NOTE 1 —- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(n) Commitments and Contingencies

The criteria for recognizing contingencies for claims are when: (1) a past event or exchange
transaction has occurred as of the date of the financial statements; (2) a future outflow or other
sacrifice of resources is probable; or (3) the future outflow or sacrifice of resources is measurable
(reasonably estimated). The Council recognizes material contingent liabilities in the form of
claims, legal action, administrative proceedings, and environmental suits that have been brought
to the attention of legal counsel, some of which will be paid by the Treasury Judgment Fund. It
is the opinion of management and legal counsel that the ultimate resolution of these proceedings,
actions, and claims, will not materially affect the financial position or results of operations.

(0) Net Position

Net position consists of unexpended appropriations and cumulative results of operations.
Unexpended appropriations represent amounts of budget authority, to include unobligated or
obligated balances not rescinded or withdrawn. Cumulative results of operations are comprised
of the following: (1) the difference between revenues and expenses; (2) the net amount of
transfers of assets in and out, without reimbursement; and (3) donations, all since inception of
the fund(s).

(p) Reclassification

Certain fiscal year 2012 balances have been reclassified, re-titled, or combined with other
financial statement line items for consistency with current year presentation.


Management’s Response:

The Council did not have an issue until the Director of Administration ceased her
responsibilities in this area despite clear direction. The Council has never had a financial
analyst, as this role was proposed for FY2013 and the Council is actively pursuing qualified
candidates in FY2014, thus the issue cannot be solely attributed to the lack of a financial
analyst. There was the same level of administrative support to achieve full compliance with the
Prompt Payment Act as in preceding terms but for the Director of Administration’s non-
cooperation. Additionally, the Director of Administration had sole access to the physical
mailbox. As her work schedule changed to 1 day per week on-site, the mailbox was not being
checked regularly. The Council has reassigned responsibility for the snail mailbox to a primary
and backup staff member to access to ensure mail is properly being delivered and invoices are
being processed. The Council will also assign multiple staff responsibility to the
NCDInvoices@ncd.gov email box for the same reason. Upon receipt of hard copy invoices, the
staff assistant is responsible for scanning them and emailing those invoices to the
NCDinvoices@ncd.gov email box. The target is for all invoices to be processed the week of
receipt. At the end of the calendar year, the Council brought in a financial analyst contractor
and additional technical assistance to reconcile the backlog. We are still working through this
but anticipate entering the third quarter of FY2014 in compliance with the Prompt Payment Act.
Furthermore, in FY 2014, the Council anticipates bringing on two full time staff to the
administration and operations team, a full-time financial analyst and a full time administrative
assistant. The Council will increase accessibility to office staff by updating phone procedures
within the office to ensure that all personnel have shared responsibilities in ensuring that
communication from vendors, federal partners and the public are answered on a timely basis.

This will include modifications to the phone system so that all staff are aware of incoming calls
and requests. Staff will also be responsible for assigning a backstop when out of the office, to
ensure timely responses to time urgent electronic correspondence.

35


NATIONAL COUNCIL ON DISABILITY
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2013

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

(a) Reporting Entity

The National Council on Disability (the Council) is an independent agency of the Executive
Branch of the United States Government, which makes recommendations to the President and
Congress on issues affecting Americans with disabilities.

The Council was initially established in 1978 as an advisory board within the Department of
Education (Public Law 95-602). The Rehabilitation Act Amendments of 1984 (Public Law 98-
221) transformed the Council into an independent agency and required the Council to provide
expert advice to Congress and the Administration. The Rehabilitation Act Amendments of 1992
and 1998 and the Education of the Deaf Act Technical Amendments of 1993 updated the
Council’s statutory mandate.

The Council is composed of fifteen members appointed by the President and confirmed by the
U.S. Senate. As of August 10, 2012, the Council members are no longer confirmed by the
Senate per the Presidential Appointment Efficiency and Streamlining Act of 2011. In
consultation with the Executive Director, the Council members set the Council’s budget and
establish the parameters for what it will support. The Council’s Executive Director has full
responsibility for carrying out the Council’s operations as necessary to accomplish the goals and
mission of the agency as established by the Council members.

The Council’s overall purpose is to promote policies, programs, practices, and procedures that
guarantee equal opportunity for all individuals with disabilities, regardless of the nature or
severity of the disability; and to empower individuals with disabilities to achieve economic self-
sufficiency, independent living, and inclusion and integration into all aspects of society. This
mission is accomplished by serving as a policy agency that publishes reports and works with
other federal agencies on policy development and implementing best practices.

(b) Basis of Presentation

These financial statements have been prepared from the accounting records of the Council, in
accordance with Generally Accepted Accounting Principles (GAAP), as promulgated by the
Federal Accounting Standards Advisory Board (FASAB); and the form and content for entity
financial statements, specified in the Office of Management and Budget’s (OMB) Circular A-
136, “Financial Reporting Requirements.” GAAP for Federal entities is the hierarchy of
accounting principles prescribed in Statement of Federal Financial Accounting Standards
(SFFAS) 34, “The Hierarchy of Generally Accepted Accounting Principles, Including the
Application of Standards issued by the Financial Accounting Standards Board.”


NOTE 9 —- FUNDS FROM DEDICATED COLLECTIONS

In 2007, $300,000 of funds from dedicated collections was appropriated, to remain available
until expended, for necessary expenses related to the requirements of the Post-Katrina
Emergency Management Reform Act of 2006, as enacted by the Department of Homeland
Security Appropriations Act, 2007 (Public Law 109-295.

22


Report on Internal Control over Financial Reporting

In planning and performing our audit of the financial statements of the Council as of, and for the
years ended, September 30, 2013 and 2012, in accordance with auditing standards generally
accepted in the United States of America, we considered the Council’s internal control over
financial reporting (internal control) as a basis for designing audit procedures that are appropriate
in the circumstances for the purpose of expressing an opinion on the financial statements, but not
for the purpose of expressing an opinion on the effectiveness of the Council’s internal control.
However, we found the material weakness described above, which resulted in ineffective
controls over the Council’s information technology. A material weakness is a control deficiency
that results in more than a remote likelihood that the design or operation of one or more internal
controls will not allow management or employees, in the normal course of performing their
duties, to promptly detect or prevent errors, fraud, or noncompliance, in amounts that would be
material to the financial statements.

During our examination of the Council’s internal control over information technology (IT), we
noted that the Council did not have policies and procedures in place for IT general and entity
level controls, including controls over access restriction to IT systems, on-boarding and off-
boarding, and background checks for personnel with access to IT systems. In addition, the IT
Consultant did not document his monitoring activities over the IT controls, including observation
of the active directory, checks of the event log, server log, security log, fire wall health check,
and records of new threats and viruses; and, if any, alerts that may require further IT updates.
(NFR No. 13-01).

See Appendix B — Notice of Findings and Recommendations (NFR) and Management’s
Responses, for details of condition, criteria, cause, effect, recommendations, and management
responses related to this finding. We also noted certain additional matters that we reported to the
Council’s management addressing internal control matters, in a management letter dated
February 18, 2014.

Our internal control work would not necessarily disclose all deficiencies in internal control that
might be material weaknesses or other significant deficiencies. We limited our internal control
testing to those controls necessary to achieve the objectives described in OMB Bulletin No. 14-
02. We did not test all internal controls relevant to operating objectives, as broadly defined by
the Federal Managers’ Financial Integrity Act of 1982, such as those controls relevant to
ensuring efficient operations. The objective of the audit was not to provide assurance on internal
control, or on the effectiveness of the Council’s internal control. Accordingly, we do not express
an opinion on the effectiveness of the Council’s internal control.

Our consideration of internal control was for the limited purpose described in the preceding
paragraph, and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies. Therefore, material weaknesses or significant
deficiencies may exist that were not identified.


5. Documentation of updates for email changes that should be documented by a request
from the Council’s management, with an affirmative reply to the requestor within 24
hours.

Effect:

Adequate written policies and procedures are necessary to provide confidentiality, integrity, and
availability of information and overall management of the Council’s IT functions. We observed
that there was inadequate security surrounding control access to the internal IT system
mentioned above.

Recommendation:

We recommend that the Council’s IT Consultant document his or her IT general and entity level
control monitoring activities, and submit the results of the monitoring for management review
and necessary corrective actions. The IT Consultant should meet with his or her Contracting
Officer technical representative (COTR) to review IT updates, and have them approved prior to
implementation.

The Council should also develop and document IT general and entity level controls that will
cover the IT environment, computer operations, access to program and data, program
development and program changes, as well as other application controls. The Council should
also ensure that it performs background checks on consultants that have access to its IT systems.
As a result of not documenting IT control monitoring activities and results, management may not
be aware of deficiencies, and thus, not be able to implement corrective actions in a timely
manner.

Management’s Response:

The Council takes this weakness very seriously and it should be noted that this condition is not
new, but did not rise to the level of a material weakness in the prior audit. As a result of this
finding, the Council will contract with an outside entity for an IT security audit. Following the
findings of this audit, Council staff will develop an IT policy and procedures manual. The
Council will seek advice and guidance from outside agencies/experts to ensure its feasibility and
applicability to the Council, staff, and members. The Council has been previously concerned
regarding the integrity of its IT system and for FY 14 successfully requested additional funding
in FY 14 from OMB to allow the Council to hire an IT specialist in FY14 to manage IT and
compliance with Section 508 of the Rehabilitation Act. The Council will also develop a master
operations calendar via Outlook which will include dates deliverables are due to the Council,
due to the editors, and due for printing. It will also include key dates tied to our financial
management (CJ, PAR, Audit, financial statements, etc.). The goal is to be able to utilize this
calendar to help drive the bi-monthly staff and management meetings.

33


NOTE 2 —- FUND BALANCE WITH TREASURY

Fund balance with Treasury consists of funds with Treasury that are primarily available to pay
current expenditures and liabilities. All of the Council’s fund balance with treasury results from
appropriations. No trust, revolving or other fund type are used to fund the Council’s activities.
The Council operates as an annual fund, where there is a new appropriation each year. This fund
balance with treasury is a consolidated balance of one no-year fund and five annual funds (FY
2009, FY 2010, FY 2011, FY 2012, and FY 2013). The no-year fund has been earmarked for
necessary expenses related to the requirements of the Post-Katrina Emergency Management
Reform Act of 2006, as enacted by the Department of Homeland Security Appropriations Act,
2007 (Public Law 109-295.

In FY 2013, the annual fund for FY 2008 was cancelled and the remaining fund balance of
$4,201 was returned to U.S. Treasury.

In FY 2012, the annual fund for FY 2007 was cancelled, and the remaining fund balance of
$62,789 was returned to US Treasury.

The status of these funds as of September 30, 2013 and 2012 is as follows:

Fund Balance with Treasury
(in dollars)

2013 2012
A. Fund Balance with Treasury
Post-Katrina Emergency Management Fund (Earmarked) $ 20,776 $ 35,960
General Fund 981,786 906,563
Total Fund Balance $1,002,562 $942,523
B. Status of Fund Balance with Treasury
1) Unobligated Balance
a) Available $ 397,961 $ 15,873
b) Unavailable 139,584 231,329
Unobligated balances allotments realized and expired 537,545 247,202
2) Obligated Balance not yet Disbursed 465,017 695,321
Total Fund Balance $1,002,562 $942,523

NOTE 3 - ACCOUNTS RECEIVABLE

This line item represents the combined balance of Accounts Receivable Claims from Associates
for FY 2013 and FY 2012.

2013 2012
A. Accounts Receivable $ 301 $ 201
Total Accounts Receivable With the Public $ 301 $ 201



NOTE 10 - INTRAGOVERNMENTAL COSTS

The portion of the Council’s program costs related to Intragovernmental Costs, and Costs with
the Public, are shown as follows. Intragovernmental costs are costs incurred from exchange
transactions with other federal entities (e.g., building lease payments to GSA). Costs with the
Public are incurred from exchange transactions with non-Federal entities (i.e., all other program
costs).

Total Total
2013 2012
Program A
Intragovernmental costs $ 699,883 $ 834,655
Public costs 2,145,000 2,933,864
Total Program A $ 2,844,883 $ 3,768,519

NOTE 11 —- APPORTIONMENT CATEGORIES OF OBLIGATIONS INCURRED:
DIRECT VS. REIMBURSABLE OBLIGATIONS

The Council is subject to apportionment. All obligations are classified as category B obligations,
which is the amount of direct obligations incurred against amounts apportioned under category B
on the latest SF 132.

Total Total
2013 2012
Direct Obligations
Category B $ 2,831,229 $ 3,346,600
Total Obligations $ 2,831,229 $ 3,346,600

NOTE 12 -UNDELIVERED ORDERS AT THE END OF THE PERIOD

The amount of Unpaid Obligated Balance, Net, End of Period, shown on the Statement of
Budgetary Resources, includes obligations relating to Undelivered Orders (goods and services
contracted for, but not yet received at the end of the year), and Accounts Payable (amounts owed
at the end of the year by the Council for goods and services received). The amount of each is as
follows:

Unpaid
Undelivered Accounts Obligated
Orders Payable Balance, Net
2013 $ 80,945 $ 384,072 $465,017
2012 95,864 599,457 $695,321

25


NOTE 7 —- OTHER LIABILITIES

Other liabilities with the public for year 2013 consist of Accrued Funded Payroll and Leave of
$27,913, unfunded leave in the amount of $92,463, and employer contributions and payroll
taxes payable — TSP of $957. Other Intragovernmental liabilities consist of employer
contributions and payroll taxes payable of $5,976.

With the Public Non-Current Current Total
2013 Other Liabilities $ 92,463 $28,870 $121,333
2012 Other Liabilities 100,461 27,506 $127,967
Intragovernmental Non-Current Current Total
2013 Other Liabilities $0 $5,976 $5,976
2012 Other Liabilities 0 5,692 $5,692

Other liabilities with the public for year 2012 consist of Accrued Funded Payroll and Leave of
$26,571, unfunded leave in the amount of $100,461, and employer contributions and payroll
taxes payable — TSP of $935. Other Intragovernmental liabilities consist of employer
contributions and payroll taxes payable of $5,692.

NOTE 8 - LEASES
Entity as Lessee:

The Council entered into an occupancy agreement (OA) with GSA to lease office space at 1331
F Street, NW, Washington, DC. This occupancy agreement sets forth terms and conditions for
the space, which approximate commercial occupancy rates. Included within the OA are
notification requirements for the Council to release space upon four (4) months' notice, at any
point after the first twelve (12) months of occupancy. This occupancy agreement functions as a
new-replacing lease for a term of ten (10) years; effective August 22, 2011, with a five (5) year
renewal option.

Occupancy cost for operating leases for the years ended September 30, 2013 and 2012 were
$251,860 and $252,132, respectively, for the agency’s leased space. The following is a schedule
of the future minimum lease payments required by the leases:

Year Ending September 30, 2014 $ 257,274
2015 259,961
2016 263,859
2017 279,139
2018 282,076
Thereafter 831,120
Total Future Minimum Lease Payments $ 2,173,429

21


Appendix B
Notice of Findings and Recommendations (NFR)

No. 13-02 — Non-Compliance with the Prompt Payment Act

Condition:

The Council does not appear to comply with the Prompt Payment Act. During our audit, we
selected and tested 19 contracts, and noted eight instances where payments to vendors were not
made within the required 30 days.

Criteria:

Section 1315.4(g) of the Prompt Payment Act states that payment is due on either: (1) the date
specified in the contract, (2) in accordance with discount terms when discounts are offered and
taken, (3) in accordance with Accelerated Payment Methods, or (4) 30-days after the start of a
payment period, when a proper invoice is received. In addition, FAR Part 32.904(c) (i),
Determining Payment Due Date, states that the due date for making an invoice payment is the
later of (1) 30th day after the designated billing office receives a proper invoice from the
contractor, or the 30th day after government acceptance of supplies delivered or services
performed.

Cause:

The lack of a Financial Analyst from July 1, 2013 through September 30, 2013 caused a
significant deficiency in the operation of the entity’s internal control, which adversely affected
the Council's ability to fulfill its obligations with customers and/or the satisfaction of liabilities.

Effect:

Because of not paying vendors in a timely manner, the Council may have incurred late payment
penalties. Any late interest penalty in an amount of $1.00 or more is required to be paid to the
vendor; however, interest may not accrue for more than one year. A vendor is also entitled to
additional interest if he or she does not receive a late payment interest penalty within 10 days of
receiving the principal amount. Any additional penalty owed is equal to one hundred percent
(100%) of the original late payment interest penalty, but cannot exceed $5,000. These penalties,
although not material, are reportable conditions; and may ultimately affect the services required
to meet the strategic goals of the agency. In addition, if an agency fails to pay interest required
by the Prompt Payment Act, the vendor can consult with its legal counsel to determine its
remedies under the Prompt Payment Act (31 U.S.C. § 3901 et seq.) and other applicable laws.

Recommendation:

We recommend that the Council implement procedures that will ensure that vendor invoices are
paid in a timely manner.

34


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(j) Fund Balance with Treasury

The U.S. Department of the Treasury (Treasury) processes the Council’s receipts and
disbursements. Fund Balance with Treasury is the aggregate amount of the Council’s accounts
with Treasury for which the agency is authorized to liquidate obligations, pay funded liabilities,
and make expenditures. The fund balance is increased through the receipt of Treasury warrants
for appropriations. The Fund Balance with Treasury is reduced through non-expenditure
Treasury Warrants for rescissions, disbursements, and other expenditure cash outflows of funds.

The Council’s funds with the U.S. Treasury are cash balances from appropriations as of the fiscal
year-end, from which the Council is authorized to make expenditures and pay liabilities resulting
from operational activity.

(k) General Property, Plant, and Equipment, Net (PP&E)

Property, plant, and equipment (PP&E) have been defined in the Federal Government as tangible
items owned by the Federal Government, and having an expected useful life of greater than two
years. The Council has established the following policies for PP&E:

PP&E is reported at acquisition cost.
The capitalization threshold is $5,000 for assets with a useful life of two or more years.

For bulk purchases, items will be capitalized when the individual useful lives are at least two
years, and the property has an aggregate value of $100,000 or more.

Acquisitions of PP&E that do not meet the capitalization criteria outlined above are recorded as
operating expenses. General PP&E consists of items that are used by the Council to support its
mission.

Depreciation of assets is calculated using the straight-line method. Depreciation begins the
month after the asset is placed in service.

Useful lives are as follows:
Equipment - 4 years
Furniture - 4 years

Maintenance, repairs, and minor renovations are expensed as incurred. Expenditures that
materially increase values, change capacities, or extend useful lives are capitalized.


NATIONAL COUNCIL ON DISABILITY

STATEMENT OF NET COST
For the Years Ended September 30, 2013 and 2012
(in dollars)

2013 2012
Gross Program Costs:
Program A:
Gross Costs: (Notes 10 and 15) $ 2,844,883 $3,768,519
Less: Earned Revenue - -
Net Program Costs 2,844,883 3,768,519
Net Cost of Operations $ 2,844,883 $3,768,519

The accompanying notes are an integral part of these financial statements

8


Appendix B

Notice of Findings and Recommendations (NFR) Summary Table
Table Key: CD=Control Deficiency, SD=Significant Deficiency, and MW=Material Weakness

Risk Level Affected Activity
NFR# Findings by Area cp | sp | mw] Financial | comptiance
Reporting

General and Entity Level Controls

Ineffective Control over

information technology’s
13-01 (IT) general and entity v y
level controls.
Compliance with Laws, regulations,
contracts, and agreements
Ineffective Compliance y q
13-02 with the Prompt Payment

31


NOTE 16 - COMMITMENTS AND CONTINGENCIES

Contingencies where any of the conditions for liability recognition are not met, and there is at
least a reasonable possibility that a loss or an additional loss may have been incurred, should be
disclosed. SFFAS No.5, as amended by SFFAS No.12, contains the criteria for recognition and
disclosure of contingent liabilities. In addition to the contingent liabilities required by SFFAS
No. 5, the following commitments will also be disclosed: (1) an estimate of obligations related to
canceled appropriations for which the reporting entity has a contractual commitment for
payment; and (2) amounts for contractual arrangements, which may require future financial
obligations. The Council’s outside counsel has given substantive attention to, and represented the
Council in connection with loss contingencies over the $10,000 materiality level. See note 15 —
Subsequent Events for two pending or threatened litigations.

NOTE 17 —- SUBSEQUENT EVENTS

In preparing these financial statements, management has evaluated events and transactions for
potential recognition or disclosure, through February 18, 2013, which is the date the financial
statements were available to be issued. Outside counsel and the lawyers have given substantive
attention to, and represented the National Council on Disability in connection with (1) loss
contingencies over the $10, 000 materiality level; or (2) loss contingencies that are less than, or equal
to $10,000, but in the aggregate, exceed $10,000. Since these contingencies are outside of the period
being audited, we are reporting these loss contingencies as subsequent events.

The General Services Administration (GSA) acts as counsel on behalf of the Council on a personnel
matter submitted by an employee of the Council. An appeal for the removal of the employee is
before the Merit Systems Protection Board (MSPB or Board). The Judge ruled in favor of the
Council and dismissed the appeal as untimely; and sustained the employee's removal from the
Council’s employment. The employee has the right to appeal the administrative decision.
However, it is GSA's opinion that the likelihood of an unfavorable outcome to the Council is slight.

GSA also acted as counsel, on behalf of the Council, on another personnel matter submitted by an
employee of the Council. An Equal Employment Opportunity Commission (EEOC) complaint
was filed by the employee against various members of staff and the Board of the Council. It is
GSA's opinion that the likelihood of an unfavorable outcome on the EEOC case is slight.
Subsequently, this employee also filed a whistleblower complaint with the Office of Special
Counsel (OSC). A decision on this case is pending. It is GSA's opinion that the likelihood of an
unfavorable outcome to the Council is possible.

28


contractor, or the day 30 after government acceptance of supplies delivered or services
performed (NFR No. 13-02).

See Appendix B — Notice of Findings and Recommendations (NFR), and Management’s
Responses, for details of condition, criteria, cause, effect, recommendations, and management
responses related to this finding. We noted certain additional matters that we reported to the
Council’s management addressing internal control matters, in a letter dated February 18, 2014.

Providing an opinion on compliance with laws, regulations, and contracts was not an objective of
our audit, and accordingly, we do not express such an opinion.

Responsibilities

Management's Responsibilities: Management is responsible for the financial statements;
establishing and maintaining effective internal control over financial reporting; preparing the
Management Discussion and Analysis (MD&A) and Required Supplementary Information
(RSD); and complying with laws, regulations, and contracts applicable to the Council.

Auditors' Responsibilities: Our responsibility is to express an opinion on the fiscal year 2013
and 2012 financial statements of the Council, based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of America; the
standards applicable to financial audits, contained in Government Auditing Standards, issued by
the Comptroller General of the United States; and OMB Bulletin No. 14-02. Those standards and
OMB Bulletin No. 14-02, require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Council’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes:

e Examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements;

e Assessing the accounting principles used, and significant estimates made by
management; and

e Evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.
Other Accompanying Information

Accounting principles generally accepted in the United States of America; and Government
Auditing Standards, issued by the Comptroller General of the United States require that the other
accompanying information included in the Required Supplementary Information (RSI) section of
the Performance and Accountability Report, be presented to supplement the basic financial
statements. Such information, although not a part of the basic financial statements, is required
by the Federal Accounting Standards Advisory Board, OMB Bulletin 14-02; and OMB Circular


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

Our consideration of internal control was for the limited purpose described above, and would not
necessarily identify all deficiencies in internal control that might be significant deficiencies or
material weaknesses. We identified a deficiency in internal control that we consider to be a
material weaknesses, as defined above. The objective of our audit was not to provide assurance
on these internal controls. Accordingly, we do not provide an opinion on such controls.

Report on Compliance with Applicable Provisions of Laws, Regulations, Contracts, and
Agreements

As part of obtaining reasonable assurance about whether the Council’s financial statements are
free of material misstatements, we are also responsible for obtaining a sufficient understanding
of compliance to plan the audit and for testing compliance with selected provisions of laws,
regulations, contracts, and agreements that have a direct and material effect on the financial
statements. Our testing of compliance with necessary laws, regulations, contracts and agreements
necessary to achieve the objectives described in OMB Bulletin No. 14-02, and perform limited
procedures with respect to certain other information specified in, except for those instances of
noncompliance that in the auditor’s judgment, are clearly inconsequential. We limited our tests
of compliance to these provisions, and did not test compliance with all laws, regulations, and
contracts applicable to the Council.

The results of our tests of compliance with laws, regulations, and contracts disclosed an instance
of noncompliance that would be reportable under U.S. Generally Accepted Government
Auditing Standards, or OMB audit guidance.

A reportable condition is defined as matters that represent a significant deficiency in the design
or operation of the internal control structure, which could adversely affect the organization's
ability to record, process, summarize, and report financial data consistent with the assertions of
management in the financial statements.

During the audit, we noted a reportable condition that could affect the council’s ability to fulfill
future obligations with customers, and/or the satisfaction of liabilities. The Council does not
appear to comply with the Prompt Payment Act. During our audit, we noted several instances
where payment to contractors and vendors were not made within the required 30-day stipulation.
Section 1315.4(g) of the Prompt Payment rule states that payment is due on either 1) the date
specified in the contract, 2) in accordance with discount terms when discounts are offered and
taken, 3) in accordance with Accelerated Payment Methods, or 4) 30-days after the start of a
payment period, when a proper invoice is receive. In addition, FAR part 32.904(c) (i),
Determining Payment Due Date, states that the due date for making an invoice payment is the
later of (1) day 30 after the designated billing office receives a proper invoice from the


NOTE 1 —- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(k) General Property, Plant, and Equipment, Net (PPE) — (Continued

The costs of any leasehold improvements financed with the Council’s appropriated funds are
capitalized if the total cost exceeds $25,000. Construction costs are accumulated as
“construction in-progress” until completion, at which time they are transferred to “leasehold
improvements” and depreciated over 7 years or the remainder of the lease, whichever is less.

Internal use software development and acquisition costs of $25,000 or more are capitalized as
“software development-in-progress” until the development stage is completed and the software is
successfully tested. At acceptance, “software development-in-progress” costs are reclassified as
“internal use software” and amortized using the straight-line method, over an estimated useful
life of 4 years. Purchased commercial software that does not meet the capitalization criteria is
expensed. Enhancements that do not add significant new capability or functionality are
expensed.

(l) Prepaid and Deferred Charges

Payments in advance of the receipt of goods and services are recorded as prepaid charges at the
time of prepayment, and recognized as expenses when the related goods and services are
received.

(m) Liabilities

Liabilities represent amounts expected to be paid as the result of a transaction or event that has
already occurred. Liabilities covered by budgetary resources are liabilities incurred, which are
covered by realized budgetary resources as of the balance sheet date. Available budgetary
resources include new budget authority, spending authority from offsetting collections,
recoveries of unexpired budget authority through downward adjustments of prior year
obligations, and unobligated balances of budgetary resources at the beginning of the year.
Unfunded liabilities are not considered to be covered by such budgetary resources. Examples of
unfunded liabilities are actuarial liabilities for future Federal Employees’ Compensation Act
payments and annual leave. The Government, acting in its sovereign capacity, can abrogate
liabilities arising from other than contracts.


NATIONAL COUNCIL ON DISABILITY

BALANCE SHEET
As of September 30, 2013 and 2012
(in dollars)

2013 2012
ASSETS:
Intragovernmental:
Fund Balance With Treasury (Note 2) $ 1,002,562 $ 942,523
Total Intragovernmental 1,002,562 942,523
Assets With the Public:
Accounts Receivable, net (Note 3) 301 201
Loans Receivable, net (Note 4) 698 1,883
General Property, Plant, and Equipment (Note 5) 19,244 -
Total Assets $___ 1,022,805 $944,607
LIABILITIES:
Intragovernmental: (Note 6)
Accounts Payable $ 8,772 $ 9,549
Other (Note 7) 5,976 5,692
Total Intragovernmental 14,748 15,241
Liabilities With the Public:
Accounts Payable 340,454 556,710
Other (Note 7) 121,333 127,967
Total Liabilities With the Public 461,787 684,677
Total Liabilities :(Note 6) 476,535 699,918
Commitments and Contingencies: (Note 16)
NET POSITION: (Note 9)
Unexpended Appropriations — Earmarked Funds) 5,719 5,903
Unexpended Appropriations - Other Funds 612,771 337,163
Total Unexpended Appropriations: 618,490 343,066
Cumulative Results of Operations (72,220 ) (98,377 )
Total Net Position 546,270 244,689
Total Liabilities and Net Position $ 1,022,805 $ 944,607

The accompanying notes are an integral part of these financial statements

1


NOTE 9 —- FUNDS FROM DEDICATED COLLECTIONS, CONTINUED

NCD Funds from
Dedicated

2013 Collections NCD Other Funds Total Funds
Balance Sheet as of Sept. 30
ASSETS
Fund Balance with Treasury s 20.776 $ 981,786 S$ 1,002,562
Assets with the Public:
Accounts Receivable - 301 301
Loans Receivable - 698 698
General aproperty, plant and equipment - 19.244 19.244
Total Assets s 20.776 s 1.002.029) 3 1.022.805
Intragovernmental Liabilities:
Accounts Payable $ - $ 8,772 $s 8,772
Other Liabilities - 5.976 976
Total Intragovenmental Liabilities s = g 14,748 14,748
Liabilities with the Public:
Accounts Payable 15,057 $ 325,397 340,454
Other Liabilities - 121,333 121,333
Total Liabilities with the Public Ss 15.057 s 446.730 3 461,787
Total Liabilites Ss 15.057 Ss 461,478 S 476,535
Unexpended Appropriations s 5.719 s 612,771 Ss 618,490
Cumulative Results of Operations - (72.220) (72.220)
5.719 340,551 346,270
Total Liabilities and Net Position Ss 20.776. S$ 1,002,029 S$ 1,022,805
Statement of Net Cost For the
Period Ended Sept. 30
Gross Program Costs s 15,184 s 2,829,699 8 2,844,883
Less Earned Revenues - = -
Net Program Costs s 15.184 s 2.829.699 3 2.844.883
Net Cost of Operations Ss 15,184 s 2.829.699 S 2.844.883
Statement of Changes in Net Position
For the Period Ended Sept. 30
Cumulative Results of Operations:
Beginning Balances s - s (98,377) Ss (98,377)
Adjustments, Corrections of Errors = = S$ -
Beginning Balances, As Adjusted 3 ~ s 8.377) 3 (8.377)
Budgetary Financing Sources:
Appropriations Used 15,057 $ 2,792,745 2,807,802
Non-Exchange Revenue
Imputed Financing Ss - 63.238 63.238
Total Financing Sources s 15,057 s 2,855,983 3 2,871,040
Net Cost of Operations Ss 15,057 Ss 2.829.826 Ss 2,844,883
Change in Net Position S = s 26.157 Ss 26.157
Cumulative Results of Operations - $ (72,220) (72,220)
Unexpended Appropriations:
Beginning Balances $s 5,903 $ 337,163 $s 343,066
Adjustments, Corrections of Errors -
Beginning Balances, As Adjusted s 5,903 $ 337.163 3 343,066
Budgetary Financing Sources:
Appropriations Received 15,000 3,242,831 3,257,831
Other Adjustments - (174,605) (174,605)
Appropriations Used 45.184) (2.792.618) (2.807.802)
Total Budgetary Financing Sources (184) $ 275,608 275,424
Total Unexpended Appropriations S$ 5.719 $ 612.771 $s 618,490
Net Position End of Period Ss 5.719 s 540,551 Ss 546,270

23


REPORT ON THE

FINANCIAL STATEMENTS AUDIT
OF THE GENERAL FUND
OF NATIONAL COUNCIL ON DISABILITY

FOR THE YEARS ENDED SEPTEMBER 30, 2013 and 2012

ASSOCIATES,PC

MANAGEMENT CONSULTANTS &
CERTIFIED PUBLIC ACCOUNTANTS


Cumulative Results of
Operations:

Beginning Balances
Adjustments:
Corrections of errors (Note 13)

Beginning Balances, as adjusted

Budgetary Financing Sources:
Appropriations Used

Other Financing Resources
(Non-Exchange):

Imputed Financing (Note 15)
Total Financing Sources
Net Cost of Operations (+/-)
Net Change

Cumulative Results of
Operations

Unexpended Appropriations:
Beginning Balances
Adjustments:

Corrections of errors (Note 13)

Beginning Balance, as adjusted

Budgetary Financing Sources:
Appropriations Received
Other adjustments

Appropriations Used
Total Budgetary Financing
Sources

Total Unexpended
Appropriations

Net Position

The accompanying notes are an integral part of these financial statements

NATIONAL COUNCIL ON DISABILITY
STATEMENT OF CHANGES IN NET POSITION
For the Years Ended September 30, 2013 and 2012

(in dollars)

2012
Earmarked Elimination Consolidated
Funds All Other Funds Funds Total
$ - $ (70,233) $ $ (70,233)
- (27,785) (27,785)
$ 7 $ (98,018) $ $ (98,018)
69,308 3,625,076 3,694,384
- 73,7716 73,7716
69,308 3,698,852 3,768,160
69,308 3,699,211 3,768,519
- (359) (359)
$ - $ (98,377) $ $ (98,377)
$ 70,267 $ 744,356 $ $ 814,623
- 27,785 27,785
$70,267 $ 772,141 $ $ 842,408
- 3,264,000 3,264,000
4,944 (73,902) (68,958)
(69,308) (3,625,076) (3,694,384)
(64,364) (434,978) (499,342)
$ 5,903 $337,163 $ 343,066
$ 5,903 $238,786 $ $ 244,689

10


NATIONAL COUNCIL ON DISABILITY
STATEMENT OF CHANGES IN NET POSITION
For the Years Ended September 30, 2013 and 2012

(in dollars)

2013
Earmarked All Other Elimination Consolidated
Funds Funds Funds Total
Cumulative Results of
Operations:

Beginning Balances $ - $ (98,377) $ - $ (98,377)
Adjustments:

Corrections of errors : - : -
Beginning Balance, as adjusted $ : S$ (98,377) $ : S$ (98,377)
Budgetary Financing Sources:

Appropriations Used 15,057 2,792,745 - 2,807,802
Other Financing Resources
(Non-Exchange):

Imputed Financing (Note 15) - 63,238 - 63,238
Total Financing Sources 15,057 2,855,983 - 2,871,040
Net Cost of Operations (+/-) 15,057 $2,829,826 = 2,844,883
Net Change - 26,157 - 26,157
Cumulative Results of
Operations $ = S$ (72,220) $ = $ (72,220)
Unexpended Appropriations:

Beginning Balances $ 5,903 $ 337,163 $ - $ 343,066

Adjustments:

Corrections of errors : - : -

Beginning Balance, as

adjusted $ 5,903 $ 337,163 $ = $ 343,066
Budgetary Financing Sources:

Appropriations Received 15,000 3,242,831 - 3,257,831

Other adjustments - (174,605) - (174,605)

Appropriations Used (15,184) (2,792,618) = (2,807,802)

Total Budgetary Financing

Sources (184) 275,608 = 275,424
Total Unexpended
Appropriations $ 5,719 $ 612,771 - $ 618,490
Net Position $ 5,719 $540,551 $ : $ 546,270

The accompanying notes are an integral part of these financial statements

9


Appendix B
Notice of Findings and Recommendations and Agency Responses
National Council on Disability Fiscal Year 2013 Audit

30


APPENDIX A -

NATIONAL COUNCIL ON DISABILITIY’S COMMENTS ON
DRAFT AUDIT REPORT

¥

& National Council on Disability

An independent federal agency making recommendations to the President and Congress to
enhance the Quality of life for all Americans with disabilities and their families.

February 18, 2014

Regis & Associates, P.C.
Peter R. Regis, CPA
Managing Partner

1400 Eye Street, NW
Suite 425

Washington, DC 20005

Dear Mr. Regis:
We have reviewed the draft audit report provided to us relating to your audits of National
Council on Disability (the Council) for the fiscal years ended September 30, 2013 and 2012. We
concur with the facts and conclusions in the draft report. We have provided responses to the
notices of findings and recommendations in Appendix B.

Sincerely,

KReleccas Cr Chey —

Rebecca Cokley
Executive Director

1331 F Street, NW m Suite 850 m Washington, DC 20004
202-272-2004 Voice m 202-272-2074 TTY m 202-272-2022 Fax = www.ncd.gov

29


A-136, revised, Financial Reporting Requirements, which consider it to be an essential part of
financial reporting for placing the basic financial statements in an appropriate operational,
economic, or historical context. We have applied certain limited procedures to the Management
Discussion and Analysis (MD&A), and Required Supplementary Information, in accordance
with auditing standards generally accepted in the United States of America, which consisted of
inquires of management about the methods of preparing the information, and comparing the
information for consistency with management’s responses to our inquiries on the basic financial
statements, and other knowledge we obtained during our audit of the basic financial statements.
We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any other
assurance.

This report is intended solely for the information and use of those charged with governance and
management of the Council, others within the organization, the Office of Inspector General,
OMB, the U.S. Government Accountability Office, and the U.S. Congress; and is not intended to
be, and should not be, used by anyone other than these specified parties.

Agency Comments and Our Evaluation

The National Council on Disability concurs with the facts and conclusions in our report. See
Appendix A.

Ka 4 Aesoewlee, FC

Regis & Associates, PC
Washington, DC

February 18, 2014


NOTE 4 —- LOANS RECEIVABLE, NET

This line item represents the combined balance of Debt Referred Claims from Associates for FY
2013 and FY 2012.
2013 2012

A. Loans Receivable $ 698 $ 1,883

Total Loans Receivable With the Public $ 698 $ 1,883

NOTE 5 - GENERAL PROPERTY, PLANT AND EQUIPMENT, NET

The Council’s total cost, accumulated depreciation, and net book value of PP&E for September
30, 2013 are as follows:

Furniture &

2013 Equipment Fixtures Software Total
Cost $ 8,078 $ 14,610 $ - $ 22,688
Accumulated Depreciation (1,010) (2,434) - (3,444)
Net Book Value $ 7,068 $ 12,176 $ - $ 19,244

NOTE 6 - LIABILITIES NOT COVERED BY BUDGETARY RESOURCES

The FY 2013 liabilities of the Council are classified as liabilities covered or not covered by
budgetary resources. As of September 30, 2013, the Council showed liabilities covered by
budgetary resources of $384,072, and liabilities not covered by budgetary resources of $92,463.
As of September 30, 2013, liabilities covered by budgetary resources are composed of
Accounts Payable of $349,226, Accrued Funded Payroll and Leave of $27,913, and Employer
Contributions and Payroll Taxes Payable of $6,933.

2013 2012
With the Public
Other (Unfunded leave liability) $ 92,463 $ 100,461
Liabilities covered by budgetary resources 384,072 599,457
Total Liabilities $ 476,535 $ 699,918

The FY 2012 liabilities of the Council are classified as liabilities, covered or not covered by
budgetary resources. As of September 30, 2012, the Council showed liabilities covered by
budgetary resources of $599,457, and liabilities not covered by budgetary resources of $100,461.
As of September 30, 2012, liabilities covered by budgetary resources are composed of Accounts
Payable of $566,259, Accrued Funded Payroll and Leave of $26,571, and Employer
Contributions and Payroll Taxes Payable of $6,627.

20


NOTE 13 - CORRECTION TO FISCAL YEAR 2012 BEGINNING BALANCES IN
STATEMENT OF CHANGES IN NET POSITION

There was a misstatement within Cumulative Results of Operations and Unexpended
Appropriations related to the recognition of advances made as a requested worksheet adjustment
at the end of fiscal year 2011. The correction was made during fiscal year 2012. There is no
impact on the Council’s overall Net Position in fiscal years 2012.

NOTE 14 - EXPLANATION OF THE RELATIONSHIP BETWEEN LIABILITIES NOT
COVERED BY BUDGETARY RESOURCES ON THE BALANCE SHEET AND THE
CHANGE IN COMPONENTS REQUIRING OR GENERATING RESOURCES IN
FUTURE PERIODS

The Change in Components Requiring or Generating Resources in Future Periods equals the
difference between the opening and ending balances of Liabilities Not Covered by Budgetary
Resources (as shown on the Balance Sheet, reference Note 6), shown as follows:

FY 2013
FY 2012 FY 2013 Change
Unfunded Annual Leave $100,461 $92,463 ($7,998)
FY 2012
FY 2011 FY 2012 Change
Unfunded Annual Leave $101,216 $100,461 ($755)

Accrued funded payroll liability is covered by budgetary resources and is included in the net cost
of operations, whereas unfunded annual leave liability includes the expense related to the
decrease in annual leave liability for which the budgetary resources will be provided in a
subsequent period.

26


Our consideration of internal control over financial reporting was not designed to identify all
deficiencies in internal control over financial reporting that might be deficiencies, significant
deficiencies, or material weaknesses. We identified a deficiency in internal control over financial
reporting that we consider to be a material weakness, as defined in the Internal Control over
Financial Reporting section of this report. Our internal control work would not necessarily
disclose all deficiencies in internal control that might be material weaknesses or significant
deficiencies.

We concluded that the Council's financial statements as of, and for the years then ended, are
presented fairly, in all material respects, in conformity with U.S. Generally Accepted Accounting
Principles, except for the material weakness in internal control and the reportable condition on
compliance.

The results of our tests of compliance with certain provisions of laws, regulations, and contracts
disclosed an instance of noncompliance or other matters that are required to be reported herein
under Government Auditing Standards, issued by the Comptroller General of the United States;
and Office of Management and Budget’s (OMB) Bulletin Number (No.) 14-02, Audit
Requirements for Federal Financial Statements.

A reportable condition is defined in as matters that represent a significant deficiency in the
design or operation of the internal control structure, which could adversely affect the
organization's ability to record, process, summarize, and report financial data consistent with the
assertions of management in the financial statements

During the audit, we noted a reportable condition that could affect the council’s ability to fulfill
future obligations with customers, and/or the satisfaction of liabilities. The Council does not
appear to comply with the Prompt Payment Act. During our audit, we noted several instances
where payment to contractors and vendors were not made within the required 30-day stipulation.
(NFR No. 13-02).

The following sections discuss our opinion on the Council's financial statements; our
consideration of the Council’s internal control over financial reporting; our tests of the Council’s
compliance with certain provisions of applicable laws, regulations, contracts and agreements;
management's and auditors’ responsibilities; and other accompanying information.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of the Council as of September 30, 2013 and
2012, and the related statements of net cost, changes in net position, and budgetary resources for
the years then ended.

In our opinion, the financial statements referred to above, except for the material weakness in
internal control and the reportable condition in compliance with laws, regulations, contracts and
agreements, present fairly, in all material respects, the financial position of the Council as of
September 30, 2013 and 2012, and its net costs, changes in net position, and budgetary resources
for the years then ended, in conformity with U.S. Generally Accepted Accounting Principles.


NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Basis of Presentation — (Continued)

OMB Circular A-136, revised, requires agencies to prepare principal statements, which include a
Balance Sheet, a Statement of Net Cost, a Statement of Changes in Net Position, and a Statement
of Budgetary Resources. The Balance Sheet presents, as of September 30, 2013 and 2012,
amounts of future economic benefits owned or managed by the Council (assets); amounts owed
by the Council (liabilities); and amounts, which comprise the difference (net position). The
Statement of Net Cost reports the full cost of the program, both direct and indirect costs of the
output, and the costs of identifiable supporting services provided by other segments within the
Council and other reporting entities. The Statement of Budgetary Resources reports the
Council’s budgetary activity.

(c) Basis of Accounting

Transactions are recorded on the accrual basis of accounting, in accordance with OMB Circular
A-136, revised. Under the accrual basis of accounting, revenues are recognized when earned,
and expenses are recognized when a liability is incurred, without regard to the receipt or payment
of cash.

(d) Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and

expenses during the reporting period. Actual results may differ from those estimates.

(e) Budgets and Budgetary Accounting

The Council follows standard federal budgetary accounting policies and practices in accordance
with OMB Circular A-11, “Preparation, Submission, and Execution of the Budget,” dated
August 2011. Budgetary accounting facilitates compliance with legal constraints and controls
over the use of federal funds. For Fiscal Years (FY) 2013 and 2012, the Council is accountable
for general fund appropriations and no-year fund carryover. The Council recognizes budgetary
resources as assets when cash (funds held by Treasury) is made available through a warrant, and
when spending authority from the offsetting collection is incurred.

(f) Revenues and Other Financing Sources

The Council received the funding necessary to support its programs, from appropriations in FY
2009, FY 2010, FY 2011, FY 2012, and FY 2013. The Council receives annual and no-year
appropriations that may be used, within statutory limits, for operating and capital expenditures.
Appropriations are recognized as revenues as the related programs or administrative expenses are
incurred. No-year appropriations are considered “earmarked” funds.


NOTE 1 —- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(h) Personnel Compensation and Benefits - (Continued)

OPM is responsible for reporting assets, accumulated plan benefits, and unfunded liabilities, if
any, applicable to CSRS participants and FERS employees, government-wide, including the
Council’s employees. The Council has recognized an Imputed Cost and Imputed Financing
Source for the difference between the estimated service cost, and the contributions made by the
Council and its covered employees. The estimated cost of pension benefits is based on rates
issued by OPM.

Employees are entitled to participate in the Federal Employees Group Life Insurance (FEGLI)
Program. Participating employees can obtain “basic life” term life insurance, with the employee
paying two-thirds of the cost, and the Council paying one-third. Additional coverage is optional,
to be paid fully by the employee. The basic life coverage may be continued into retirement, if
certain requirements are met. OPM administers the FEGLI Program, and is responsible for the
reporting of related liabilities. Each fiscal year, OPM calculates the U.S. Government’s service
cost for the post-retirement portion of basic life coverage. Because the Council’s contributions
to the basic life coverage are fully allocated by OPM to the pre-retirement portion of coverage,
the Council has recognized the entire service cost of the post-retirement portion of basic life
coverage as an Imputed Cost and Imputed Financing Source.

(i) Assets and Liabilities

Intra-governmental assets and liabilities arise from transactions between the Council and other
Federal entities.

Funds with the U.S. Treasury comprise the majority of the assets on the Council’s balance sheet.
All other assets result from activity with non-federal sources.

Liabilities represent amounts that are likely to be paid by the Council, as a result of transactions
that have already occurred. The accounts payable portion of liabilities consists of amounts owed
to federal agencies and commercial vendors, for goods, services, and other expenses received,
but not yet paid.

Liabilities covered by budgetary or other resources are those liabilities of the Council for which
Congress has appropriated funds, or where funding is otherwise available to pay amounts due.


ASSOCIATES,PC

MANAGEMENT CONSULTANTS &
CERTIFIED PUBLIC ACCOUNTANTS,

INDEPENDENT AUDITORS' REPORT

To the Chairman and Executive Director,
National Council on Disability

The Accountability of Tax Dollars Act of 2002 made the National Council on Disability (the
Council) subject to the annual financial statement reporting requirements of the Chief Financial
Officers’ Act of 1990, which requires agencies to report annually to Congress on their financial
status; and any other information needed to fairly present the Council’s financial position and
results of operations.

We have audited the accompanying balance sheet of the National Council on Disability (the
Council), as of September 30, 2013 and 2012, and the related statements of net cost, changes in
net position, and budgetary resources, for the years then ended (hereinafter referred to as
“financial statements” or “basic financial statements”). The objective of our audits was to
express an opinion on the fair presentation of these financial statements. In connection with our
fiscal year 2013 and 2012 audits, we also considered the Council's internal control over financial
reporting; and tested the Council's compliance with certain provisions of applicable laws,
regulations, contracts, and agreements that could have a direct and material effect on these
financial statements.

Summary

Except as discussed in the following paragraphs, with respect to a material weakness in internal
control on the financial statements and a reportable condition on compliance with laws,
regulations, contracts and agreements; these deficiencies may adversely affect any decision by
management that is based, in whole or in part, on information that is inaccurate because of these
deficiencies. We do not express an opinion on internal control over financial reporting and
compliance because the purpose of our work was to determine our procedures for auditing the
financial statements and to comply with OMB audit guidance, not to express an opinion on
internal control or compliance with laws, regulations, contracts, and agreements. We also found
ineffective controls over compliance with laws, regulations, contracts, and agreements.

A material weakness is a control deficiency that results in more than a remote likelihood that the
design or operation of one or more internal controls will not allow management or employees, in
the normal course of performing their duties, to promptly detect or prevent errors, fraud, or
noncompliance in amounts that would be material to the financial statements.

During our examination of the Council’s internal control system over information technology
(IT), we noted that the Council did not have policies and procedures in place for IT general and
entity level controls, including controls over access restriction to IT systems, on-boarding and
off-boarding, and background checks for personnel with access to IT systems. (NFR No. 13-01).

1400 Eye Street, NW, Suite 425, Washington, DC 20005 Tel 202-296-7101 Fax 202-296-7284


NOTE 9 —- FUNDS FROM DEDICATED COLLECTIONS, CONTINUED

NCD Funds
from Dedicated

NCD Other

2012 Collections Funds Total Funds
Balance Sheet as of Sept. 30
ASSETS
Fund Balance with Treasury $s 35,960 s 906,563 s 942.
Assets with the Public:
Accounts Receivable - 201 201
Loans Receivable - 1,883 1,883
General aproperty, plant and equipment - - -
Total Assets 35.960 s 908.647 3 944,607
Intragovernmental Liabilitie
Accounts Payable s - S$ 9,549 Ss 9,549
Other Liabilities - 5.692 S 5.692
Total Intragovenmental Liabilities 3 = S 15.241 S 15,241
Liabilities with the Public:
Accounts Payable s $ 526,653 556,710
Other Liabilitie: 127.967 127.967
Total Liabilities with the Public 3 Ss 654,620 3 684.677
Total Liabilites Ss Ss 669.861 Ss 699.918
Unexpended Appropriations s $ 337.163 s 343,066
Cumulative Results of Operations (98.377) Ss (98,377)
238.786 244.689
Total Liabilities and Net Position S $ 908.647 S 944,607
Statement of Net Cost For the
Period Ended Sept. 30
Gross Program Costs $s 69,308 $ 3,699,211 S$ 3,768,519
Less Earned Revenues - - -
Net Program Costs 3 69.308 S__ 3.699.211 S__ 3.768.519
Net Cost of Operations S 69.308) S__3.699.2 S__3.768,519
Statement of Changes in Net Position
For the Period Ended Sept. 30
“umulative Results of Operations:
Beginning Balances s - $ (70,233) s (70,233)
Adjustments, Corrections of Errors - (27.785) Ss (27.785)
Beginning Balances, As Adjusted 3 = S (98,018) Ss (98,018)
Budgetary Financing Sources:
Appropriations Used s 308 3,625,076 S 3,694,384
Imputed Financing 73.776 73.776
Total Financing Sources 69.308 3.698.852 3.768.160
Net Cost of Operations 3 69.308, $___ 3.699.211 $___3.768.519
Change in Net Position 3 = s (G59) Ss (G59)
Cumulative Results of Operations s - $ (98,377) (98,377)
Unexpended Appropriations:
Beginning Balances Ss 70,267 s 744,356 Ss 814,623
Adjustments, Corrections of Errors 27.785 S 27.785
Beginning Balances, As Adjusted 3 70,267 s 772,141 $ 842,408
Budgetary Financing Sources:
Appropriations Received 3,264,000 S$ 3,264,000
Other Adjustments 4,944 (73,902) s (68,958)
Appropriations Used (69.308) (3.625.076) S__(G.694,384)
Total Budgetary Financing Sources 3 (64,364) s (434,978) S (499,342)
Total Unexpended Appropriations S 5.903 $ 337.163 s 343,066
Net Position End of Period S 5.903 $ 238.786 Ss 244,689

24


FINANCIAL STATEMENT AUDITS
OF THE GENERAL FUND
OF NATIONAL COUNCIL ON DISABILITY
FOR THE YEARS ENDED SEPTEMBER 30, 2013 and 2012

TABLE OF CONTENTS

Independent Auditors' Report
Balance Sheet

Statement of Net Cost

Statement of Changes in Net Position ............cssesssesseseseessessesssesesesesncacseencaeseeaeseseeacereeaeenenease 9-10
Statement of Budgetary ReSOUrCES ........:.cscessssssseseseeeseseesesesesesessesesesseseseeneaeseeaseeseneaeeneeeseeneeeeees 11

Notes to Financial Statements

Appendix A - Agency Comments on Draft Audit Report

Appendix B - Notice of Findings and Recommendations, and Management’s Responses. ..30-35


Appendix B
Notice of Findings and Recommendations (NFR)

No. 13-01 — Ineffective Controls over Policies and Procedures in place for IT General and
Entity Level Controls

Condition:

During our audit of the Council’s entity-wide security management system, we noted that the
Council did not have policies and procedures in place for information technology (IT) general
and entity level controls, including controls over access restriction of IT systems, on-boarding
and off-boarding, and background checks on personnel with access to IT systems. In addition,
there was inadequate documentation of email updates including adding or removing users,
password resets, and group changes.

The Council’s IT Consultant did not document his monitoring activities over IT controls,
including observation of the active directory; checks of the event log, server log, security log;
firewall health check; and records of new threats and viruses. He also did not document whether
any alerts of concern were identified, that may require further IT updates.

Criteria:

OMB Circular A-123, Section II D States: “Jnformation should be communicated to relevant
personnel at all levels within an organization. The information should be relevant, reliable, and
timely. It is also crucial that an agency communicate with outside organizations as well, whether
providing information or receiving it. Examples include: receiving updated guidance from
central oversight agencies; management communicating requirements to the operational staff;
operational staff communicating with the information systems staff to modify application
software to extract data requested in the guidance”.

In addition, the Federal Information Security Management Act of 2002 (FISMA) provides, "...a
comprehensive framework for ensuring the effectiveness of information security controls over
information resources that support Federal operations and assets." It also states that”...
Agencies are required to provide information security controls proportionate with the risk and
potential harm of not having those controls in place. Agency heads are required to annually
report on the effectiveness of the agencies’ security programs. "Significant deficiencies" found
under FISMA must also be reported as material weaknesses under FMFIA.””

Cause:
The Council did not have any policies and procedures relating to IT general and entity level
controls. According to the IT Consultant, the Council’s management did not have adequate
understanding and experience to formalize IT policies and procedures in the following areas:

1. Active Directory Change Log;

2. Documentation of routine monitoring procedures, for example Server logs;

3. Backup monitoring;

4. Monitoring of the firewall device for effectiveness, at least weekly; and

32


NOTE 15—- RECONCILIATION OF NET COST OF OPERATIONS (PROPRIETARY)
TO BUDGET

Budgetary resources obligated are obligations for personnel, goods, services, benefits, etc. made
by the Council in order to conduct operations or acquire assets. Other (i.e., non-budgetary)
financing resources are also utilized by the Council in its program (proprietary) operations. For
example, spending authority from offsetting collections and recoveries are financial resources
from the recoveries of prior year obligations (e.g., the completion of a contract where not all of
the funds were used, and refunds or other collections (i.e., funds used to conduct operations that
were previously budgeted). An imputed financing source is recognized for future federal
employee benefit costs incurred for Council employees, which will be funded by OPM. Changes
in budgetary resources obligated for goods, services, and benefits ordered, but not yet provided,
represent the difference between the beginning and ending balances of undelivered orders. (Note
that goods and services received during the year, based on obligations incurred in the prior year,
represent a cost of operations not funded from budgetary resources). Resources that finance the
acquisition of assets, are budgetary resources used to finance assets, and not cost of operations
(e.g., increases in accounts receivable or capitalized assets).

Financing sources yet to be provided represents financing that will be provided in future periods
for future costs that are recognized in determining the net cost of operations for the present
period. Finally, components not requiring or generating resources, are costs included in the net
cost of operations that do not require resources (e.g., depreciation and amortized expenses of
assets previously capitalized).

A reconciliation between budgetary resources obligated, and net cost of operations (i.e.
providing an explanation between budgetary and financial (proprietary) accounting) is as
follows:

FY 2013 FY 2012

Budgetary Resources Obligated $2,831,229 $3,346,600
Spending Authority from Recoveries and Offsetting Collections (38,346) (156,851)
Imputed Financing from Costs Absorbed by Others 63,238 73,776
Changes in Budgetary Resources Obligated for Goods, Services, and 14,919 476,350
Benefits Ordered but Not Yet Provided

Resources that Finance the Acquisition of Assets (18,159) 29,399
Financing Sources Yet to be Provided (Note 14) (7,998) (755)
Net Cost of Operations $2,844,883 $3,768,519

27



NATIONAL COUNCIL ON DISABILITY
STATEMENT OF BUDGETARY RESOURCES
For the Years Ended September 30, 2013 and 2012

(in dollars)

2013 2012
Budgetary Budgetary
Budgetary Resources:
Unobligated Balance:
Unobligated balance brought forward, October 1 $ 247,202 $ 241,909
Adjustment to unobligated balance brought forward, October ,1(+ or -) - -
Unobligated balance brought forward, October 1, as adjusted 247,202 241,909
Recoveries of prior year unpaid obligations 36,173 148,560
Other changes in unobligated balance (+ or -) (4,201) (62,789 )
Unobligated balance from prior year budget authority, net 279,174 327,680
Appropriations (discretionary and mandatory) 3,087,427 3,257,831
Spending Authority from offsetting collections (discretionary and mandatory) 2,173 8,291
Total Budgetary Resources $3,368,774 $3,593,802
Status of Budgetary Resources:
Obligations Incurred Direct (Note 11 and 15) $2,831,229 $3,346,600
Apportioned 397,961 15,873
Unapportioned 139,584 231,329
Unobligated Balance brought forward, end of year 537,545 247,202
Total Budgetary Resources $3,368,774 $3,593,802
Change in Obligated Balance:
Unpaid obligations:
Unpaid Obligations, Brought Forward, October | (gross) $ 695,321 $ 844,568
Obligations Incurred (Note 11 and 15) 2,831,229 3,346,600
Gross Outlays (-) (3,025,360 ) (3,347,287 )
Recoveries of Prior-Year Unpaid Obligations, Actual (-) (36,173 ) (148,560 )
Total, Unpaid Obligations, End of Year (Note 12) $465,017. $695,321
Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory) $ 3,089,600 $ 3,266,122
Actual offsetting collections (discretionary and mandatory)(-) (2,173) (8,291)
Budget authority, net (discretionary and mandatory) $ 3,087,427 $3,257,831
Gross Outlays (discretionary and mandatory) (+) $ 3,025,360 $ 3,347,287
Offsetting Collections (-) (2,173 ) (8,291)
Net Outlays (discretionary and mandatory) $_ 3,023,187, $3,338,996

The accompanying notes are an integral part of these financial statements

11


NOTE 1 —- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g) Imputed Financing Sources

In certain instances, operating costs of the Council are paid out of funds appropriated to other
federal agencies. In accordance with SFFAS 5, “Accounting for Liabilities of the Federal
Government,” all expenses of a federal entity should be reported by that agency, regardless of
whether the agency will ultimately pay those expenses. Amounts for certain expenses of the
Council, which will be paid by other federal agencies, are recorded in the Statement of Net Cost.
A related amount is recognized in the Statement of Changes in Net Position as an imputed
financing source. The Council records imputed expenses and financing sources for employee
retirement plan contributions, group term life insurance, and health benefit costs, which are paid
by the Office of Personnel Management (OPM).

(h) Personnel Compensation and Benefits

Salaries and wages of employees are recognized as accrued payroll expenses and related
liabilities, as earned. These expenses are recognized as a funded liability, when accrued.

Annual leave is accrued as it is earned by employees, and is included in personnel compensation
and benefit costs. An unfunded liability is recognized for earned, but unused annual leave, since
from a budgetary standpoint, this annual leave will be paid from future appropriations when
employees use the leave. The amount accrued is based upon current pay rates for employees.
Sick leave and other types of leave that are not vested, are expensed when used, and no future
liability is recognized for these amounts.

The Council’s employees participate in one of two retirement programs, either the Civil Service
Retirement System (CSRS); or the Federal Employees Retirement System (FERS), which
became effective on January 1, 1987. The Council and its employees both contribute to these
systems. Although the Council funds a portion of the benefits under CSRS and FERS, and makes
the necessary payroll withholdings, it does not report assets associated with these benefit plans,
in accordance with SFFAS 5.

For CSRS employees, the Council contributes an amount equal to 11.9% of the employees’ basic
pay, to the plan. For FERS employees, the Council contributes an amount equal to 7% of the
employees’ basic pay, to the plan.

Both CSRS employees and FERS employees are eligible to participate in the Thrift Savings Plan
(TSP). The TSP is a defined contribution retirement plan, intended to supplement the benefits
provided under CSRS and FERS. For FERS employees, the Council contributes an amount equal
to 1% of the employee’s basic pay to the TSP, and matches employee contributions up to an
additional 4%. CSRS employees receive no matching contribution from the Council.