GAO-07-732R CPF-Related Internal Control Report 

United States Government Accountability Office

Washington, DC 20548 

May 25, 2007 

 

The Honorable James H. Billington 

Librarian of Congress 

United States Library of Congress 

Subject: Internal Control: Improvements Needed in the Library of Congress’ Capitol 

Preservation Fund–Related Internal Controls

Dear Dr. Billington: 

On March 13, 2007, we issued our report1

 on our audit of the Capitol Preservation 

Fund’s (CPF) fiscal years 2005 and 2004 financial statements, including the results of 

our tests of related internal control and selected provisions of laws. In that report, we 

noted the need to improve certain CPF-related internal controls established by the 

Library of Congress (Library) in conjunction with financial management services it 

provides to the Capitol Preservation Commission (Commission). The purpose of this 

report is to discuss further those internal control deficiencies and to make four 

recommendations to the Library for improving its CPF-related internal controls and 

related procedures. 

Results in Brief 

In our audit of the CPF’s fiscal years 2005 and 2004 financial statements, we found 

that the Library’s CPF-related internal controls associated with CPF payments and 

financial reporting needed to be improved. Specifically, we found that Library 

controls were ineffective in ensuring that the CPF had sufficient cash in its account 

with the U.S. Treasury2

 to cover payments from the account. We also found that the 

Library’s internal controls associated with the preparation and review of the CPF’s 

financial statements for fiscal years 2005 and 2004 were not operating effectively. 

 

 

1

GAO, Financial Audit: Capitol Preservation Fund’s Fiscal Years 2005 and 2004 Financial 

Statements, GAO-07-335 (Washington, D.C.: Mar. 13, 2007). 2

Treasury Fund Symbol 09X8300 United States Standard General Ledger account 1010 – Fund Balance 

with Treasury. 
 Page 2 GAO-07-732R CPF-Related Internal Control Report 

 

While not considered material weaknesses,3 these deficiencies represent reportable 

conditions4

 with respect to the Library’s CPF-related internal controls. 

Our four recommendations follow the sections in which corresponding internal 

control issues are discussed. In commenting on a draft of this report, the Library 

agreed that its CPF-related internal controls can be improved and identified actions 

that will be taken to respond to our recommendations. 

Scope and Methodology 

As part of our audit of the CPF’s fiscal years 2005 and 2004 financial statements, we 

obtained a sufficient understanding of the Library’s CPF-related internal controls 

over financial reporting and compliance with laws and regulations to plan our audit. 

In addition to examining, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements; assessing the accounting principles used and 

significant estimates made in preparing the CPF’s financial statements and notes, and 

evaluating the overall presentation of the financial statements and notes; we also 

tested selected internal controls over financial reporting (including safeguarding of 

assets) and compliance and tested compliance with selected provisions of laws that 

have a direct and material effect on the CPF’s financial statements. We conducted our 

audit in accordance with U.S. generally accepted government auditing standards. 

Background 

The Commission was established by Public Law 100-696, 102 Stat. 4608 (November 

18, 1988) to provide improvements in, preservation of, and acquisitions for the U.S. 

Capitol and other locations under the control of the Congress. To finance the 

Commission’s activities, Public Law 100-696 established the CPF within the U.S. 

Treasury. The CPF’s assets consist of amounts derived from contributions, surcharge 

proceeds from the sale of certain commemorative coins, and interest earned from 

Treasury securities purchased with available CPF assets. 

The Commission does not have permanent staff or employees. To help facilitate 

Commission activities, Public Law 100-696 requires the House of Representatives 

Fine Arts Board, the Senate Commission on Art, and the Architect of the Capitol to 

3

A material weakness is a reportable condition in which the design or operation of one or more of the 

internal control components does not reduce to a relatively low level the risk that errors, fraud, or 

noncompliance in amounts that would be material in relation to the financial statements may occur 

and not be detected promptly by employees in the normal course of performing their duties. 4

Reportable conditions are matters coming to the auditor’s attention that, in the auditor’s judgment, 

should be communicated because they represent significant deficiencies in the design or operation of 

internal control, which could adversely affect the ability to meet the financial reporting and 

compliance objectives of internal control. The objectives of financial reporting controls are to provide 

reasonable assurance that transactions are properly recorded, processed, and summarized to permit 

the preparation of the financial statements in conformity with U.S. generally accepted accounting 

principles and assets are safeguarded against loss from unauthorized acquisition, use, or disposition. 

The objectives of compliance controls are to provide reasonable assurance that transactions are 

executed in accordance with laws governing the use of budget authority and other laws and 

regulations that could have a direct and material effect on the financial statements. 
 Page 3 GAO-07-732R CPF-Related Internal Control Report 

 

provide staff support and assistance, as requested. The Library is also required to 

provide financial management services to the Commission.5

 The financial 

management services provided by the Library include coordinating with the U.S. 

Treasury on deposits to and payments from the CPF; managing, in accordance with 

an established investment policy, the purchase and redemption of CPF-related 

investments in Treasury securities; maintaining records and related internal controls 

associated with the CPF’s investment transactions, assets, liabilities, net assets, 

revenues, and expenses; and preparing the CPF’s financial statements in conformity 

with U.S. generally accepted accounting principles. In providing these services, the 

Library relies on the financial information it receives and maintains and other 

information provided to the Library by representatives of the Commission, the U.S. 

Treasury, and the Architect of the Capitol. 

CPF Payment-Related Internal Control Deficiencies 

The Library did not have adequate controls and procedures to ensure that the CPF 

has sufficient cash in its account with the U.S. Treasury prior to approving payments 

from the account. Over a 4-week period covering late September and early October 

2004, significant deficiencies in the Library’s CPF-related safeguarding controls led to 

five CPF payments that exceeded the CPF’s available cash balance, resulting in 

negative balances in the CPF’s cash account with Treasury. Several factors 

contributed to these negative cash balances: a mistake in the process of 

recommending a vendor invoice for payment, a lack of supervisory review of the 

invoice payment recommendation, and reliance on inaccurate spreadsheet data used 

to monitor the CPF’s available cash balance. 

As a matter of practice, the Library invests CPF funds obligated for contracts until the 

related obligations are due to be paid. As a result, it is important that the Library 

effectively manage the CPF’s investments and cash balance to ensure that there is 

sufficient cash available when contract invoices are to be paid. 

The CPF’s initial negative cash balance occurred when a Library official 

recommended an approved vendor invoice for payment under the assumption that 

the invoice was related to another fund managed by the Library. When the invoice 

was paid, it was correctly charged to the CPF resulting in a negative cash balance. In 

reviewing the events surrounding the payment, we found that there was no 

supervisory review of the Library official’s recommendation that the invoice should 

be paid. 

An electronic spreadsheet that was used by the Library official, who had 

recommended the vendor invoice for payment, to monitor the availability of funds 

and manage CPF investment purchases was not updated to reflect the use of CPF 

funds to pay the vendor invoice. As a result, the spreadsheet overstated the amount 

of CPF funds available for investment. On four occasions, the inaccurate spreadsheet 

data were relied upon to support recommendations for the purchase of new Treasury 

investments, each of which exceeded the amount available in the CPF for investment. 

5

Public Law 101-45 103 Stat. 97, 107 (June 30, 1989). 
 Page 4 GAO-07-732R CPF-Related Internal Control Report 

 

Following the Library’s review and approval of each investment recommendation, the 

Bureau of Public Debt (Bureau) executed the investment purchase resulting in new 

negative balances in the CPF’s cash account with Treasury. In reviewing the 

investment purchases, we noted that the Library did not have procedures for 

reconciling the spreadsheet data on CPF funds available for investment to relevant 

information from the CPF’s general ledger. We also noted that the supervisory 

review and approval of the investment recommendations did not effectively 

determine whether or not there were sufficient funds available to pay for the 

investments purchased. Library officials told us that they learned about the negative 

cash balance in mid-October 2004 and addressed this deficiency by redeeming, prior 

to maturity, Treasury investments to increase the CPF’s cash balance to a positive 

balance. During the remainder of fiscal year 2005, the CPF’s cash account remained 

positive. 

The five instances of negative cash balance with Treasury constituted procedural 

violations of the Department of the Treasury’s operating guidance6

 applicable to 

investments in Treasury securities by government investment accounts, such as the 

CPF. The Treasury guidance requires that sufficient funds be available in the account 

(CPF) before a payment is made to vendors or to invest funds. With regard to the 

negative cash balances, the Library’s internal controls applicable to recommending 

and approving CPF payments did not provide adequate assurance that sufficient CPF 

funds were available before the payments were made. In discussing the need to 

strengthen the CPF-related payment controls, the Library acknowledged that, going 

forward, recommendations for CPF payments should be based on supporting 

information from the CPF’s general ledger and other reliable sources (i.e., Bureau 

confirmations of investment redemptions) and those reviewing and approving 

payment recommendations should confirm the availability of funds needed to cover 

planned payments. 

Recommendations 

To help strengthen internal controls over CPF-related payments for vendor invoices 

and investments in Treasury securities, we recommend that the Librarian of Congress 

direct the Library’s Chief Financial Officer to revise applicable processes and 

procedures to require that 

• all CPF-related payment recommendations be based on available cash balance 

data that have been reconciled with the CPF general ledger and other reliable 

6

See the Department of the Treasury, Operating Circular, Responsibilities Relating to Government 

Investment Accounts and Investment in Government Account Series (GAS) Treasury Securities, at 

www.publicdebt.treas.gov, effective November 15, 2002. Chapter 6000, Responsibilities Relating to 

Disbursement of Moneys from Government Investment Accounts requires that investment accounts 

have a cash balance at least equal to the amount planned to be disbursed before making the 

disbursement. In addition, Section 4060, Policies governing investment of monies in government 

investment accounts, requires that funds to be invested in Treasury securities be available to the 

Department in the Treasury general fund to pay for the purchase of Treasury investments. 
 Page 5 GAO-07-732R CPF-Related Internal Control Report 

source information to confirm that the CPF will have sufficient cash to fund 

the planned payments at the time they will be made, and 

• all CPF-related payment recommendations receive supervisory review and 

approval that includes reviewing evidence confirming that sufficient funds will 

be available to fund the recommended payment. 

CPF-Related Financial Reporting Deficiencies 

During our audits of the CPF’s fiscal years 2005 and 2004 financial statements, we 

identified significant errors in the CPF’s fiscal year 2005 financial statements that 

were not detected during the Library’s preparation and review of the financial 

statements. These errors represented significant deficiencies in the Library’s 

CPF-related financial reporting controls. Specifically, we found that the fiscal 

year 2005 financial statements 

 

• contained significant, though offsetting, errors in amounts received from and 

used by investing activities in the Statement of Cash Flows because Library 

staff mistakenly assumed that certain general ledger data represented 

investment purchase and redemption activities when the data actually 

represented corrections of earlier errors in recording investment transactions; 

• did not correctly identify and present the amount of the change in net assets as 

part of the reconciliation of the change to the net cash provided/used by 

operating activities in the Statement of Cash Flows as required by U.S. 

generally accepted accounting principles; and 

• did not correctly identify and present the amount of temporarily restricted net 

assets released from restrictions during the year in the Statement of Activities 

as required by U.S. generally accepted accounting principles. 

We identified the above errors, as well as other less signficant errors, during our 

audit. They were corrected in the CPF’s final fiscal years 2005 and 2004 financial 

statements. However, the Library’s internal controls related to the preparation and 

review of the CPF’s financial statements for fiscal years 2005 and 2004 did not 

provide adequate assurance that errors and omissions in the financial statements 

were prevented or detected on a timely basis by Library staff in the normal course of 

carrying out their CPF-related responsibilities. In discussing the need to improve the 

CPF financial statement preparation and review, the Library acknowledged that, 

going forward, the statements will be effectively reviewed and approved before they 

are provided to potential users. 

Recommendations 

To improve the reliability of CPF financial statements provided to potential users, we 

recommend that the Librarian of Congress direct the Library’s Chief Financial Officer 

to strengthen the Library’s CPF-related financial statement preparation and review 

process by establishing procedures that 
 Page 6 GAO-07-732R CPF-Related Internal Control Report 

• specify the nature and source of financial information needed to prepare and 

support accurate CPF financial statement balances and classifications and 

facilitate their review, and 

• require review of the CPF’s financial statements and the related supporting 

financial information used in their preparation. 

Agency Comments 

In commenting for the Library on a draft of this report, the Library’s Chief Financial 

Officer agreed that the Library’s CPF-related internal controls can be improved and 

identified actions that will be taken to strengthen applicable payment-related and 

financial reporting controls. The Library plans to implement procedures that will 

require all recommendations for CPF-related payments to be based on cash balance 

data that have been reconciled to the CPF general ledger data and the CPF financial 

statements to be reviewed prior to being provided to potential users. We will 

evaluate the Library’s planned actions during our next audit of the CPF financial 

statements. 

- - - - - 

This report contains recommendations to you. The head of a federal agency is 

required by 31 U.S.C. 720 to submit a written statement on actions taken on the 

recommendations to the Senate Committee on Homeland Security and Governmental 

Affairs and the House Committee on Oversight and Government Reform not later 

than 60 days from the date of this report. A written statement also must be sent to the 

House of Representatives and Senate Committees on Appropriations with the 

agency’s first request for appropriations made more than 60 days after the date of this 

report. 

This report is intended for the use of the management of the Library of Congress and 

representatives of the Capitol Preservation Commission. We are sending copies to 

representatives of the Capitol Preservation Commission, the Chairman and Ranking 

Minority Member of the Senate Committee on Homeland Security and Governmental 

Affairs and the House of Representatives Committee on Oversight and Government 

Reform. In addition, this report will be available to other interested parties at no 

charge on GAO’s Web site at http://www.gao.gov. 

We acknowledge and appreciate the cooperation and assistance provided by the 

Library management and staff during our audit of the Capitol Preservation Fund’s 

fiscal years 2005 and 2004 financial statements. If you have any questions about this 
 Page 7 GAO-07-732R CPF-Related Internal Control Report 

report or need assistance in addressing these issues, please contact me at (202) 512-

9471 or by e-mail at franzelj@gao.gov. Contact points for our Office of Congressional 

Relations and Office of Public Affairs may be found on the last page of this report. 

 

Sincerely yours, 

Jeanette M. Franzel 

Director 

Financial Management and Assurance 

Enclosure 
Enclosure 

 Page 8 GAO-07-732R CPF-Related Internal Control Report 

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