Eagle, Sister Sky: A Message from Chief Seattle . NLS also revised its
standards used to evaluate network library activities and determine how
well each library is meeting common goals for providing special-format
reading materials to patrons. The standards list thirteen principles of
service, followed by specific standards for meeting the goals in areas
such as resource development and management, public education,
volunteers, and policies and procedures.
Bringing Treasures to the People - The Library's collections were shared
with tens of thousands of Americans through exhibitions, tours, special
events, symposia, traveling exhibits, poetry readings, and major
publications. The Library continues to lead the Nation in the
presentation of on-line exhibitions which now number ten. Major
exhibitions in fiscal year 1995 included:
Creating French Culture: Treasures from the Bibliotheque nationale de
France , a major international event and the second in a series of
unprecedented exhibits on the great libraries of the world;
In the Beginning Was the Word: the Russian Church and Native American
Cultures , which was jointly opened by Presidents Clinton and Yeltsin;
1-17 The Gettysburg Address , shown in conjunction with the National
Archives' exhibition of the Emancipation Proclamation;
Temple of Liberty: Building the Capitol for a New Nation , which examined
the Capitol's architectural form from the 1790s to the 1820s;
Declaring Independence: Drafting the Documents , featuring Thomas
Jefferson's first draft of the Declaration of Independence; and
Women Come to the Front , the female journalists of World War II.
Restoration and Renovation of the Thomas Jefferson and John Adams
Buildings - The Library is in the process of executing a multi-year plan
to outfit and occupy renovated spaces in the Jefferson and Adams
Buildings. The Great Hall of the Jefferson Building has been open for the
last year to visitors taking guided tours and starting in September 1995
the west front entrance was opened to the public.
Human Resources Improvement - The Library is implementing key
recommendations of a Librarywide task force to streamline competitive
selection procedures without jeopardizing the objectivity of the revamped
system. Other improvements include a pilot program to select library
technicians through the Office of Personnel Management's Microcomputer
Assisted Rating System (MARS) and the establishment and enforcement of
performance standards for personnel managers and staff. In September
1995, U.S. District Court Judge Norma Holloway Johnson approved a final
settlement agreement of the Cook class action suit that originated as an
EEO complaint in 1975. Appeals are pending in the United States Court of
Appeals for the District of Columbia circuit. In conjunction with this
settlement agreement, the Library trained all managers and supervisors in
diversity awareness.
Financial Management Improvement Project - The Library processed over one
million general ledger postings during the first year's operation of its
new and modern financial system. For the first time in the Library's
history, FFS integrates and links the budget, procurement, accounting,
and disbursing functions, which improves accountability to the Congress.
STEWARDSHIP REPORTING
In accordance with new Federal Accounting Standards Advisory Board
(FASAB) standards, the Library's collections have been classified as
heritage assets, and, as such, their value is not reported in the
financial statements. Consistent with the guidance provided by FASAB, the
Library has prepared a stewardship report on its collections which
provides the suggested relevant information concerning asset description,
acquisition, preservation, security, use, and estimated number of items.
The Stewardship Report is included in Section 5 of this report.
THE LIBRARY OF CONGRESS Consolidated Statement of Financial Position As
of September 30, 1995 (In Dollars)
ASSETS ASSETS Entity Assets: Fund Balance With Treasury (Note 2)
$180,691,549 Investments, Treasury Securities (Note 4) 12,545,930
Investments, Governmental Securities (Note 4) 12,917,822 Accounts
Receivable, Net - Intragovernmental (Note 5) 7,193,192 Accounts
Receivable, Net - Public (Note 5) 461,319 Interest Receivable (Note 5)
152,912 Advances and Prepayments 37,967 Pledges Receivable - Donations
(Note 5) 9,125,315 Cash and Other Monetary Assets 66,062 Inventory
274,526 Operating Materials and Supplies 1,875,788 Property and
Equipment, Net (Note 6) 49,499,220 Library Collections (Note 1.M.) Total
Entity Assets $274,841,602
Non-Entity Assets: Fund Balance With Treasury (Note 2) 385,511
Investments, Treasury Securities (Note 4) 419,665,140 Accounts
Receivable, Net - Intragovernmental (Note 5) 4,998 Accounts Receivable,
Net - Public (Note 5) 2,902 Interest Receivable (Note 5) 540,292 Total
Non-Entity Assets 420,598,843
Total Assets $695,440,445
LIABILITIES Liabilities Covered by Budgetary Resources: (Note 8) Accounts
Payable $20,512,007 Accrued Funded Payroll, Benefits 9,957,998 Total
Liabilities Covered by Budgetary Resources $30,470,005
Liabilities not Covered by Budgetary Resources: (Note 8) Accounts Payable
253,093 Advances from Others - Intragovernmental 33,205,327 Advances from
Others - Public 1,240,336 Custodial and Deposit Account Liability
424,152,003 Misc. Receipts Held for Treasury 76,843 Disbursing Officer's
Accountability 14,677 Accrued Unfunded Annual Leave 15,224,877 Accrued
Unfunded Workers' Compensation (Note 9) 11,271,423 Total Liabilities not
Covered by Budgetary Resources 485,438,579
Total Liabilities $515,908,584
NET POSITION (Note 11) Balances: Unexpended Appropriations 98,317,148
Invested Capital 49,042,547 Unrealized Gain on Investments, Governmental
Securities (Note 4) 560,345 Cumulative Results of Operations 44,038,874
Donations - Restricted 14,069,248 Future Funding Requirements
(26,496,301)
Total Net Position 179,531,861
Total Liabilities and Net Position $695,440,445
2-1
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-2 Note 1. Significant Accounting Policies
A. Reporting Entity
The Library of Congress is a legislative branch agency of the federal
government. It was established in 1800 primarily to provide information
and policy analyses to the members and committees of the Congress. Since
then, the Library has been assigned other major missions such as
administering the U. S. copyright laws, providing cataloging records to
the Nation's libraries, and coordinating a national program to provide
reading material for blind and physically handicapped residents of the U.
S. and its territories and for U. S. citizens residing abroad. The
Library also provides services to other federal agencies and administers
various gift and trust funds.
The Library's programs and operations are subject to oversight by the
Joint Committee on the Library which comprises members of the U. S. House
of Representatives and Senate. The Library relies primarily on
appropriated funds to support its programs and operations. Budget
requests are subject to review by the House and Senate Appropriations
Committees' Subcommittees on Legislative Branch Appropriations. The
Library also receives funds from other agencies for services provided
under the Economy Act and other statutes. In addition, the Library
receives donations from the public in the form of gifts and trusts. The
trust funds are controlled by the Library of Congress Trust Fund Board,
which consists of the Librarian of Congress (who is Chairman and
Secretary of the Trust Fund Board), the Chairman of the Joint Committee
on the Library, the Secretary of the Treasury (or an assistant secretary
designated in writing by the Secretary of the Treasury), and ten
additional members appointed by the President (2), the U.S. House of
Representatives (4), and the U. S. Senate (4).
B. Basis of Presentation
The accompanying consolidated statement reports the financial position of
the Library of Congress for the fiscal year 1995. It was prepared from
the Library's financial management system (FFS) in accordance with the
form and content for entity financial statements specified by the
Library's Financial Management Regulations and Directives and the
accounting policies summarized in this note.
As a legislative branch agency, the Library is not required to follow the
executive agency accounting principles established by the Comptroller
General under 31 U.S.C. 3511 or the new standards now being developed by
the Federal Accounting Standards Advisory Board (FASAB). However, the
Library maintains its fund balances with the Department of the Treasury
and submits information required to incorporate its financial and budget
data into the overall federal government structure. For purposes of
financial management and reporting, the Library has issued a regulation
(LCR 1510) which adopts the executive branch reporting requirements in a
manner consistent with a legislative agency.
For this reporting period, year ended September 30, 1995, the Library
prepared two consolidated financial statements: (1) Consolidated
Statement of Financial Position (audited), and (2) Consolidated Operating
Statement and Changes in Net Position (unaudited).
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-3 C. Basis of Accounting
The General Accounting Office (GAO), Office of Management and Budget
(OMB), and Department of the Treasury established the Federal Accounting
Standards Advisory Board (FASAB) for the purpose of considering and
recommending accounting principles, standards, and requirements to GAO,
Treasury, and OMB. The three principals of FASAB, the Comptroller
General, the Secretary of the Treasury, and the Director of OMB, will
decide upon new principles, standards, and requirements after considering
FASAB's recommendations. The resulting standards are concurrently issued
by GAO and OMB. Pending issuance of a sufficiently comprehensive set of
accounting standards, and in accordance with interim guidance agreed to
by the three principals, the accompanying Consolidated Statement of
Financial Position has been prepared in accordance with the following
hierarchy of accounting principles and standards:
Individual standards agreed to and published by the Joint Financial
Management Improvement Program (JFMIP) Principals, GAO, OMB, and the
Department of Treasury;
Form and content requirements included in OMB Bulletin 94-01, dated
November 16, 1993, and subsequent issuances;
Library of Congress Regulations and Financial Services Directives; and
Accounting principles published by authoritative standard setting bodies
and other authoritative sources (1) in the absence of other guidance in
the first three parts of this hierarchy, and (2) if the use of such
accounting standards improve the meaningfulness of the financial
statements.
The Consolidated Statement of Financial Position was prepared using the
accrual basis of accounting. All significant intra-agency balances and
transactions have been eliminated in consolidation. The statement
includes five general fund accounts; eleven gift revolving funds;
reimbursable funds (including 4 major programs); 84 trust funds; and 146
gift funds. The supplemental schedules display the funds in five
groupings: appropriated; reimbursable; gift and trust; revolving; and
custodial.
D. Revenues and Other Financing Sources
The Library receives the majority of its funding to support its programs
through appropriations. The Library receives both annual and multiyear
appropriations that may be used, within statutory limits, for operating
and capital expenditures including equipment, furniture and furnishings.
Additional amounts are obtained through reimbursements from services
performed for other federal agencies as authorized by the Economy Act and
the Library's annual appropriation legislation. Also, the Library
receives gifts from donors and interest on invested funds. In addition,
the Library operates several self-sustaining gift revolving funds which
generate revenues from sale of various products and services to the
public and federal customers.
Appropriations are recognized as revenues at the time they are used to
pay expenses. Other revenues are recognized when earned. A future
financing source is recognized for unfunded expenses such as annual leave
earned but not taken and the liability for future workers' compensation.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-4 E. Gift and Trust Funds
During fiscal 1995, the Library administered 230 gift and trust funds
with combined asset value of approximately $52 million. All the funds are
restricted as to their use which must be in accordance with the terms of
the gift agreement. In general, funds are either temporarily restricted
(principal may be spent) or permanently restricted (principal may not be
spent). Additional restrictions may be imposed on the trust funds by the
terms of a trust agreement or donor's will. Library fund managers
administer and oversee the gift and trust funds to ensure they are used
as directed by the donor and in accordance with Library policy.
F. Funds with the U. S. Treasury
The amount shown as Funds with the U.S. Treasury represents the balances
of the appropriated, reimbursable, gift and trust, revolving, and
custodial funds that are on deposit with the U. S. Treasury.
G. Translation of Foreign Currencies
The Library of Congress receives and utilizes foreign currencies in
carrying out operations abroad. It conducts business through six overseas
offices and uses local currencies. Additionally, the Library administers
two U.S. Treasury foreign currency accounts (Indian rupees and Japanese
yen). At year-end, account balances remaining in foreign currencies are
translated to U.S. dollar equivalents at the uniform government-wide
Treasury reporting rates.
H. Receivables (Net)
Receivables consist of accounts receivable for various programs, interest
accrued on investments in market-based Treasury securities and on various
other trust fund investments, and travel advances. Most of the accounts
receivable resulted from billings to other federal agencies under
reimbursable interagency agreements for data base retrieval and other
library services. The Library has established an allowance for doubtful
accounts based on three percent of the receivables from federal agencies.
I. Pledges Receivable
Pledges of contributions to the Library and the Library of Congress Trust
Fund Board which the Library believes will be received in the next future
are recorded as receivables and as revenue based on their present value
at the time the promise is made.
J. Inventories and Operating Materials and Supplies
The Library's inventories are comprised, primarily, of unissued supplies
that will be consumed in future operations, materials used to reproduce
printed materials, sound recordings for both internal and external sales,
and sales shop merchandise for resale. Consumable operating supplies are
valued at cost using a first-in first-out (FIFO) method of valuation.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-5 K. Investments (Net)
Investments in U.S. Government securities consist of non-marketable
market-based Treasury securities. The Treasury securities are valued at
cost less unamortized discounts and premiums. Interest is computed by the
straight-line method which approximates the effective interest method.
Most of these Treasury securities were purchased with the Copyright
royalties collected by the Copyright Office on behalf of copyright
owners. These investments will be held in trust until distributions are
made to copyright owners. The investments purchased with copyright
royalties are held in a custodial capacity and income does not accrue to
the Library's benefit.
The remainder of the Treasury securities are obtained and held by the
trust funds under conditions set forth in the respective trust
instruments.
Other investments of trust funds are held by a commercial bank and
managed by an investment management company. These securities consist of
common stocks, and other agency and corporate obligations and are carried
at cost value.
L. Property and Equipment (Net)
Furniture and equipment are capitalized at cost if the initial
acquisition cost is $10,000 or more. Depreciation is computed on a
straight-line basis using estimated useful lives. The largest category of
equipment is for the National Library Service for the Blind and
Physically Handicapped lending program which is capitalized although each
individual item of equipment is not valued at $10,000 or more. This
unique specially designed equipment is purchased from the manufacturer in
large lots usually valued at $1 million or more. The equipment has an
estimated life of ten years.
The next largest category, office equipment, is depreciated over a five
to fifteen year period. Software is capitalized if the initial cost of an
individual item is $10,000 or more and the useful life is 3 years or
longer.
The Library occasionally acquires property and equipment by direct gift
or by purchase from funds donated for a specific purpose or project.
Because it is the Library's policy that property accounts are not
maintained in the gift and trust funds, property and equipment acquired
through gifts are transferred to the Library's general fund as donated
capital and captured on the Library's automated inventory system.
Land, buildings, and improvements have been excluded from the Library's
property and equipment accounts because they are under the custody and
control of the Architect of the Capitol. This arrangement encompasses
four Capitol Hill buildings (the Thomas Jefferson, James Madison, John
Adams Buildings, and the Special Facilities Center) and a secondary
storage facility at Fort Meade, Maryland. Costs associated with the
acquisition and maintenance of these buildings are accounted for by the
Architect. In fiscal year 1995, the Architect received an appropriation
totalling $12.5 million to fund the structural and mechanical care of
these buildings.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-6 M. Library Collections
The Library's collections are classified as Heritage Assets in accordance
with new FASAB standards, and as such, are not valued and presented on
the financial statements. However, as recommended by FASAB, the
collections are described in a supplementary Stewardship Report.
N. Accounts Payable
Accounts Payable represent the amounts payable by the Library at the end
of the fiscal year as a result of a transaction or event that has already
occurred.
O. Accrued Payroll and Benefits
Employee accrued payroll and benefits consist of unpaid personnel
compensation and employee benefits accrued to Library employees as of
September 30, 1995.
P. Accrued Annual, Sick, and Other Leave, and Workers' Compensation
Accrued annual leave is adjusted at the end of each fiscal year based on
annual leave earned and taken. Each year, the balance in the accrued
annual leave account is adjusted to reflect current pay rates. Sick leave
and other types of nonvested leave are expensed as taken. The accrued
costs and estimated liability related to future workers' compensation
claims have been recognized as an unfunded liability.
Q. Retirement Plans
Approximately 56 percent of the Library's employees participate in the
Civil Service Retirement System (CSRS), to which the Library makes
matching contributions equal to seven percent of pay. Forty-four percent
are covered by the Federal Employees Retirement System (FERS) to which
the Library makes employer contributions equal to the agency's share of
the normal costs of benefits; automatically contributes one percent of
pay for the Thrift Savings Plan (TSP) and matches any employee
contribution to the TSP up to an additional four percent of pay. Under
FERS, the employee is also covered by social security to which the
Library contributes the employer's matching share. The accrued amounts
due for the contributions at the end of the fiscal year are reported as
current liabilities.
R. Accounting for Intergovernmental Activities
The financial activities of the Library of Congress interact with and
depend on other federal government agencies. Thus, the Library's
Consolidated Statement of Financial Position does not reflect all
financial decisions and activities applicable to it as if it were a stand
-alone entity.
1. The Library's Consolidated Statement of Financial Position and
Statement of Operations and Changes in Net Position are not intended to
report the agency's share of the federal deficit or of public borrowings,
including interest thereon.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-7 2. The Library does not report retirement (CSRS or FERS), health
benefits, or life insurance assets, accumulated plan benefits, or
unfunded liabilities, if any, applicable to its employees. Reporting such
amounts is the responsibility of the Office of Personnel Management.
3. The Library's program for the blind and physically handicapped
participates in the U.S. Postal Service's "Matter for blind and other
handicapped persons" program (39 U.S.C. 3403 - 3406). This Postal Service
program receives an appropriation from Congress to provide free postage
for qualifying organizations, programs, and individuals such as mail from
war zones, letters from blind people to anyone, and organizations which
work for the blind. The Library's National Library Service for the Blind
and Physically Handicapped uses this free matter program for mailing all
books and equipment to its participating lending libraries and patrons.
4. Certain legal actions to which the Library may be a named party are
administered and, in some instances, litigated by other federal agencies.
Generally, amounts (over $2,500 for Federal Tort Claims Act cases) to be
paid under any decision, settlement, or award pertaining to these
litigations are paid from the Treasury's Claims, Judgments, and Relief
Acts Fund. Since the Library, except for contract dispute payments, is
not required to reimburse this fund for payments made on its behalf, the
decision to make such payments is not reflected in the Library's
statement of financial position.
5. Governmental Services:
a. The Library of Congress is authorized to provide to other federal
libraries and agencies services such as automated library information and
other data base retrieval services through data base vendors and in-house
research studies. These services are provided on a cost reimbursement
basis and are billed in advance of providing the services. At year-end
the Library estimates the amount received in advance (Advances From
Others -Intragovernmental), and the amount to be received for services
provided (Accounts Receivable - Intragovernmental).
b. Three government agencies provide administrative services to the
Library on a reimbursable basis:
The Department of Agriculture's National Finance Center (NFC) processes
the Library's personnel, payroll, and employee benefits accounting
transactions. In fiscal year 1995, the Library paid $485,813 for these
services.
The Library utilizes the services of the Department of State as
documented by the Foreign Affairs Administrative Support (FAAS) system to
support the Library's six overseas field offices. The Library paid
$391,703 for these support services in fiscal year 1995.
The General Services Administration (GSA) provides building and vehicle
leasing services for the Library. (See Note 7)
c. As noted under Note 1.L, the Architect of the Capitol provides the
structural and
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-8 mechanical care of the Library's capitol hill facilities and remote
storage site at Fort Meade, Maryland.
S. Related Party Organizations
The Library lends support to several related organizations, projects, and
programs from which it receives benefits in various forms. The following
is a list of these organizations or programs:
1. Civilization Magazine - Civilization, a bimonthly magazine published
under license from the Library by a partnership controlled by L.O.C.
Management Corporation based in New York City, was launched in November
1994. The enterprise was approved by the Joint Committee on the Library
in the fall of 1993. Under the licensing agreement, the Library may
receive donations and must approve all promotional, editorial, and
advertising material using the Library name. Twelve hundred federal
depository libraries and the Congress received free subscriptions in
fiscal 1995. In connection with Civilization, the Library formed the
Library of Congress Associates Program. By subscribing to Civilization, a
person becomes an Associate entitled to special tours and discounts on
food and gift shop merchandise sold at the Library. By the end of 1995,
Civilization had a circulation of more than 200,000.
2. Telephone Pioneers of America - The Telephone Pioneers is a large
industry-related organization which voluntarily repairs playback machines
for the blind and physically handicapped program.
3. Library of Congress Child Care Association (LCCCA) - The LCCCA is a
nonprofit corporation under the District of Columbia's Nonprofit
Corporation Act. It was granted 501(c)(3) status by the Internal Revenue
Service on August 31, 1992, and currently operates as the "Little
Scholars Child Development Center." The center is located on the ground
floor of the Library's Special Facilities Center, 601 East Capitol Street
in the District of Columbia. The center provides child care for Library
employees and other legislative branch employees. Its operations,
management, and employees are the responsibility of the corporation and
not the Library of Congress. However, the Library and the Architect of
the Capitol support the center with equipment, free space, cleaning and
maintenance of grounds and building, utilities, local telephone service,
and security. The Library provides an official who is a non-voting
representative on the center's Board of Directors and who acts as a
liaison with the Library.
4. Ira and Leonore Gershwin Trust Fund and Related Charitable Trust -
Under the will of Mrs. Leonore Gershwin, the Library of Congress Trust
Fund Board is the beneficiary of 37.5 percent of Mrs. Gershwin's "1987
Trust." The will established the "Library Charitable Trust" which was
accepted by the Library of Congress Trust Fund Board in January 1992. The
primary purpose of the Trust is to perpetuate the name and works of
George and Ira Gershwin through all resources of the Library. The
Charitable Trust does not belong to the Library but is a separate entity
administered by trustees. The net income of the Charitable Trust is
distributed to the Library's Ira and Leonore Gershwin Trust Fund monthly
or in installments after the Library submits project requests. The
balance or principal of the Charitable Trust will be distributed to the
Library in 2033, fifty years after the date of death of Ira Gershwin. As
of September 30, 1995, the charitable trust income account
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-9 had a balance of $1,038,643 which was available for activities
following the development of project requests by the Library.
5. "Friends" Organizations" - Three organizations exist which lend
support to Library programs through gifts of money and other property but
are incorporated as independent entities under the Internal Revenue
Service Code, Section 501 (c)(3).
a. Millennium Foundation, Inc. - The foundation operates for charitable,
educational and literary purposes solely to benefit, support, and carry
out the purposes of the Library of Congress. The Library allows the
Foundation to use its name in connection with the performance of
activities approved by the Library. This right exists only so long as
Millennium is engaged in activities that directly or indirectly support
the mission and objectives of the Library.
b. Friends of the Law Library - The non-profit organization's purpose is
to stimulate interest in the Law Library among lawyers, librarians, and
legal scholars worldwide; to acquire additional legal materials and to
sponsor legal research. Among other projects supported by the Friends in
fiscal year 1995, the Law Library received $7,730 to cosponsor a lecture
with the Supreme Court Historical Society.
c. Friends of Libraries for the Blind - The non-profit organization's
purpose is to heighten awareness and visibility of national library
services for blind and physically handicapped individuals in the United
States and Canada and assist and promote library services, provide
cultural enrichment programs and create and issue periodic communications
on topics related to blind and physically handicapped individuals.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-10 Note 2. Fund Balance With Treasury
A. Fund Balances:
1. ENTITY Obligated Unobligated/Available Unobligated/Restricted Total
Appropriated Funds $ 85,712,265 $ 34,694,178 $120,406,443
Reimbursable Funds 32,653,859 981,186 33,635,045
Gift and Trust Funds 3,417,490 9,417,681 $ 5,330,224 (2) 18,165,395 (1)
Gift Revolving Funds 1,351,003 3,595,948 4,946,951
Other 3,537,715 (3) 3,537,715
Total Entity $123,134,617 $ 52,226,708 $ 5,330,224 $180,691,549
2. NON-ENTITY
Custodial Funds $ 385,511 $ 385,511
Total Non-Entity $ 385,511 $ 385,511
(1) Includes permanent loan to U.S. Treasury in amount of $9,999,999. (2)
Permanent loan principal amount restricted - $5,330,224. (3) Balances in
deposit, suspense, clearing and other accounts which are included in
Appropriated Fund Balance.
B. Permanent Loan to U.S. Treasury:
Under 2 U.S.C. 158, up to $10,000,000 of the Library's trust funds may be
invested with the U.S. Treasury as a perpetual loan, at a floating rate
of interest, adjusted monthly, but no less than four percent per annum.
At September 30, 1995, the gift and trust fund balance included $9.99
million invested in the permanent loan at an interest rate of 6.5
percent.
C. Fund Balance with Treasury Includes Foreign Currency Translated:
Japanese Yen - Y22,587,345 @ 96.69 = $233,606 Indian Rupees - Rs3,211,349
@ Rs31.81/1 = $100,954
The exchange rate is of August 31, 1995, taken from the Treasury
Reporting Rates of Exchange Report, as of September 30, 1995. To ensure
all reports are translated at uniform exchange rates, all agencies are
directed to use the current quarterly Treasury exchange rate report for
the period reported on.
Note 3. Custodial Funds
The Library of Congress Copyright Office Licensing Division administers
the compulsory and statutory licenses covered by the Copyright Act (17
U.S.C.). The Licensing Division receives royalty fees from the cable
television operators for retransmitting television and radio broadcasts,
from satellite carriers for
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-11 retransmitting "superstation" and network signals, and from
importers and manufacturers for distributing digital audio recording
products (DART). Refunds may arise when a cable, satellite, or DART
remitter inadvertently overpays or is otherwise entitled to a refund. The
Licensing Division invests the licensing royalty fees in market-based
U.S. Treasury notes and bills. Because these investments are held in a
custodial capacity, income does not accrue to the Library's benefit.
The Copyright Royalty Tribunal Reform Act of 1993, Public Law 103-198,
eliminated the Copyright Royalty Tribunal (CRT) and transferred its duty
to distribute copyright royalties to the Copyright Office, Library of
Congress. If disputes arise regarding the disposition of the royalties,
the Copyright Office recommends that the Librarian convene a copyright
royalty arbitration panel (CARP). The panel consists of two arbitrators
selected from three recommended by the Register of Copyrights. The three
recommended arbitrators are selected from a list of professional
arbitrators nominated by professional arbitration associations. The two
selected arbitrators select a third who acts as the chairperson of the
panel. The Librarian of Congress reviews the panel's decisions and has 60
days to adopt or reject the panel's decision. Decisions may be appealed
in the Federal court.
Note 4. Investments (Net)
1. ENTITY ASSETS - TRUST FUNDS Cost Premium Discount Net Unamortized
Unrealized Investments, Market Value
A. Intragovernmental Securities Non-Marketable, Market-Based $12,608,000
$ 29,597 $( 91,667) $12,545,930 $12,590,295
B. Governmental Securities Private Sector 12,357,477 12,357,477
12,917,822
Sub-total - Entity $24,965,477 $ 29,597 $( 91,667) $24,903,407
$25,508,117
II. NON-ENTITY ASSETS- Custodial Unamortized Unrealized Investments,
(Copyright Royalties) Premium Discount Net Cost Market Value
A. Intragovernmental Securities Non-Marketable, Market-Based $423,745,000
$233,042 $(4,312,902) $419,665,140 $420,473,820
Sub-total - Custodial 423,745,000 233,042 (4,312,902) 419,665,140
420,473,820
Total Entity and Non-Entity Assets $448,710,477 $262,639 $(4,404,569)
$444,568,547 $445,981,937
A. Intragovernmental Securities
Non-marketable, market-based securities are Treasury securities issued to
governmental accounts that are not traded on any securities exchange, but
mirror the prices of marketable securities with similar terms. At the
direction of the Trust Fund Board, or as specified by donors, trust funds
are invested in U.S. Treasury securities, the U.S. Treasury permanent
loan, and private sector securities.
Copyright royalties are invested by the Library in U.S. Treasury
securities as directed by the Copyright Office until the distributions
are made to the copyright owners.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-12 Intragovernmental securities are intended to be held until maturity.
B. Governmental Securities
Governmental securities are the Library's investments that are held in
trust by a commercial bank and are managed by a private investment
management company. These investments consist of various financial
instruments such as money market funds and mutual funds that own common
stocks, agency and corporate obligations and preferred stock. Cost value
was derived from the investments made, plus gains, dividends, income or
additional investments and less any losses, fees or distributions.
Governmental investments are intended to be available for sale. (See Note
12.)
C. Portfolio Summary for all Trust Fund Private Sector Investments
Type of Investment Cost Basis Market Value Unrealized Gains
Cash and Cash Equivalents $ 975,127 $ 975,127 $ -0-
Equities 4,731,708 5,113,297 381,589
Fixed Income: Treasury Securities 2,673,464 2,719,356 Other 3,977,178
4,110,042 45,892 132,864
Total $ 12,357,477 $ 12,917,822 $ 560,345
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-13 Note 5. Receivables (Net)
A. Accounts Receivables, Advances, and Interest Receivable as of
September 30, 1995
Fund mental Public Advances Trust Royalties Receivables Intra- Receivable
Receivable govern- Travel Gift & Copyright Total Interest Interest
1. ENTITY
Appropriated $ 217,785 $ 236,073 $ 23,183 $ 477,041
Reimbursable 7,186,514* 2,671 927 7,190,112
Gift & Trust 2,961 13,857 $ 152,912 169,730
Revolving 19,468 270,907 290,375
Total Entity $7,423,767 $ 512,612 $ 37,967 $ 152,912 $8,127,258
Less: Allowance for Losses 230,575 51,293 281,868
Total Net Entity Receivables $7,193,192 $ 461,319 $ 37,967 $ 152,912
$7,845,390
2. NON-ENTITY
Appropriated $ 4,998 $ 2,902 $ 7,900
Custodial $ 540,292 540,292
Total Non-Entity $ 4,998 $ 2,902 $ 540,292 $ 548,192
Total Entity and Non-Entity Receivables $7,198,190 $ 464,221 $ 37,967 $
152,912 $ 540,292 $8,393,582
* Intragovernmental Accounts Receivable - The major portion of the
Library's accounts receivable are in the FEDLINK program. The balances
are due from Federal agencies which use the FEDLINK services under
interagency agreements.
B. Pledges Receivable - At the end of fiscal year 1995, the Library had
pledges of contributions totaling $9.8 million. Of this total, $8.6
million is pledged to support the National Digital Library. For fiscal
1995, an accrual was made for the present value of the pledges,
$9,125,315 of which $6.7 million is fiscal year 1995 revenue and $2.4
million is prior year revenue. Of this amount, $2.4 million is pledged
for fiscal 1996; $3.7 million for fiscal 1997; $1.4 million for fiscal
1998; $1.4 million for fiscal 1999; and $228 thousand for fiscal 2000.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-14 Note 6. Property and Equipment (Net)
Operating property and equipment consists of equipment, furniture and
furnishings, equipment on loan to the public for the National Library
Service for the Blind and Physically Handicapped program, and automated
data processing (ADP) software. Operating equipment includes document
imaging systems, valued at $200,000, on loan from the Library to the
Appropriations Committees of the U.S. House of Representatives and the
U.S. Senate.
Capitalized equipment is serialized equipment (containing manufacturer's
serial number) such as computers, printers, and other equipment which has
an acquisition cost of $10,000 or greater.
Furniture and furnishings for the Library's use in its operations are
capitalized if the acquisitions or appraised value is $10,000 or more.
Equipment on loan to the public includes cassette players, talking books,
and other specialized equipment specifically developed for use by the
blind and physically handicapped. This equipment is distributed through a
network of participating libraries that loan the equipment to blind and
physically handicapped individuals. Inventory records of the equipment
are maintained by the Library of Congress, and on-site physical
inventories are performed periodically by contracted auditors. The value
of the capitalized items range from $100 to $500 each; however, the
equipment is manufactured and shipped in large lots valued at more than
$1 million each. The equipment inventory is capitalized at invoice price
which does not include any freight or postage costs. These shipping costs
are covered by the U.S. Postal Service's "free matter for the blind and
handicapped." The value of this free service, which ordinarily would be
included in the inventory value, is undetermined.
ADP software consists of software purchased from outside vendors with a
value of $10,000 or more per item and an estimated useful life of three
years or more. It does not include internally developed or leased
software.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-15 The following table shows property and equipment which was
capitalized at September 30, 1995.
Classes of Property Value Depreciation Value Acquisition Accumulated Net
Book
Appropriated: Operating equipment $ 30,182,888 $ 19,974,942 $ 10,207,946
ADP software 2,546,400 1,537,760 1,008,640
Furniture & Furnishings 609,600 70,440 539,160
NLS/BPH Equipment - loan to public 81,060,479 43,773,679 37,286,800
Total Appropriated 114,399,367 65,356,821 49,042,546
Revolving Funds: Equipment 1,037,896 581,222 456,674
Total Property $115,437,263 $ 65,938,043 $ 49,499,220
Note 7. Leases
The Library leases office space and vehicles from the General Services
Administration and has entered into other operating leases for various
types of equipment. Additionally, the Library's overseas field offices
lease operating space from the Department of State. Lease costs for
office space, vehicles and equipment for fiscal year 1995 amounted to
$6,833,205. Estimated future minimum lease payments through fiscal year
2006 are as follow:
Fiscal Year Ended September 30
1996 $ 6,120,169
1997 2,241,812
1998 2,131,811
1999 2,132,512
2000 2,111,472
Thereafter 12,622,080
Total Estimated Future Lease Payments $27,359,856
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-16 Note 8. Liabilities
Liabilities represent the amounts that are likely to be paid by the
Library as a result of transactions that have already occurred.
Liabilities for which an appropriation has not been enacted, or are the
result of custodial and deposit account activities, are classified as
liabilities not covered by budgetary resources. For accrued unfunded
annual leave and workers' compensation liabilities, it is not certain
that appropriations will be enacted to fund these amounts.
Accounts Payable are amounts due to vendors and other agencies for goods
and services received prior to the end of the fiscal year.
Accrued Payroll and Benefits, Unfunded Annual Leave, and Unfunded
Workers' Compensation are amounts earned or due as of the end of the
fiscal year plus an unfunded future liability for workers' compensation.
Advances and Deferred Credits are funds received for the reimbursable
programs and the Photoduplication Service that have not yet been earned.
An additional deferred credit in the amount of $438,600 represents a
trust fund receipt which was received but remained unprocessed at
September 30, 1995, pending final acceptance by the Joint Committee on
the Library.
Deposit Liabilities are customer funds on deposit for Copyright and
Cataloging Distribution products and services. This category also
includes the custodial funds for Copyright royalties.
Liabilities Covered by Budgetary Resources:
Governmental:
Appropriated Reimbursable Gift & Trust Revolving Custodial Combined
Eliminations Consolidated
Accounts Payable $ 12,994,934 $ 7,359,725 $ 747,278 $ 352,888 $
21,454,825 $ (942,818) $ 20,512,007
Accrued Funded 9,388,172 316,983 100,845 151,998 $ 9,957,998 9,957,998
Payroll and Benefits
Total Liabilities Covered by Budgetary Resources $ 22,383,106 $ 7,676,708
$ 848,123 $ 504,886 $ 31,412,823 $ (942,818) $ 30,470,005
Liabilities not Covered by Budgetary Resources:
IntraGovernmental
Appropriated Reimbursabl Gift & Revolving Custodial Combined Eliminations
Consolidated e Trust
Accounts Payable $ 5,528 $ 5,528 $ (5,528) -0-
Other 91,520 91,520 91,520
Advances/Deferred Credits 33,205,327 33,205,327 33,205,327
Total: Intra-Governmental $ 91,520 $ 33,205,327 $ 5,528 $33,302,375 $
(5,528) $ 33,296,847
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-17 Governmental
Accounts Payable 253,093 253,093 253,093
Accrued Unfunded Annual Leave 14,558,525 374,495 107,962 183,895
15,224,877 15,224,877
Accrued Unfunded Workers' Compensation 11,271,423 11,271,423 11,271,423
Deposit Liability 3,814,153 420,337,850 424,152,003 424,152,003
Deferred Credits 438,600 801,736 1,240,336 1,240,336
Total Governmental $ 29,644,101 $ 374,495 $ 546,562 $ 985,631
$420,590,943 $452,141,732 $452,141,732
Total Liabilities Not Covered by Budgetary Resources $ 29,735,621 $
33,579,822 $ 552,090 $ 985,631 $420,590,943 $485,444,107 $ (5,528)
$485,438,579
Note 9. Workers' Compensation
The Federal Employees' Compensation Act (FECA) provides income and
medical cost protection to covered federal civilian employees injured on
the job, employees who have incurred a work-related occupational disease
and beneficiaries of employees whose death is attributable to a job-
related injury or occupational disease. Claims incurred for benefits for
Library employees under FECA are administered by the Department of Labor
(DOL) and later billed to the Library.
The Library accrued its workers' compensation costs that were unbilled or
unpaid as of September 30, 1995 ($2,206,433), and established an unfunded
liability for future costs. An analysis of the claims for the past six
years indicated that 95.2 percent of the claims filed by employees were
paid within ten years. Therefore, the estimated future unfunded liability
of $9,064,990 was based on a ten year projection.
Note 10. Contingent Liabilities
The Library does not have any pending material lawsuits or claims in
which the amounts are estimable and will probably result in payment by
the Library. When claims are expected to result in payments, and the
payment amounts can be reasonably estimated, appropriate provisions are
included in the principal statements.
However, a liability of $8.5 million plus legal fees exists in the Cook
vs. Billington case now pending in the United States Court of Appeals.
This settlement will be made from the Treasury's Claims, Judgments, and
Relief Act Fund.
In the opinion of management and legal counsel, the resolution of other
claims and lawsuits will not materially affect the financial position or
operations of the Library.
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-18 Note 11. Net Position
Consolidated
A. Unexpended Appropriations: Undelivered Orders Unobligated Prior Years'
Obligations Adjusted (Net)
Sub-total $ 65,450,186 34,947,342 ( 2,080,380)
$ 98,317,148
B. Invested Capital 49,042,547
C. Unrealized Gain on Governmental Securities 560,345
D. Cumulative Results of Operations 44,038,874
E. Other: Donations Restricted 14,069,248
F. Future Funding Requirements ( 26,496,301)
G. Total $179,531,861
A. Unexpended Appropriations
Unexpended appropriations consist of unobligated balances and undelivered
orders. Unobligated balances represent amounts appropriated which are
unobligated and have not lapsed, been rescinded, or withdrawn.
Undelivered orders represent obligations the Library had incurred as of
September 30, 1995, for goods and services which were ordered but had not
been received by that date.
Unobligated balances - 91-95 years: $ 18,072,722 No-Year: 16,874,620
Prior Years' Obligations Adjusted (Net) - represent upward and downward
adjustments for various transactions.
B. Invested Capital
Invested capital represents U.S. Government resources invested in certain
Library assets. This balance consists of the undepreciated value of
property and equipment that is financed by appropriations. This balance
also includes the undepreciated value of property and equipment donated
to the Library, which is transferred to the appropriated fund upon
acquisition of the capital asset. These assets are available for the
THE LIBRARY OF CONGRESS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended September 30, 1995
2-19 general use of the Library of Congress. Revolving fund property and
equipment balances are not included since they are not purchased from
appropriated funds.
C. Unrealized Gain on Governmental Securities
Unrealized gain represents the difference between the cost and market
value of trust funds invested with the private sector in governmental
securities.
D. Cumulative Results of Operations
Cumulative Results of Operations represent the net difference between
expenses and losses and financing sources, including appropriations,
revenue and gains, since the inception of the activity.
E. Other - Donations Restricted
Donations Restricted represent the total trust fund balance from current
and prior years that is permanently restricted (principal may not be
spent).
F. Future Funding Requirements
Future Funding Requirements represent liabilities reported in the
Statement of Financial Position which are not covered by available
resources. This amount consists of the Accrued Unfunded Annual Leave and
Workers' Compensation Liability balances.
Note 12. Subsequent Events - Governmental Securities
On December 4, 1995, the Library of Congress Trust Fund Board directed
the Library to terminate its investment contracts with a commercial bank
and increase its percentage of equity investments by placing the funds
with five new investment managers. In March 1996, the commercial bank
liquidated a total of $503,000 from ten accounts and remitted the funds
to the Library. On April 4, 1996, the bank remitted $12.17 million to the
Library. The final portion of the proceeds of approximately $40,000,
consisting of dividends and interest, will be remitted to the Library by
the end of April 1996. The proceeds received as of April 4, 1996, were
invested in U.S. Treasury bills maturing on May 2, 1996, at which time
the Library will invest the funds with each of the five new managers in
accordance with percentages prescribed by the Trust Fund Board.
THE LIBRARY OF CONGRESS Statement of Financial Position by Fund Type As
of September 30, 1995 (In Dollars)
APPROPRIATION REIMBURSABLE GIFT AND TRUST REVOLVING CUSTODIAL COMBINED
ELIMINATION'S CONSOLIDATED
ASSETS APPROPRIATION REIMBURSABLE GIFT AND TRUST REVOLVING CUSTODIAL
COMBINED ELIMINATION'S CONSOLIDATED
ASSETS
Entity Assets:
Fund Balance With Treasury $123,944,158 $33,635,045 $18,165,395
$4,946,951 $180,691,549 $180,691,549
Investments, Treasury Securities 12,545,930 12,545,930 12,545,930
Investments, Governmental Securities 12,917,822 12,917,822 12,917,822
Accounts Receivable, Net - Intragovernmental 347,007 6,974,583 15,845
735,161 8,072,596 (879,404) 7,193,192
Accounts Receivable, Net - Public 230,290 2,671 2,961 225,397 461,319
461,319
Interest Receivable 152,912 152,912 152,912
Advances and Prepayments 23,183 927 13,857 37,967 37,967
Pledges Receivable - Donations 9,125,315 9,125,315 9,125,315
Cash and Other Monetary Assets 66,062 66,062 66,062
Inventory 274,526 274,526 274,526
Operating Materials and Supplies 1,502,411 373,377 1,875,788 1,875,788
Property and Equipment, Net 49,042,546 456,674 49,499,220 49,499,220
Library Collections
Total Entity Assets 175,155,657 40,613,226 52,940,037 7,012,086
275,721,006 (879,404) 274,841,602
Non-Entity Assets:
Fund Balance With Treasury 385,511 385,511 385,511
Investments, Treasury Securities 419,665,140 419,665,140 419,665,140
Accounts Receivable, Net - Intragovernmental 73,940 73,940 (68,942) 4,998
Accounts Receivable, Net - Public 2,902 2,902 2,902
Interest Receivable 540,292 540,292 540,292
Total Non-Entity Assets 76,842 420,590,943 420,667,785 (68,942)
420,598,843
Total Assets $175,232,499 $40,613,226 $52,940,037 $7,012,086 $420,590,943
$696,388,791 ($948,346) $695,440,445
3-3
THE LIBRARY OF CONGRESS Statement of Financial Position by Fund Type As
of September 30, 1995 (In Dollars)
APPROPRIATION REIMBURSABLE GIFT AND TRUST REVOLVING CUSTODIAL COMBINED
ELIMINATION'S CONSOLIDATED
ASSETS LIABILITIES
Liabilities Covered by Budgetary Resources:
Accounts Payable $12,994,934 $7,359,725 $747,278 $352,888 $21,454,825
($942,818) $20,512,007
Accrued Funded Payroll, Benefits 9,388,172 316,983 100,845 151,998
9,957,998 9,957,998
Total Liabilities Covered by Budgetary
Resources 22,383,106 7,676,708 848,123 504,886 31,412,823 (942,818)
30,470,005
Liabilities not Covered by Budgetary Resources:
Accounts Payable 5,528 253,093 258,621 (5,528) 253,093
Advances From Others - Intragovernmental 33,205,327 33,205,327 33,205,327
Advances From Others - Public 438,600 801,736 1,240,336 1,240,336
Custodial and Deposit Account Liability 3,814,153 420,337,850 424,152,003
424,152,003
Misc. Receipts Held for Treasury 76,843 76,843 76,843
Disbursing Officer's Accountability 14,677 14,677 14,677
Accrued Unfunded Annual Leave 14,558,525 374,495 107,962 183,895
15,224,877 15,224,877
Accrued Unfunded Workers' Compensation 11,271,423 11,271,423 11,271,423
Total Liabilities not Covered by Budgetary
Resources 29,735,621 33,579,822 552,090 985,631 420,590,943 485,444,107
(5,528) 485,438,579
Total Liabilities 52,118,727 41,256,530 1,400,213 1,490,517 420,590,943
516,856,930 (948,346) 515,908,584
NET POSITION
Balances:
Unexpended Appropriations 98,317,148 98,317,148 98,317,148
Invested Capital 49,042,547 49,042,547 49,042,547
Unrealized Gain on Investments,
Governmental Securities (Note 4) 560,345 560,345 560,345
Cumulative Results of Operations 1,584,026 (268,809) 37,018,193 5,705,464
44,038,874 44,038,874
Donations - Restricted 14,069,248 14,069,248 14,069,248
Future Funding Requirements (25,829,949) (374,495) (107,962) (183,895)
(26,496,301) (26,496,301)
Total Net Position 123,113,772 (643,304) 51,539,824 5,521,569 179,531,861
179,531,861
Total Liabilities and Net Position $175,232,499 $40,613,226 $52,940,037
$7,012,086 $420,590,943 $696,388,791 ($948,346) $695,440,445
3-3
THE LIBRARY OF CONGRESS Consolidated Operating Statement And Changes In
Net Position (Unaudited)
For the Year Ended September 30, 1995 (In Dollars)
Revenues and Financing Sources Appropriated Capital Used $353,181,759
Revenue from Sales of Goods 994,768 Revenue from Services Provided
57,848,550 Donations 23,454,077 Interest Earned 1,703,816 Other Revenues
and Financing Sources 4,107,924 Less: Receipts Transferred to Treasury
(3,532,029) Total Revenues and Financing Sources $437,758,865
Expenses Program/Operating Expenses: Salaries and Benefits 244,935,912
Program/Operating Expenses: Non-Personal 143,730,042 Depreciation
18,236,440 Bad Debts and Write-offs 131,244 Other Expenses 1,868,346
Total Expenses 408,901,984
Excess of Revenues and Financing Sources over Total Expenses $28,856,881
Changes in Net Position Net Position, Beginning Balance (Adjusted)
$143,040,069 Excess of Revenues and Financing Sources over Total Expenses
28,856,881 Plus: Non-Operating Changes 7,634,911 Net Position, Ending
Balance $179,531,861
3-3
THE LIBRARY OF CONGRESS Statement of Operations and Changes in Net
Position (By Fund Type - Unaudited) For the Year Ended September 30, 1995
(In Dollars)
APPROPRIATION REIMBURSABLE GIFT AND TRUST REVOLVING CUSTODIAL COMBINED
ELIMINATION'S CONSOLIDATED
Revenues and Financing Sources
Appropriated Capital Used $353,181,759 $353,181,759 $353,181,759
Revenue from Sales of Goods $3,644 $1,018,333 1,021,977 ($27,209) 994,768
Revenue from Services Provided $57,774,631 (4,268) 3,339,144 61,109,507
(3,260,957) 57,848,550
Donations 23,286,680 167,397 23,454,077 23,454,077
Interest Earned 1,703,816 1,703,816 1,703,816
Other Revenues and Financing Sources 3,532,029 659,366 3,112,441
7,303,836 (3,195,912) 4,107,924
Less: Receipts Transferred to Treasury (3,532,029) (3,532,029)
(3,532,029)
Total Revenues and Financing Sources 353,181,759 57,774,631 25,649,238
7,637,315 444,242,943 (6,484,078) 437,758,865
Expenses
Program/Operating Expenses: Salaries and Benefits 231,109,304 7,396,238
2,599,128 3,914,713 245,019,383 (83,471) 244,935,912
Program/Operating Expenses: Non-Personal 88,890,699 52,807,096 6,560,264
1,872,590 150,130,649 (6,400,607) 143,730,042
Depreciation 18,029,959 206,481 18,236,440 18,236,440
Bad Debts and Write-offs 2,985 128,259 131,244 131,244
Other Expenses 1,735,423 33,111 83,858 15,954 1,868,346 1,868,346
Total Expenses 339,768,370 60,364,704 9,243,250 6,009,738 415,386,062
(6,484,078) 408,901,984
Excess (shortage) of Revenues and
Financing Sources over Total Expenses $13,413,389 ($2,590,073)
$16,405,988 $1,627,577 $28,856,881 $28,856,881
Changes in Net Position
Net Position, Beginning Balance (Adjusted) $102,625,817 $1,946,769
$34,573,491 $3,893,992 $143,040,069 $143,040,069
Excess (shortage) of Revenues and
Financing Sources over Total Expenses 13,413,389 (2,590,073) 16,405,988
1,627,577 28,856,881 28,856,881
Plus: Non-Operating Changes 7,074,566 560,345 7,634,911 7,634,911
Net Position, Ending Balance $123,113,772 ($643,304) $51,539,824
$5,521,569 $179,531,861 $179,531,861
3-3
4-1 THE LIBRARY OF CONGRESS
Stewardship Report HERITAGE ASSETS
September 30, 1995
Library Collections
The Library of Congress has the world's largest library collection
comprising over 108 million items including research materials in over
450 languages and various media. The collections include approximately
twenty-six million books and other printed materials, forty-six million
manuscripts, thirteen million photographs, four million maps, three
million pieces of music, two million audio recordings, and seven hundred
thousand motion pictures. The collection of incunabula (books printed
before 1500) is the largest in the Western Hemisphere, and the
collections of maps, atlases, newspapers, music, motion pictures,
photographs, and microforms are probably the largest in the world. Other
collections include drawings, posters, prints, technical reports and
other printed materials; computer programs, videotapes and disks, talking
books, and other audio and visual materials.
The Library has the papers of 23 presidents of the United States as well
as papers of people from many diverse arenas -- Susan B. Anthony, Sigmund
Freud, Averell Harriman, Henry Kissinger, Thurgood Marshall, Irving
Berlin, and many others. The Library's treasures include one of three
perfect copies in the world of the three-volume Gutenberg Bible printed
on vellum, two of the five known copies of the Gettysburg address, Thomas
Jefferson's handwritten draft of the Declaration of Independence, and
many other rare books and manuscripts including the oldest example of
printing in the world.
The collections are organized into two major categories: the print
collections which include classified books, serials, and pamphlets; and
the special format collections such as maps, motion pictures, music,
manuscripts, photographs, sound recordings, and prints.
Collections Policy
The Library's collections are universal in scope; however, the Library
does not collect everything or keep everything it receives. The
collections development policy has evolved over the years and follows the
concept of "universality" as stated by Thomas Jefferson. In 1814,
Jefferson offered to sell his personal library to the Library Committee
of Congress in order to "recommence" the Congressional library after the
British burned the U. S. Capitol destroying the Library of Congress.
Jefferson stated: " I do not know that it contains any branch of science
which Congress would wish to exclude from their collection; there is, in
fact, no subject to which a Member of Congress may not have occasion to
refer." In 1815, President James Madison approved an Act of Congress
appropriating $23,950 for the acquisition of Jefferson's library of 6,487
volumes.
4-2 As set forth in the Library's Collections Policy Statements, the
Library's collections development policies are directed towards its
responsibilities to serve (1) the Congress and United States Government
as a whole, (2) the scholarly and library community, and (3) the general
public. The Library's mission is "to make its resources available and
useful to the Congress and the American people and to sustain and
preserve a universal collection of knowledge and creativity for future
generations." Written collections policy statements assure that every
effort is made to possess all books and library materials necessary to
the Congress and various offices of the United States Government to
perform their duties; a comprehensive record, in all formats, documenting
the life and achievement of the American people; and a universal
collection of human knowledge (except clinical medicine and technical
agriculture, which are the responsibility of the National Library of
Medicine and National Agricultural Library respectively) embodying
primarily in print form the records of other societies, past and present.
The major source of the Library's collections of Americana is the
copyright deposit program. The copyright law of 1870 for the first time
combined the registration and deposit functions in the Library of
Congress and required that two copies of everything registered be
deposited in the Library.
The Cataloging in Publication (CIP) Program is the other principal source
of U.S. published books that the Library acquires. A mainstay of U.S.
library service for more than twenty years, the program provides
cataloging data, based on prepublication galleys, to participating
publishers who include the data in their published books. As
participants, these publishers are required to submit a copy of the
published book to the Library. This copy is in addition to the two copies
mandated under the copyright law. In fiscal year 1995, the Library
obtained 49,201 books through the CIP program. These additional titles
are either added to the collections or used as part of the Library's
exchange program.
The Library also acquires materials by purchase (essential publications
not available though copyright deposit or the CIP program), transfer from
other federal agencies, gift, domestic and international exchange, or by
provisions of state and federal law. Many of these materials are foreign
publications. The Library maintains six overseas offices and has
arrangements with book dealers, agents, and publishers to ensure
efficient and prompt acquisition of current foreign publications of
research value on a world-wide basis.
The following are brief descriptions of the Library's International
Exchange and Federal transfer programs:
Of its 15,000 exchange agreements, the Library of Congress maintains
fewer than one hundred "official" exchanges with major national and
parliamentary libraries around the world. These exchanges were instituted
and are overseen by the Library; however, the Government Printing Office
has the responsibility to ensure that this select group of exchange
partners receives U.S. Government publications. Pursuant to 44 U.S.C.
1719, the Superintendent of Documents distributes U.S. government
publications "to those foreign governments which agree, as indicated by
the Library of Congress, to send to the United States similar
publications of their governments
4-3 for delivery to the Library of Congress." The Government Printing
Office pays for the cost of this program from funds appropriated for the
Superintendent of Documents. In fiscal year 1995, the Exchange and Gift
Division (E&G) received 162,000 items, or 45 percent of its exchange
receipts, from these official central sources.
Pursuant to 36 C.F.R. 701.33, Federal libraries send their surplus
materials to the Exchange & Gift Division for addition to the Library's
own acquisitions to use in the exchange and surplus books program. In
fiscal year 1995, the Library received more than two million items from
Federal agencies, and, although only a very small number were selected
for the collections, several thousand were used in exchanges with other
libraries for materials needed by the Library of Congress. Many thousands
of other Federal transfers were used in the Library's surplus books
programs.
The primary resources for recent acquisitions are as follow:
1992 1993 1994 1995
Annual Appropriations Authorized $ 7,636,000 $ 7,669,000 $ 8,127,000 $
8,458,000
Estimated Value of Copyright Deposits Transferred to the $12,134,000
$13,547,000 $15,711,000 $20,158,594 Library
Government Printing Office Appropriation (part of Superintendent of
Documents) for $ 750,000 $ 637,000 $ 712,000 $ 462,000 International
Exchange
4-4 Acquisitions by source:
Source Pieces 1992 Pieces 1993 Pieces 1994 Pieces 1995
Purchases: Appropriated GENPAC 930,747 914,742 799,110 714,127
Appropriated Other 230,213 202,853 197,970 146,828 Special Foreign
Currency 101,304 78,108 66,081 65,827 Gift and Trust Funds 5,774 20,318
5,541 3,712
Total Purchases 1,268,038 1,216,021 1,068,702 930,494
Non-Purchases: Exchange 473,394 529,125 558,327 453,857 Government -
Transfers 992,694 720,925 727,874 732,087 Gifts 1,439,056 650,282
1,246,809 744,860 Cataloging in Publication 53,016 46,048 56,345 49,201
Copyright Deposits 827,173 833,929 757,082 855,022
Total Non-Purchases 3,785,333 2,780,309 3,346,437 2,835,027
Total All Acquisitions 5,053,371 3,996,330 4,415,139 3,765,521
Preservation and Conservation
The collections are maintained and preserved through an extensive and
diverse preservation program. The preservation of Library materials
budget element totaled $10.6 million in fiscal year 1995. Recent
preservation projects include:
use of a new book deacidification technology to ensure uniform, effective
deacidification of 72,000 books over the next two years;
a project to improve in-house reformatting capabilities for audio
preservation in either analog or digital form;
a pilot digitization program to explore the possibilities of transferring
motion picture film to digital formats for preservation and access and
for securing the digitized collections;
extensive study of a broad range of scanning schemes for conversion of
visual images or documents to a digital format for preservation
recording;
4-5 cleaning, relabeling, and rehousing of documents (see statistics
below); and
installation of a cold temperature vault with a multi-layered security
system and an ozone friendly non-aqueous fire suppression system for 18
of the Library's top treasures.
Preservation statistics for fiscal year 1995 are as follow:
Treatment: Volumes treated 3,982 Unbound items treated, paper-based 8,619
Non-paper-based items treated 135 Commercial library binding, volumes
235,070
Housing/Rehousing: Protective boxes constructed, for paper-based
materials 17,469 Items rehoused, paper-based 6,583 Discs, film (reels),
magnetic tape (reels/cassettes) 67,913 (58,963 discs; 7,500 reels;
cleaned, packaged 1,450 reels/cassettes)
Copying/Reformatting: Paper-based materials converted to microfilm, items
11,477 (2,873,433 feet microfilm) Audio materials converted to magnetic
tape, titles Video 2,656 materials converted to magnetic tape, titles
Motion 1,694 picture films converted, reels 2,240 (1,066,000 feet)
General Preservation of the Collections Items surveyed, paper-based
12,977
Deacidification of Printed Materials - One of the most serious
preservation issues facing the Library of Congress, and all libraries, is
the problem of brittle, deteriorating books caused by acid introduced
during the paper manufacturing process. The Library of Congress has an
estimated 15 million books that require deacidification treatment at an
estimated cost of $11.00 - $15.00 per book (1995 estimate). Recognizing
the limited resources and technical capacity to deacidify all of these
books, the Library sets priorities so that books of the greatest value
and which are most at-risk receive treatment first.
The acidic books issue began in the mid-1800's when acidic wood pulp was
substituted for rags in the manufacture of paper. This manufacturing
change has resulted in the natural deterioration of printed books and
other Library materials made from the acidic paper. The pages of the
books and materials become so brittle within a few decades that they
virtually self-destruct.
4-6 The Library of Congress is providing the leadership in a research
effort to solve the acidic book problem. Library chemists invented the
diethyl zinc (DEZ) mass deacidification process in the mid-1970's and
have evaluated and tested other deacidification processes. In 1984,
Congress appropriated $11.5 million in no-year funding for
deacidification research and a deacidification test facility. However, in
1994, the primary contractor for the DEZ process withdrew from the
deacidification business and terminated its license with the U. S.
Government, temporarily halting the DEZ phase of the deacidification
effort. As of January 1995, $5.8 million remained in the appropriated no-
year fund.
In 1995, Congress approved a Library preservation plan that proposed a
pilot project using a new deacidification technology. As a result, the
Library awarded a two-year contract to Preservation Technologies, Inc.
(PTI) that will use the Bookkeeper III deacidification process on
approximately 72,000 books at a cost of $1.062 million. If the project is
successful, the Library will continue to use this process for the
deacidification of its collections. The Library has also advertised the
availability of technical evaluation and testing services aimed at
encouraging other companies with mass treatment capability to come
forward.
Preservation of Audio/Video Materials - Another serious issue facing the
Library is the preservation of its magnetic media materials (audio,
video, and data). As magnetic materials age they can develop any one of a
number of conditions, all of which eventually result in an inability to
play them, which means that the data they contain can never be retrieved.
The physical life span of these materials is generally considered to be
20-30 years, under good conditions. The Motion Picture, Broadcasting, and
Recorded Sound Division (M/B/RS) alone has 650,000 tapes (approximately
500,000 hours of sound or video), some dating from the 1940s. Conversion
rates for these materials are shown on the Preservation Statistics chart.
Ancillary to the deterioration of magnetic materials is the difficulty of
maintaining appropriate play-back systems for them. For example, video
tape can be played back only on the system that created it. Since over
200 record and playback systems have been produced since the invention of
video tape, the Library cannot maintain them all. At present the Library
uses 12 of the most common systems -- 6 playback and record systems and 6
playback only systems. As part of its preservation approach to magnetic
materials, the Library is conducting a condition survey to estimate the
environmental, housing, and physical condition of its holdings. Studies
to determine the nature and requirements for preservation transfer media
and equipment are in progress.
The National Film Preservation Board and Nitrate Film Preservation - The
National Film Preservation Board, originally established by the National
Film Preservation Act of 1988 (2 U.S.C. 179b et seq.), serves as a public
advisory group to the Librarian of Congress. The Board consists of 36
members and alternates representing the film industry, archives,
scholars, film makers and others who make up the diverse American motion
picture community. As its primary mission, the Board works to ensure the
survival, conservation and increased public availability of America's
film heritage, including: advising the Librarian on the annual selection
of 25 films to the National Film Registry, and counseling the Librarian
on development and implementation of the national film preservation plan.
As of September 30, 1995, 175 films had been selected to the
4-7 National Film Registry.
In May 1995, legislation was introduced to reauthorize the Board and
establish a National Film Preservation Foundation. The Foundation would
work with the Library and other film archives throughout the United
States to raise funds from private sources to benefit national film
preservation efforts. The request for appropriations is up to $2 million
on a one-for-one matching basis annually over the ten-year authorization
period.
The nitrate base used by the commercial film industry between 1893 and
1951 was inherently unstable. The rate of deterioration is unpredictable
but is significantly influenced by previous and current storage
conditions. Materials kept at a low constant level of temperature and
humidity since the time of manufacture could conceivably last for 100
years.
The Library has 120 million feet of nitrate film in its collection of
which between 40 and 60 million still need to be preserved. The Library's
Motion Picture Conservation Center in Dayton, Ohio, is specifically
staffed and equipped to undertake the copying of nitrate film onto 35mm
acetate film which, if stored correctly immediately after duplication,
will not suffer significant decomposition. At present, staffing levels
permit the Library to copy just over one million feet per year. This rate
will not present a long-term problem if the Library can update its
existing nitrate storage facilities to meet the generally accepted
archival environmental recommendations of 37 degrees fahrenheit and 25
percent relative humidity. The Library is in the early stages of planning
for such facilities at the remote storage site to be built at Ft. Meade,
Maryland.
Service
The Library of Congress is a public institution that is open to everyone
over high school age, with limited exceptions. Its collections are
available to users in numerous public reading rooms located in three
Library buildings on Capitol Hill. The Library's first service priority
is to the Congress; second, to other branches of the Federal government;
and third, to scholars, other libraries and the general public. The
Library is not a lending library. Only members of Congress and other
statutory borrowers are authorized to remove materials from the Library.
For selected other users--primarily other libraries--the Library is
considered a "library of last resort," which means that they may borrow
certain materials through interlibrary loan if the needed materials are
not otherwise available in the United States.
To use Library collections, researchers identify the items they want
through card and on-line catalogs, finding aids, and bibliographies. They
request the items, showing photo-identification, by submitting call slips
to the staff, who retrieve the items from the secured collections storage
areas and deliver them to the reader. In addition, the Loan Division is
responsible for retrieving, packaging, and preparing loan charge records
for materials that circulate outside the Library. In fiscal year 1995,
the Library served over 2 million items in the Library. It also
circulated over 36,000 items to Congressional borrowers and nearly 45,000
items to other agencies and libraries. At the end of fiscal year 1995,
16,100 external loans were outstanding.
4-8 Collections Security
In 1992, following evidence of theft and mutilation of the collections,
the Librarian of Congress closed the stacks to the public and all Library
staff except those whose assigned duties required access to perform their
work. All Library staff are required to wear ID cards visibly at all
times within the Library.
At the same time, the Library developed a Plan for Enhancing Collections
Security , and, since 1992, has taken extensive measures to implement the
plan. Security is now in "layers" beginning with entrance to the Library
and generally consists of the following elements (which vary by type of
collection and current stage of implementation):
inspections are performed at building entrances;
personal belongings in selected reading rooms are restricted -- patrons
must use cloak rooms and lockers for personal belongings (this
requirement is being extended to additional reading rooms in 1996);
book stacks in the Thomas Jefferson and John Adams buildings are
electronically controlled by an electronic access system;
police patrols in book stacks have increased;
access to general collection stacks has been reduced by 50 percent;
anti-theft targets have been placed in more than 3 million books;
the automated Collections Control Facility, which provides item-level
inventory control for books, continues to be expanded;
beginning in February 1996, patron photo-identification cards are issued
to identify users and a data base of patron information is maintained;
locked vaults and cages have been installed in stack areas for a number
of valuable collections;
video surveillance cameras have been installed in a number of reading
rooms and stacks;
electronic anti-theft detection gates have been placed at active
pedestrian exits; and
exit inspections are performed.
4-9 An additional security measure in the planning stage is an on-line
item level tracking system for print materials which will replace the
Library's manual 12-million-plus card shelflist file. The system will
enable the Library to better control the collections by keeping track of
items added, in circulation, and on the shelf. An existing database is
now in use to track items on loan to Congressional and Library staffs and
other agencies. The new technologies help the Library to control the
collections and makes it easier to identify and investigate losses.
Finally, in February 1996, the Library conducted a survey of its
collections to establish an accurate identification of items which are
known to have been missing for thirty days or more. It is in process of
assessing the results of this survey to determine whether it should apply
special means to search for missing items, whether items reported as
missing should be replaced (either in original or surrogate format), and
what additional safeguards may need to be implemented.
Arrearage Reduction
An important priority of the Library is establishing bibliographic
control over the collections to increase their accessibility and, at the
same time, their security. In 1989, an inventory of unprocessed materials
determined the backlog (arrearage) to be 39.7 million items. During the
past five years, the Library has put forth an extensive effort to reduce
the cataloging arrearages and bring all the collections under
bibliographic control. At the beginning of fiscal year 1995, the
arrearages, mostly in non-book formats, exceeded 25 million items. This
figure was reduced by 2.9 million during the fiscal year. Arrearage
statistics for fiscal 1995 are as follow:
Items in Arrearage 1994 1995 Change Percent Change
Print Materials 818,839 599,375 (219,464) ( 26.8)
Special Materials 24,612,457 21,891,696 (2,720,761) ( 11.1)
Total 25,431,296 22,491,071 (2,940,225) ( 11.6)
The Library is continuing with its effort to protect its collections,
while at the same time, making the collections available to its users and
maintaining its status as the Nation's Library.
Financial Reporting
For financial reporting, the Library's collections are classified as
"Heritage Assets" which, in accordance with the Federal Accounting
Standards Advisory Board's (FASAB) recommended standard on stewardship
reporting, shall be reported as required supplementary stewardship
information accompanying the financial statements of the Federal
government and the component units of the Federal government responsible
for such assets. The Supplementary Stewardship Reporting standard is
still in draft form and has not as yet been accepted by the FASAB
principals (the General Accounting Office, The Office of Management and
Budget, and the Department of Treasury) as an accounting standard.
However, the section for reporting on "Heritage Assets" is expected to be
accepted in its present form.
4-10 The FASAB recommended standard states that the costs of the
stewardship-type resources shall be treated as expenses in the financial
statements in the year the costs are incurred. However, the costs and
resultant resources are intended to provide long-term benefits to the
public and should be included in stewardship reporting to highlight to
the reader their long-term benefit nature and to demonstrate
accountability over them.
Heritage assets are defined as:
Property, plant and equipment that are unique for one or more of the
following reasons:
. historical or natural significance;
. cultural, educational, or aesthetic value; and
. significant architectural characteristics.
The standard states that heritage assets shall be quantified in terms of
physical units (for example, number of items in collections or the number
of national parks). No asset amount shall be shown on the balance sheet
of the Federal financial statements for heritage assets. The quantities
of items in the Library's collections shown in the table below were taken
from Library statistics collected on a regular basis and records that
were accumulated over the years.
4-11 Estimated Quantity of Each Category of Collection Materials at
September 30, 1995
Category of Collection During Year During Year Total and Withdrawal Added
Withdrawn End-of Year Method of Acquisition
Print Collections - 345,424 29,088 16,764,805 Acquisitions: Copyright
Classified Books deposits, purchase, gifts, exchanges, cataloging-in-
publication
Withdrawals: exchange & gift of unwanted or duplicate copies;
depreciation or depletion through use; disposals through GSA
Other Print Materials - 98,780 24,717 9,169,903 Acquisitions: Copyright
includes books in large deposits, purchase, exchange type, newspapers,
and gift pamphlets, technical Withdrawals: exchange & reports,
incunabula, serials, gift; depreciation or depletion etc. through use; or
disposals through GSA
Total Print Collections 444,204 53,805 25,934,708
Other Collections - 2,076,093 1,574,289* 82,498,662 Acquisitions:
Copyright includes audio materials, deposits; purchase; talking books,
books in manufacture or copy; raised characters, exchange & gift
manuscripts, maps, Withdrawals: exchange & gift microforms, music, visual
of unwanted copies; losses, materials (moving images, depreciation and
depletion posters, photographs, through use; or disposals photocopies,
prints & through GSA. (Also, drawings, etc.), and adjustments made to
previous machine readable materials estimates.)
Total Collections 2,520,297 1,628,094 108,433,370
* Included in Items withdrawn is an adjustment for 1,279,836 Prints and
Photograph Division items which were counted twice during the fiscal 1989
arrearage census: 990,844 Postcards/Souvenir Viewbooks collection; 25,121
HABS/HAER 1 photographs and drawings 263,871 New York World-Telegraph &
Sun collection
Attached is a further breakdown of Library materials including additions
and withdrawals.
5-1 THE LIBRARY OF CONGRESS MANAGEMENT REPORT ON FINANCIAL CONTROLS
Fiscal Year Ended September 30, 1995
The Library of Congress has a complex and diversified financial
management system which includes a central system, 7 subsidiary systems,
and 9 program systems. The system manages 5 appropriations, 146 gift
funds, 84 trust funds, and 11 gift revolving funds. Although the Library
of Congress, a legislative agency, is not required to comply with the
Federal Financial Managers' Integrity Act (FMFIA), the Government
Management and Reform Act (GMRA) or the Chief Financial Officers Act
(CFO), it has chosen to follow these Acts in a manner consistent with a
legislative agency in order to fulfill its internal control objectives.
The Library's financial management policy, LCR 1510, requires regular
internal control reviews by its program and subsidiary system managers.
Criteria applied in these reviews are based on the internal control
standards and financial systems standards presented in Appendices 2 and 3
of title 2 of the GAO's Policy and Procedures Manual for Guidance of
Federal Agencies . Library management evaluates the responses to these
reviews, as well as information provided by the Library's Inspector
General, by independent auditors under contract with GAO to audit the
Library's consolidated statement of financial position and by independent
external auditors under contract to the Library's Office of Inspector
General to review the Library's cash management processes, to determine
the extent of compliance with the following internal control objectives.
Assets are safeguarded against loss from unauthorized acquisition, use or
disposition
Transactions are executed in accordance with budget authority and with
laws and regulations that could have a direct and material effect on the
financial statements
Transactions are properly recorded, processed, and summarized to permit
the preparation of reliable financial statements and to maintain
accountability for assets.
Financial managers are advised that the concept of reasonable assurance
recognizes that the cost of internal control should not exceed the
benefits expected to be derived therefrom, and errors or irregularities
may occur and not be detected because of inherent limitations in any
system of internal control. Managers are cautioned to take all necessary
measures to ensure that the limited reviews are conducted in a thorough
and conscientious manner and internal control objectives, as described in
the accompanying guidelines, were achieved within the limits prescribed.
Any deficiencies are disclosed with recommended plans and schedules for
correcting such deficiencies. This report does not address safeguarding
of the Library's collection assets. A separate management report on the
collections is presented at 5-4.
The Library evaluated its internal controls as of September 30, 1995, on
the basis of criteria for effective internal controls in the federal
government described above and identified the following deficiencies.
5-2 The Library did not have in place a process to accumulate and
summarize the information needed to perform proprietary financial
reporting as of September 30, 1995. As a result of the GAO's 1991 report
on its audit of the Library's financial statements, Library management
adopted a formal plan to correct the significant findings and implement
recommendations identified by the GAO and, further, to achieve an audit
in the future. That plan called for the implementation of a new financial
management system in fiscal year 1995 and an audit of the Library's
fiscal year 1996 financial statements to be performed in fiscal year
1997. That plan was prepared in recognition of the limited resources
available to perform these major undertakings. Thus, the Library had not
anticipated and was not fully prepared for the current audit. However,
the Library has gained valuable insights into establishing a financial
reporting process and will proceed to implement recommendations made by
the independent external auditors in fiscal year 1996.
The reconciliations of the Library's records with the Department of the
Treasury's records were not complete as of September 30, 1995. However,
the records were reconciled by the time of the completion of the audit in
April 1996. While primary reconciliations were completed as of September
30, 1995, two additional reconciliations were delayed as a result of the
conversion to the new financial system.
The property control system is still in the development stage. The
records for furniture and furnishings and capital leases are currently
incomplete. Equipment of the National Library Services for the Blind and
Physically Handicapped (NLS/BPH) program is not under general ledger
control, nor are the Library's records of that equipment reliably
reconciled to information maintained by the various agencies that
participate in the program. A complete system that is consistent with the
FASAB principles and standards is included in the Library's Financial
Management Improvement Plan.
Information Technology Service's current security practices expose the
Library to a higher level of risk than desired regarding the possibility
of unauthorized transactions, theft and/or misuse of assets, and loss of
data and programs for all library computer center and network activities.
The Library has not yet tapped the full capabilities of its new financial
management system to aggregate financial data by program, and to
accumulate data for determining the cost of programs and special
projects. While this does not affect the ability of the Library to meet
the three internal control objectives described above, it means that the
Library is not yet able to have readily available program and project
cost information that would be useful in making resource allocation
decisions.
As of September 30, 1995, the Library needed to establish improved
controls in its new financial management system to prevent certain
individuals from performing incompatible functions. Because of
significant resource requirements during conversion to the new system,
operating accountants were given authority to enter and approve journal
vouchers. Other senior individuals were given authority to enter and
approve
5-3 payments from the Library's imprest cash accounts. Additional access
authority was provided temporarily to other staff members in order to
accelerate the input of documents during the implementation of the
system. Now that day-to-day use of the system is current and more
routine, the Library has changed these initial settings to provide for a
more controlled environment.
The Library's self-assessment and review of its internal control and
accounting systems is incomplete in certain instances. The Library plans
to reinstitute training for the conduct of these self-assessments during
the next review cycle.
The Library lacks a formal business continuity plan for its automated
data processing systems, which exposes it to risk of lost data and
resources.
Procedures and controls over check processing and to a limited extent,
cash handling, need improvement.
When GAO performed the first audit of the Library's financial statements,
the Library's accounting systems suffered so many deficiencies that GAO
was unable to render any opinion on the financial statements produced
from those systems. Since then, the Library has made a number of
improvements in its systems, most importantly installing a new financial
management system in fiscal 1995. As a result of these improvements,
independent external auditors were able to express a qualified opinion on
the Library's Consolidated Statement of Financial Position as of
September 30, 1995. We believe internal controls were generally effective
at September 30, 1995, in providing reasonable assurance that
transactions were executed in accordance with budget authority and with
laws and regulations that could have a direct and material effect on the
financial statements. We cannot provide reasonable assurance that
internal controls in place at September 30, 1995, met the other two
objectives (that assets are safeguarded against loss from unauthorized
acquisition, use, or disposition, and that transactions are properly
recorded, processed, and summarized to permit the preparation of reliable
financial statements and to maintain accountability for assets) because
of the material weaknesses, as described above, in the following four
areas: (1) processes for the preparation of proprietary financial
statements; (2) reconciliation of records; (3) control over property and
equipment; and (4) Information Technology Service's security practices.
However, we would like to note that the preparation of the accompanying
financial statements was made possible by the implementation of a new
financial system in fiscal year 1995 which records, processes, and
summarizes financial transactions in accordance with federal accounting
standards.
THE LIBRARY OF CONGRESS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The accompanying Consolidated Statement of Financial Position summarizes
the Library's assets, liabilities, and net position as of September 30,
1995. The basis of accounting used for the statement is described in the
notes to the statement. While the Library is not subject to the Chief
Financial Officers Act of 1990 or FMFIA, it is committed fully to the
principles and objectives of both Acts and has elected to comply with
their requirements in a manner consistent with a legislative agency.
5-4 The audit of the Consolidated Statement of Financial Position was
performed by the independent accountants, Price Waterhouse LLP. The
independent accountants' report on the Consolidated Statement of
Financial Position, internal controls, and compliance with certain laws
and regulations is included in Section 6 of this report.
Director, Financial Services
Librarian of Congress
5-5 THE LIBRARY OF CONGRESS MANAGEMENT ASSERTION ON CONTROLS FOR THE
COLLECTIONS
Fiscal Year Ended September 30, 1995
The purpose of this section is to assert management opinion about the
effectiveness of the Library of Congress' internal control structure for
the collections.
Preamble -- the Mission of the Library of Congress
The mission of the Library of Congress is to acquire, preserve, and make
maximally accessible the intellectual and information heritage of the
United States and, to the degree desirable, the world. The Library
serves, in priority order: the Congress; other branches of the
government; other libraries and archives; researchers; and the general
public. It is custodian of over 108 million items, in over 450 languages
and in the following formats: monographs and serials; manuscripts;
prints, posters, and photographs; maps, atlases and globes; music
manuscripts and scores; motion picture, broadcasting and recorded sound;
rare books; microforms; machine readable formats; and digital files. It
makes these materials available to Congress and other government entities
through loans; to the research public in its reading rooms on Capitol
Hill and through interlibrary loan; and to the general public through the
National Digital Library and such outreach programs as exhibitions,
publications, videos, CDs, and tapes.
The Library of Congress, as the nation's library of last resort, has a
special obligation to acquire comprehensively the creative and
intellectual legacy of this nation; to secure and preserve those items
for present and future generations; and to make these items as available
as possible and prudent to its constituents, primarily Congress and the
research community. Achieving and maintaining the proper balance among
preservation, security, and access is a dynamic and challenging process,
faced by all libraries and archives. The process is influenced by the
changing demand of the users, the development of technological and other
means for preserving and securing collections, and the judgment of
management about the equilibrium itself. Maintaining an equilibrium in
the midst of change is in turn influenced by the financial and personnel
resources the Library has, through appropriations and other sources, to
invest in acquiring, preserving, securing, and serving the heritage
assets which comprise not only the Library's holdings, but in fact the
official record of the history and creativity of the American people
throughout its history.
The risks to the national collections are: not acquiring materials that
are critical to the continued development of the research collections
that meet the needs of Congress and the research community; not
preserving the collections from the physical degradation inherent in each
of the various media the Library holds and from deterioration through
use; the theft, mutilation, or accidental loss of the items in the
collection; and the failure to make the collections available to users in
a timely and appropriate fashion. In the course of its nearly two hundred
-year history, the Library has provided outstanding service to the
Congress, and has over time added service to other constituencies -- the
Executive and Judicial Branches, the library and academic communities of
America, and the general public -- while continuing to make service to
Congress its first priority. With time the risks to the collections have
increased greatly, especially the matter of physical degradation with the
introduction of wood pulp (i.e.,
5-6 highly acidic) paper in the mid-nineteenth century and a variety of
highly unstable media in the twentieth (nitrate and acetate film stock,
wax cylinders, audio tape, etc.). In addition, as the Library has striven
to serve a wider audience as the collections have grown, the risk of
theft, mutilation, and accidental damage through handling has become more
serious. Although this problem has always been widely recognized and
conscientiously addressed with special format materials such as
manuscripts and rare books, it was not until recently that the Library
recognized the same problem afflicted the General Collections (i.e.,
books and serials published after 1800).
While the Congress has, within the past one hundred years, approved the
construction of three special library buildings on Capitol Hill for
storage and service of the collections, as well as the acquisition of
acquired space for special storage in Ohio, Pennsylvania, and Maryland,
the physical plant has not kept pace with the growth of the collections
and their demand for a controlled environment to slow inherent physical
degradation. In order to ensure continued excellent service to Congress,
as well as the Library of Congress' mission to document the history and
creativity of the American people, the Library has been zealous in
fulfilling its obligation to sustain a comprehensive collection base,
even, at times, running the risk that accumulation of items for the
collections might outstrip the Library's ability to preserve, secure, and
gain bibliographical control of the collection in a timely fashion. While
this has been a conscious decision on the part of management -- that
without acquiring appropriate collections as they become available, the
Library has no chance of fulfilling its most fundamental mission to
Congress and the nation -- this has led to a cataloging backlog,
inadequate storage, and insufficient security, in an environment of
limited resources.
The Library of Congress recognizes these problems and has taken important
steps to address them. It opened the Preservation Directorate in 1967. It
made an aggressive assault on the uncataloged backlog in 1989 when it
launched its Arrearage Reduction effort. And in 1992, it took the
unprecedented step of closing its book stacks to the general public
altogether and to its own staff for all purposes not directly related to
their duties; and began the systematic upgrading of security in all its
reading rooms and installation of perimeter security of the collections.
For almost a decade it has sought additional space and resources for
secondary storage and film and audio preservation facilities. However,
much remains to be done. A new balance between preservation, security,
and access is necessary for the twenty-first century, and it will not
come without significant cost.
MANAGEMENT ASSERTION
We confirm, to the best of our knowledge and belief, the following:
1) We are responsible for establishing and maintaining the internal
control structure for the collections;
2) We have assessed the effectiveness of the Library of Congress'
internal control structure over safeguarding of assets (collections)
against unauthorized acquisition, use, or disposition, based upon control
criteria established. Those control criteria include: bibliographical
controls, preservation controls, inventory controls, and physical
security controls. Specific controls over items depend upon the
individual format, demand for and conditions of use, and the value and
risk assessment for that item.
5-7 Bibliographical controls include cataloging, archival processing, and
arrearage reduction.
Preservation controls include use of surrogates (digital, microform,
service copies of audiovisual materials); collections care programs;
disaster preparedness; Top Treasures security; de-acidification;
conservation of individual items; preservation treatment of processed
items; preservation research and testing program to define actions for
deacidification, storage, audio preservation, studies of longevity of new
digital media, etc.; and special congressionally-mandated preservation
programs such as the National Film Preservation Board and American
Television and Radio Archive.
Inventory controls include the automated circulation control system;
manual shelflist; finding aids and other detailed descriptions; and
registry of items lent for exhibition.
Physical security controls include perimeter security (e.g., exit
inspections and theft detection devices); stacks closed to the public and
all staff except those who require daily access in order to perform their
jobs; reader registration; security in reading rooms (cameras, police
patrols, etc.); caging or further reducing access to high risk
collections; and secured loan stations.
3) Serving members of the research community and the public in our
reading rooms exposes the collections to risks of loss and damage that
could impair the Library's ability to serve users in the future, yet, the
Library's collections exist to be used. Since 1992, the Library has
increasingly limited these risks by reducing direct access to the
collections and enhancing other controls over the collections. We believe
these steps have limited these risks to a level where the benefits of
continued reading room service to the research community and public
outweigh the potential losses that could result from providing these
services. Nevertheless, our assessment of internal controls identified
the following weaknesses in controls which could adversely affect the
Library's ability to meet its internal control objectives, and, as a
result, we cannot provide reasonable assurance that the internal control
structure over safeguarding collection assets against unauthorized
acquisition, use, or disposition, was generally effective at September
30, 1995.
Bibliographical controls: As of September 30, 1995, the Library had
reduced the arrearage count by 17.2 million items from the 1989 benchmark
number of 39.7 million -- a decrease of 43.3 percent. However, arrearage
reduction staff has suffered severe attrition due to budget cutbacks, so
that the Library's projected goal of 80 percent reduction of the backlog
by the year 2000 will not be met until 2005.
Preservation controls: the Library has inadequate temperature and
humidity control in collections storage areas; inadequate space for
appropriate storage of collections materials; insufficient space for
reformatting acetate negative collection; and insufficient funds for
reformatting. These conditions cannot be fully addressed with current
funds and physical plant. The development of the off-capitol-hill
collections storage facility is expected to remedy many of these
difficulties beginning in fiscal year 1998. Setting up an effective
deacidification program, planning a new nitrate film preservation and
storage facility, and revamping the Photoduplication
5-8 Service -- all begun in fiscal year 1996 -- will improve
preservation.
Inventory controls: The 12-million card print materials shelflist exists
in manual form only, which prevents the Library from having an easily
updatable tracking system for the exact location of any given cataloged
item. Plans for an automated shelflist are completed; work will begin
when funds, requested in fiscal year 1997, are obtained.
Physical security controls: In September 1995, many physical security
risks remain, although the Library has taken extensive measures to limit
the risks. The Library lacks a comprehensive and integrated security plan
and does not have adequate staff charged solely and specifically with
responsibility for the security program. The security plan will be
addressed after a Library consultant has made its recommendations in May
1996. The James Madison Building loading dock is inadequately supervised
and unauthorized entry is possible. An acting Dockmaster was appointed to
oversee the loading dock in November 1995. The Landover Center Annex has
poor control over collections because there are no systems for tracking
items removed, several inoperative alarms, and inadequate police staff. A
full-time Security Manager was appointed in January 1996; an electronic
access control system was activated and all alarms were tested and
repaired as needed in March 1996. Not all Library materials bear Library
of Congress ownership markings. Research is currently underway by
Preservation on how to mark materials that cannot be stamped. Not all
bound materials have theft detection targets. Insertion of targets is an
ongoing process that has been accelerated to include items in the
Copyright Office, Order Division, etc. Except in the case of those
reading rooms which serve the very highest risk and value materials, such
as Manuscript and Rare Book Reading Rooms, more video surveillance
cameras are needed. One hundred and forty-two cameras have been
installed, and fiscal year 1996 funds allow installation of 130 more.
Insufficient controls exist over items that one can bring into and remove
from reading rooms. A new policy for increased control of reading rooms
will go into effect in April 1996. The Library has insufficient police
staff to provide a visible, effective deterrent presence in collection
storage areas, book stacks, reading rooms, and throughout the Library's
buildings. We believe there is inadequate protection of the buildings and
collections from terrorist attacks: no barriers to prevent vehicles with
bombs from approaching. Concrete planters have been placed to block
vehicular access to the Jefferson Building; available police resources do
not allow for adequate patrols of exteriors; video surveillance of
exteriors is limited; and entry inspections of people do not meet federal
guidelines. Fiscal year 1997 funds are requested for X-ray machines and
staff. 4) We have disclosed all significant deficiencies in the design or
operation of the internal control structure which could adversely affect
the Library's ability to meet the internal control objectives.
Winston Tabb, Associate Librarian for Library Services
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-1 REPORT OF INDEPENDENT ACCOUNTANTS
Comptroller General of the United States:
We have audited the accompanying Library of Congress (Library)
Consolidated Statement of Financial Position as of September 30, 1995.
The GAO task order specified that the operating statement was also to be
audited. However, we could not opine on the operating statement as
opening balances were not available for audit, as well as for other
reasons detailed further in Appendix I, Weakness 1 on pages 6-13 through
6-15 of this report. We have also examined management's assertion,
included in the management report on financial controls in Section 5 of
the Library s Annual Financial Report, regarding effectiveness of the
Library s internal control structure over financial reporting in place as
of September 30, 1995. Lastly, we have examined management s assertion
regarding the sufficiency of controls for safekeeping the Library s
collections in Section 5 of the Library s Annual Financial Report. Our
conclusions on the Consolidated Statement of Financial Position and on
management s assertion about the effectiveness of the Library s internal
control structure over financial reporting are discussed in more detail
below. Our opinion on management s assertion about the effectiveness of
internal controls over safeguarding collection assets is included in a
separate report at pages 6-40 to 6-54 of this report.
In our audit of the Library of Congress for fiscal year 1995, we found:
Except for the effects of such adjustments, if any, as might have been
determined to be necessary had we been able to examine evidence regarding
property and equipment balances, the Consolidated Statement of Financial
Position presents fairly, in all material respects, the Library s
financial position as of September 30, 1995, in conformity with the basis
of accounting described in Note 1 to the Consolidated Statement of
Financial Position;
Management fairly stated that it cannot provide reasonable assurance that
internal controls in place at September 30, 1995, met two objectives
(that assets are safeguarded against loss from unauthorized acquisition,
use, or disposition and that transactions are properly recorded,
processed, and summarized to permit the preparation of reliable financial
statements and to maintain accountability for assets), but that internal
controls were effective in assuring material compliance with relevant
laws and regulations;
Report of Independent Accountants
Reportable conditions involve matters coming to our attention relating to
significant deficiencies in 1
the design or operation of the internal control structure that, in our
judgment, could adversely affect the Library s ability to record,
process, summarize and report financial data consistent with the
assertions of management in the financial statements. Certain more severe
reportable conditions are also considered to be material weaknesses. A
material weakness is a reportable condition in which the design or
operation of one or more of the internal control structure elements does
not reduce to a relatively low level the risk that errors or
irregularities in amounts that would be material in relation to the
financial statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their
assigned functions.
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-2 Reportable noncompliance with certain laws and regulations we
tested concerning the Library s revolving fund operations and investment
of gift securities that were not material to the Consolidated Statement
of Financial Position; and
Management fairly stated that it cannot provide reasonable assurance that
the internal control structure over safeguarding of collection assets
against unauthorized acquisition, use, or disposition was generally
effective at September 30, 1995.
Our audit work identified significant deficiencies involving the internal
control structure and its operation that we consider to be reportable
conditions under standards established 1
by the American Institute of Certified Public Accountants. The reportable
conditions we found, of which the first four we consider to be material
weaknesses, can be summarized as follows:
1. Financial Reporting Preparation Process Is Inadequate to Meet
Proprietary Reporting Requirements
2. Reconciliations of Cash with Treasury and of Various General Ledger
Balances with Subsidiary Systems Are Not Routinely Performed
3. Library Property and Equipment Records Are Not Reliable or Complete
and Portions of Property and Equipment Are Not Adequately Controlled
4. Current Information Technology Services (ITS) Security Practices
Expose The Library to Risk of Unauthorized Transactions, Theft and/or
Misuse of Data Processing Assets, and Loss of Data and Programs For All
Library Computer Center and Network Activities
5. The Internal Financial Reporting Process Should Be Enhanced to Provide
Management with More Meaningful Information
6. The Financial Services Directorate Needs to Receive Authorization For
and Fill Its Additional Positions In Order to Provide More Useful
Information to Management
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-3 7. Deficiencies in Certain Controls Over The Library s New
Financial Management System Application Security Expose The Library to
Risk of Unauthorized Transactions, Incorrect Data, and Misuse or Loss of
Data
8. The Library s Self-Assessment and Review of Its Internal Control and
Accounting Systems is Inconsistent with Audit and Other Findings
9. Lack of a Formal Business Continuity Plan Exposes The Library to Loss
of Data and Resources
10. Procedures and Controls Over Cash Handling, Check Processing and
Certain Disbursing Office Responsibilities Need Improvement
11. Trust Fund Accounting and Investing Are Not Subject to Sufficient
Review and Oversight to Prevent Misclassification of Funds and to Ensure
That Investments Comply with Legal Requirements
Through substantive audit procedures, which are detailed tests and
analytical procedures performed to detect material misstatements in the
classification of transactions, account balances, and disclosure
components of the Consolidated Statement of Financial Position, we were
able to satisfy ourselves that the weaknesses, outlined above and
detailed in Appendix I on pages 6-13 through 6-37 of this report, did not
have a material effect on the September 30, 1995 Consolidated Statement
of Financial Position of the Library, except for property and equipment
balances as discussed later in this report. However, these deficiencies
in internal controls may adversely affect any decision by management
which is based, in whole or in part, on information that is inaccurate
because of the deficiencies. Unaudited financial information reported by
the Library, including budget information, also may contain misstatements
resulting from these deficiencies.
The Library has not completed a comprehensive risk assessment and
collection security plan to identify the risks to its collections, the
proposed or established control activities to address the risks, the
required management information it needs to carry out its
responsibilities, and the methods by which management will monitor the
effectiveness of the established control procedures. Until it has
performed a risk assessment, implemented a comprehensive security plan,
and established mechanisms to monitor the implementation of that plan,
Library management will not have reasonable assurance that the risk of
unanticipated loss (theft, mutilation, destruction, or misplacement) of
collection items of significant market value, cultural or historical
importance, or information content is reduced to an acceptable level. In
addition, the Library has a number of significant weaknesses in
preservation controls, inventory controls, and physical security controls
over collection assets as of September 30, 1995. These conditions are
described in more detail in our separate report on management s assertion
about the effectiveness of internal controls over safeguarding collection
assets at 6-40 through 6-54.
This report also discusses significant matters considered in performing
our audit and forming our opinions, which are presented in the following
sections.
Report of Independent Accountants
Financial Audit: First Audit of the Library of Congress Discloses
Significant Problems , 2
GAO/AFMD-91-13, August 22, 1991.
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-4 SIGNIFICANT MATTERS
As a result of GAO s audit of the Library s 1988 financial statements ,
Library 2
management adopted a formal plan in 1990 to correct the significant
findings and implement recommendations identified by GAO and, further, to
achieve an audit in the future. One of the key GAO recommendations for
achieving an audit was development of an integrated financial management
system. Library management chose to implement a new financial management
system to meet this recommendation, which was done during fiscal year
1995. In our review of the Library s plan, an audit of the financial
statements was not planned until fiscal year 1996, i.e., 1995 was to
debug the system and reconcile account balances. As a result, the Library
was not prepared for an audit in 1995. Further, the inadequate time for
the Library to prepare for the fiscal year 1995 financial statement audit
contributed to certain of the significant matters identified in this
report and contributed to limiting the 1995 audit to the Consolidated
Statement of Financial Position. It is important to note, however, that
the deficiencies in internal controls can not be excused by the demands
of implementing a new financial management system or on not intending to
have an audit for fiscal year 1995. Certain of the conditions identified,
specifically the lack of various reconciliations and loss of
accountability for property and equipment discussed in Weaknesses 2 and
3, should not exist in any system, audited or unaudited.
In order to form a foundation for financial reporting within the Library
as well as provide strategic direction on how to achieve a meaningful
1996 financial reporting process and effective financial management, the
Library must set expectations, comparable to those of executive branch
agencies required to comply with the Chief Financial Officers (CFO) Act
of 1990, although the Library is not required to comply with the CFO Act.
The expectations include developing better performance and cost measures,
as well as designing results-oriented reports on the Library s financial
condition and operating performance by integrating budget, accounting,
and program information.
Like many Executive Branch agencies, the Library must meet three
implementation challenges if it is to build upon its progress to date and
put lasting improvements in place:
first, fully implement a process for preparing complete, auditable
financial statements to improve the reliability of data for decision-
making and strengthen the efficiency of financial operations and
controls; second, continue to build stronger financial management within
the Library by upgrading skill levels, enhancing training, and ensuring
that the CFO possesses all the necessary authority within the Library to
achieve change; and third, design comprehensive accountability reports to
permit more thorough and objective assessments of the Library s costs,
performance and financial condition,
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-5 by program and service unit, as well as to enhance the budget
preparation and deliberation process.
If the Library implements the reporting requirements of the CFO Act and
the Government Performance and Results Act, decision makers (both within
the Library and in Congress) will ultimately have available
unprecedented, reliable information on the financial condition of Library
programs, service units and operations and the performance and costs of
these activities.
In connection with our audit, we developed, with assistance from the
Library, a diagram of its missions and organizational units. We believe
that this diagram is useful in understanding and visualizing the
diversity and complexity of the Library s missions and operations.
Accordingly, we have included it as Exhibit I on pages 6-38 and 6-39 of
this report.
Reportable Noncompliance with Selected Provisions of Laws and Regulations
During our review of the Library s compliance with selected provisions of
laws and regulations, we identified the following reportable
noncompliance findings:
GAO has found that the Library s use of certain revolving gift funds
exceeds its scope of authority to accept gifts and use them to fulfill
the donor s intent. (Library of Congress Revolving Trust Funds , FGMS-80-
76, September 24, 1980; Financial Audit: First Audit of the Library of
Congress Discloses Significant Problems, GAO/AFMD-91-13, August 22,
1991.) In fiscal year 1988, the Library operated 12 revolving funds to
finance a number of activities with revenue ranging from $940 to almost
$3.7 million per fund. The funds were created by gifts which donors
designated to be used for self-sustaining activities. The gifts were then
operated as revolving funds, which had grown to many times larger than
their original size.
During the course of our fiscal year 1995 audit work, we followed up on
GAO s earlier findings and noted that this condition continues to exist.
Specifically, we identified 11 revolving funds, none with specific
Congressional authorization and all with fund balances in excess of the
original gift.
In accordance with 2 U.S.C. 160, the Library is authorized to  accept
gifts or bequests of money for immediate disbursement in the interest of
the Library, its collections, or its services.  However, as the GAO
reports concluded, section 160 does not authorize the Library, without
specific statutory authority, to set charges for goods or services
provided through self-sustaining (revolving) gift funds which (1) enlarge
the funds beyond the scope of the donor s gift, (2) produce revenues for
other activities, or (3) create a substantial surplus.
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-6 Over the years since the GAO reports, the Library has sought,
but not received, specific statutory authority to operate these gift
revolving funds. Consequently, the Library continues to operate certain
revolving gift funds beyond the scope of its authority.
The Library of Congress Trust Fund Board is authorized by 2 U.S.C. 156 to
accept and use gifts as approved by the Board and the Joint Committee on
the Library. Congress enacted 2 U.S.C. 158a in 1992 to authorize the
Librarian to temporarily accept a gift of money or securities for 12
months while awaiting the required approvals. However, while section 158a
authorizes the Librarian to temporarily retain a gift of securities and
use any income earned from it during the 12-month period, section 158a
prohibits the Librarian from investing or reinvesting the securities.
From April through June 1995, the Library took possession of a gift of
various securities valued at $439,000. From April through August 1995,
the Library liquidated these securities and reinvested the proceeds
without obtaining the approval of the Joint Committee on the Library as
required by section 156. Neither the Library s general counsel nor chief
financial officer were made aware of these actions until October 1995. In
this instance, the cash management analyst mistakenly believed it had
both required approvals, while actually only having the approval of the
Board, and the Library believes this was an isolated error. The Library
liquidated the improper investments on November 3, 1995, and Treasury is
holding the proceeds on the Library s behalf pending the Joint Committee
s approval of the gift. Under 2 U.S.C. 158a, the Library is to return the
principal of the gift to the donor if the gift is not approved within 12
months after the Librarian took possession of the gift.
There also is an outstanding legal issue regarding the Library s
retention of certain monies incident to its operation of the overseas
participant program. The Library conducts this program to purchase
collection materials, upon request, for participants, usually a
university or a library. The Library charges both the direct costs for
materials as well as an overhead cost based on a percentage of direct
costs. According to Library employees overseeing the operation, the
Library s accounts for this program have an approximate ending balance of
$1.9 million. They estimate that of that amount, approximately $1 million
is a liability representing the refund that would be due if every
participant canceled their requests as of the date of the ending balance,
and about $300,000 represents unliquidated obligations for items on order
at September 30, 1995. The Library s remaining $600,000 in effect is a
residual , which has been accumulated over at least twenty-five years.
While the Library apparently has retained the residual in a Treasury
account and not used it for an improper purpose, it is not clear to us on
what basis it has been retaining and accounting for the $600,000. This
issue deserves further development in order to reach a conclusion on
compliance and we have referred it to the GAO s Office of the General
Counsel, who will be addressing this matter separately with Library
management.
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-7 OPINION ON CONSOLIDATED STATEMENT OF FINANCIAL POSITION
In our opinion, except for the effects of such adjustments, if any, as
might have been determined to be necessary had we been able to examine
evidence regarding property and equipment balances, the Consolidated
Statement of Financial Position presents fairly, in all material
respects, the Library s financial position as of September 30, 1995, in
conformity with the basis of accounting described in Note 1 to the
Consolidated Statement of Financial Position.
As described in Note 1, the Library prepared its Consolidated Statement
of Financial Position in conformity with the hierarchy of accounting
principles and standards approved by the principals of the Federal
Accounting Standards Advisory Board, which is a comprehensive basis of
accounting other than generally accepted accounting principles.
OPINION ON MANAGEMENT S ASSERTION ON THE INTERNAL CONTROL STRUCTURE OVER
FINANCIAL REPORTING
We have examined management s assertion, included in the accompanying
management report on financial controls, regarding internal controls
designed by management to provide reasonable, but not absolute, assurance
that the following objectives were met:
assets are safeguarded against loss from unauthorized acquisition, use,
or disposition;
transactions are executed in accordance with laws governing the use of
budget authority and with other laws and regulations that have a direct
and material effect on the Consolidated Statement of Financial Position;
and
transactions are properly recorded, processed, and summarized to permit
the preparation of reliable financial statements and to maintain
accountability for assets.
Management fairly stated that it cannot provide reasonable assurance that
internal controls in place at September 30, 1995, met two objectives
(that assets are safeguarded against loss from unauthorized acquisition,
use, or disposition and that transactions are properly recorded,
processed, and summarized to permit the preparation of reliable financial
statements and to maintain accountability for assets), but that internal
controls were effective in assuring material compliance with relevant
laws and regulations.
Management made this assertion based upon criteria established under the
internal control standards and financial systems standards presented in
Appendices 2 and 3 of Title 2 of the GAO s Policy and Procedures Manual
for Guidance of Federal Agencies (Title 2).
In our opinion, management s assertion that, because of the material
weaknesses described in its report, it cannot provide reasonable
assurance that internal controls in place at
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-8 September 30, 1995, met the objectives that assets are
safeguarded against loss from unauthorized acquisition, use, or
disposition and that transactions are properly recorded, processed, and
summarized to permit the preparation of reliable financial statements and
to maintain accountability for assets is fairly stated, in all material
respects, based upon the control criteria used. In our opinion management
s assertion that internal controls were generally effective at September
30, 1995, in providing reasonable assurance that transactions were
executed in accordance with budget authority and with laws and
regulations that could have a direct and material effect on the financial
statements is fairly stated, in all material respects, based upon the
control criteria used.
In addition to the material weaknesses and reportable conditions
described in this report, we noted other less significant matters
involving the Library s internal control structure and its operations
which we will be reporting separately to the Library s management.
COMPLIANCE WITH LAWS AND REGULATIONS
Except as noted on pages 6-5 and 6-6, our tests for compliance with
selected provisions of applicable laws and regulations disclosed no other
instances of noncompliance that would be reportable under Government
Auditing Standards, as issued by the Comptroller General of the United
States, or Office of Management and Budget (OMB) Bulletin 93-06,  Audit
Requirements for Federal Financial Statements.  However, the objective of
our audit of the Consolidated Statement of Financial Position, including
our tests of compliance with selected provisions of applicable laws and
regulations, was not to provide an opinion on overall compliance with
such provisions. Accordingly, we do not express such an opinion.
This conclusion with respect to our tests of compliance with selected
provisions of applicable laws and regulations is intended solely for the
information of United States Congress, the General Accounting Office, and
the Library s management. However, this report is a matter of public
record and its distribution is not limited.
CONSISTENCY OF OTHER INFORMATION
Our audit was conducted for the purpose of forming an opinion on the
Consolidated Statement of Financial Position taken as a whole. The
Overview of the Library of Congress, Supplemental Schedules and
Stewardship Report presented in Sections 1, 3, and 4 are presented for
purposes of additional analysis and are not a required part of the
Consolidated Statement of Financial Position.
The Statement of Financial Position by Fund Type, on pages 3-1 and 3-2,
is presented for purposes of additional analysis of the Consolidated
Statement of Financial Position rather than to present the financial
position of the individual fund types. The Statement of Financial
Position by Fund Type has been subjected to the auditing procedures
applied in the audit of the Consolidated Statement of
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-9 Financial Position and, in our opinion, except for the effects
of such adjustments, if any, as might have been determined to be
necessary had we been able to examine evidence regarding property and
equipment balances, it is fairly stated in all material respects in
relation to the Consolidated Statement of Financial Position taken as a
whole.
The Consolidated Operating Statement and Changes in Net Position and the
Statement of Operations and Changes in Net Position by Fund Type for the
year ended September 30, 1995, presented on pages 3-3 and 3-4,
respectively, were not audited by us and, accordingly, we do not express
an opinion on them.
The Overview of the Library of Congress and the Stewardship Report in
Sections 1 and 4, respectively, in the Library of Congress Financial
Statements for fiscal year 1995 contain a wide range of data, most of
which are not directly related to the Consolidated Statement of Financial
Position. Professional standards require the auditor to read this
information and consider whether such information, or the manner of its
presentation, is materially inconsistent with the information, or the
manner of its presentation, appearing in the Consolidated Statement of
Financial Position. If based on such reading the auditor concludes that
there is a material inconsistency, the auditor should determine whether
the Consolidated Statement of Financial Position, the report, or the
other information require revision. The information presented in the
Overview of the Library of Congress and the Stewardship Report has not
been subjected to the auditing procedures applied in the audit of the
Consolidated Statement of Financial Position, and, accordingly, we
express no opinion on it.
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-10 RESPONSIBILITIES AND METHODOLOGY
Management is responsible for:
preparing the Consolidated Statement of Financial Position in conformity
with the comprehensive basis of accounting described in Note 1 to the
Consolidated Statement of Financial Position;
establishing and maintaining an effective internal control structure over
financial reporting; and
complying with applicable laws and regulations.
Our responsibility is to express opinions on the Consolidated Statement
of Financial Position and on management s assertion about the
effectiveness of the Library s internal control structure over financial
reporting based on our audit and examination, respectively. Accordingly,
we planned and performed the audit and examination to obtain reasonable
assurance about whether (1) the Consolidated Statement of Financial
Position is free of material misstatement and presented fairly, in all
material respects, in accordance with the basis of accounting described
in Note 1 to the Consolidated Statement of Financial Position, and (2)
management s assertion that it cannot provide reasonable assurance that
internal controls in place at September 30, 1995, met two objectives
(that assets are safeguarded against loss from unauthorized acquisition,
use, or disposition and that transactions are properly recorded,
processed, and summarized to permit the preparation of reliable financial
statements and to maintain accountability for assets), but that internal
controls were effective in assuring material compliance with relevant
laws and regulations, is fairly stated, in all material respects, based
upon criteria established under the internal control standards and
financial systems standards presented in Appendices 2 and 3 of Title 2 of
the GAO s Policy and Procedures Manual for Guidance of Federal Agencies .
We are also responsible for testing compliance with selected provisions
of applicable laws and regulations that may materially affect the
Consolidated Statement of Financial Position and for performing limited
procedures with respect to certain other information appearing in this
annual financial statement.
In order to fulfill these responsibilities, we
examined, on a test basis, evidence supporting the amounts and
disclosures in the Consolidated Statement of Financial Position;
assessed the accounting principles used and significant estimates made by
management;
evaluated the overall presentation of the Consolidated Statement of
Financial Position;
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-11 obtained an understanding of the internal control structure
over financial reporting;
obtained an understanding of the internal control structure related to
performance measures reported in the Overview of the Library s Annual
Financial Report;
assessed the design of performance measure controls and whether they had
been placed in operation;
tested and evaluated the design and operating effectiveness of relevant
internal controls over significant cycles, classes of transactions, and
account balances;
tested compliance with selected provisions of the following laws and
regulations that may materially affect the Consolidated Statement of
Financial Position:
- the Library s authorizing legislation; - the Copyright Law; - the Anti-
deficiency Act; - the 1995 Legislative Branch Appropriations Act; - the
Economy Act; - Fair Labor Standards Act; - Civil Service Retirement Act;
- Civil Service Reform Act; - Federal Employees  Health Benefits Act; -
Federal Employees  Group Life Insurance Act; - Federal Acquisition
Regulation; - legislation concerning recording obligations and balances
available for obligation; - the Advertising Act; and - the Federal
Property and Administrative Services Act; and
performed other procedures as we considered necessary under the
circumstances.
We did not evaluate all internal controls relevant to operating
objectives, but limited our work to accounting and other controls
necessary to achieve the objectives identified in our opinion on
management s assertion on the internal control structure over financial
reporting. Because of inherent limitations in any internal control
structure, errors or irregularities may nevertheless occur and not be
detected. We also caution that projecting the results of our examinations
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.
Except for the lack of available evidential matter supporting the
Consolidated Statement of Financial Position balance for property and
equipment as described in our report, we did our work in accordance with
generally accepted auditing standards; Government Auditing Standards, as
issued by the Comptroller General of the United States; and OMB Bulletin
93-06,  Audit Requirements for Federal Financial Statements.  Our
examination
Report of Independent Accountants
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-12 of management s assertion, included in the accompanying
management report on financial controls, that it cannot provide
reasonable assurance that internal controls in place at September 30,
1995, met two objectives (that assets are safeguarded against loss from
unauthorized acquisition, use, or disposition and that transactions are
properly recorded, processed, and summarized to permit the preparation of
reliable financial statements and to maintain accountability for assets),
but that internal controls were effective in assuring material compliance
with relevant laws and regulations, is fairly stated, in all material
respects, as of September 30, 1995, was conducted in accordance with
standards established by the American Institute of Certified Public
Accountants and Government Auditing Standards. We believe that our audit
and examination provide a reasonable basis for our opinions expressed
above.
Library Comments and Our Evaluation.
In response to a draft of our report, which was provided to the Library
on April 19, 1996, the Library prepared written comments, which are
presented beginning on page 6-65. These comments express general
agreement with the findings and recommendations resulting from our
financial statement audit. In its separate response to a draft Management
Review of the Library of Congress, prepared by a management consulting
firm engaged by the GAO, the Library stated that critical data from a
study by the Library s security consultants, due to be reported on June
7, 1996, will enable the Library to proceed with risk assessment and
overall formulation of a complete policy on the safeguarding of the
Library s collections. Library management has advised us that this
response also applies to the recommendations resulting from our
examination of the Library s assertion about internal controls over the
safeguarding of its collections.
Subsequent to the issuance of our draft report, the Library amended its
assertions about the effectiveness of internal controls to state that it
cannot provide reasonable assurance that its internal controls in place
at September 30, 1995, met certain objectives. As a result of those
revisions, we updated our reports to express opinions that those
assertions are fairly stated. Where appropriate, we have made other
revisions to our report based on oral comments from the Library.
Price Waterhouse LLP
April 5, 1996 Arlington, VA
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-13 INTERNAL CONTROL WEAKNESSES
Weakness 1: Financial Reporting Preparation Process Is Inadequate to Meet
Proprietary Reporting Requirements
The Library is not required to follow executive branch reporting
requirements of the Chief Financial Officers (CFO) Act of 1990. However,
in lieu of developing its own standards the Library has elected to follow
the related CFO Act and Executive Branch directives for financial
statement reporting, as further described in Note 1 to the Consolidated
Statement of Financial Position. The Library has not developed formal
policies, procedures, duty assignments or timetables for meeting these
requirements. As a result, the Library is not able to promptly,
accurately and efficiently accumulate and summarize the information
needed to perform proprietary financial reporting.
When considering the Library s implementation of a new financial
management system and other issues discussed below, the fiscal year 1995
audit took on characteristics of an initial audit, despite GAO performing
an audit of the 1988 financial statements. This resulted in the Library s
1995 audit results being relatively consistent with other initial Federal
agency audits, which disclose agencies having extraordinary financial
management problems in even the fundamental areas of performing
reconciliations, documenting adjustments, ensuring that inventories are
taken, and making supervisory reviews of accounts and transactions.
As discussed in the Significant Matters section of our report, the
Library had not planned on having an audit performed until fiscal year
1996 which contributed to certain of the deficiencies identified herein.
It is also important to note, however, that the deficiencies in internal
controls can not be excused by the demands of implementing a new
financial management system or on not intending to have an audit for
fiscal year 1995. Certain of the conditions identified, specifically the
lack of various reconciliations and loss of accountability for property
and equipment, should not exist in any system, audited or unaudited. As a
result of not preparing for an audit of 1995, the Library had not
established policies and procedures for the preparation of financial
statements or assessed the new financial management system to determine
programming and coding necessary to provide audit supporting
documentation and facilitate preparation of financial statements. This
was evidenced by the following:
Routine formal reconciliations of accounts or subsystems were not
performed, which allows for potential errors in reporting. (See weakness
2);
There were many easily identifiable unusual balance conditions in both
the general ledger and the initial drafts of financial statements
prepared by management. For example, during our review of general ledger
account balances during the audit, we noted the following unusual summary
level items: a $27 million credit balance in an operating expense
account; a $23 million credit balance in depreciation expense; and a $4.7
million credit balance in interest receivable;
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-14 Effectively, management was closing the books during the
audit. Adjusting entries were still being identified and posted during
the last week of the audit and accounts payable accruals were not
prepared on a timely basis;
Accounting shortcuts impeded auditability and limited the availability of
reliable management information for the following:
Federal Library and Information Network (FEDLINK) revenue is fully
recognized upon receipt of cash for the amount remitted. At the end of
each fiscal year, Financial Services Directorate (FSD) posts an
adjustment to record the estimated unearned portion of the previously
recognized revenue as a liability. The estimate is based on an equation
that considers cash received and fiscal year end accounts receivable and
accounts payable balances, rather than actually verifying deferred credit
balances per the FEDLINK SYMIN system as of fiscal year end; all property
and equipment acquisitions are expensed during the fiscal year. At the
end of the fiscal year, FSD posts an adjustment to agree the general
ledger balance to the property and equipment records for both Contracts
and Logistics and National Library Services/Blind Physically Handicapped
(NLS/BPH); management does not maintain a comprehensive listing of all
leases. Further, the leases are not evaluated as to whether the lease
should be categorized and accounted for as an operating versus capital
lease. As a result, all leases are currently treated as operating leases
and expensed, despite the fact that the Library has identified certain
leases that should be categorized as capital leases; and accounts payable
was accrued by FSD at September 30, 1995 by recording all invoices
received and date stamped by that date, rather than performing an
accurate assessment of unrecorded liabilities in existence at September
30, 1995;
Key accounting policy decisions were made during the audit, including
the:
capitalization threshold policies for property and equipment, including
capital leases, methodology for estimating the worker s compensation
accrued liability, and gift and trust fund donation accounting policies
for pledges receivable, recognition of donated revenues, donated property
and equipment, and donated services;
The new financial management system had not yet been configured to
prepare supporting trial balances necessary for an audit. Specifically,
the following trial balances as of or for the year ended September 30,
1995, could not be generated without special programming and report
coding: accounts receivable by customer/agency, accounts payable by
vendor, FEDLINK revenues by remitter, and undelivered orders;
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-15 During fiscal year 1995, a high volume of journal
vouchers, over 630, were recorded. The entries resulted primarily from
recording the beginning balances in accounts during the conversion from
the old financial management system to the new financial management
system, correcting conversion entry postings, and correcting entries with
incorrect account or transaction coding. This high volume of journal
vouchers contributed to the difficulty in auditing certain accounts
balances and selecting certain receipt or disbursement activity for
testing;
An operating statement, detailed by type of expense and revenue, was
difficult for the Library to prepare and not prepared by the Library on a
timely basis. Furthermore, once prepared, we determined we could not
opine on the operating statement for the following reasons:
unaudited opening balances from the old financial management system,
which did not meet Federal standards, high volume of journal voucher
transactions (as discussed above) in revenue and expense accounts which
would require significant detail testing and impeded the performance of
analytical procedures, adjusting entries not pushed down to individual
cost centers impeded the performance of analytical procedures, the new
account coding structure, though needed to adopt the Joint Financial
Management Improvement Program Standard General Ledger, prevented
meaningful analysis of 1995 data versus 1994 data, late reconciliations
of cash with Treasury and of general ledger balances with subsidiary
systems (see weakness 2), and revenue source codes were inconsistently
and inaccurately used by Library personnel in recording cash receipt and
revenue transactions; and
Generally, performance measure criteria are not formally established, nor
is financial position and operations data maintained in a manner that
facilitates performance measure analysis.
Recommendations:
Since the benefits of long-term efforts to improve agency systems often
require years to realize, the Library needs to make its existing systems
work better in the interim. An important aspect of this is to ensure the
validity of existing data and vigilantly maintain the routine controls
needed to keep these data reliable, such as reconciliations to identify
and resolve discrepancies. Such efforts will improve data reliability and
help ensure that information reported in the new systems is accurate.
Procedures must be developed to ensure the orderly and effective closing
of books monthly, quarterly, or at fiscal year end, and for the day to
day accumulation of financial data, supported by appropriate
documentation, that is easily accessible. The procedures must be adequate
to ensure that financial records are supported by either underlying
accounting records or other documentation, as adequate audit trails are
critical to providing support for
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-16 transactions and balances maintained by the general
ledger. Additionally, key accounting policies should be formally
determined and documented in policy statements by management.
A strategic plan for the approach to the fiscal year 1996 year end close
and report preparation should be developed and formally documented, with
an achievable timeline. The Library should develop a methodology and plan
specifying corrective actions and milestones which will lead to the
production of an effective set of internal controls, a more fully
integrated financial management system, and an annual report that
includes financial statements generated from the new financial management
system. The plan should provide for periodic reviews of internal reports
of the Library s financial operations by financial or fund managers to
ensure the integrity and reliability of data produced by the financial
system. Further, as the culmination of the financial reporting process,
we recommend the Library obtain an annual audit of its financial
statements.
Specifically, we believe the Library should include the following steps,
among others, in developing the strategic plan for preparing the 1996
financial statements and having them audited:
1. Configure the new reporting system to generate trial balances
supporting asset and liability accounts.
2. Update the Library of Congress Regulation (LCR) on accounting policies
to reflect decisions about adoption of relevant Federal Accounting
Standards Advisory Board (FASAB) and Financial Accounting Standards Board
(FASB) standards.
3. Adopt a checklist for review of presentation and disclosure of draft
financial statements to assure that statements meet applicable standards.
Complete review of statements before presenting them to auditors. Review
should include analyses of amounts for reasonableness.
4. Analyze the amounts in property prior to fiscal year 1996 for accurate
cost. (See Weakness 3 below).
5. Identify recurring journal entries and provide information about those
to help management and the auditors assess their reasonableness.
6. Establish standards for the format and documentation necessary to
complete cash reconciliations. Complete and review reconciliations of all
Treasury accounts. Reconciliations should be kept current throughout
fiscal year 1996. (See Weakness 2 below).
7. Establish standards for the format and documentation necessary to
complete the new financial management system-subsidiary system
reconciliations. Complete and review reconciliations between the new
financial management system and all
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-17 subsidiary systems. Reconciliations should be kept current
throughout fiscal year 1996. (See Weakness 2 below).
8. Correct accounting procedures for deferred revenue and property to
have transactions affecting those balances recorded regularly throughout
the period.
9. Prepare detail listing of all leases outstanding and future lease
payment commitments. Analyze leases with payments over a certain
threshold to determine if they are capital leases. (See Weakness 3
below).
10. Establish policies and accounting procedures to properly recognize
premiums and discounts on investments and to amortize them.
11. Perform a review of outstanding obligations from prior years to
determine if they remain valid.
12. Coordinate with Development Office on recognizing pledges receivable
when an unconditional promise to give is made and on identifying
contributed goods and services that should be recognized in the financial
statements.
13. Establish a process for closing the general ledger proprietary
accounts at 9/30/96. Do a trial run of this process before the close of
the year. Establish a timetable for pre-audit closing entries; then
compile any additional adjustments identified for review by the auditors.
Make those adjustments after concurrence by auditors, together with
adjustments identified in the performance of the audit.
14. Prepare accrual of accounts payable at 9/30/96 and audit trail
supporting that accrual.
15. Have planning meetings with the auditors prior to close of the fiscal
year, preferably in June or July 1996.
a. Inform auditors of status of prior internal control findings. b.
Discuss parameters to be included in downloads of transaction files. c.
Provide results of interim financial statement closing for analysis and
comment. d. Determine if any information to support the audit can be
compiled prior to the end of the fiscal year for interim testing. e.
Discuss the adoption of new accounting principles. f. Establish timetable
and responsibilities for providing information necessary to support
completion of the audit. i. Define form and content of information to be
provided so it can be efficiently used in the audit. ii. Critically
assess the reasonableness of that timetable in light of FSD staff s other
responsibilities.
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-18 Further, we recommend that Library management enforce
proper revenue source coding of transactions to ensure consistency in
reporting of Library transactions between service units. This could be
accomplished by programming the new financial management system to
preclude specific funds from using revenue source codes inconsistent with
the funds purpose or revenue/cash receipt sources. To the extent
necessary, additional revenue source codes should be defined and created
within the new financial management system to ensure that the source
coding adequately reflects the current operations and sources of either
cash receipts or revenues within the Library. Further, management should
consider enhancing the types of reports currently available on the new
financial management system and ensure the system is configured to
prepare any reports/trial balances necessary for the audit.
Weakness 2: Reconciliations of Cash with Treasury and of Various General
Ledger Balances with Subsidiary Systems Are Not Routinely Performed
The Library s strategic plan indicated that reconciliation s were to be
completed during fiscal 1995. However, policies and procedures developed
by the Library requiring routine reconciliations were not followed during
fiscal 1995, as detailed below.
Reconciliations that were not performed or were not formally documented
include, but are not limited to, the following:
General ledger cash balances to Treasury Accounts General ledger
investment balances to investment balances at Treasury and/or the outside
investment management firm s records Copyright Office s records to the
general ledger for all items, including cash, investments, custodial
assets and liabilities, and unearned and earned registration fee revenue
FEDLINK SYMIN system accounts payable to the general ledger s accounts
payable balance for FEDLINK funds
Some reconciliations had not been performed since fiscal 1994 and took in
excess of four months for the Library to complete, as the reconciliation
process was not initiated until the 1995 audit process began in November
1995. Although all significant reconciliations were ultimately performed
in conjunction with the audit, as a result of not performing the
reconciliations on a timely basis there were many reconciling items
requiring much research and resolution.
Cash differences between Treasury and Library records have occurred
during fiscal year 1995 due to reconciliations not being performed, among
other things. While differences in cash transactions and balances may
result from errors by either agency, the Library periodically adjusts its
cash receipt records to agree with Treasury s without determining which
records are correct. Using such  global, non-specific  adjustments to
reconcile with Treasury-reported balances could result in Library
reported balances being misstated. For
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-19 example, FSD recorded a $528 thousand transaction to agree
with Treasury s monthly statement (for the Copyright Division Treasury
Symbol), even though the Library s records were correct. These types of
adjustments also affect other financial statement balances; in this
example, the Copyright Deposit Liability was overstated.
Recommendations:
Accounting system standards in Title 2 of the GAO s Policy and Procedures
Manual for Guidance of Federal Agencies (Title 2) require that
reconciliations between summary and detailed records be performed
periodically and documented and that adjustments, if necessary, be made
promptly to properly bring these records into agreement. If it is
determined that two sets of independently derived records are not in
agreement, management is alerted to a potential problem. Management can
then follow up and determine the causes, either errors or system
weaknesses, and take appropriate corrective actions. Reconciliation
requires identifying, investigating, and resolving all discrepancies
between general ledger control accounts and subsidiary records, and where
warranted, making the appropriate adjustments to either the subsidiary
records or to the general ledger control accounts.
In the short term, Library management should implement and monitor basic
procedures, such as reconciliations and appropriate supervisory approval,
to ensure that cash and other assets are properly managed and accounted
for. Reconciliations must be performed routinely and on a timely basis.
The reconciliations must be performed between each subsidiary system and
the new financial management system records, as well as between general
ledger and entities external to the Library, such as Treasury.
Management should adequately research all differences between the general
ledger account balances and Treasury, before posting adjustments to the
Library s records to bring them into agreement with Treasury. Adjustments
should be made only if the Library s records are determined to be
incorrect.
Certain Copyright Office reconciliation discrepancies, specifically over
collection of royalty remittances, resulted from the apparent duplicative
recording of detailed information in both FSD and Copyright Office
records. During our control and compliance reviews and testing, we
determined that the Copyright Office records appear to maintain the more
accurate listing of royalty receipts. As a result, we recommend that the
Copyright Office continue to record the detail level activity, rather
than FSD. At least monthly, the Copyright Office receipts should be
posted, in summary, to the new financial management system by FSD. At
such time, a reconciliation should be performed to ensure the new
financial management system account balances agree with the Copyright
Office records. Recording the detail activity in only one place will
cause the reconciliation process to be more efficient and will be a
better utilization of FSD resources.
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-20 Weakness 3: Library Property and Equipment Records Are Not
Reliable or Complete and Portions of Property and Equipment Are Not
Adequately Controlled
Policies and procedures in place within FSD are inadequate to ensure the
accuracy of the data included in the Contracts and Logistics
International Bar Code Fixed Asset Control System (IBCFACS) property and
equipment ledger or that NLS/BPH property is properly controlled and
accounted for. Title 2 requires that property records be established and
maintained for all acquisitions, whether by purchase or donation, as well
as disposals. It also requires that when assets are reported in the
financial statements, they be recorded in the accounting records at
acquisition cost (if purchased), fair value (if donated or if cost
records not available), or carrying value (if transferred from another
agency).
The Library expenses all amounts disbursed for property and equipment
during the fiscal year. At the end of each fiscal year, management
determines the Contracts and Logistics property and equipment balance and
the related accumulated depreciation balance, based on amounts in the
IBCFACS ledger, and records a reversal of amounts expended during the
respective fiscal year to reflect the total capitalization amount and net
change in accumulated depreciation; property and equipment is not debited
at any other point during the year. Further, as a result of posting only
one entry per year to the general ledger and as there is not an interface
between the general ledger and the IBCFACS ledger, the Library cannot
ensure that acquisitions, disposals and donations of property and
equipment are properly accounted for in its property and equipment
systems or that items are not misappropriated or misplaced.
Library management has represented to us that the majority of Contracts
and Logistics property and equipment was tagged and identified for
inventory control purposes. In preparation for the Library s anticipated
fiscal year 1996 audit, the Library initiated its first comprehensive
physical inventory of property and equipment and began entering all cost
data into the IBCFACS ledger. This costing and inventorying project was
not yet completed, although officials have represented that they believe
they have identified all assets costing greater than the capitalization
threshold of $10,000 (for Contracts and Logistics property and equipment)
for inclusion on the property and equipment detail listing.
Specifically, as a result of this project, the Library estimated that
Contracts and Logistics property and equipment had a net book value of
approximately $12.2 million. Management believes all office and computer
equipment has been fully identified and that the full identification of
furniture will be completed in late 1996.
However, during our testing of the IBCFACS ledger as of September 30,
1995, we found the listing to be unreliable and incomplete. The reasons
we found the IBCFACS ledger to be unreliable and incomplete include, but
are not limited to, the following:
valuation errors; for example, the capitalized value of one asset
included on the IBCFACS listing, identified as a printer computer, was
entered in the property
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-21 system as $900,415, when the actual invoice cost was
$24,905; upon further inquiry and review, we determined that the $24,905
invoice actually represented several equipment items, of which none
exceeded the capitalization threshold;
data entry errors (i.e., typographical errors);
certain instances were identified where total estimated cost per the
purchase order, rather than actual invoices, were used as the cost basis
of the asset in the IBCFACS ledger;
acquisition date errors, which cause misstatements in accumulated
depreciation amounts; for example, in certain instances, we noted that
the day the asset was counted was entered into the IBCFACS ledger as the
acquisition date, rather than the actual date the asset was received;
certain pieces of donated equipment, in excess of the capitalization
threshold, received prior to September 30, 1995, were not recorded in the
IBCFACS ledger;
the cost basis for certain donated property and equipment assets was not
estimated or could not be agreed to donation documents; and
management informed us that they were unable to identify all acquisitions
or dispositions occurring during fiscal year 1995, as not all equipment
is received by the Contracts and Logistics Department. Specifically, in
certain instances, the equipment is received directly by the ordering
department, which circumvents the identification/labeling process and
results in a lack of accountability over all owned assets.
Further, management has acknowledged that the Library has entered into
several leases for office equipment under which the ownership of the
equipment covered under the leases transfers to the Library when the
leases expire. Currently, the Library accounts for the leases as
operating leases, entering the equipment into the property records only
upon conversion to the Library s ownership. As a result, insufficient
lease data is available for the Library to perform a timely and
reasonable estimate and identification of the assets that it leases which
should be capitalized for inclusion in the 1995 financial statement
property and equipment balance.
Management determined that the NLS/BPH program assets should be
capitalized for inclusion in the 1995 financial statements. However, a
detailed listing of all NLS/BPH machines is not maintained; NLS/BPH makes
equipment shipments to lending agencies periodically throughout the year,
after which the agencies have responsibility for tracking the machines,
rather than NLS/BPH having tracking responsibility. Accordingly,
management estimated the cost basis of the NLS/BPH equipment by using
bulk purchase information (i.e., date of bulk purchase, number of
machines purchased, and invoice cost). The net book value of NLS/BPH was
estimated as approximately $37.3 million as of September 30, 1995. Once
this information was compiled, it was compared to the
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-22 September 1995 monthly  machine reports  received from the
individual lending agencies. As NLS/BPH management does not maintain an
asset listing which could be periodically reconciled to the machine
reports, the comparison performed identified certain quantities of
machines as  missing  or in repair. We further noted that NLS/BPH
management does not adequately track, by agency, those assets held in
storage for repair, replacement, or received back from lending agencies,
although these assets are included in the repair category in the analysis
performed. Given the condition of the NLS/BPH records as discussed
herein, management at NLS/BPH was unable to satisfy us through alternate
procedures that the NLS/BPH asset balances were materially accurate.
Due to issues discussed above regarding the Contracts and Logistics
IBCFACS ledger, the NLS/BPH asset records, and the lack of adequate
accounting for or proper identification of capital leases, we were unable
to verify or substantiate the reliability and completeness of the
property and equipment balances as of September 30, 1995, and
accordingly, qualified our report on the Library s Consolidated Statement
of Financial Position as of that date. The net property and equipment
balance in that Consolidated Statement of Financial Position is $49.5
million.
Recommendations:
The accuracy and maintenance of the Contracts and Logistics and NLS/BPH
asset listings is critical for reliable financial reporting and
maintaining accountability for the Library's property and equipment. In
order to facilitate maintaining accurate property and equipment listings,
we recommend that the Library establish two budget object class codes:
one for assets capitalized and one for assets expensed. We further
recommend that management post the entry to capitalize equipment at each
month end, at which time a reconciliation between the monthly amount
disbursed, per the capitalization budget object class, and the property
and equipment monthly acquisitions per the IBCFACS ledger and NLS/BPH
asset listing should be performed. As these amounts should agree, any
discrepancies should be resolved by management on a timely basis.
In the interim, the Library should perform a detailed review of the
IBCFACS ledger for propriety and accuracy, in conjunction with completing
the physical inventory of assets currently in process. This review should
include obtaining or verifying documentation supporting the cost basis
and acquisition date for selected assets in excess of the capitalization
threshold within the property and equipment records; however, the costing
and acquisition date of assets should only be verified or substantiated
for assets acquired in the last three to five years, as all other assets
are almost fully depreciated and, accordingly, would not have a material
impact on the financial statements taken as a whole. Further, the Library
must establish a system or put procedures in place for monitoring and
reporting acquisitions and disposals of property and equipment in order
to maintain reliable property and equipment records. The procedures
should require that all receipts of property go directly through
Contracts and Logistics, rather than being received by the department
that ordered the equipment.
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-23 Regarding NLS/BPH assets, we recommend that, at minimum,
an asset listing be maintained which identifies, by agency location, the
total number of units by acquisition date and bulk purchase amount,
rather than attempting to maintain a listing by individual unit/machine.
This layered cost listing, by acquisition date, should be updated
periodically for additional machines shipped to lending agencies and for
machines returned to NLS/BPH for repair or disposition. Further, this
listing should be reconciled monthly to the machine reports remitted by
each agency. To the extent discrepancies arise, NLS/BPH management should
investigate any  missing  machines identified in the reconciliation
process.
We further recommend that the Library maintain a listing of all leases,
both capital and operating, that includes the date of lease inception,
asset description, Library identification number (if applicable), lease
terms, and amount of lease payments. Also, all leases with total payments
over $10,000 should be analyzed by FSD to determine proper categorization
as an operating or capital lease and to determine if it would, in the
long run, be cheaper to buy the asset, i.e., evaluate the implicit
interest rate on a Treasury borrowing rate. If it is determined that the
lease is a capital lease, the present value of the equipment should be
capitalized upon acquisition, if it exceeds the capitalization threshold
of $10,000, and future lease payments be immediately recognized as a
liability.
Weakness 4: Current Information Technology Services (ITS) Security
Practices Expose The Library to Risk of Unauthorized Transactions, Theft
and/or Misuse of Data Processing Assets, and Loss of Data and Programs
For All Library Computer Center and Network Activities
Physical access to the organization s computer resources (e.g., hardware)
and logical access security to system utilities, programs, and parameters
is inadequate, providing the opportunity for gaps that expose the Library
to unauthorized access. As a result of their security access, various
individuals have the authority to perform the following:
make changes to or delete production data delete audit trails that log
activity and/or errors update, alter, or delete security profiles or
critical system datasets
The weaknesses in the Library s security access controls indicate a
potentially heightened risk that other general controls over the Library
s automated data processing systems may not be effective. However, our
testing did not encompass those controls and, therefore, we have not
concluded on their effectiveness.
An excessive number of programmers can make changes to production data
We noted that several of the new financial management system application
programmers have Write and Allocate access to certain production data
files. This access is considered excessive for the performance of the job
responsibilities of these end users. Such excessive
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-24 access increases the risk that improper or unauthorized
updates may be made to production data.
An excessive number of individuals have access to ACF2  special
privileges
We noted that various individuals, including both systems and user
personnel, have access to the  special  privileges of the security
software. These special attributes grant authority that is considered
excessive or unnecessary for the individuals to perform their job
responsibilities. In addition, granting these special privileges to an
excessive number of users increases the risk of unauthorized updates or
alterations to the ACF2 Logon ID records and/or inappropriate
circumvention of ACF2, such that their accessing of files and programs
could go undetected. Our review of the Logon IDs granted special ACF2
attributes indicated the following :
Six individuals have the SECURITY and ACCOUNT attributes that allow them
to establish, modify, and delete Logon ID records. Twenty system
engineers (including several with multiple Logon IDs) have the NON-CNCL
attribute that ensures that they will not be canceled by ACF2 for any
security violations. The Default Started Task ID has the NON-CNCL
attribute, allowing system-started tasks without Logon IDs or
specifically defined access rules to assume excessive non-cancelable
access to all system data and resources. Each started task should be
individually defined to ACF2; the NON-CNCL attribute may then be granted
to these unique IDs. A former computer operator (now employed in the
Library s Congressional Research Services (CRS) organization) has the NON
-CNCL attribute. Fifteen users (including production control, application
programming, user support, CRS, and collections personnel) have the TAPE-
BLP attribute that allows them to bypass ACF2 authorization checking when
accessing tape datasets.
Programmers have access to critical  system  datasets
During our review of the ACF2 access rules protecting critical dataset
libraries, we noted that various types of employees (e.g., system
development, computer operations, production systems, and database
administration personnel) have excessive Read/Exec access to these
critical system datasets. Access to critical system datasets by these
individuals appears unnecessary based upon their job responsibilities and
increases the exposure to unauthorized access or improper use of the
Library s data and resources.
Some ACF2 security software parameters are not used effectively
Lack of adequate global installation password options decrease the
effectiveness of the passwords and increase the exposure to unauthorized
access to the system datasets and resources. The following inadequate
parameters were noted during our review:
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-25 the Quick Logon function is allowed under the current
security settings, permitting a one-line entry of user logon IDs and
password while displaying the password on the screen unmasked; most user
passwords must be changed every 180 days, while some did not have a
password interval (e.g., security admin., systems engineering,
contractor, Financial Services, and H/R); passwords have a minimum length
of only one character.
User profiles exist in the security tables for individuals that are no
longer employed by the Library
Current security procedures do not include routine or direct
communication to the ITS security administration group from other Library
of Congress organizations for the purpose of reporting changes in user
employment status/locations and requesting modifications to the user
system access privileges.
Our review of ACF2 listings identified hundreds of unused IDs (some as
long as 5 years) not revoked or removed from the system. Unused IDs
typically indicate that the users are no longer employed by the Library
of Congress, or have been assigned new responsibilities that do not
require system access.
There was no formal security plan that documents guidelines for
administering security
The Library did not have a formal computer security plan that documents
management s guidelines for providing, administering, and ensuring
compliance to security policies. It should be noted that the Library
issued LCR 1620,  Computer Security Policy of the Library of Congress  in
November 1995.
Various individuals have multiple Logon IDs for the system
The use of a second, less powerful Logon ID is considered reasonable for
certain types of users (e.g., systems engineers, security
administrators). In addition, special situations require a limited number
of users to have more than one Logon ID to access separate copies of the
same system (e.g., the new financial management system). However, the use
of multiple IDs by the same ITS user is considered excessive; and, other
than the special situations noted, the use of more than one ID by end
users is considered unnecessary.
Our review of the security access listings revealed that many users
(e.g., ITS, Congressional Research Services) have been assigned multiple
Logon IDs. The existence of an excessive number of Logon IDs increases
the risk that these IDs may facilitate unauthorized access to Library of
Congress data and resources, and may reduce the efficiency of the
security administration.
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-26 Physical security over the computer operations room, which
is within the larger ITS area, does not prevent unauthorized personnel
from gaining access
The operations room is the facility that houses the mainframe computer,
LAN and network connections, and electronic media storage. We noted that
a number of individuals that are allowed access to the ITS area also have
access to the operations room, even though their duties do not require
such access. Exceptions noted were:
rear entrances do not have adequate locking mechanisms; contractors
performing unrelated tasks have unlimited access to facilities.
Recommendations:
Systems personnel should be prohibited from Write and Allocate access to
production data files; application end users who require knowledge of the
new financial management system data should be granted Read access only
to the applicable production data.
A review of these privileges should be conducted on all user profiles to
ensure that only appropriate personnel have these powerful attributes.
Following this review, ongoing periodic reviews should be conducted to
recertify users for correct usage of these attributes.
Access to system datasets and resources should be granted on a  need-to-
know  basis only. Current access rules should be reviewed, and excessive
access to Library information system data and resources should be
identified and revoked.
The Quick Logon function should be disabled so that passwords must be
input on a separate line from the Logon ID where they will be masked. In
addition, passwords with lengths between five and eight characters should
be required to increase the effectiveness of unique passwords.
The current security procedures should be enhanced to include the timely
reporting of employee terminations from the Human Resources organization
and of employee transfers within the Library of Congress from the
affected organization management. All Logon ID removal or modification
requests made by Human Resources or other organizations should be
processed by the ITS security administration personnel on a timely basis.
A review of the various user IDs should be conducted to determine the
appropriateness of authority for each ID. As a result, those IDs with
access that is deemed excessive for the individual s job responsibilities
should be removed.
We recommend that access to the computer room and computer facilities be
adequately restricted to only authorized personnel. This may include
updating computer room doors and moving development staff to other areas
of the Library.
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-27 REPORTABLE CONDITIONS NOT CONSIDERED TO BE MATERIAL
WEAKNESSES
Condition 1: The Internal Financial Reporting Process Should Be Enhanced
to Provide Management with More Meaningful Information
The Library implemented a new general ledger accounting system effective
October 1, 1994 (beginning of fiscal year 1995). This commercial package
provides considerably more power and capability than the previous
accounting system. Although the Library has a new system, its primary
reporting and financial management approach still is essentially budget
formulation and funds availability control. The new financial management
system does significantly enhance a cost center manager s ability to
determine the cost center funding situation on a real time basis through
accessing one of the system databases, and some of the managers are
making significant use of this capability.
However, since the new financial management system has the capability to
efficiently analyze and report data in a multitude of ways, the Library
now needs to capitalize on this capability and, previously unavailable,
opportunity.
As indicated in Exhibit I on pages 6-38 and 6-39 of this report, the
Library is a complex and diverse organization. Several of its budgetary
units provide support to the front line customer service organizations.
These  service support  unit costs should be attributed to the customer
service organizations to better understand where the Library s resources
are being spent and to better correlate costs with customers, services,
outputs, and outcomes. For example, through the use of certain account
code fields, the Library now has a tool that can aggregate financial data
by program, and that can accumulate data for determining the cost of
special projects. These features were not implemented in the initial
installation because of the short time available for the implementation,
a restriction that was recognized in the Library's two phase financial
management enhancement plan.
However, since these capabilities can provide valuable summary
information to Library management and others, the Library should move
expeditiously to gain the benefits of the new financial management
system's capabilities by designing summary and group reporting that
corresponds to the functional and management structure for fulfilling the
missions of the Library.
Recommendations:
Accordingly, we recommend that the Library perform the following:
Match the budget and actual accounting to the missions of the Library.
Correlating planned and actual cost with the missions of the Library will
improve the resource
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-28 allocation decision process and will communicate more
effectively the costs of providing services to the Library's diverse user
group.
Match the Library's performance statistics to the service components,
discard inappropriate statistics/measures, and add missing
statistics/measures. This includes obtaining more information about the
demographics of the users, including frequency, location, purpose of
inquiry (e.g., personal research, government agency research, and private
entity research, etc.), and other information that can be used to better
serve the customers and prioritize resources. Until recently, many parts
of the Library did not have a consistent, reliable method of collecting
user information; however, with the advent of the "reader registration
system", the Library has the tool to better serve the users and to
allocation resources, if necessary, among the various Library
collections.
Improve budget vs actual reporting for the expenditures portions of the
appropriated funds by budgeting them at the cost center (fund) level
rather than at a group level. This could improve the accumulation of cost
history over time, and thus could improve cost management and resource
allocation decisions.
Implement cost attributions and cost allocations between units where
beneficial and significant. Several of the service support and
institutional support units currently are charged out to the users, both
within the Library and external to the Library. These charge-out units
are primarily photoduplication and similar services that are relatively
easy to establish a fee for service basis of allocation. However, several
of the Library's largest service support components, including
Preservation, Cataloguing, Collection Management, and Information
Technology Services are not charged out to the specific user groups
within the Library. Charging out these services could improve resource
allocation decisions, because the users have a greater vested interest in
efficient service.
Implement commitment accounting for significant planned/budget
expenditures. The Library has a significant amount of year end spending
for non-salary items. This probably has a history associated with the old
reporting system. However, the new financial reporting system should
facilitate more timely procurement of budget items because of its
commitment and encumbrance accounting capability.
The above suggestions will require the commitment of resources to analyze
and group the cost centers appropriately, to modify the expense
accounting coding requirements, and to prepare cost attribution and
reporting programs. Furthermore, some parts of the Library might have to
implement labor hour reporting, depending on the nature of the service
unit involved. For instance, ITS might have to adopt project accounting
for time spent in significant systems development and modification and
cataloguing could have to attribute staff hours to particular parts of
the collection rather than just the Cataloguing Division. We do not
believe that labor hour reporting would have to be adopted universally.
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-29 Another factor to overcome is the fact that the service
bureau that currently performs the payroll processing for the Library
does not have the capability to distribute payroll costs on a basis
besides assigned work unit (cost center). Accordingly, full
implementation of the suggestions above might require the Library to
develop supplementary methods and software for redistributing/coding
selected labor costs across multiple cost centers and projects.
Condition 2: The Financial Services Directorate Needs to Receive
Authorization For and Fill Its Additional Positions In Order to Provide
More Useful Information to Management
The Library embarked on financial management improvement with its 1990
Improvement Plan which called for implementation of the new core
accounting system (completed during 1995), out-sourcing payroll
processing, implementation of an automated procurement tracking system
(in process), among other things. These are significant improvements;
however, they essentially only replaced antiquated methods, software and
hardware for activities that were already being done. That is, they did
little to move the Library s financial management to the next plateau
(performance and measurement). The plan also included development of
activity based costing, but that has not been implemented. The Library s
plan to implement activity based costing is consistent with the direction
Congress has given to Executive Branch agencies through the Government
Performance and Reform Act (GPRA). However, as discussed below, the
Library will need additional resources in order to realize its plan.
The intent of the CFO Act and GPRA are to, among other things, change the
way government agencies think about missions and spending. These Acts are
designed to significantly increase the emphasis on measurement of costs,
inputs, output, customers, user satisfaction and customer needs
monitoring. This is a significant change from the historical Federal
government practice of FTE and expense budgeting and accounting that
often does not correlate costs and benefits effectively. The success of
the conversion to an external mission and use approach is dependent on
four factors:
1. Legislative support 2. Top management support 3. Adequate systems and
timely and reliable information 4. Budget, Programming and Accounting
team work
We are concerned, however, that several key positions needed to implement
activity based costing in the Financial Services Directorate have not
been approved and, that fiscal year 1995 position requests were either
not approved or were not filled.
Recommendations:
Given the Library s difficulty in its process to fill important
positions, we believe that it is critical that the Library approve and
begin filling the additional positions. We also believe
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-30 that several of these positions require cost, activity
based, CFO Act, generally accepted accounting principles and financial
statement accounting experience that is not present in any depth in the
Library s current Financial Service Directorate workforce. Furthermore,
existing knowledge of Library operations can be lost unexpectedly due to
the demographics of the current key positions. Failure to identify fiscal
year 1996 and fiscal year 1997 resources for these positions will
significantly delay the improvements that the Library needs to make in
order to meet proprietary reporting requirements and to implement certain
of the recommendations made in this report.
Condition 3: Deficiencies in Certain Controls Over The Library s New
Financial Management System Application Security Expose The Library to
Risk of Unauthorized Transactions, Incorrect Data, and Misuse or Loss of
Data
In addition to the general controls environment reviews that we made of
the ITS data center, we specifically reviewed the application controls
over the new financial management system, FEDLINK and Fedline.
Application security for the new financial management system is
inadequate. It allows individuals access to functions that conflict with
their current job responsibilities. Such authority allows a user to input
transactions that may go undetected by manual review. In addition, there
are override capabilities that allow a user to  force  a transaction into
the system despite identified errors.
Security access to  supervisory  approval functions is weak
Adequate separation of duties does not exist within FSD for the input and
approval of critical documents as a result of users with access authority
that conflicts with their job responsibilities. We have identified
instances where individuals could:
enter and approve manual journal entries; enter and approve cash
receipts; and enter and approve disbursements from the imprest fund.
Additional access authority was provided to individuals in order to
accelerate the input of documents during the implementation of the new
financial management system. Additionally, due to the lack of staffing
and open requisitions for key positions, individuals were granted
additional authorization. However, now that the new financial management
system day-to-day entries should be current and more routine, the Library
needs to return to a more controlled environment.
Too many users have the ability to override transaction edits in the
system
The new financial management system accounting application provides the
ability to override various activities (e.g., nine separate levels of
override authority), without generation and review of appropriate
override logs. It appears that in some cases the
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-31 edits/validations are inappropriate; while in other cases,
the override authority is not appropriate for the individual entering the
data.
For example, we noted that the ability to enter and process duplicate
payments exists within the new financial management system. Our review
determined that this apparent weakness appears to be mitigated by
monitoring procedures employed by the Library's fund managers and is
limited to the availability of unliquidated obligations. However, the
ability to issue duplicate payments in combination with the ability to
override transaction edits could expose the Library to the risk of
issuing inappropriate payments.
Recommendations:
Review current access authority for all individuals to determine
appropriateness of security levels granted. Supervisory-level personnel
should be restricted from PASS 1 access (except for manual checks);
however, should have access to PASS 2 capabilities (excluding
edit/correct functions within PASS 2).
Perform an analysis regarding the types and frequency of overrides
currently being performed to determine the importance of the edit
identifying the error. Based on this review, management should either
remove the edit or generate a log of all overrides. This log should then
be reviewed by appropriate management personnel to ensure each override
is properly authorized.
Condition 4: The Library s Self-Assessment and Review of Its Internal
Control and Accounting Systems Is Inconsistent with Audit and Other
Findings
The Library has established a LCR which requires regular internal control
reviews by its program and subsidiary system managers. The internal
control questionnaires developed by the Library are based upon criteria
established under the internal control standards and financial systems
standards presented in Appendices 2 and 3 of Title 2.
In performing our audit procedures, we determined that, for certain
system questionnaires reviewed, the Library manager s self-assessment and
review of the internal control and accounting system for which the
manager was responsible was inconsistent with our testing and findings
regarding internal controls over financial reporting, as detailed within
this report. Following are examples of questionnaire responses
inconsistent with the results of our audit testing:
Several service units that handle cash receipts responded to the
questionnaires with a positive response that written policies and
procedures manuals for cash receipts have been completed. However, the
policies and procedures manuals referred to are currently in process of
being developed by FSD;
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-32 Several service units responded to the questionnaires that
effective cash management controls are in place (i.e., regular
reconciliations). However, we noted that service units either did not
perform any reconciliations during the review period or only performed a
year end reconciliation;
Contracts and Logistics responded  yes  to the following Property and
Equipment questions:
 The accounting system includes adequate monetary property accounting
records ; and  The basic cost of property includes the amount paid to
acquire it, including transportation, installation, and related cost of
obtaining the property in the form and place it is used or managed.
However, our testing revealed that the IBCFACS records the cost of
capital assets based on the purchase order amounts, not on the actual
invoice cost. During detailed testing of capital property items, we
identified instances where FSD could not support the purchase order cost
with paid invoices, and as a result, these assets were written down to
their invoice cost. Similarly, the NLS/BPH responses to the questionnaire
did not fully disclose material weaknesses in controls over its
equipment; and
The Financial Systems Officer responded that appropriate segregation of
duties between programming, data entry, and data processing was done
through ACF2. However, we noted during our testing of ACF2 that multiple
users had excessive access to the system.
Further, Library department responses regarding control deficiencies over
cash receiving functions were also generally inconsistent with weaknesses
identified by another accounting firm engaged by the Inspector General.
For example, for five of the ten questions responded to by the Cataloging
Distribution Service unit manager, the controls were identified as being
adequate in the questionnaire, with no reference made to deficiencies in
internal controls identified by the other accounting firm and agreed to
by the service unit manager. In approximately 70% of the cases the
service unit managers responded with a  yes  to the questionnaire that
controls were in place; however, the service unit manager also agreed to
the deficiencies in internal controls identified by the other accounting
firm related to that same control issue, which would indicate that  no
would have been the appropriate response by the service unit manager.
Additionally, we noted that in certain instances the person completing
the questionnaire indicated that controls were in place during the period
under review, when the control procedures were not in place until
subsequent to September 30, 1995, by their own acknowledgment. This
indicated the preparer s apparent lack of understanding that the controls
they were to evaluate and conclude as to the effectiveness thereof were
the controls in place during the period under review.
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-33 Last, a questionnaire was prepared for the new financial
management system at the highest level by one representative of FSD,
rather than having questionnaires completed by persons responsible for
key functions within FSD or having significant financial management
responsibilities, i.e., the FSD Cash Receiving and Disbursing Office
managers did not participate in completing the financial management
system questionnaire, which was represented by management to encompass
their responsibilities.
Recommendations:
We believe that the Library may have been able to detect many of the
conditions identified in this report if it had fully implemented and
consistently followed the accounting and financial management standards
applicable to other federal agencies. Specifically, for the internal
control structure, implementation of Office of Management and Budget
Circular A-123, Management Accountability and Control could help the
Library have a consistent means of reviewing risk, and identifying and
correcting material weaknesses, if any, in internal control systems.
We recommend that Library FSD management reassess which managers should
complete the internal control and accounting system questionnaires. Once
those persons have been identified, the Library should conduct formal
training of personnel regarding the purpose of the reviews, the types of
testing to perform, and how to analyze testing results. This training
should be conducted by persons knowledgeable regarding the evaluation of
internal controls within accounting systems and should be given just
prior to performance of the reviews.
Further, to facilitate management review and reporting of the internal
control structure, the CFO should establish a method to
monitor its systems and controls to regularly identify problems as they
occur by establishing clear lines of responsibility and communication
from top management to the lowest staff levels, develop action plans that
are agreed upon by all affected groups and individuals to correct
problems identified, and continuously monitor corrective actions to
ensure that progress is achieved.
We further recommend that Library management involve the Inspector
General office in testing and reviewing the questionnaires annually, as
this will help validate the process and provide an independent assessment
of the control environment within the Library.
Condition 5: Lack of a Formal Business Continuity Plan Exposes The
Library to Loss of Data and Resources
A Business Continuity Plan should document the procedures for recovering
and/or moving the computer operations function and provide alternate
manual procedures for the various
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-34 user departments to continue processing in the event of
extended computer downtime or natural disaster.
The Library does not have a formal plan for recovering the computer
operations functions in the event of a disaster
Lack of documented procedures increases the risk that the organization
will not be capable of full recovery in the event of a disaster,
resulting in loss of data. Currently, the Library has a disaster recovery
plan, in draft form, that outlines general procedures in the event of a
disaster.
Recommendations:
We recommend the development of a comprehensive business recovery plan
that will assist with continuation and rapid recovery of business
operations after an emergency or disaster. The realization of this
objective depends on the accomplishment of the following four project
goals:
Development of business recovery requirements that define the business
risks and recovery time frames.
Formulation and selection of cost-effective (commensurate with business
risks) recovery strategies to address short- and long-term interruptions.
Development of a detailed business recovery plan addressing personnel,
recovery resources, and recovery actions. Specifically, this objective
covers the identification of individuals responsible for managing and
performing the recovery process, definition and assignment of team
members' responsibilities, identification of key technical and non-
technical resources, and development of detailed restoration procedures.
Testing of the business recovery plan to evaluate different components of
the plan, identify problems, and implement solutions.
Condition 6: Procedures and Controls Over Cash Handling, Check Processing
and Certain Disbursing Office Responsibilities Need Improvement
During our walkthrough of the controls surrounding cash receipts in
various areas of the Library, we identified certain weaknesses in the
controls surrounding the cash receipts processing. These weaknesses were
also identified by another accounting firm engaged by the Inspector
General. Specifically, the following weaknesses were noted:
cash receipts are not adequately safeguarded (i.e., lack of locked
storage facilities); incompatible duties are not properly segregated
(i.e., in the Disbursing Office);
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-35 certain procedures ensuring appropriate control of cash
receipts are not maintained (i.e., accountability, restrictive
endorsement, mail logs); written policies and procedures are incomplete;
and reconciliations of cash receipts are not performed on a routine
basis.
Recommendations:
Weaknesses in the control structure of cash receipts leaves open the
opportunity for misplacement or misappropriation of receipts, and the
possible inability to identify if a loss even occurred and if it did, the
cause or source of the loss. Formal documented procedures to process cash
receipts can prevent difficulties in performing duties due to lack of
understanding or inconsistent approaches, especially due to personnel
changes. Furthermore, reconciliations are necessary to ensure the
integrity of the Library s financial records.
We recommend that the Library of Congress take immediate corrective
action for the findings identified during our review of cash receipts, as
well as well as any additional findings identified by the other
accounting firm. The Library should develop a systematic plan to address
the control weaknesses, with an emphasis on the more significant findings
(i.e., reconciliations, documented procedures, locked storage), including
a time frame for expected completion.
We further recommend that certain responsibilities, over processing of
cash receipts, preparing reconciliations, and making disbursements, be
appropriately segregated within the Disbursing Office in order to
adequately safeguard assets of the Library.
Condition 7: Trust Fund Accounting and Investing Are Not Subject to
Sufficient Review and Oversight to Prevent Misclassification of Funds and
to Ensure That Investments Comply with Legal Requirements
Accounting for trust fund investments and fund balance is not subject to
sufficient review and oversight to prevent misclassification of funds as
restricted or unrestricted and to ensure that investments comply with
legal requirements. The Library s investment management analyst s
accounting and investment functions have not been subject to timely
review by general counsel or others, such as fund managers, who may be
familiar with the legal terms of the trust fund instruments and the legal
restrictions governing fund investments. Though the Library provides fund
managers access to Status of Funds reports depicting fund spending during
the year, during fiscal 1995 there were no formal periodic reports
showing how fund balance is classified or how fund assets are invested,
save for the annual report to the Trust Fund Board. For fiscal 1995, this
annual report has not yet been prepared. In fiscal 1996, the Library will
be issuing to trust fund managers reports showing the investments of the
funds, but these reports will not indicate if fund balances are
restricted or unrestricted.
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-36 This lack of timely, knowledgeable oversight of trust fund
investing and accounting exposes the Library to the risks that it could
misclassify fund balances or make investments that violate legal
restrictions on them. During our audit we identified one instance of an
improper investment, which was reported as a finding of noncompliance
with selected laws and regulations on page 6-6 of our report. We also
identified four instances where unrestricted funds were misclassified as
restricted when the Library converted from its old financial management
system to a new one in fiscal 1995. The investment management analyst
decided whether individual trust fund balances would be established as
restricted or unrestricted in the new general ledger. The analyst
consulted with accountants in the Financial Services Directorate, but the
decisions were not reviewed by general counsel or others knowledgeable of
the provisions of the trusts. Restricted fund balances represent
investment principal that, per the terms of the trusts, may not be spent.
Unrestricted fund balances represent investment principal that may be
spent for the purposes for which the trusts had been established. We
found that the investment management analyst had misclassified four trust
fund balances as restricted, when the terms of those trusts permit the
Library to spend investment principal. If these misclassifications had
remained undetected, the Library may have missed opportunities to use
available funds to fulfill the purposes of these trusts. Because of these
misclassifications, we expanded our testing to review all funds that were
classified as unrestricted in the general ledger to determine whether the
Library was at risk of spending moneys that trust instruments actually
required to be invested permanently. We found that trust documents
related to all of these funds supported their classification as
unrestricted.
In performing our audit we found that financial and legal documents
related to the trust funds are maintained in various locations throughout
the Library. This fragmentation of responsibility for maintaining these
documents may have contributed to the conditions we noted above. We also
found that the account structure set up in the Library s new general
ledger does not enable the Library to separately track the portion of
trust fund balance attributable to cumulative dividend and interest
income, which may be spent, and the portion attributable to capital gains
on restricted trust fund investments, which may not be spent. This may
make it more difficult for the various trust fund managers to determine
amounts available to be spent when they formulate their budgets for the
trust funds.
Recommendations:
The coding in the general ledger should be enhanced so it can track
earnings which may be available to be spent in the future separately from
gains that increase restricted fund balances.
To ensure that all trust funds and the cumulative earnings on their
investments are properly classified within the Library s records,
procedures should be established requiring formal documentation
evidencing legal counsel s determination regarding the classification of
all significant trust donations as restricted or unrestricted. Given the
fund categorization exceptions identified above, we recommend that legal
counsel review all trust funds, currently held by the Library, for
propriety and accuracy of fund categorization as either unrestricted or
restricted. That review should also include a formal redetermination of
Appendix I Appendix I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-37 whether or not the trust instruments and applicable laws
permit the spending of capital gains earned on the investment of those
funds. These reviews should serve as the basis for classifying each fund
balance in the general ledger and for tracking the earnings of the funds
in the general ledger. The results of those reviews should be documented
and retained by general counsel, FSD, and the fund managers of each trust
fund to ensure that they conduct their activities consistent with the
intent of each trust. Accounting for future gifts to the Library s trust
funds should be supported by clear, written communication from the
Library s legal counsel concerning whether acceptance of the gift has
been approved by both the Trust Fund Board and the Joint Committee on the
Library and whether the principal of the gift is restricted or
unrestricted.
To enable FSD management, legal counsel, and fund managers to determine
that the accounting for the trust funds is consistent with legal
determinations about restrictions on the investment and use of those
funds, FSD should prepare financial statements, including a balance sheet
and operating statement, for each significant fund at least quarterly.
These financial statements would provide a basis for reviewing the
actions of the investment management analyst. The routine preparation of
these statements would facilitate preparation of the annual report for
the Trust Fund Board.
Exhibit I Exhibit I
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 6-38 Purpose of the Library Missions/Service Unit Diagram
The Library of Congress is a complex organization. Its name does not
project this complexity. The accompanying diagram is a graphical display
of the various units that are involved in fulfilling the missions of the
Library. This display has three sets of components. First there are the
"Service Delivery Components", comprised of those units that directly
interact with the "Customers" and, in the case of the Library's
Collections, are the custodians and protectors of those Collections. Next
there are the "Service Support Components" which directly support and/or
supervise the service delivery components. Lastly, there are the
"Institution Support Components" which provide overall direction,
administrative support, and facilities and protection to the Library. The
diagram is not intended to be an organizational diagram of the Library,
nor is it intended to be a highlight diagram solely of Library functions.
Rather, it is intended to be an overview and aid to portray the
customers, missions, services, and service units of the Library.
Accordingly, the diagram does not include every facet of the Library;
however, it does display the more significant components of the Library.
We have developed the Library of Congress Missions/Service Unit Diagram,
with the assistance of the Library, to:
1. Capture in a "snapshot" the complexity of the Library, to emphasize
that the Library is much more than books and documents on shelves.
2. Display where the Library resources are expended and to associate
those expenditures with the Library's components.
3. Assist with the tough day-to-day decision making of the Library and
others in the allocation of resources and selection of missions.
4. Stimulate development, implementation and use of activity-based
costing, programmatic costing, performance reporting, and similar
techniques within the Library, where appropriate, in the budgeting,
internal analysis, and internal and external reporting functions of the
Library.
The information in each of the "component" boxes includes the
organizational title of the component, the 1996 expenditure budget for
the component (in the left portion of the box -black figures are the
components  gross expenditure budget, blue figures are the offsetting
reimbursements/gifts budget, and red figures are the customer fees
budget) and the 1996 FTE budgets (the right portion of the box). These
figures, in some cases, do not agree to budget submissions and internal
and external reports because certain non-salary expenditures have been
allocated to units for this diagram that are budgeted and/or reported in
the aggregate for these other purposes. Also the budgeted expenditure and
offsetting collection and fee data do not represent the  cost  of the
activity because activities in other components that support any one
activity are not attributed to it, i.e., fully allocated cost accounting
is not performed in the budget. The 1996 budget information presented in
this Exhibit has not been subjected to the auditing procedures applied in
the audit of the Consolidated Statement of Financial Position, and,
accordingly, we express no opinion on it.
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-40 Report of Independent Accountants on Management s
Assertion About The Effectiveness of Internal Controls Over Safeguarding
Collection Assets
Comptroller General of the United States:
We have examined management s assertion that it cannot provide reasonable
assurance that the Library of Congress  internal control structure over
safeguarding of collection assets against unauthorized acquisition, use,
or disposition was generally effective as of September 30, 1995, which is
presented at page 5-4.
Our examination was made in accordance with Government Auditing
Standards, issued by the Comptroller General of the United States, and
with standards established by the American Institute of Certified Public
Accountants and, accordingly, included obtaining an understanding of the
internal control structure over safeguarding of collection assets,
testing, and evaluating the design and operating effectiveness of the
internal control structure, and such other procedures as we considered
necessary in the circumstances. We believe that our examination provides
a reasonable basis for our opinion.
Because of inherent limitations in internal controls, unauthorized
acquisition, use, or disposition of collection assets may occur and not
be detected. Also, projections of any evaluation of internal controls
over safeguarding of collection assets to future periods are subject to
the risk that internal controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
This report is presented in five sections. Following this introduction is
a discussion of the criteria the Library applied in preparing its
assertion and that we applied in examining it; our opinion on the Library
s assertion; an identification of significant weaknesses in internal
controls; and our recommendations for correcting those weaknesses.
The Library s Assertion About Safeguarding Controls and Criteria Applied
The Library of Congress is not required by law or regulation to do an
assessment of its controls for safeguarding the collection assets. In
response to the needs of this audit, the Library has elected to prepare
an assertion about the effectiveness of these controls using four
criteria for assessing its controls:
Report of Independent Accountants on Management s Assertion About Report
of Independent Accountants on Management s Assertion About The
Effectiveness of Internal Controls Over Safeguarding Collection Assets
The Effectiveness of Internal Controls Over Safeguarding Collection
Assets
In performing our work, we also considered criteria established by the
American Library Association s 1
Association of College and Research Libraries (ACRL), the American
Association of Museums (AAM), and the Society of American Archivists
(SAA). Though the Library has informed us that it has not adopted the
standards or guidelines of these organizations, we nonetheless consider
them to be useful in making the broad control concepts stated in the
Internal Control - Integrated Framework more specific in the context of
the Library s operations and as a guide for examining the criteria
applied by the Library in preparing its assertion.
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-41 Bibliographical controls, which include cataloguing,
archival processing, and arrearage reduction.
Preservation controls, which include use of surrogates (digital,
microform, service copies of audiovisual materials); collections care
programs; disaster preparedness; Top Treasures security; de-
acidification; conservation of individual items; preservation treatment
of processed items; preservation research and testing program to define
actions for deacidification, storage, audio preservation, and studies of
longevity of new digital media; and Congressionally mandated preservation
programs such as the National Film Preservation Board and American
Television and Radio Archive.
Inventory controls, which include the automated circulation control
system; manual shelf lists; finding aids and other detailed descriptions;
and registry of items lent for exhibition.
Physical security controls, which include perimeter security (theft
detection devices); stacks closed to the public; reader registration;
security in reading rooms (cameras, police patrols, etc.); caging high
risk collections; piece level inventory control; secured loan stations.
The criteria the Library has elected to use is narrower than such
established internal control criteria as the "Internal Control -
Integrated Framework," issued by the Committee of Sponsoring
Organizations of the Treadway Commission or Office of Management and
Budget (OMB) Circular A-123, Management Accountability and Control.
For purposes of assessing the Library s assertion, we applied not only
the Library s criteria, but also the internal control criteria
established in the Internal Control - Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Among 3
the elements of internal control presented in the Integrated Framework is
control activities, which encompasses the types of controls included in
the Library s criteria. The Integrated Framework also includes the
following elements of internal control, which we believe should be
considered to make a comprehensive assessment of whether the Library s
assertion about the effectiveness of its controls is fairly stated:
Risk assessment - Assessing the risk of unauthorized acquisition, use or
disposition of the collection.
Report of Independent Accountants on Management s Assertion About Report
of Independent Accountants on Management s Assertion About The
Effectiveness of Internal Controls Over Safeguarding Collection Assets
The Effectiveness of Internal Controls Over Safeguarding Collection
Assets
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-42 Control environment - The control environment sets the
tone of an organization, influencing the control consciousness of its
people.
Information and communications - Making available to management the
information it needs to carry out its responsibilities related to
prevention or timely detection of such unauthorized activities.
Monitoring - Mechanisms to enable management to monitor the continued
effective operation of such controls.
In applying these criteria, we adapted the Internal Control-Integrated
Framework s definition of internal controls over safeguarding assets to
fit the Library s circumstances as follows:
"Internal control over the safeguarding of collections against
unauthorized acquisition, use or disposition is a process, effected by
the Library s management and other personnel, designed to provide
reasonable assurance that the risk of unanticipated loss (theft,
mutilation, destruction, or misplacement) of collection items of
significant market value, cultural or historical importance, or
significant information value is reduced to an acceptable level.
Applying this definition, as well as the Library s criteria and that
contained in the Internal Control - Integrated Framework, we determined
that a weakness in safeguarding controls is significant enough that it
should be included in the Library s assertion if it results in either:
significant risk of unanticipated loss (theft, mutilation, destruction,
or misplacement) of collection items of significant market value,
cultural or historical importance, or significant information value or
significant risk that senior Library management does not have sufficient
information about the extent to which the Library s objectives concerning
the safeguarding of the collections are being achieved.
Opinion on Management s Assertion
The Library has not completed a comprehensive risk assessment and
collection security plan to identify the risks to the collection, the
proposed or established control activities to address the risks, the
required management information it needs to carry out its
responsibilities, and the methods by which management will monitor the
effectiveness of the established control procedures. Nor does the Library
have effective mechanisms in place to monitor whether staff responsible
for safeguarding collections are meeting their objectives, as currently
defined. Until it has performed a risk assessment, implemented a
comprehensive security plan, and established mechanisms to monitor the
implementation of that plan, Library management will not have
Report of Independent Accountants on Management s Assertion About Report
of Independent Accountants on Management s Assertion About The
Effectiveness of Internal Controls Over Safeguarding Collection Assets
The Effectiveness of Internal Controls Over Safeguarding Collection
Assets
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-43 reasonable assurance that the risk of unanticipated loss
(theft, mutilation, destruction, or misplacement) of collection items of
significant market value, cultural or historical importance, or
information content is reduced to an acceptable level.
In its assertion, management describes a number of significant weaknesses
in preservation controls, inventory controls, and physical security
controls over collection assets as of September 30, 1995. These are
presented below under  Significant Weaknesses in Internal Control.  The
assertion also describes initiatives the Library has undertaken since
September 30, 1995, to remedy some of these weaknesses. These initiatives
have not been in operation for a sufficient period of time to enable us
to obtain sufficient evidence for us to assess their operating
effectiveness. Further, the absence of a comprehensive risk assessment
and security plan and of effective monitoring mechanisms precluded us
from determining if the Library s identification of significant
deficiencies in control activities is complete.
In our opinion, management s assertion that, as a result of the
weaknesses in controls described in its report, it cannot provide
reasonable assurance that the internal control structure over
safeguarding collection assets against unauthorized acquisition, use, or
disposition, was generally effective at September 30, 1995, is fairly
stated based upon the criteria stated above. With its assertion,
management stated its belief about the relationship between the benefits
of continued reading room service to the research community and public
and the potential losses of collection assets that could result from
providing that service. We do not express an opinion or any other form of
assurance on that statement.
Significant Weaknesses in Internal Control
No Comprehensive Collection Security Plan or Formal Risk Assessment
The Library does not have a comprehensive risk assessment which
identifies the risks to the collection, the proposed or established
control activities to address the risks, the required management
information it needs to carry out its responsibilities, and the methods
by which management will monitor the effectiveness of the established
control procedures. The Library issued Library of Congress Regulation
(LCR) 610-2, Security of the Collections: Use , on November 22, 1995.
This LCR, which identifies that the chiefs of the custodial divisions are
responsible for the security of their collections, does not provide
guidance on how to secure the collection, the process by which the chiefs
will be rated on effectiveness of their security measures, or a
definition of how much security is acceptable (i.e., how secure the
collection has to be). As a result of not having a formal risk
assessment, the Library does not have a comprehensive collection security
plan to address the vulnerabilities associated with the safeguarding of
the collection. However, the Library has taken a number of recent
initiatives, which may provide it the basis for compiling a risk
assessment and preparing a security plan. Among these are:
Report of Independent Accountants on Management s Assertion About Report
of Independent Accountants on Management s Assertion About The
Effectiveness of Internal Controls Over Safeguarding Collection Assets
The Effectiveness of Internal Controls Over Safeguarding Collection
Assets
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-44 The Acting Director of the Public Service Collections
Directorate issued a request on November 30, 1995, to the chiefs of six
custodial divisions "to assess the collections under your control for
their vulnerability to theft and damage and to recommend remedies for
improvement." All six division chiefs identified security concerns in
their responses. Examples of these are discussed below, under  Incomplete
Control Activities.
The Library hired a contractor to perform a security assessment of the
three major Library buildings (Madison, Adams, Jefferson) and the
Landover annex, an assessment of police operations related to collections
security, and an assessment of security awareness among Library staff.
These assessments are scheduled to be completed in May 1996. The Library
is not planning to implement additional security initiatives until the
contractor issues its final report.
Weak Control Environment
The Library s control environment has not been conducive to effective
security over the collections. Securing the collections has traditionally
been less important than being able to serve them to users; weaknesses in
controls over storage areas offer temptations to employees who have
access to valuable items; and the Library has not set minimum acceptable
standards of security.
Historically, the Library's culture has been oriented more toward the
acquisition and use of collection items than toward safeguarding them. In
October 1995, the Library adopted a new mission statement, which
articulated a shift in these priorities. This new mission statement sets
collection security ("to acquire, secure, and preserve the collections")
as a higher priority than serving the collection to the public.
Considerable effort over a long period of time will be necessary to get
the culture of the Library to change to accept this new ordering of
priorities. Further, these priorities must be accepted by support
services staff as well as those who work directly with the collections.
Several custodial chiefs reported that support services within the
Library often set their priorities and perform their work without
sufficient regard for the importance of securing the collection. For
example, the chief of one Library division stated that the
"reconfiguration of the reference desk is a top priority" to enhance the
security of the reading room. However, the effort to redesign the
reference desk was "abandoned when resources for the redesign were
directed to the renovation of the cafeteria." Other custodial chiefs
cited instances where custodial and maintenance staff left doors to
storage areas propped open.
During its testimony before the Joint Committee on the Library on
November 29, 1995, a representative of the contractor performing the
Library s security assessment stated that "the greatest threat [to the
collection] is an internal threat." As discussed in the
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Year 1995 6-45 Internal Control - Integrated Framework, weaknesses in the
control environment can result in employees engaging in dishonest,
illegal, or unethical acts simply because their organization gives them
strong "temptations" to do so. Nonexistent or ineffective controls can
offer temptations to steal. Several custodial divisions identified areas
where weaknesses in the controls over storage areas exist. For example,
employees may bring bags and other personal belongings into storage areas
and may leave the storage area unobserved through back doors, which are
not alarmed. In one storage area items of great value are kept on open
shelves. A single camera is installed in this area, and it is focused on
only one side of the room. Someone familiar with the layout of this room
could easily avoid observation by this camera. As a result of these
weaknesses, Library of Congress staff could remove valuable collection
items without authorization or detection.
The Library does not have established, documented guidelines or standards
for how various collection items are to be secured. LCR 610-2 states that
custodial chiefs may vary security measures according to the quality,
monetary value, replaceability, fragility, or other special or unusual
conditions relating to the materials concerned. However, it does not
define what the minimum acceptable level of security should be.
Consultation with the published professional guidelines, statements, and
standards issued by the ACRL, the SAA, and the AAM could help identify a
framework of what the Library s own standards should be.
Incomplete Control Activities
In its assertion, management describes a number of significant weaknesses
in preservation controls, inventory controls, and physical security
controls over collection assets as of September 30, 1995. These are
presented below. Management also describes initiatives the Library has
undertaken since September 30, 1995, to remedy some of these weaknesses.
These initiatives have not been in operation for a sufficient period of
time to enable us to obtain sufficient evidence to assess their operating
effectiveness.
Preservation controls: The Library has inadequate temperature and
humidity control in collections storage areas; inadequate space for
appropriate storage of collections materials; insufficient space for
reformatting acetate negative collections materials.
Inventory controls: The 12 million card shelf list exists in manual form
only, which prevents the Library from having an easily updatable tracking
system for the exact location of any given catalogued item.
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Year 1995 6-46 Physical security controls:
The Library does not have a permanent expert staff charged solely and
specifically with responsibility for the security program.
Perimeter security is not complete:
Adams Building book stacks lack physical barriers to entry.
Madison Building loading dock is inadequately supervised and unauthorized
entry is possible.
Landover Center Annex has poor control over collections because of
absence of accountability for items removed, inadequate procedural
controls, several inoperative alarms, and inadequate police staff.
There is inadequate control over collections removed from storage areas
for use in the Library, both in-process materials and those used by
Library staff.
Not all materials bear Library of Congress ownership markings.
Not all bound materials have theft detection targets.
There is insufficient video camera surveillance of the reading rooms, and
many reading rooms have insufficient controls over bringing personal
belongings into them, poor sight lines that allow patrons to hide their
activities from a librarian s view, and inadequately controlled exits.
The Library has insufficient police staff to provide a visible effective
deterrent presence in collection storage areas, book stacks, reading
rooms, and throughout the Library s buildings.
There is inadequate protection of the buildings and collections from
terrorist attacks: no barriers to prevent vehicles with bombs from
approaching; insufficient police patrols of the exteriors of Library
buildings; video surveillance of exterior is limited; and inspections of
people entering the buildings do not meet Federal guidelines.
Custodial chiefs  responses to the Library s security survey underscore
the concerns about security in reading rooms and storage areas identified
in the Library s assertion:
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Year 1995 6-47 "There are many inadequately secured treasures in the ...
materials storage areas. Priceless treasures are now stored on open
shelves. Because of the size and configuration of the area control via
security cameras could likely never be adequate. The doors are locked,
but the room must be accessed constantly to serve readers. We have on
several occasions found a door propped open by people doing work in the
area."
"Our limited staff alone cannot provide the desired level of security."
"There is insufficient oversight of patrons in the reading room...An
enormous amount of valuable and fragile material is served to readers,
often in the context of unacceptably high reader-to-staff ratios."
"Our staff of 2 librarians and a half time technician cannot adequately
monitor the reading room. Add to this the fact that there are many blind
spots in the room and it is evident that it would not be difficult for a
determined thief to walk out with a[n item] from the collection."
"We need to fill current vacancies in the ... reading room to perform the
following security measures: limit number of items provided to readers;
examine content of ... folders before use; and check content of folders
after use and before release of the reader."
In addition, we noted the following areas where effective controls were
not established.
The Library has item level control over its book collections, but many
items in the special collections are not subject to item level control.
Our visits to a sample of the special format collections indicated that a
significant portion of these collections, including the materials in the
Geography and Map Division, the Prints and Photographs Division, the
Music Division, and the Manuscripts Division, are not item-level
controlled. The format of many of the collections makes the cost of item
level control prohibitive.
The Library does not conduct periodic physical inventories on a majority
of its collection. While a 100% physical inventory would not be practical
or cost beneficial, the Library should develop procedures to adequately
segregate high value and irreplaceable items, and it should count or
inspect those items periodically.
The Library staff are not subjected to the same security procedures as
the public. Staff are not precluded from bringing bags or coats into
storage areas, and could use those items to conceal materials being
taken. Also, staff
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Year 1995 6-48 can enter and leave storage areas from several doors,
increasing the risk that unauthorized use of materials could go
undetected. Although the Library has to rely on the integrity of its
staff, establishing control procedures relating to Library employees acts
as a deterrent to unauthorized activities.
Lack of Effective Management Information and Monitoring
The Library does not have effective mechanisms in place to monitor
whether staff responsible for safeguarding collections are meeting their
objectives. The gathering of information about possibly missing or
mutilated items has not been routine or systematic. Recent initiatives to
improve the quality and completeness of that information include the
establishment in August 1995 of a policy requiring the Library of
Congress Police to report all suspected thefts and mutilations to the
Office of Inspector General, which is to forward those reports to the
U.S. Attorney, and a request in February 1996 that each custodial chief
compile complete listings of all items known to be  missing  for at least
thirty days. That listing is being reviewed to determine whether items
should be found through special searching efforts, whether they can and
should be replaced, and what additional safeguards should be implemented.
We also found that security objectives were not consistently included in
the annual performance plans of the custodial chiefs and in the annual
reports prepared by the custodial divisions. We reviewed performance
plans for the chiefs of ten custodial divisions and found that only four
included security objectives that appeared to be specific and measurable
(such as,  implement mandatory use of lockers ); two had more general
security goals ( secure and serve the Library s special collections );
while four made no reference to security in their performance plans.
Similarly, annual reports for the custodial divisions varied in the
extent to which they addressed security, if at all. These reports were
limited in their usefulness as a management tool, because they did not
compare goals and results.
Recommendations
The Library should prepare a formal risk assessment and a comprehensive
security plan.
A representative of the contractor performing the Library s security
assessment made the following statement during testimony before the Joint
Committee on the Library on November 29, 1995:
"The Library needs to identify the full breadth and depth of its security
problems. It then needs to establish realistic security objectives based
on its dual missions -availability and security - and a security strategy
to broadly address how much risk is acceptable."
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Year 1995 6-49 The challenge the Library faces in safeguarding its
collections is perhaps unique among federal agencies: its principal
assets are items that acquire their value from being accessed and used.
Thus, fulfillment of the Library's mission to provide maximum access to
its collections is, to a degree, at odds with safeguarding those assets,
because it exposes them to the risk of loss, mutilation, and damage. The
Library s efforts to safeguard its assets must continually be balanced
with its mission to make those assets available to the Congress,
researchers, and the general public. The Library has recognized that
safeguarding its collections enables it to continue to provide service
both to current and future users, by affirming in its mission statement
that securing the collections is a higher priority than making them
accessible.
However, the Library faces several significant constraints which have and
will continue to impact its ability to effectively secure and serve its
collection. Among these constraints are:
The Library's facilities. Security and preservation of the collection
were not primary concerns when the Library's facilities were constructed.
Thus, the layouts of the storage and reading rooms were not designed with
an emphasis on security and preservation. This is best illustrated by the
fact that the Library has identified the need to reconfigure several of
the reading rooms to enhance security. Additionally, the layout of the
storage areas within the buildings makes it difficult for the Library to
obtain ideal environmental conditions.
Size of the Collection. The sheer size of the Library's collection makes
storage and maintenance a difficult task. The Library acknowledges that
it has made a conscious decision to run the risk that, in sustaining a
comprehensive collection, its rate of accumulation of items might
outstrip its ability to preserve, secure and gain bibliographical control
of these items in a timely fashion.
Type of Collection Material. Not only is the Library constrained by the
quantity of material in its collection, it is also affected by the type
of material making up the collection. The format/shape of the material
(i.e. posters, photographs, maps, loose manuscript leaves) and the
physical composition of the item affect the Library's ability to
safeguard the collection. For instance, the Library must incur costs to
deacidify acid-based paper collection items and store potentially
dangerous nitrate-based films and negatives. Thus, the Library needs to
purchase or develop special storage devices and preservation technologies
suitable for the Library s immense quantity and variety of items.
Budgetary resources. While the Library's collection continues to grow
every year, its budget resources are unlikely to keep pace. Therefore,
the Library will have to make decisions on the most effective and
efficient manner to spend its limited funds (i.e., balance serving the
materials to users while maintaining cost-beneficial security measures.)
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Year 1995 6-50 Customer demands. The Library is constrained by the
service demands of Congress, researchers, and the general public because
it must consider the impact of controls on service response time. Since
service to the Congress and the research community are integral parts of
the Library's mission, the Library must consider the effect stricter
controls may have on the time it takes to process a request for material.
This is illustrated by the item level pilot inspection program, which was
designed to increase the security over the collection items being served
to the public by requiring Library staff to count the material before and
after it has been served to a patron. The Library received several
comments from researchers that the program significantly delayed their
research. Therefore, the Library will not implement item level
inspections using the approach it tested; rather, it will develop new
models for this program. The demands for service are immediate, visible,
and Library staff may find that providing service to users is more
rewarding professionally than is taking security measures. It is because
of these demands that staff might lose sight of the balance that must be
maintained between service and security. To overcome this tendency, we
believe it is necessary that security responsibilities be defined in a
concrete and measurable way and that the performance of those
responsibilities be regularly monitored.
These constraints present the Library with a difficult challenge: provide
adequate service to the Congress, researchers, and the general public
while reasonably assuring that the collection is protected against
unauthorized acquisition, use, or disposition. In order to achieve this
balance, the Library must first determine what it considers to be
reasonable assurance. A key element of reasonable assurance is a reviewed
and approved risk assessment with a corresponding comprehensive security
plan. Although the Library does have a security plan in place (The Plan
for Enhancing Collections Security), Library managers we interviewed do
not consider it to be a comprehensive strategy to address all the risks
to the collection. Rather, the Plan for Enhancing Collections Security is
more of an action plan for specific problems that have arisen. Expanding
on the foundation laid by this plan, we recommend that the Library
prepare a comprehensive risk assessment with an accompanying strategy to
reduce the risks to the collection to an acceptable level. Specifically,
we recommend the following:
The Library should establish clear lines of authority and responsibility
for securing the collections, as well as mechanisms to hold individuals
accountable for results. It should allocate sufficient resources to
securing the collections, so that in a reasonable period of time they can
be secured.
As the Library formulates its risk assessment and security plan, it
should coordinate with all parties that are essential to its success.
These include the Library s Internal Support Services (ISS), its
Information Technology Services (ITS), its labor unions, the Architect of
the Capitol (AOC) and the Office of Inspector General (OIG). Involving
ISS and ITS would help ensure that those offices will appropriately
consider the importance of securing the collections in performing their
services. Because changes in controls over
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Year 1995 6-51 safeguarding the Library s collections likely will affect
working procedures in the Library, it would be important to have the
Library s labor unions involved in establishing these controls. The
unions did participate in evaluating the recent pilot project on item
level counting and inspection of items served in the reading rooms.
Having AOC participation would help assure that the AOC staff are
sensitive to the security needs of their Library customers. Having OIG
participation would help the IG effectively monitor the implementation of
security plans, but, to preserve independence, the OIG should not
participate in management decision making.
The Library should identify all significant risks to its collections.
This includes the risk of unauthorized acquisition or disposal of
collection material as well as theft, mutilation, and deterioration (from
inadequate storage or natural deterioration). It should be noted that the
custodial divisions with special format collections have already
documented security assessments. Although we understand that these risks
are best identified by the custodial divisions and Protective Services,
it is important to include support divisions in the assessment process.
This will highlight that the custodial divisions alone cannot safeguard
the collection without the important assistance of the support units. We
believe that the risk assessments should address at least three sources
of risk to the collections: the Library s employees, non-employees, and
the physical environment. We also believe that the Library should use the
ACRL, AAM, and SAA literature as a framework for conducting its risk
assessment. The Library s Preservation Directorate has developed plans
for comprehensively assessing risks of physical degradation. The Library
could adapt these plans to address more broadly the risks facing the
collections. As observed in the Internal Control - Integrated Framework,
Managements must focus carefully on risks at all levels of the entity and
take the necessary actions to manage them. It is important that risk
identification be comprehensive.
The risk assessment should include items in process in the Copyright
Office. In-process copyright deposits represent potential additions to
the collections. They may be selected for inclusion in the collections,
or they may be offered to other libraries in exchange for items that will
be added to the collections. We observed a number of weaknesses in
securing in-process deposits. For example, unopened mail that may contain
valuable books, compact disks, or software is not secured; and the
copyright office does not measure possible losses of deposit items
through its processes.
In assessing risk associated with various items in its collection, the
Library should assess the information value of the items, their potential
market value, the likelihood of being able to replace the items, the
threats to that item, and the base of customers likely to use those
items. We do not believe it would be practicable to perform a monetary
appraisal of the collection. Still, it is important to have a sense of
the relative value of groups of items in the collections, so security
measures appropriate to those items can be implemented.
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Year 1995 6-52 In preparing the assessment, the Library should leverage
the relevant information that already exists within the Library, such as
its own security surveys and the planning done by the Preservation
Directorate. It should also use information obtained from the Library s
contractor s security review, from the management review of the Library
that GAO has contracted for, and from our examination. This will reduce
the amount of resources required to gather information and prepare the
assessment.
Once all the risks have been identified, the Library should determine
what controls are in place to mitigate these risks. This will allow the
Library to identify areas which are considered vulnerable. An important
aspect of this process is to quantify the costs associated with
mitigating vulnerabilities. Therefore, as the Library identifies
weaknesses in the control structure, the cost associated with addressing
these weaknesses should also be estimated. As discussed below, those
costs should include personnel costs, investments in equipment, systems,
and facilities, and opportunity costs in terms of reduced service.
The Library should prepare a comprehensive plan to address the weaknesses
in the control structure. This plan should include the options available
to the Library, the costs to implement specific control procedures, and
the proposed initiatives. The Library should consider providing a copy of
the plan to the Library's Congressional Oversight Committees to obtain
Congressional support for the decisions made to safeguard the collection.
Additionally, the Library should involve the AOC in any initiative that
involves or impacts the AOC.
The Library should ensure that all aspects of the assessment and the plan
are documented. This documentation is essential if the Library is to
ensure proper monitoring of the plan. Specifically, the initiatives
should be incorporated into the performance plans of the applicable
Library personnel. This would highlight the importance of the plan and
tie performance appraisals to plan execution. We also recommend that the
Library establish regular reporting requirements related to the plan and
to security. Examples might include monthly reports of potential thefts
or mutilations; results of physical inventories performed of high risk
items (such-as the  18 treasures ); and preservation statistics which
highlight the number of items treated, the backlog of untreated items,
and timetables for completing treatment.
By issuing a stewardship report on its collections, together with a
management assertion about internal controls over the safeguarding of its
collections, the Library has become one of the first, if not the first,
federal agency to provide such full accountability for its heritage
assets. The Library should continue to issue these reports annually and
to have its assertion on controls over the collections subject to
validation by the Inspector General or an external independent auditor.
Annual reporting on its controls would provide the Library a mechanism
for regularly updating its risk assessment.
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Year 1995 6-53 In establishing a comprehensive plan for safeguarding its
collections, the Library must weigh the costs and potential benefits of
safeguarding controls. As noted above, the Library is subject to a number
of constraints on the financial, human, and infrastructure resources it
can dedicate to safeguarding its collections. In determining whether it
should establish a particular control, the Library should weigh the risk
of failure and the potential effect that failure would have on the
Library along with the cost of establishing a new control. It is
appropriate that the degree of control may vary with the relative  value
of the items in the collections. Few items should warrant the extensive
security the Library has provided for its 18 Treasures (such as original
drafts of the Gettysburg Address). The Library should, however, define
and apply specific standards of care (in terms of risks that are
acceptable and costs of mitigating them) to reasonably assure itself that
risks from the following sources are reduced to an acceptable level:
Risks from users would be effectively controlled when the Library can
tell what it served to them and what they gave back; when reading rooms
are under reasonable level of surveillance and users know they are being
watched; when the Library knows who its users are; when the Library
limits what users bring into the reading rooms and knows what they take
out.
Risks from staff would be effectively controlled when the Library can be
sure that only those with need to be there have access to the
collections; when the Library has identified its most at risk collections
and has secured them in a way that it knows who went in and out of its
secured areas; when it has established procedures for periodic counting
of key items in the collections; when staff are precluded from bringing
bags and other personal items into storage areas; when it has reduced the
number of non-emergency exits from collection areas; when it has regular
reporting, tracking, and follow up of missing items; when it has
established a coordinated approach to access by its own maintenance
personnel and those of the Architect of the Capitol; and when it has
sufficient surveillance cameras in areas where high value items are
stored.
Risks from environment would be effectively controlled when the Library
has determined that high value, irreplaceable, items have been placed out
of harm s way from fire and water damage in the building, and that its
preservation program is targeting and treating its highest priority items
in a timely fashion.
The Internal Control - Integrated Framework notes that cost and benefit
measures for implementing controls are done with different levels of
precision. All direct costs of instituting a control and indirect costs
where practically measurable are usually considered. Some entities also
include opportunity costs, and the Library may well want to consider
reductions in service levels as an opportunity cost incurred in providing
increased safeguarding controls over its collections. This was an
explicit consideration in assessing the results of the recent pilot test
of performing item counts and inspections before serving materials in
selected reading rooms. The
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Year 1995 6-54 complexity of cost-benefit determinations is compounded by
the interrelationship of controls. Many times a variety of controls may
serve, individually or together, to mitigate a particular risk. The
challenge is to find the right balance.
With the information developed by the contractors who have studied
collections security, together with the knowledge of its own managers,
the Library has information that can form the basis for preparing a
comprehensive risk assessment and a security plan that addresses the
risks it identifies. The preparation and execution of a formal risk
assessment and a security plan are critical to the Library's ability to
safeguard the collection and efficiently use its limited resources.
Price Waterhouse LLP
April 5, 1996 Arlington, VA
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
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1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-55 The following findings and recommendations were made in
conjunction with GAO s Audit of the 1988 Financial Statements of the
Library of Congress. The findings and recommendations were presented in
the GAO report entitled Financial Audit: First Audit of the Library of
Congress Discloses Significant Problems (GAO/AFMD-91-13, August 22,
1991). We determined the status of the findings or recommendations based
on our audit work at the Library for fiscal year 1995 and on our
discussions with Library officials.
Finding or Recommendation Status of Finding or Recommendation
REPORT ON INTERNAL ACCOUNTING CONTROLS
Finding #1: The Library s internal control policies Actions completed.
The Library has prescribed and and procedures governing the accounting
and documented accounting and internal control policies reporting of
financial management information and procedures relevant to the day-to-
day were not uniformly prescribed, documented, or processing of
transactions. followed. Further actions needed. The Library needs to
establish policies and procedures to prepare annual proprietary financial
statements and should ensure timely completion of account
reconciliations. See Weaknesses 1 and 2 in our report.
Finding #2: The Library s Financial Management Actions completed. The
Library has implemented a System is not complete or integrated. new
financial management system that integrates such key financial functions
as general ledger, budget execution, accounts payable and disbursements,
travel, and procurement and includes automated interfaces for electronic
payments and payroll processing.
Further actions needed. In accordance with its financial management
improvement plan, the Library should obtain additional resources to
implement the management accounting capabilities of its new financial
system. See Conditions 1 and 2 in our report.
Finding #3: General Ledger Control Accounts were Action in progress. We
have identified instances not routinely reconciled with subsidiary
records. where certain control accounts are not reconciled with the
subsidiary records, on a timely basis. See weakness 2 in our report.
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1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-56 Finding #4: FEDLINK contracts were not limited Action
completed. Since the GAO audit of 1988, to the program s purposes.
FEDLINK has implemented a new Contracts and Logistics division (C&L). C&L
performs the contracting function for the FEDLINK program and reviews the
FEDLINK contracts; however the authorized officer who signs the
Interagency Agreements (IAG) is the Budget officer in the Financial
Services Directorate (FSD). C&L reviews and approves the delivery order
which initiates the vendors goods and services to be rendered, as well as
documents the obligation of funds to the vendors. In those instances
where the procurement exceeds $25,000, C&L places a synopsis of the
procurement in the Commerce Business Daily to ensure compliance with the
Advertising Act. We performed tests of compliance and controls on the
FEDLINK contracting division to ensure that: an authorized signature
appears on the IAG, the basic ordering agreements (BOA) entered into are
not outside the scope of the program, delivery orders exist for the
proper amounts as they appear on the IAG, and FEDLINK procurements are in
compliance with the Advertising Act. We tested 131 items out of a
population of 5,723 items and found no exceptions.
Finding #5: The Library s authority to award Action completed. FEDLINK
ADP contract awards FEDLINK ADP contracts cannot be verified. are within
appropriate delegations of General Services Administration (GSA)
procurement authority. We reviewed the current Delegation of Procurement
Authority (DPA), as received from GSA, for the period effective FY95 to
FY97; the ADP contract award for the current DPA is $180 million for this
period. Through review of quarterly reports prepared by C&L officials, we
noted no instances of non compliance with the DPA.
Finding #6: FEDLINK services provided exceeded Action completed. FEDLINK
services will not be available amounts. rendered to members unless a
current IAG and valid delivery order exist, and amounts obligated to
vendors do not exceed amounts obligated to the Library. From compliance
and controls testing performed in the C&L division, we did not identify
any instances where the Library exceeded its obligation authority to the
vendors. Through our substantive testing of disbursements and open
obligation testing performed, we did not identify any instances where
costs and obligations, by member, exceeded available obligational
authority.
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Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Finding or Recommendation Status of Finding or Recommendation
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-57 Finding #7: FEDLINK funds were expended Action completed.
Management has modified the without regard to period of availability.
program to run strictly from one fiscal year to the next. Each year is
treated separate from the year before, and members must indicate the type
of funds (one year, no year, or multi- year funds) they are using when
registering for the program. This enables FEDLINK to refund unused money
to agencies whose funds have expired. This also forces no year and multi-
year fund members to re-register and re-obligate unused funds for the
program. By running the program from year to year, this prevents members
from ordering goods or services in years outside the authority of their
appropriation. This also prevents the use of expired prior year
appropriations to procure goods and services in subsequent years. Testing
of current year controls, indicates that the program is running as
structured (i.e., current IAG and related delivery order must be present
for all procurements of goods and services).
Finding #8: FEDLINK obligations were not based Action completed. Since
the GAO audit of 1988, on proper documentation. FEDLINK has implemented a
new C&L division. C&L performs the contracting function for the FEDLINK
program and reviews the FEDLINK contracts; however the authorized officer
who signs the IAGs is the Budget officer in FSD. C&L reviews and approves
the delivery order which initiates the vendors goods and services to be
rendered, as well as documents the obligation of funds to the vendors. In
those instances where the procurement exceeds $25,000, C&L places a
synopsis of the procurement in the Commerce Business Daily to ensure
compliance with the Advertising Act. We performed tests of compliance and
controls on the FEDLINK contracting division to ensure that: an
authorized signature appears on the IAG, the BOAs entered into are not
outside the scope of the program, delivery orders exist for the proper
amounts as they appear on the IAG, and FEDLINK procurements are in
compliance with the Advertising Act. We tested 131 items out of a
population of 5,723 items and found no exceptions.
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Finding or Recommendation Status of Finding or Recommendation
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-58 Finding #9: FEDLINK contracts were not Action completed.
Since the GAO audit of 1988, authorized by responsible official. FEDLINK
has implemented a new C&L division. C&L performs the contracting function
for the FEDLINK program and reviews the FEDLINK contracts; however the
authorized officer who signs the IAGs is the Budget officer in FSD. C&L
reviews and approves the delivery order which initiates the vendors goods
and services to be rendered, as well as documents the obligation of funds
to the vendors. In those instances where the procurement exceeds $25,000,
C&L places a synopsis of the procurement in the Commerce Business Daily
to ensure compliance with the Advertising Act. We performed tests of
compliance and controls on the FEDLINK contracting division to ensure
that: an authorized signature appears on the IAG, the BOAs entered into
are not outside the scope of the program, delivery orders exist for the
proper amounts as they appear on the IAG, and FEDLINK procurements are in
compliance with the Advertising Act. We tested 131 items out of a
population of 5,723 items and found no exceptions.
Finding #10: The Library collection and other Action in progress.
property and equipment are not controlled. Collection: Although the
Library has made significant strides in safeguarding the Collection, it
is still in the process of implementing several initiatives to control
the acquisition, use, and disposal of the Collection. As acknowledged by
the Library in its assertion relating to the safeguarding of the
Collection, the Library has noted "several conditions which could
adversely affect the Library's ability to meet the internal control
objectives." The main issue facing the Library is that it has not
formally assessed the risks facing its Collections and established a
comprehensive plan to address those risks.
Property & Equipment: Library property and equipment records are not
reliable or complete and portions of property and equipment are not
adequately controlled. See weakness 3 in our report.
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Finding or Recommendation Status of Finding or Recommendation
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-59 Finding #11: Accounts receivable and advances Actions
completed. Through inquiry, observation, from government agencies were
not determinable. and testing of year end receivable balances, we
determined that the Library s new financial management system can track
accounts receivable for individual members of the FEDLINK program. The
Library can also derive advances from government agencies from general
ledger information about accounts payable, accounts receivable, and cash.
Although advances were determinable, as discussed in Weakness 1 in our
report, the advances from government agencies are not under general
ledger control during the year, reducing the Library s control over
FEDLINK activity.
Finding #12: The payment process was not Action completed. Our detailed
testing of a sample controlled. of 96 disbursement transactions
identified no deviations from established control procedures.
Recommendation No. 1. Designate a chief Action completed. A CFO was hired
in 1989. The financial officer to act as the focal point for the CFO is
responsible for central financial functions Library s accounting and
financial management and for recommending financial policy throughout
functions. the agency.
Recommendation No. 2. Establish accounting and Actions completed. The
Library has prescribed and internal control policies and procedures to
ensure documented accounting and internal control policies compliance
with Title 2 requirements. These and procedures relevant to the day-to-
day policies and procedures should include provisions processing of
transactions. to address the specific weaknesses noted in this report,
including provisions to (1) account for and Further actions needed. The
Library needs to control assets and liabilities, (2) establish a
establish policies and procedures to prepare annual complete, integrated
financial management system, proprietary financial statements and should
ensure (3) ensure that required reconciliations are timely completion of
account reconciliations. See performed routinely, and (4) ensure that
FEDLINK Weaknesses 1, 2 and 3 in our report. program obligations are
properly authorized.
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Finding or Recommendation Status of Finding or Recommendation
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-60 Recommendation No. 3. Develop an overall Action in
progress. financial management improvement plan to (1) carry out a
physical inventory of the Library s With respect to: national treasure,
(2) assist in setting priorities and fixing accountability and
responsibility, and (3) (1) Based on discussions with Library Services
specify corrective actions and milestones which management, there is no
overall plan to conduct a will lead to the production of an effective set
of complete physical inventory of the Library's entire internal controls,
an integrated financial collection. Although the arrearage project and
the management system established in accordance with inventory of the
general Collection are in progress, Title 2, and an annual report that
includes financial the Library has not determined which special format
statements. The plan should provide for periodic collections will be
counted on a periodic basis. As reviews of the Library s financial
management operations by financial managers (such as those conducted by
executive agencies under the Federal Managers  Financial Integrity Act)
and for periodic independent financial audits to ensure the continued
integrity and reliability of data produced by financial systems.noted in
the Report on Internal Controls (on the Library's Collection), we
recommended that the Library prepare a formal risk assessment with an
accompanying strategy to reduce the risks to the Collection to an
acceptable level. This risk assessment plan should address the issue of
what items in the Library's Collection should be counted and how often
they should be counted. While we recognize that a complete inventory is
neither practical nor cost effective, the Library should identify items
which should be counted on a periodic basis (i.e. items of significant
market value, cultural or historical importance, or informational content
should be considered for a periodic physical inventory).
(2) & (3) Certain reportable conditions identified, specifically weakness
1, precluded the Library from ensuring its compliance with Title 2
requirements or ensuring that accountability was fixed and responsibility
assigned within the Library. See weaknesses and conditions in our report.
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Finding or Recommendation Status of Finding or Recommendation
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-61 REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS
Finding #1: Funds transferred to the FEDLINK Action completed. Management
has modified the program were improperly used in subsequent years.
program to run strictly from one fiscal year to the next. Each year is
treated separate from the year before, and members must indicate the type
of funds (one year, no year, or multi- year funds) they are using when
registering for the program. This enables FEDLINK to refund unused money
to agencies whose funds have expired. This also forces no year and multi-
year fund members to re-register and re-obligate unused funds for the
program. By running the program from year to year, this prevents members
from ordering goods or services in years outside the authority of their
appropriation. This also prevents the use of expired prior year
appropriations to procure goods and services in subsequent years. Testing
of current year controls, indicates that the program is running as
structured (i.e., current IAG and related deliver order must be present
for all procurements of goods and services).
Finding #2: The Library s revolving fund Action in progress. operations
exceeded its statutory authority. The Library has continued in its
efforts to obtain appropriate statutory authority. However, to date the
Library has not received the necessary authority. Accordingly, this
condition was included in the Reportable Noncompliance with Selected
Provisions of Laws and Regulations section of our our report.
Finding #3: The Library improperly accepted non- Action completed. The
Library has discontinued appropriated fund reimbursements as gifts. this
practice. Our review of FEDLINK IAGs and of gift fund activity disclosed
no instances where ineligible entities participated in the FEDLINK
program or where FEDLINK reimbursements were recorded as gifts.
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Finding or Recommendation Status of Finding or Recommendation
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-62 Finding #4: Some FEDLINK contract awards Action completed.
Since the GAO audit of 1988, violated the Advertising Act. FEDLINK has
implemented a new C&L division. C&L performs the contracting function for
the FEDLINK program and reviews the FEDLINK contracts; however the
authorized officer who signs the IAGs is the Budget officer in FSD. C&L
reviews and approves the delivery order which initiates the vendors goods
and services to be rendered, as well as documents the obligation of funds
to the vendors. In those instances where the procurement exceeds $25,000,
C&L places a synopsis of the procurement in the Commerce Business Daily
to ensure compliance with the Advertising Act. We performed tests of
compliance and controls on the FEDLINK contracting division to ensure
that: an authorized signature appears on the IAG, the BOAs entered into
are not outside the scope of the program, delivery orders exist for the
proper amounts as they appear on the IAG, and FEDLINK procurements are in
compliance with the Advertising Act. We tested 131 items out of a
population of 5,723 items and found no exceptions.
Finding #5: The Library s records are inadequate to Unable to determine.
The Library initiates an assess compliance with cost controls in the
evaluation of its overhead costs every two years, by Economy Act. an
outside contractor, to help ensure that prices charged to members
reflects the costs of the program. FEDLINK also initiates a cost
assessment plan each year to determine member fees. We did review the FY
1995 cost assessment plan and determined that it incorporated the results
of the overhead study and that its assumptions are consistent with
limitations on Economy Act reimbursements established in the 1995
Legislative Branch Appropriations Act. However, we did not perform an
audit of the Library s operating statement for fiscal 1995, so we are
unable to conclude whether the actual costs incurred were consistent with
the assumptions in the plan.
Finding #6: The Library s records are inadequate to Action completed. The
Library s management assess compliance with the 1988 Legislative asserts
that the FEDLINK positions financed from Branch Appropriations Act.
Economy Act reimbursements comply within the limitation imposed by the
law. We have reviewed the Library s calculation of FTE s noting that they
appear to be in compliance with restriction of utilizing 65 employees for
the purpose of the FEDLINK program.
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Finding or Recommendation Status of Finding or Recommendation
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-63 Finding #7: The Library s procedures could not be Action
completed. FEDLINK ADP contract awards relied upon to ensure compliance
with limitations are within appropriate delegations of GSA on ADP service
procurements. procurement authority. We reviewed the current DPA, as
received from GSA, for the period effective FY95 to FY97; the ADP
contract award for the current DPA is $180 million for this period.
Through review of quarterly reports prepared by C&L officials and
negative assurance received by GSA, we noted no instances of non
compliance with the DPA.
Recommendation No. 1. Ensure that Action completed. Management has
modified the appropriations transferred to the Library from other program
to run strictly from one fiscal year to the federal agencies are expended
only for services next. Each year is treated separate from the year
provided during the fiscal year for which the before, and members must
indicate the type of funds appropriations are available. (one year, no
year, or multi- year funds) they are using when registering for the
program. This enables FEDLINK to refund unused money to agencies whose
funds have expired. This also forces no year and multi- year fund members
to re-register and re-obligate unused funds for the program. By running
the program from year to year, this prevents members from ordering goods
or services in years outside the authority of their appropriation. This
also prevents the use of expired prior year appropriations to procure
goods and services in subsequent years. Testing of current year controls
indicates that the program is running as structured (i.e., current IAG
and related deliver order must be present for all procurements of goods
and services).
Recommendation No. 2. Seek statutory authority to Action in progress. use
gifts for self-sustaining activities as revolving funds. The Library has
continued in its efforts to obtain appropriate statutory authority.
However, to date the Library has not received the necessary authority.
Accordingly, this condition was included in the Reportable Noncompliance
with Selected Provisions of Laws and Regulations section of our 1995
report.
Recommendation No. 3. Stop accepting Action completed. The Library has
discontinued nonappropriated funds as reimbursements for this practice.
Our review of FEDLINK IAGs and of FEDLINK services. gift fund activity
disclosed no instances where ineligible entities participated in the
FEDLINK program or where FEDLINK reimbursements were recorded as gifts.
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Status of GAO 1988 Financial Statement Audit Findings and Recommendations
Finding or Recommendation Status of Finding or Recommendation
Financial Statement Audit for the Library of Congress for Fiscal Year
1995 Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 6-64 Recommendation No. 4. Ensure that prices Unable to
determine. The Library initiates an charged customers under the FEDLINK
program evaluation of its overhead costs every two years, by reflect the
Library s actual costs. an outside contractor, to help ensure that prices
charged to members reflects the costs of the program. FEDLINK also
initiates a cost assessment plan each year to determine member fees. We
did review the FY 1995 cost assessment plan and determined that it
incorporated the results of the overhead study and that its assumptions
are consistent with limitations on Economy Act reimbursements established
in the 1995 Legislative Branch Appropriations Act. However, we did not
perform an audit of the Library s operating statement for fiscal 1995, so
we are unable to conclude whether the actual costs incurred were
consistent with the assumptions in the plan.
Recommendation No. 5. Ensure that the number of Action completed. The
Library s management staff positions financed from Economy Act asserts
that the FEDLINK positions financed from reimbursements complies with the
limitation Economy Act reimbursements comply within the imposed by law.
limitation imposed by the law. We have reviewed the Library s calculation
of FTE s noting that they appear to be in compliance with restriction of
utilizing 65 employees for the purpose of the FEDLINK program.
Dear Mr. Dodaro:
Thank you for the opportunity to review and comment on the draft report
entitled Financial Statement Audit for the Library of Congress for Fiscal
Year 1995 prepared for the General Accounting Office (GAO) by Price
Waterhouse LLP. In general, the report sets forth good recommendations
that, once implemented, will improve the Library's financial management.
The enclosure presents a detailed response to the recommendations in the
draft.
As you are aware, when GAO performed the first audit of the Library's
financial statements in 1988 (at the Librarian's request), the Library's
accounting systems suffered so many deficiencies that GAO was unable in
its 1991 report to render any opinion on the financial statements
produced from those systems. Since then, the Library has made a number of
improvements in its systems, most importantly installing a new financial
management system in fiscal 1995. As a result of these improvements, I am
pleased to find that the independent external auditors were able to
express a qualified opinion on the Library's Consolidated Statement of
Financial Position as of September 30, 1995. I am also pleased that the
auditors found the Library's controls over budget authority provided
reasonable assurance that noncompliance with selected provisions of laws
would be detected on a timely basis.
The auditors noted in their report that "the fiscal year 1995 audit took
on characteristics of an initial audit, despite GAO performing an audit
of the 1988 financial statements" because of the Library's implementation
of a new financial system in fiscal year 1995 and other issues.
Weaknesses included an inadequate proprietary accounting reporting
process and incomplete property records. The Library had planned to
perform the audit one year later and had planned to address many of these
issues during fiscal year 1996. We will now integrate the audit
recommendations into the Library's financial management improvement plan
and establish priorities for implementation.
We agree with the auditors' finding that the Library needs additional
professional accountants to address many of the recommendations made and
that implementing improved proprietary and managerial accounting will
provide more useful information to the Congress and Library management
for making resource allocation decisions. I know that the Library is not
alone in the government-wide struggle to move from an emphasis on
strictly budgetary accounting to the more sophisticated and resource-
intensive proprietary and managerial accounting models. The Library's
fiscal 1997 budget request includes $769,828 to hire four additional
professional accountants and an external audit firm. The accountants will
improve the Library's proprietary and managerial accounting and help
implement audit recommendations; the external audit firm will perform the
financial statement audit.
The audit report also raises an old, but very important, compliance issue
-- the need for better statutory authority for operating fee service
activities. The Library has transmitted draft legislation to the
appropriate authorizing committees on a yearly basis since 1991 to
address this issue. This compliance issue has been the subject of GAO
audit reports since 1980, and I again ask for GAO's support for enactment
of legislation to resolve this recurring audit finding.
A major issue raised in the 1991 GAO audit report was placing a financial
value on the collections. At that time, the Library stated that the
priority for its limited resources was to improve the control of the
collections rather than to place a value on the collections. Since 1991,
the Federal Accounting Standards Advisory Board (FASAB) has issued a
draft accounting standard which does not require the valuation of the
Library's collections. Instead, the Library has issued a stewardship
report on its collections and a management assertion statement about
internal controls over the safeguarding of its collections. The auditors
stated in their report that "the Library has become one of the first, if
not the first, federal agency to provide such full accountability for its
heritage assets." While the auditors could not yet provide a statement of
reasonable assurance regarding the effectiveness of internal controls
over safeguarding the collections, we believe that proper steps are being
taken to improve the control of the Library's collections as documented
in the accountability reports.
Finally, the report documents that we have made progress in improving the
Library's financial management but that a number of steps still remain,
including the complete implementation of proprietary and managerial
accounting. We look forward to continuing to work with GAO as we update
our financial management improvement plan, using the audit
recommendations and other information, and establish priorities for
implementing improvments. I am confident that with the support of
Congress, we can continue to make progress and put in place a system that
fully meets Federal standards.
Sincerely,
Thomas P. Carney The Acting Deputy Librarian of Congress
Enclosure
Mr. Gene L. Dodaro Assistant Comptroller General United Stated General
Accounting Office 441 G Street, NW Washington, DC 20548
LIBRARY OF CONGRESS Financial Statement Audit For the Fiscal Year 1995
Response to Price Waterhouse Draft Report
INTERNAL CONTROL WEAKNESSES
Weakness 1:
Financial Reporting Preparation Process is Inadequate to Meet Proprietary
Reporting Requirements
Recommendations:
Since the benefits of long-term efforts to improve agency systems often
require years to realize, the Library needs to make its existing systems
work better in the interim. An important aspect of this is to ensure the
validity of existing data and vigilantly maintain the routine controls
needed to keep these data reliable, such as reconciliations to identify
and resolve discrepancies. Such efforts will improve data reliability and
help ensure that information reported in the new systems is accurate.
Procedures must be developed to ensure the orderly and effective closing
of books monthly, quarterly, or at fiscal year end, and for the day to
day accumulation of financial data, supported by appropriate
documentation, that is easily accessible. The procedures must be adequate
to ensure that financial records are supported by either underlying
accounting records or other documentation, as adequate audit trails are
critical to providing support for transactions and balances maintained by
the general ledger. Additionally, key accounting policies should be
formally determined and documented in policy statements by management.
A strategic plan for the approach to the fiscal year 1996 year end close
and report preparation should be developed and formally documented, with
an achievable timeline. The Library should develop a methodology and plan
specifying corrective actions and milestones which will lead to the
production of an effective set of internal controls, an integrated
financial management system, and an annual report that includes financial
statements generated directly from the new financial management system.
The plan should provide for periodic reviews of internal reports of the
Library's financial operations by financial or fund managers to ensure
the integrity and reliability of data produced by the financial system.
Further, as the culmination of the financial reporting process, we
recommend the Library obtain an annual audit of its financial statement.
We recommend that Library management enforce proper revenue source coding
of transactions to ensure consistency in reporting of Library
transactions between service units. To the extent necessary, additional
revenue source codes should be defined and created within the new
financial management system to ensure that the source coding adequately
reflects the current operations and sources of either cash receipts or
revenues within the Library.
Management should consider enhancing the types of reports currently
available on the new financial management system and ensure the system is
configured to prepare any reports/trial balances necessary for the audit.
2 May 3, 1996 Library Response:
As noted in the report, the Library developed a financial management
improvement plan in 1990 which called for improved policies and
procedures, improved professional staffing, and an integrated financial
management system that conforms to Federal standards. The plan has been
updated three times, and the Library will update the plan in 1996 to
reflect the recommendations contained in the financial statement audit
report and other tasks identified by Inspector General reports and
internal control review reports. The updated plan will include tasks
required to correct material weaknesses and reportable conditions found
by the auditors and to improve the periodic reviews of internal controls
by financial systems managers. The fiscal 1995 audit process provided the
Library with valuable insights into establishing a financial reporting
process and supporting an audit, and the steps outlined in the auditors'
report will give the Library a good start for planning the fiscal 1996
audit.
Weakness 2:
Reconciliations of Cash with Treasury and of Various General Ledger
Balances with Subsidiary Systems are not Routinely Performed
Recommendations:
Accounting system standards in Title 2 require that reconciliations
between summary and detailed records be performed periodically and
documented and that adjustments, if necessary, be made promptly to bring
these records into agreement. If it is determined that two sets of
independently derived records are not in agreement, management is alerted
to a potential problem.
In the short term, Library management should implement and monitor basic
procedures, such as reconciliations and appropriate supervisory approval,
to ensure that cash and other assets are properly managed and accounted
for. Reconciliations must be performed routinely and on a timely basis.
The reconciliations must be performed between each subsidiary system and
the new financial management system records, as well as between general
ledger and entities external to the Library, such as Treasury.
Management should adequately research all differences between the general
ledger account balances and Treasury, before posting adjustments to the
Library's records to bring them into agreement with Treasury. Adjustments
should be made only if the Library's records are determined to be
incorrect.
Certain Copyright Office reconciliations, specifically over collection of
royalty remittances, resulted from the apparent duplicative recording of
detailed information in both FSD and Copyright Office records. We
recommend that the Copyright Office continue to record the detail level
activity, rather than FSD. At least monthly, the Copyright Office
receipts should be posted, in summary, to the new financial management
system by FSD. At such time, a reconciliation should be performed to
ensure the new financial management system account balances agree with
the Copyright Office records.
3 May 3, 1996 Library Response:
The Library has adopted Title 2 standards and is working to implement
them as applicable in the Library's system. As previously stated, the
Treasury reconciliations have been given priority and are now up-to-date.
The primary Treasury reconciliation (i.e., the Library's fund balances
per the general ledger with Treasury's undisbursed appropriation account
ledger) was in fact up-to-date as of September 30, 1995, and the two
other secondary Treasury reconciliations were completed in March 1996.
Other non-Treasury reconciliations have also been resumed by program
systems following the conversion to the new financial management system.
Procedures for reconciliations, supervisory approvals and other internal
control techniques will be developed and implemented as resources permit
in accordance with priorities assigned in the strategic plan. The Library
now accounts for differences between the general ledger account balances
and Treasury as required by the Treasury Financial Manual (TFM).
Accounting for the differences as required for financial reporting will
be done as recommended by the auditors.
Financial Services will maintain the control account in the financial
management system and the Copyright Licensing Division will maintain the
subsidiary records. Reconciliations between the two systems will be
performed periodically (monthly or quarterly) by the Copyright Licensing
Division.
Weakness 3:
Library Property and Equipment Records are Not Reliable or Complete and
Portions of Property and Equipment are not Adequately Controlled
Recommendations:
We recommend that the Library establish two budget object class codes:
one for assets capitalized and one for assets expensed. We further
recommend that management post the entry to capitalize equipment at each
month end, at which time a reconciliation between the monthly amount
disbursed, per the capitalization budget object class, and the property
and equipment monthly acquisitions per the IBCFACS ledger and NLS/BPH
asset listing should be performed. As these amounts should agree, any
discrepancies should be resolved by management on a timely basis.
The Library should perform a detailed review of the IBCFACS ledger for
propriety and accuracy, in conjunction with completing the physical
inventory of assets currently in process. This review should include:
obtaining or verifying documentation supporting the cost basis and
acquisition data for selected assets in excess of the capitalization
threshold within the property and equipment records for assets acquired
within the last three to five years;
put procedures in place for monitoring and reporting acquisitions and
disposals of property and equipment in order to maintain reliable
property and equipment records; and
put procedures in place requiring all property to go directly through
Contracts and Logistics, rather than through the department that ordered
the equipment.
4 May 3, 1996 Regarding NLS/BPH assets, we recommend that, at minimum, an
asset listing be maintained which identifies, by agency location, the
total number of units by acquisition date and bulk purchase amount,
rather than attempting to maintain a listing by individual
unit/machine.This listing should be updated periodically for additional
machines shipped to lending agencies and for machines returned to NLS/BPH
for repair or disposition. The listing should also be reconciled monthly
to the machine reports remitted by each agency. NLS/BPH management should
investigate any "missing" machines identified in the reconciliation
process.
We recommend that the Library maintain a listing of all leases, both
capital and operating, that includes the date of lease inception, asset
description, Library identification number (if applicable), lease terms,
and amount of lease payments. All leases with total payments over $10,000
should be analyzed by FSD to determine proper categorization as an
operating or capital lease and to determine if it would, in the long run,
be cheaper to buy the asset, i.e., evaluate the implicit interest rate on
a Treasury borrowing rate. If it is determined that the lease is a
capital lease, the present value of the equipment should be capitalized
upon acquisition, if it exceeds the capitalization threshold of $10,000,
and future lease payments be immediately recognized as a liability.
Library Response:
In response to recommendations in the 1988 GAO audit, the Library
purchased and implemented a property management system (International Bar
Code Fixed Assets Control System (IBCFACS)) and identified, with bar
codes, the Library's serialized equipment items. Subsequently, the
Library began identifying the Library's estimated 75,000 furniture
assets. At the end of fiscal year 1995, the database for furniture assets
was approximately two-thirds completed. Also, in fiscal year 1995, the
Library completed its first physical inventory of the serialized
equipment and is now using this information to correct and validate the
database. The Library planned for the IBCSFAC database to eventually
include other asset information such as leases and serve as a basic
building block to establish accountability for Library property and
communicate asset information to the Library's central financial
management system.
The Library is developing a task list to prioritize the work necessary to
continue improvements to the property management system. The list
includes (1) review of IBCFACS ledger and capitalized items to ensure
accuracy and adequate documentation; (2) evaluation and revision of
NLS/BPH equipment records as necessary; (3) completion of furniture
inventory; (4) evaluation and development of a system and procedures to
capture data for the property management system; and (5) evaluation and
development of a system to track and control leases.
Weakness 4:
Current Information Technology Services (ITS) Security Practices Expose
The Library to Risk of Unauthorized Transactions, Theft and/or Misuse of
Data Processing Assets, and Loss of Data and Programs For All Library
Computer Center and Network Activities
Recommendations:
System personnel should be prohibited from Write and Allocate access to
production data files, application end users who require knowledge of the
new financial management system data should be granted Read access only
to the applicable production data.
5 May 3, 1996 A review of these privileges should be conducted on all
user profiles to ensure that only appropriate personnel have these
powerful attributes. Following this review, ongoing periodic reviews
should be conducted to recertify users for correct usage of these
attributes
Access to system datasets and resources should be granted on a "need-to-
know" basis only. Current access rules should be reviewed, and excessive
access to Library information system data and resources should be
identified and revoked.
The Quick Logon function should be disabled so that passwords must be
input on a separate line from the Logon ID where they will be masked. In
addition, passwords with lengths between five and eight characters should
be required to increase the effectiveness of unique passwords.
The current security procedures should be enhanced to include the timely
reporting of employee terminations from the Human Resources organization
and of employee transfers within the Library of Congress from the
affected organization management. All Logon ID removal or modification
requests made by Human Resources or other organizations should be
processed by the ITS security administration personnel on a timely basis.
A review of the various user IDs should be conducted to determine the
appropriateness of authority for each ID. As a result, those IDs with
access that is deemed excessive for the individual's job responsibilities
should be removed.
We recommend that access to the computer room and computer facilities be
adequately restricted to only authorized personnel. This may include
updating computer room doors and moving development staff to other areas
of the Library.
Library Response:
The Library is working to eliminate the need for staff who have Write and
Allocate access to production data sets. ITS has significantly reduced
the number of ITS staff who have Write and Allocate access to production
data sets. ITS plans to meet with other Federal agencies who use the same
financial management system as the Library to evaluate their ACF2
security profiles and procedures. ITS plans to eliminate the Quick Logon
feature and expand the password length to at least 5 characters. ITS
plans to work with Human Resources on improving timely information
regarding employee terminations.
The Library agrees that access to the computer room needs to be
adequately restricted. The Library sought to implement a solution to
restrict access to only authorized personnel by requesting the Architect
of the Capitol to equip all data center doors with badge readers. This
request is still pending, and the Library will resubmit the request
citing the findings of this audit report. The Library is currently
planning for the removal of development staff from the computer room
area.
REPORTABLE CONDITIONS
Condition 1:
The Internal Financial Reporting Process Should Be Enhanced to Provide
Management with More Meaningful Information
6 May 3, 1996 Recommendations:
Match the budget and actual accounting to the missions of the Library.
Correlating planned and actual cost with the missions of the Library will
improve the resource allocation decision process and will communicate
more effectively the costs of providing services to the Library's diverse
user group.
Match the Library's performance statistics to the service components,
discard inappropriate statistics/measures, and add missing
statistics/measures. This includes obtaining more information about the
demographics of the users, including frequency, location, purpose of
inquiry, e.g., personal research, government agency research, and private
entity research, etc.; and other information that can be used to better
serve the customers and prioritize resources. With the advent of the
"reader registration system," the Library has the tool to better serve
the users and to allocate resources, if necessary, among the various
Library collections.
Improve budget vs actual reporting for the expenditures portions of the
appropriated funds by budgeting them at the cost center (fund) level
rather than at a group level. This could improve the accumulation of cost
history over time, and thus could improve cost management and resource
allocation decisions.
Implement cost attributions and cost allocations between units where
beneficial and significant. Charging out these services could improve
resource allocation decisions, because the users have a greater vested
interest in efficient service. Implement commitment accounting for
significant planned/budget expenditures.
Library Response:
The Library's financial management system implementation plan called for
a phased implementation over several years. The initial phase included
upgrading or replacing the following systems: central general ledger,
budget execution, reporting, accounts receivable and collections,
accounts payable and disbursements, travel, and procurement. The initial
phase also included establishing automated interfaces with the Federal
Reserve for electronic payments and with several subsidiary systems
(i.e., payroll, reports management, procurement). This initial phase was
completed in fiscal year 1995. Functionality planned for later phases
included commitment accounting (implemented in fiscal 1996), additional
automated interfaces (e.g., FEDLINK and the Investment Management System
were implemented during fiscal 1995 and the Order Division is scheduled
for fiscal 1996), inventory management, activity based accounting, and
performance measurement.
As stated, the Library's financial management system implementation plan
includes managerial accounting applications to provide the type of
information recommended by the auditors. The financial system was
implemented with this plan in mind, and the Library's account code
structure provides for required program and project codes to implement
this recommendation. However, as stated by the auditors, this
recommendation will require many changes and a commitment of resources to
implement.
7 May 3, 1996 Condition 2:
The Financial Services Directorate Needs to Receive Authorization For and
Fill Its Positions in Order to Provide More Useful Information to
Management
Recommendations:
Given the Library's difficulty in its process to fill important
positions, we believe that it is critical that the Library approve and
begin filling the additional positions. We also believe that several of
these positions require cost, activity based, CFO Act/GAAP and financial
statement accounting experience that is not present in any depth in the
Library's current Financial Service Directorate workforce. Furthermore,
existing knowledge of Library operations can be lost unexpectedly due to
the demographics of the current key positions. Failure to identify fiscal
year 1996 and fiscal year 1997 resources for these positions will
significantly delay the improvements that the Library needs to make in
order to meet proprietary reporting requirements and to implement certain
of the recommendations made in this report.
Library Response:
The Library's fiscal 1997 budget request includes $269,828 to hire four
additional professional accountants to support the financial statement
audit process and to help implement audit recommendations. Therefore, we
agree with the auditors that additional resources are needed to move from
an emphasis on budgetary accounting to the more sophisticated and
resource intensive proprietary and managerial accounting models.
Condition 3:
Deficiencies in Certain Controls Over the Library's New Financial
Management System Application Security Expose The Library to Risk of
Unauthorized Transactions, Incorrect Data, and Misuse or Loss of Data
Recommendations:
Review current access authority for all individuals to determine
appropriateness of security levels granted. Supervisory-level personnel
should be restricted from PASS 1 access (except for manual checks);
however, should have access to PASS 2 capabilities (excluding
edit/correct functions within PASS 2).
Perform an analysis regarding the types and frequency of overrides
currently being performed to determine the importance of the edit
identifying the error. Based on this review, management should either
remove the edit or generate a log of all overrides. This log should then
be reviewed by appropriate management personnel to ensure each override
is properly authorized.
Library Response:
The Library has changed the security profile for the Senior Operating
Accountants and the supervisory-level personnel. These individuals can no
longer enter or correct their transactions. They can only approve
transactions. The Disbursing Officer and the Assistant Disbursing Officer
8 May 3, 1996 can no longer enter or correct cash receipt or imprest fund
transactions. The Library will also review access authority for other
individuals processing FFS transactions.
The Library has implemented a procedure where supervisors are notified of
override actions. The supervisor is responsible for ensuring that
overrides are appropriate. The Library prefers this option because
changing FFS edits would require changing the FFS baseline software. The
Library does not want to deviate from the FFS baseline because it
requires funding for coding changes, increases maintenance costs, and
impacts the installation of new releases.
Condition 4:
The Library's Self-Assessment and Review of Its Internal Control and
Accounting Systems Is Inconsistent with Audit and Other Findings.
Recommendations:
We recommend that Library FSD management reassess which managers should
complete the internal control and accounting system questionnaires. Once
those persons have been identified, the Library should conduct formal
training of personnel regarding the purpose of the reviews, the types of
testing to perform, and how to analyze the results. This training should
be conducted by persons knowledgeable regarding the evaluation of
internal controls within accounting systems and should be given just
prior to performance of the reviews.
To facilitate management review and reporting of the internal control
structure, the CFO should establish a method to:
monitor its systems and controls to regularly identify problems as they
occur by establishing clear lines of responsibility and communication
from top management to the lowest staff levels, develop action plans that
are agreed upon by all affected groups and individuals to correct
problems identified, and continuously monitor corrective actions to
ensure that progress is achieved.
We recommend that Library management involve the Inspector General office
in testing and reviewing the questionnaires annually, as this will help
validate the process and provide an independent assessment of the control
environment within the Library.
Library Response:
In 1990, in its Financial Management Improvement Plan, the Library first
introduced an internal control review process for its program and
subsidiary financial systems. In 1991, the Library contracted with the
Department of the Treasury, Financial Management Services, to train the
Library's financial managers in internal control review processes.
Subsequently, two reviews were performed; one in fiscal year 1992 and
another in fiscal year 1993. The review was postponed in fiscal year 1994
to prepare for the new financial management system which would require
new review procedures. Upon learning that the fiscal 1995 financial
statements would be audited, the Library called for limited reviews to be
performed to obtain assurance that material internal control deficiencies
were not present in the program and subsidiary systems.
9 May 3, 1996 The Limited Reviews of the internal control structure
reviewed by the auditors were prepared on short notice because the fiscal
year 1995 audit was not planned. There was insufficient time for training
and follow-up reviews. Although the managers were not adequately
prepared, we believe that the reviews were conscientiously performed.
During the fiscal 1996 audit cycle, the Library intends to provide
training for the financial managers and perform follow-up procedures on
the reviews. The review findings will be incorporated into the overall
financial management improvement strategic plan and internal control
structure.
Condition 5:
Lack of a Formal Business Continuity Plan Exposes the Library to Loss of
Data and Resources
Recommendations:
We recommend the development of a comprehensive business recovery plan
that will assist with continuation and rapid recovery of business
operations after an emergency or disaster. The realization of this
objective depends on the accomplishment of the following four project
goals:
Development of business recovery requirements that define the business
risks and recovery time frames.
Formulation and selection of cost-effective (commensurate with business
risks) recovery strategies to address short- and long-term interruptions.
Development of a detailed business recovery plan addressing personnel,
recovery resources, and recovery actions. Specifically, this objective
covers the identification of individuals responsible for managing and
performing the recovery process, definition and assignment of team
members' responsibilities, identification of key technical and non-
technical resources, and development of detailed restoration procedures.
Testing of the business recovery plan to evaluate different components of
the plan, identify problems, and implement solutions.
Library Response:
In January 1996, the Library formed a Disaster Recovery Management Team
to develop a plan to address this issue. The team will review the
recommendations. The Library has successfully executed the financial
management system data base recovery procedures.
Condition 6:
Procedures and Controls Over Cash Handling, Check Processing and Certain
Disbursing Office Responsibilities Need Improvement
Recommendations:
We recommend that the Library of Congress take immediate corrective
action for the findings identified during our review of cash receipts, as
well as any additional findings identified by the
10 May 3, 1996 other accounting firm. The Library should develop a
systematic plan to address the control weaknesses, with an emphasis on
the more significant findings (i.e., reconciliations, documented
procedures, locked storage), including a time frame for expected
completion.
We recommend that certain responsibilities, over processing of cash
receipts, preparing reconciliations, and making disbursements, be
appropriately segregated within the Disbursing Office in order to
adequately safeguard assets of the Library.
Library Response:
The Library is evaluating the many good recommendations received from the
Price Waterhouse auditors, as well as from the Inspector General and the
recent Cash Management Review. The results of our evaluations will be
incorporated into the overall strategic plan for prioritized
implementation.
Condition 7:
Trust Fund Accounting and Investing are not Subject to Sufficient Review
and Oversight to Prevent Misclassification of Funds and to Ensure That
Investments Comply with Legal Requirements
Recommendations:
The coding in the general ledger should be enhanced so it can track
earnings which may be available to be spent in the future separately from
gains that increase restricted fund balances.
Establish procedures requiring documentation evidencing legal counsel's
determination regarding the classification of all significant trust
donations as restricted or unrestricted.
We recommend that legal counsel review all trust funds currently held by
the Library for propriety and accuracy of fund categorization as either
restricted or unrestricted. That review should also include a formal
redetermination of whether or not the trust instruments and applicable
laws permit the spending of capital gains earned on the investment of
those funds. The results of these reviews should be documented and
retained by general counsel, FSD, and the fund managers of each trust
fund to ensure that they conduct their activities consistent with the
intent of each trust.
Accounting for future gifts to the Library's trust funds should be
supported by clear, written communication from the Library's legal
counsel concerning whether acceptance of the gift has been approved by
both the Trust Fund Board and the Joint Committee on the Library and
whether the principal of the gift is restricted or unrestricted.
FSD should prepare financial statements, including a balance sheet and
operating statement, for each significant fund at least quarterly.
Library Response:
In 1992, the Library developed a Trust Fund Manual which contains
descriptions of each trust fund and copies of all the legal documents for
each fund. This was the first time that all of the information concerning
the trust funds had been compiled and made available in one source. The
11 May 3, 1996 Manuals were distributed to all members of the Trust Fund
Board, trust fund managers, and pertinent Financial Services staff. The
Cash Management Analyst prepares updates to the Manual which are approved
by the CFO.
The Library will revise its procedures to require a formal document
review of all trust funds by the Office of General Counsel and the Chief
Financial Officer. This review will confirm that all documents have been
received; the fund has been approved and accepted by the appropriate
entities; the fund has been classified as either restricted or
unrestricted; and, if restricted, whether or not capital gains can be
spent. This formal review will also be documented and evidenced with
signatures on the description (introduction) page of each trust fund
section in the Trust Fund Manual. The current 84 trust funds will each be
reviewed in order to make this determination and revision to the Manual.
The financial management system coding will be enhanced to properly
identify the funds as restricted or unrestricted.
The financial management system currently produces "Status of Funds"
reports and trial balances which are readily available and are used by
the trust fund managers. Annual financial statements are prepared for the
Trust Fund Board. Other reports are also available, on line, when
specific data are required. While formal monthly or quarterly proprietary
financial statements would be the ideal, we believe they would not be
used by the fund managers to the point where it would be cost beneficial.
The Library will continue to work with the fund managers to ensure that
they are adequately trained and aware of the financial data available to
them on the system to manage their funds.