FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Reporting Entity

FMC was established as an independent regulatory agency effective August 12, 1961. FMC is
responsible for the regulation of ocean borne transportation in the foreign commerce of the
United States (U.S.). The principle statutes or statutory provisions administered by the
Commission are the Shipping Act of 1984, the Foreign Shipping Practices Act of 1988, and
section 19 of the Merchant Marine Act of 1920, and sections 2 and 3 of Public Law No. 89-777.
Most of these statutes were modified by the passage of the Ocean Shipping Reform Act of 1998,
which took effect in 1999.

FMC monitors the activities of ocean common carriers, marine terminal operators, conferences,
ports and ocean transportation intermediaries (OTIs) (non-vessel-operating common carriers and
ocean freight forwarders) who operate in the foreign commerce of the U.S. and monitor these
activities to ensure they maintain just and reasonable practices. FMC maintains a trade
monitoring and enforcement program designed to detect and appropriately remedy malpractices
and violations. FMC monitors the laws and practices of foreign governments which could be
potentially restrictive and identifies and monitors carriers owned or controlled by foreign
governments; processes and reviews agreements and service contracts for compliance with
statutory requirements; and reviews common carriers’ privately published tariff systems for
accessibility and accuracy as required by the Ocean Shipping Reform Act of 1998. FMC also
issues licenses to qualified OTIs in the U. S., ensures that all OTIs are bonded or maintain other
evidence of financial responsibility, and ensures that passenger vessel operators demonstrate
adequate financial responsibility for casualty and nonperformance.

FMC is composed of five Commissioners appointed for five-year terms by the President with the
advice and consent of the Senate. The President designates one of the Commissioners to serve as
Chairman, who is also the chief executive and administrative officer of FMC.

Congress enacts appropriations to permit FMC to incur obligations for authorized purposes. In
fiscal years 2006 and 2005, FMC was accountable for General Fund appropriations. FMC
recognizes budgetary resources as assets when cash (funds held by the U. S. Treasury) is made
available through the Department of Treasury General Fund warrants.

General Funds are accounts used to record financial transactions arising under congressional
appropriations or other authorizations to spend general revenues.

General Fund Miscellaneous Receipts are accounts established for receipts of non-recurring
activity, such as fines, penalties, fees and other miscellaneous receipts for services and benefits.

FMC has rights and ownership of all assets reported in these financial statements. There are no
non-entity assets.

14


MANAGEMENT?’S DISCUSSION and ANALYSIS ts

Uses of Funds by Expense Category

In FY 2006, the FMC incurred new obligations of $20.3 million, which was a $905 thousand dollars increase over
fiscal year 2004. Approximately 70% of the total appropriation was used for salaries and benefits. Of the
remaining budget authority, 1% was used for Commission travel expenses and the remaining 29% was used for
administrative expenses also known as operating expenses (e.g., rent, furniture, printing, maintenance). The un-
obligated authority balance of $4,636 will remain active for four years to service FMC-established requirements.

Utilization of Funds by Expenses Categories
($000s)

‘Te.000 14,243 14,094 i wer i |
14,000

12,000

10,000
8,000
6,000
4,000
2,000

Salaries & Expenses Travel Administrative
OFY 2006 WFY 2005

Audit Results

The FMC received an unqualified opinion on its FY 2005 financial statements from the auditing firm of Clifton
Gunderson LLP under contract through the FMC’s Inspector General. For FY 2006, the FMC was again awarded
an unqualified opinion on its financial statements. Comparative statements can be located in Chapter 3, Auditors’
Reports and Financial Statements, in the Performance and Accountability Report.

Financial Statement Highlights

The financial statements have been prepared to report the financial position and results of operations of the entity,
pursuant to the requirements of 31 U.S.C. 3515(b). While the statements have been prepared from the books and
records of the entity in accordance with the formats prescribed by OMB, the statements are in addition to the
financial reports used to monitor and control budgetary resources which are prepared from the same books and
records. The statements should be read with the realization that they are for a component of the U.S. Government,
a sovereign entity. One implication of this is that liabilities cannot be liquidated without legislation that provides
resources to do so.

The FMC’s financial statements summarize the financial position and financial activity of the agency. The
financial statements, foomotes and the remainder of the required supplementary information appear in their
entirety in Chapter 3, Auditors’ Report and Financial Statements, in the Performance and Accountability Report.
A brief analysis of the principal statements follows.

FY 2006 FEDERAL MARITIME CC

8



MANAGEMENT?’S DISCUSSION and ANA

FY 2006 FE

4

Regulatory Responsibility (continued)

In addition to monitoring relationships among carriers, the FMC is also responsible for ensuring that individual
carriers, as well as those permitted by agreement to act in concert, fairly treat shippers and other members of the
shipping public, in accordance with the 1984 Act’s prohibition against undue discrimination. The 1984 Act also
requires all carriers to make their rates, charges and practices available in automated tariff systems that must be
available electronically to the public. NVOCCs may assess the rates and charges published in their tariffs or may
offer service arrangements with shipping customers. Ocean common carriers are permitted to enter into service
contracts with their shipper customers. Such contracts are filed electronically with the FMC in our Internet-based
system, and are provided confidential treatment by the FMC as required by the Act. The FMC does not have the
authority to approve or disapprove general rate increases (“GRIs”) or individual commodity rate levels in the U.S.
foreign commerce, except with regard to certain foreign government-owned or -controlled carriers.

P. L. 89-777 requires the operators of passenger vessels with 50 or more berths who embark passengers at U.S.
ports to establish financial coverage to indemnify passengers in cases of death, injury, or nonperformance of
transportation. The FMC certifies such operators upon the submission of satisfactory evidence of financial
responsibility. The FMC ensures that all OTIs operating in the foreign commerce of the U.S. have established
sufficient financial responsibility to protect shippers from financial loss. Additionally, the FMC licenses all U.S.
OTIs.

The FMC carrics out its regulatory responsibilities by conducting informal and formal investigations. It holds
hearings, considers evidence and renders decisions, and issues appropriate orders and implementing regulations.
The FMC also adjudicates and mediates disputes involving the regulated community, the general shipping public,
and other affected individuals or interest groups.

The FMC also carrics out a management and support function for information technology, financial management,
human resources, and administrative support.

The FMC oversees approximately 5,400 regulated persons (passenger vessel operators, conferences, OTIs,
NVOCCs, etc.).

The FMC has a new, improved, easy-to-navigate website which contains more information concerning the
agency’s activities and responsibilities. Please visit us at www.fic.gov.

Future Challenges

International trade remains dependent upon an efficient ocean transportation system. The ocean shipping industry
continues to face significant challenges related to port and maritime security, port congestion, industry
consolidation and dynamic economic conditions. As the industry restructures to adapt to these changes, it is
imperative for the FMC to ensure that its oversight produces a competitive trading environment in U.S. ocean
commerce that is in harmony with, and responsive to, international shipping practices, and encourages fair and
open commerce.

In response to industry changes, the Commission continues to review its regulatory initiatives to ensure that agency
resources are utilized in a manner best suited to accomplish statutory obligations with a minimum of government
intervention and regulatory cost. Similarly, we have implemented new internal business processes that are more
responsive to the needs of the industry and other government agencies.

Cooperative working arrangements with front-line security agencies remain in place. Effective use of emerging
information technologies continues to facilitate our efforts.



GEMENT’S DISCUSSION and ANALYSIS Fe

Systems, Controls, and Legal Compliance
This section provides information on FMC’s compliance with the:

Federal Managers’ Financial Integrity Act
Federal Financial Management Improvement Act
Prompt Payment Act

Debt Collection Improvement Act

Biennial Review of User Fees

Performance Measure Summary

Inspector General Act

Federal Managers’ Financial Integrity Act

The Federal Managers’ Financial Integrity Act (“FMFIA”) requires that agencies establish controls that reasonably
ensure that obligations. and cost comply with applicable law; assets are safeguarded against waste, loss,
unauthorized use, or misappropriation; and revenues and expenditures are properly recorded and accounted for. It
requires the agency head to provide an assurance statement of the adequacy of management controls and
conformance of financial systems with Government standards.

In his Message earlier in this document, the Chairman provided his annual assurance statement. This statement
was based on various sources and included management knowledge gained from the daily operation of agency
programs and reviews, discussions with senior managers who together comprise the agency’s Senior Policy Group,
audits of financial statements, annual performance plans, and Inspector General reports, among other sources. The
Senior Policy Group is comprised of all SES-level senior executives, including the Director of Operations, the
General Counsel, and the agency’s Chief Financial Officer, among others. Additionally, the Chairman mects
regularly with, and receives regular reports from, the FMC’s Inspector General.

Management control deficiencies, when identified, are addressed at the highest management levels within the
agency. For instance, corrective actions for significant deficiencies identified in the agency’s information
technology area are overseen directly by the agency’s Chief Information Officer.

FY 2006 Integrity Act Results

The Chairman of the FMC determined that, as of September 30, 2006, the management controls of the FMC
provide reasonable assurance that the objectives of the FMFIA are being met, and that the FMC, as a whole, is in
compliance with section 2 of the FMFIA. The FMC’s financial management systems also are in substantial
compliance with the objectives of the FMFIA, and the Commission is in compliance with section 4 of the FMFIA.

During the fiscal year, the FMC mitigated two significant deficiencies (formerly called “material weaknesses” by
OMB) which were first identified in a previous fiscal year. These significant deficiencies were in the information

technology program.

*S DISCUSSION AND ANALYSIS



FEDERAL MARITIME COMMISSION

BALANCE SHEETS

September 30, 2006 and 2005

ASSETS

Intragovernmental - Fund Balance with Treasury (Note 2)

Accounts Receivable

General Property, Plant and Equipment, Net (Note 3)

TOTAL ASSETS

LIABILITIES
Intragovernmental liabilities (Note 4)
Accounts Payable (Note 4)
Other (Note 4)

Total Liabilities

NET POSITION
Unexpended Appropriations
Cumulative Results of Operations
Total Net Position

TOTAL LIABILITIES AND NET POSITION

The accompanying notes are an integral part of these financial statements.

8

2006 2005
$ 2,676,163 2,217,146
3,715 2,021
30.353 50.439
$2,710,231 2,269,606
$ 126,328 103,597
213,774 196,409
1,886,987 1,657,543
2,287,089 1,957,549
1,453,216 1,231,683
(1,030,074) (919,626)
423,142 312,057
$ 2,710,231 2,269,606



FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
M. Accrued Workers’ Compensation

A liability is recorded for actual and estimated future payments to be made for workers’
compensation pursuant to the Federal Employees’ Compensation Act (FECA). The actual costs
incurred are reflected as a liability because FMC will reimburse the Department of Labor (DOL)
two years after the actual payment of expenses. Future appropriations will be used for the
reimbursement to DOL. The liability consists of (1) the net present value of estimated future
payments calculated by the DOL, and (2) the unreimbursed cost paid by DOL for compensation
to recipients under the FECA.

N. Retirement Plans

FMC employees participate in either the Civil Service Retirement System (CSRS) or the Federal
Employees’ Retirement System (FERS). FERS was established by the enactment of Public Law
99-335. Pursuant to this law, FERS and Social Security automatically cover most employees
hired after December 31, 1983. Employees hired before January 1, 1984 elected to join either
FERS and Social Security or remain in CSRS.

All employees are eligible to contribute to the Thrift Savings Plan (TSP). For those employees
participating in the FERS, a TSP account is automatically established and FMC makes a
mandatory one percent contribution to this account. In addition, FMC makes matching
contributions, ranging from one to four percent, for FERS eligible employees who contribute to
their TSP accounts. Matching contributions are not made to the TSP accounts established by
CSRS employees. For FERS participants, FMC also remits the employer’s share of the required
contribution.

FERS employees and certain CSRS reinstatement employees are eligible to participate in the
Social Security program after retirement.

FMC recognizes the imputed cost of pension and other retirement benefits during the employees’
active years of service. OPM actuaries determine pension cost factors by calculating the value of
pension benefits expected to be paid in the future and communicates these factors to FMC for
current period expense reporting. OPM also provides information regarding the full cost of
health and life insurance benefits. FMC recognized the offsetting revenue as imputed financing
sources to the extent these expenses will be paid by OPM.

FMC does not report on its financial statements information pertaining to the retirement plans

covering its employees. Reporting amounts such as plan assets, accumulated plan benefits, and
related unfunded liabilities, if any, is the responsibility of the OPM.

18


MANAGEMENT?’S DISCUSSION and ANALYSIS

Analysis of the Balance Sheet

The FMC’s assets in fiscal year 2006 were
$2,710,231 as of September 30, 2006. This
represents an increase over fiscal year 2005 of |
$440,625. The FMC’s assets reported in the

Summary of Assets as of September 30, 2006
FY 2006 FY 2005

balance sheet are summarized in the | Fund Balance with Treasury $2,676,163 | $2,217,146
accompanying table.

Accounts Receivable $2,961 $2,021
The Fund Balance with Treasury represents =
the FMC’s largest asset of $2,676,163 as of | Capital Assets $30,353] $50,439
September 30, 2006. This is an increase of | Other $754 $0.00
20.7% over fiscal year 2005 and represents 3
98.7% of the agency’s total assets. The Fund Total Assets $2,710,231 | $2,269,606

Balance with Treasury is comprised only of
annual appropriations maintained by the Department of the Treasury to address current liabilities.

Accounts Receivable as of September 30, 2006, was at $2,961. This is a 46.5% increase over fiscal year 2005, and
accounts for .001% of the FMC’s total assets.

Capital Assets, also known as Property, Plant and Equipment, accounts for 1.2% of the FMC’s total assets as of
September 30, 2006. The “Net” value of $30,353 accounts for the depreciation of all assets and represents the
current book value of those assets.

The FMC’s Liabilities totaled $2,287,089 as
of September 30, 2006. The accompanying
table depicts an increase of $329,540 total
liabilities over fiscal year 2005. Accounts

Summary of Liabilities as of September 30, 2006
FY 2006 FY 2005

Payable represents the total goods and services | Accounts Payable $275,054] $197,294
received by the FMC as of September 30,

2006. The FMC is not in receipt of a billing PaO SS egeBE atlas VED
from the various vendors as of the close of | Federal Employee Benefits $1,070,638} $979,235
fiscal year 2006. Federal Employee Benefits aE

represents accrued salaries and liabilities that | Accrued Liabilities $827,383 | $687,654
are not funded by budgetary resources. These Liabilitie $2,287,

liabilities represent future workers’ eral AO Lane!

compensation, and accrued annual leave that remains on the books. The Federal budget process does not recognize
future benefits for today’s employees, however, these liabilities will be recognized in future budget cycles as they
are paid.

Net Position is the difference between total - Se
macs aod Utd labile The foul ust Net Position Summary as of September 30, 2006
position for fiscal year 2006 is an increase of L CL FY 2006 | FY 2005
$111,085 from fiscal year 2005. Unexpended

Appropriations represents the total authority Unexpended Appostalioa! $1,453,216] $1,231,683
granted by Congress that the FMC has not . 5

expended as of September 30, 2006. Cumulative Results of Operations | ($1,030,074)| ($919,626)
Cumulative Results of Operations represents Total Net Position $423,142} $312,057
the net results of all operations of the FMC.
The decrease in Cumulative Results is due mainly to the net decrease in Capital Assets as of September 30, 2006.

MANAGEMENT'S DISCUSSION AND ANALYSIS



FEDERAL MARITIME COMMISSION
Washington, D.C.

INDEPENDENT AUDITOR’S REPORTS
AND FINANCIAL STATEMENTS
September 30, 2006 and 2005


MANAGEMENT?’S DISCUSSION and ANALYSIS

FY 2006

2

Introduction

This Management’s Discussion and Analysis represents the completion of the Federal Maritime Commission’s
program and financing management process for Fiscal Year 2006, which began with mission and program
planning, continued with the formulation and justification of FMC’s budget submission to the President and
Congress, through budget execution, and ended with a report of our program performance and the use of resources.
This report was prepared pursuant to the requirements of the Chief Financial Officers Act, as amended by the
Reports Consolidation Act, and OMB Circular No-A136 (Revised), and covers the Commission’s activities from
October 1, 2005, through September 30, 2006.

Our Management’s Discussion and Analysis, provides an overview of the FMC. It consists of nine sections:
Introduction describes the agency, its mission and structure; Regulatory Responsibility describes its regulatory
mandate; Future Challenges includes information about the changes in the maritime industry; Program
Performance Overview reports on the FMC’s success in achieving its strategic goals; President's Management
Agenda describes activities related to the relevant initiatives; Financial Performance Overview discusses the
FMC’s financial position and audit results; Financial Statement Highlights gives an overview of the major
financial statements; Improper Payments Information Act provides a breakdown of any improper payments made
by the agency and efforts to collect improper disbursements; and Systems, Controls, and Legal Compliance
discloses the FMC’s compliance with certain legal and regulatory requirements.

About the FMC

The FMC is an independent transportation/trade regulatory agency which administers the Shipping Act of 1984
(1984 Act” or “Shipping Act”) as amended by the Ocean Shipping Reform Act of 1998 (“OSRA”); section 19 of
the Merchant Marine Act, 1920 (“1920 Act”); the Foreign Shipping Practices Act of 1988 (“FSPA”); and Public
Law (“P.L.”) 89-777 (passenger vessel certification). The Commission: monitors the activities of ocean common
carriers, marine terminal operators, conferences, ports and ocean transportation intermediaries (non - vessel -
operating common carriers and ocean freight forwarders) who operate in the U. S. foreign commerce to ensure
they maintain just and reasonable practices; maintains a trade monitoring and enforcement program designed to
assist regulated entities in achieving compliance and to detect and appropriately remedy malpractices and
violations of the prohibited acts set forth in section 10 of the 1984 Act; monitors the laws and practices of foreign
governments which could have a discriminatory or otherwise adverse impact on shipping conditions in U. S.
trades, and imposes remedial action as appropriate pursuant to section 19 of the 1920 Act or FSPA; enforces
special regulatory requirements applicable to carriers owned or controlled by foreign governments; processes and
reviews agreements, service arrangements and service contracts pursuant to the 1984 Act for compliance with
statutory requirements; and reviews common carriers’ privately published tariff systems for accessibility and
accuracy as required by OSRA. The Commission also issues licenses to qualified ocean transportation
intermediaries in the U. S., ensures that all OTIs are bonded or maintain other evidence of financial responsibility,
and ensures that passenger vessel operators demonstrate adequate financial responsibility in case of
nonperformance or injury to passengers.

Organization

The FMC is composed of five Commissioners appointed for five-year terms by the President with the advice and
consent of the Senate. No more than three members of the FMC may belong to the same political party. The
President designates one of the Commissioners to serve as Chairman. The Chairman is the chief executive and
administrative officer of the agency. The FMC’s organizational units consist of: Offices of the Commissioners;
Office of the General Counsel (“OGC”); Office of the Secretary (“OS”), including the Library and Office of
Consumer Affairs and Dispute Resolution Services (“CADRS”); Office of Administrative Law Judges (“ALJ”);
Office of Equal Employment Opportunity (“EEO”); Office of the Inspector General (“OIG”); Office of Operations
(“OPS”), including the Bureaus of Certification and Licensing (“BCL”), Enforcement (“BOE”), and Trade
Analysis (“BTA”); and Office of Administration (“OA”), including the Offices of Financial Management
(“OFM”), Human Resources (“OHR”), Information Technology (“OIT”), and Management Services (“OMS”).
The majority of FMC personnel are located in Washington, DC., with Area Representatives in New York, New
Orleans, Los Angeles, Seattle, and South Florida.

In FY 2006, the FMC’s appropriation totaled $20,294,010 which funded 122 full-time-cquivalent staff.

IERAL MARITIME COM!

1ON


FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. Basis of Presentation

The financial statements have been prepared to report the financial position, net cost of operations,
changes in net position, status and availability of budgetary resources, and the reconciliation
between proprietary and budgetary accounts of the FMC. The statements are a requirement of
the Chief Financial Officers Act of 1990, the Government Management Reform Act of 1994, the
Accountability of Tax Dollars Act of 2002 and the Office of Management and Budget (OMB)
Circular A-136, Financial Reporting Requirements. They have been prepared from, and are
fully supported by, the books and records of FMC in accordance with the hierarchy of
accounting principles generally accepted in the United States of America, standards approved by
the principals of the Federal Accounting Standards Advisory Board (FASAB), OMB Circular
No. A-136, and FMC accounting policies which are summarized in this note. These statements,
with the exception of the Statement of Budgetary Resources, are different from financial
management reports, which are also prepared pursuant to OMB directives that are used to
monitor and control FMC’s use of budgetary resources.

The statements consist of the Balance Sheet, Statement of Net Cost, Statement of Changes in Net
Position, Statement of Budgetary Resources, Statement of Financing, and the Statement of
Custodial Activity. In accordance with OMB Circular A-136, the financial statements and
associated notes are presented on a comparative basis.

C. Basis of Accounting

Transactions are recorded on both an accrual accounting basis and a budgetary basis. Under the
accrual method, revenues are recognized when earned, and expenses are recognized when a
liability is incurred, without regard to receipt or payment of cash. These financial statements
were prepared following accrual accounting. Budgetary accounting facilitates compliance with
legal requirements on the use of federal funds. Balances on these statements may therefore differ
from those on financial reports prepared pursuant to other OMB directives that are primarily
used to monitor and control FMC’s use of budgetary resources.

D. Revenues & Other Financing Sources
Congress enacts annual appropriations to be used, within statutory limits, for operating, capital

and grant expenditures. Additional amounts are obtained from service fees and reimbursements
from other government entities and the public.

15


FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 2 - FUND BALANCE WITH TREASURY (CONTINUED)

Restricted unobligated fund balances represent the amount of appropriations for which the period
of availability for obligation has expired. These balances are available for upward adjustments
of obligations incurred only during the period for which the appropriation was available for
obligation or for paying claims attributable to the appropriations.

NOTE 3 - GENERAL PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment account balances as of September 30, 2006 and 2005 were as
follows:

Acquisition Accumulated Net
Description Cost Depreciation Book Value
September 30, 2006
Office Equipment $ 419,982 $ (389,629) $__ 30,353
September 30, 2005
Office Equipment $_ 419,982 $ (369,543) $50,439

NOTE 4 - LIABILITIES

The accrued liabilities for FMC are comprised of program expense accruals, payroll accruals,
and annual leave (funded and unfunded) earned by employees. Program expense accruals
represent expenses that were incurred prior to year-end but were not paid. Similarly, payroll
accruals represent payroll expenses that were incurred prior to year-end but were not paid.

September 30
2006 2005
Intragovernmental:
Accounts Payable & Other Accrued $ 11,145 $ 10,130
Payroll Taxes Payable 102,709 82,970
Other Post-Employment Benefits 8,529 8,034
Unfunded FECA Liability 495 644
Custodial Liabilities 3.450 1,819
Total Intragovernmental 126.328 103,597
Accounts Payable $ 273,774 $ 196,409
Payroll Accrual 816,238 677,525
Unfunded Annual Leave 1,061,614 970,557
Payroll Taxes Payable 11,305 10,396
Custodial Liabilities (2.170) (935)
Total Other Liabilities 2,160,761 1,853,952
Total Liabilities $2,287,089 $1,957,549

21


FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Applicable standard governmental guidelines regulate the disposal and convertibility of agency
property, plant and equipment. The useful life classification for capitalized equipment assets is 5
years.

I. Advances and Prepaid Charges

Advance payments are generally prohibited by law. There are some exceptions, such as
reimbursable agreements, subscriptions and payments to contractors and employees in select
circumstances. Payments made in advance of the receipt of goods and services are recorded as
advances or prepaid charges at the time of prepayment and recognized as expenses when the
related goods and services are received.

J. Liabilities

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

Liabilities not covered by budgetary or other resources represent amounts owed in excess of
available Congressionally appropriated funds or other amounts. The liquidation of liabilities not
covered by budgetary or other resources is dependent on future Congressional appropriations or
other funding. Intragovernmental liabilities are claims against FMC by other federal agencies.
Liabilities not covered by budgetary resources on the Balance Sheet are equivalent to amounts
reported as Components Requiring or Generating Resources on the Statement of Financing.
Additionally, the Government, acting in its sovereign capacity, can abrogate liabilities.

K. Accounts Payable
Accounts payable consists of amounts owed to other federal agencies and the public.
L. Annual, Sick and Other Leave

Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken. The balance
in the accrued leave account is adjusted to reflect current pay rates. Liabilities associated with
other types of vested leave, including compensatory, restored leave, and sick leave in certain
circumstances, are accrued at year-end, based on latest pay rates and unused hours of leave.
Funding will be obtained from future financing sources to the extent that current or prior year
appropriations are not available to fund annual and other types of vested leave earned but not
taken. Nonvested leave is expensed when used. Any liability for unused sick leave by a Civil
Service Retirement System (CSRS)-covered employee is transferred to the Office of Personnel
Management upon the retirement of that individual. No credit is given for sick leave balances
upon the retirement of Federal Employee’s Retirement System (FERS)-covered employees.

17


MANAGEMENT’S DISCUSSION and ANALYSIS

Regulatory Responsibility
The FMC’s regulatory responsibilities include:

e Protecting shippers and carriers engaged in the foreign commerce of the U.S. from
restrictive or unfair foreign laws, regulations, or business practices that harm U.S. .
shipping interests or ocean trade.

© Reviewing operational and pricing agreements among ocean common carriers and marine
terminal operators (“MTOs”), to ensure that they do not have excessively anticompetitive
effects.

e Reviewing and maintaining a system containing the service contracts between ocean
common carriers and shippers, and service arrangements between non-vessel-operating
common carriers (‘NVOCCs”) and shippers, and using this system to guard against
anticompetitive practices and other unfair prohibited acts.

e Ensuring that common carriers’ rates and charges are accessible to the shipping public in
private, electronically accessible systems.

e Regulating rates, charges, and rules of government-owned or -controlled carriers to ensure
that they are just and reasonable and are not unfairly undercutting private competitors.

e Issuing passenger vessel certificates evidencing financial responsibility of vessel owners or
charters to pay judgments for personal injury or death or to repay fares for the
nonperformance of a voyage or cruise.

© Licensing OTIs to protect the public from unqualified, insolvent, or dishonest companies.

e Ensuring that OTIs maintain sufficient financial responsibility to protect the shipping
public from financial loss.

e Investigating discriminatory rates, charges, classifications, and practices of common
carriers, MTOs, and OTIs operating in the foreign commerce of the U.S.

The FMC is authorized by the FSPA, section 19 of the 1920 Act, and section 13(b)(6) of the 1984 Act, to take
action to ensure that the foreign commerce of the U.S. is not burdened by non-market barriers to ocean shipping.
The FMC may take countervailing action to correct unfavorable shipping conditions in U.S. foreign commerce and
may impose penalties. The FMC may address actions by carriers or foreign governments that adversely affect
shipping in the U.S. foreign oceanborne trades including the intermodal operations of carriers or the operations of
OTIs, or that impair access of U.S.-flag vessels to ocean trade between foreign ports.

The 1984 Act is applicable to the operations of common carriers and other persons engaged in U.S. foreign
commerce. It exempts agreements that have become effective under the 1984 Act from the U.S. antitrust laws, as
contained in the Sherman and Clayton Acts. The FMC reviews and evaluates agreements to ensure that they do
not exploit the grant of antitrust immunity, and to ensure that agreements do not otherwise violate the 1984 Act or
result in an unreasonable increase in transportation cost or unreasonable reduction in service.

MANAGE T’S DISCUSSION AND ANALYSIS FY 2006

3


FEDERAL MARITIME COMMISSION
STATEMENTS OF FINANCING

For the Years Ended September 30, 2006 and 2005

Resources Used to Finance Activities:
Budgetary Resources Obligated
Obligations Incurred
Less: Spending Authority From Offsetting Collections and Recoveries
Obligations Net of Offsetting Collections and Recoveries
Less: Offsetting Receipts
Net Obligations
Other Resources
Imputed Financing From Costs Absorbed by Others
Net Other Resources Used to Finance Activities

Total resources used to finance activities

Resources Used to Finance Items Not Part of the Net Cost of Operations
Change in Budgetary Resources Obligated for Goods,
Services and Benefits Ordered But Not Yet Provided
Resources That Fund Expenses Recognized in Prior Periods

Total Resources Used to Finance Items Not Part of the Net Cost of Operations
Total Resources Used to Finance the Net Cost of Operations

Components of the Net Cost of Operations That Will Not Require or
Generate Resources in the Current Period
Components Requiring or Generating Resources in Future Periods
Increase in Annual Leave Liability
Other
Total Components of Net Cost of Operations That Will Require or
Generate Resources in Future Periods
Components not Requiring or Generating Resources:
Depreciation and Amortization
Other
Total Components of Net Cost of Operations That Will Not Require or
Generate Resources

Total Components of Net Cost of Operations That Will Not Require or
Generate Resources in the Current Period

Net Cost of Operations

2006

$ 20,346,990
(150,821)

20,196,169

20,196,169

1,115,461
1,115,461

21,311,630

275,652
149

275,801

21,035,829

91,057

91,057

20,086
(546)

19,540

110,597

$_ 21,146,826

The accompanying notes are an integral part of these financial statements.

12

2005

$ 19,441,873

(129,186)
19,312,687

19,312,687

1,164,332
1,164,332

20,477,019

117,519

9.587

127,106

20,349,913

644
644

61,996
(1,136)

60,860

61,504

$__ 20,411,417


This report is intended solely for the information and use of the management of FMC, the
Bureau of Public Debt, the Government Accountability Office, OMB and Congress, and is not
intended to be and should not be used by anyone other than these specified parties.

C4 feo Xeon clsaer LLP

Calverton, Maryland
November 2, 2006


FEDERAL MARITIME COMMISSION

eee | Ef) of Ye | | ea

Fiscal Year 2006



FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 9 - UNDELIVERED ORDERS AT THE END OF THE PERIOD

Beginning with FY06, the format of the Statement of Budgetary Resources has changed and the
amount of undelivered orders at the end of the period is no longer required to be reported on the
face of the statement. Statement of Federal Financial Accounting Standards No. 7, Accounting
for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and
Financial Accounting, states that the amount of budgetary resources obligated for undelivered
orders at the end of the period should be disclosed. For the years ended September 30, 2006 and
2005, undelivered orders amounted to $1,326,478 and $1,050,826, respectively.

NOTE 10 - BUDGETARY RESOURCE COMPARISONS TO THE BUDGET OF THE
UNITED STATES GOVERNMENT

Statement of Federal Financial Accounting Standards No. 7, Accounting for Revenue and Other
Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, calls for
explanations of material differences between amounts reported in the Statement of Budgetary
Resources (SBR) and the actual balances published in the Budget of the United States
Government (President’s Budget). However, the President’s Budget that will include FY06
actual budgetary execution information has not yet been published. The President’s Budget is
scheduled for publication in February 2007 and can be found at the OMB Web site:
http://www.whitehouse.gov/omb. The 2007 Budget of the United States Government, with the
Actual Column completed for 2005, has been reconciled, and there were no material differences.

NOTE 11 - CUSTODIAL ACTIVITY

FMC is an administrative agency collecting for another entity or the General Fund. As a
collecting entity, FMC measures revenue based on cash collection and refunds. This revenue is
reported as custodial activity on the “Statement of Custodial Activity”. The type of cash
collected is for fines, penalties and administrative fees. A small portion is for interest on the past
due fines. Another part of the custodial activity is application for licenses issued to qualified
ocean transportation intermediaries (OTI’s) in the U.S., commission reviews, petitions, status
changes and special permission fees.

This information is an integral part of
the accompanying financial statements

24


C[hereers
Gunderson LLP

Certified Public Accountants & Consultants

Independent Auditor’s Report

To the Federal Maritime Commission

We have audited the accompanying balance sheets of the Federal Maritime Commission (FMC)
as of September 30, 2006 and 2005, and the related statements of net cost, changes in net
position, budgetary resources, financing, and custodial activity for the years then ended. These
financial statements are the responsibility of FMC’s management. Our responsibility is to
express an opinion on these financial statements 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 the financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States; and Office of
Management and Budget (OMB) Bulletin No. 06-03, Audit Requirements for Federal Financial
Statements. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, in all material respects,
the financial position of FMC as of September 30, 2006 and 2005 and its net cost; changes in net
position; budgetary resources; reconciliation of net cost to budgetary obligations; and custodial
activity for the years then ended in conformity with accounting principles generally accepted in the
United States of America.

In accordance with Government Auditing Standards, we have also issued our reports dated
November 2, 2006 on our consideration of FMC’s internal control over financial reporting and
on our tests of FMC’s compliance with certain provisions of laws, regulations, contracts, grant
agreements and other matters. The purpose of those reports is to describe the scope of our
testing of internal control over financial reporting and compliance and the results of that testing,
and not provide an opinion on the internal control over financial reporting or on compliance.
Those reports are an integral part of our audit performed in accordance with Government
Auditing Standards and should be considered in assessing the results of our audit.

Offices in 15 states and Washington, DC 1 i...


FEDERAL MARITIME COMMISSION

INDEPENDENT AUDITOR’S REPORTS
AND FINANCIAL STATEMENTS
September 30, 2006 and 2005

TABLE OF CONTENTS

PAGE
Independent Auditor’s Report. ad
Independent Auditor’s Report on Compliance and Other Matters 3
Independent Auditor’s Report on Internal Control... eS

Financial Statements


FEDERAL MARITIME COMMISSION
STATEMENTS OF CUSTODIAL ACTIVITY
For the Years Ended September 30, 2006 and 2005

Revenue Activity:
Cash Collections (Note 11)
Accrual Adjustments

Total Custodial Revenue

Disposition of Collections:
Transferred to Treasury
Other
Net Custodial Activity

2006 2005
$ 1,595,530 $ 1,194,366
396 1,734
1,595,926 1,196,100
1,595,530 1,195,964
396 136

$ s

The accompanying notes are an integral part of these financial statements.

13

$ =


A Clifton
Gunderson LLP

Certified Public Accountants & Consultants

Independent Auditor’s Report on Compliance and Other Matters

To the Federal Maritime Commission

We have audited the financial statements of the Federal Maritime Commission (FMC) as of, and
for the year ended September 30, 2006, and have issued our report thereon dated November 2,
2006. We conducted our audit 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 Office of
Management and Budget (OMB) Bulletin No. 06-03, Audit Requirements for Federal Financial
Statements.

The management of FMC is responsible for complying with laws and regulations applicable to
FMC. As part of obtaining reasonable assurance about whether FMC’s financial statements are
free of material misstatement, we performed tests of its compliance with certain provisions of
laws and regulations, noncompliance with which could have a direct and material affect on the
determination of financial statement amounts and certain other laws and regulations specified in
OMB Bulletin No. 06-03, including the requirements referred to in the Federal Financial
Management Improvement Act (FFMIA) of 1996. We limited our tests of compliance to these
provisions and we did not test compliance with all laws and regulations applicable to FMC.

The results of our tests of compliance with laws and regulations described in the preceding
paragraph, exclusive of FFMIA, disclosed no instances of noncompliance with laws and
regulations and other matters that are required to be reported under Government Auditing
Standards and OMB Bulletin No. 06-03.

Under FFMIA, we are required to report whether FMC’s financial management systems
substantially comply with the Federal financial management systems requirements, applicable
Federal accounting standards, and the United States Government Standard General Ledger at the
transaction level. To meet this requirement, we performed tests of compliance with FFMIA
section 803(a) requirements. The results of our tests disclosed no instances in which FMC’s
financial management systems did not substantially comply with the three requirements
discussed above.

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

Offices in 15 states and Washington, DC 3



FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
O. Use of Estimates

Management has made certain estimates when reporting assets, liabilities, revenue, and
expenses, and in the note disclosures. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make assumptions that affect
the reported amounts of assets and liabilities and 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 could differ from those estimates.

P. Net Position

Net position is the residual difference between assets and liabilities and is comprised of
unexpended appropriations and cumulative results of operations. Unexpended appropriations
represent the amount of unobligated and unexpended budget authority. Unobligated balances are
the amount of appropriations or other authority remaining after deducting the cumulative
obligations from the amount available for obligation. The cumulative results of operations is the
net result of FMC’s operations since inception.

Q. Imputed Costs/Financing Sources

Federal Government entities often receive goods and services from other Federal Government
entities without reimbursing the providing entity for all the related costs. In addition, Federal
Government entities also incur costs that are paid in total or in part by other entities. An imputed
financing source is recognized by the receiving entity for costs that are paid by other entities.
FMC recognized imputed costs and financing sources in fiscal years 2006 and 2005 to the extent
directed by OMB.

R. Contingencies

Liabilities are deemed contingent when the existence or amount of the liability cannot be
determined with certainty pending the outcome of future events. FMC recognizes contingent
liabilities, in the accompanying balance sheet and statement of net cost, when it is both probable
and can be reasonably estimated. FMC discloses contingent liabilities in the notes to the
financial statements when the conditions for liability recognition are not met or when a loss from
the outcome of future events is more than remote. In some cases, once losses are certain,
payments may be made from the Judgment Fund maintained by the U.S. Treasury rather than

19


Audit of FY 2006
Financial Statements
AO7-01

TIME
wR c.

rvs O

November 2006


Sa

MANAGEMENT?’S DISCUSSION and ANALYSIS B=

Debt Collection Improvement Act

The Debt Collection Improvement Act enhances the ability of the Government to service and collect debts. The
Act centralized the collection of non-tax delinquent debt owed to the government. The collection of delinquent
debts is conducted by the Financial Management Service through the Treasury Offset Program where the names
and taxpayer identification numbers (“TIN”) are matched against the TINs of recipients of government payments.
The balance owed the government is deducted or offset from the payment to the entity to satisfy the debt. All
Office of Personnel Management (“OPM”) retirement, vendor, IRS refunds, Social Security Benefits, and some
federal salary payments are being offset. Federal agencies are required to refer delinquent accounts in excess of
180 days to Treasury for collection. The goal of the FMC is to minimize the amount of delinquent debt owed to the
agency.

Biennial Review of User Fees

The Chief Financial Officers Act requires agencies to conduct a biennial review of fees and other charges imposed
by agencies, and to make revisions to cover program and administrative costs incurred. During FY 2005, the FMC
published its revised fees subsequent to its biennial review. The fees are posted on the FMC’s website. In FY 2007
the FMC will again conduct its biennial review.

Performance Measure Summary

The FMC does not have an in-house financial accounting system, and as a small agency does not receive a
Performance Measure Summary from the Department of the Treasury. The agency receives accounting services
from BPD located in Parkersburg, WV. The Commission verifies and reconciles all financial statements and
reports prior to submission, and has remained in compliance with all reporting thresholds including FACTS I
(Federal Agencies’ Centralized Trial-Balance System) reporting, timely reporting, and reconciliation of any
financial statement differences.

Inspector General Act

The FMC has a very good record in resolving and implementing open audit recommendations presented in its
Inspector General reports. Section 5(b) of the Inspector General Act requires agencies to report on final actions
taken on Inspector General audit recommendations. Information can be found in Appendix C, of the Performance
and Accountability Report.

Briefly, during fiscal year 2006, the Inspector General completed the following audits/inspections:

Audit of FY 2005 Financial Statements

Audit of FY 2005 FISMA Compliance

IG Assessment of Management Challenges Facing the FMC
Audit of Data Accuracy in BOE’s Tracking System

Audit of Payroll Processing Transactions

Audit of FY 2006 FISMA/Privacy Compliance

The Inspector General’s reviews disclosed no instances of questioned costs nor were any recommendations made
that funds be put to better use. The FMC has addressed a number of recommendations from these reviews, and it is
anticipated that the ones which remain outstanding will be completed in FY 2007.

During FY 2006, the agency mitigated two significant deficiencies which had been identified in a previous fiscal
year. The Inspector General, in his FY 2006 FISMA Review, identified one significant deficiency related to the
agency information security program; it is anticipated that corrective action on that deficiency will be completed in
FY 2007.

SIS FY 2006

ENT'S DISCUSSION AND AN.


Finally, with respect to internal controls related to performance measures reported in FMC’s
Management’s Discussion and Analysis, we obtained an understanding of the design of
significant internal controls relating to the existence and completeness assertions, as required by
OMB Bulletin No. 06-03. Our procedures were not designed to provide assurance on internal
control over reported performance measures, and, accordingly, we do not provide an opinion on
such controls.

Jedgokciicisccicckiick cic ieicgoioi iodo

This report is intended solely for the information and use of the management of FMC, the
Bureau of Public Debt, the Government Accountability Office, OMB and Congress, and is not
intended to be and should not be used by anyone other than these specified parties.

CE foto Kerrecleser ZLP

Calverton, Maryland
November 2, 2006


7A Giftan
Gunderson LLP

Certified Public Accountants & Consultants

Independent Auditor’s Report on Internal Control

To the Federal Maritime Commission

We have audited the financial statements of the Federal Maritime Commission (FMC), as of and
for the year ended September 30, 2006, and have issued our report thereon dated November 2,
2006. We conducted our audit in accordance with auditing standards generally accepted in the
United States of America; the standards applicable to the financial audits contained in
Government Auditing Standards; issued by the Comptroller General of the United States; and,
Office of Management and Budget (OMB) Bulletin No. 06-03, Audit Requirements for Federal
Financial Statements.

In planning and performing our audit, we considered FMC’s internal control over financial
reporting by obtaining an understanding of FMC’s internal control, determined whether internal
controls had been placed in operation, assessed control risk, and performed tests of controls in
order to determine our auditing procedures for the purpose of expressing our opinion on the
financial statements. We limited our internal control testing to those controls necessary to
achieve the objectives described in OMB Bulletin No. 06-03. We did not test all internal
controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial
Integrity Act (31 U.S.C. 3512), such as those controls relevant to ensuring efficient operations.
The objective of our audit was not to provide assurance on internal control. Consequently, we do
not provide an opinion on internal control.

Our consideration of the internal control over financial reporting would not necessarily disclose
all matters in the internal control over financial reporting that might be reportable conditions.
Under standards issued by the American Institute of Certified Public Accountants, reportable
conditions are matters coming to our attention relating to significant deficiencies in the design or
operation of the internal control that, in our judgment, could adversely affect FMC’s ability to
record, process, summarize, and report financial data consistent with the assertions by
management in the financial statements. Material weaknesses are reportable conditions 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 misstatements caused by error or fraud 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.
Because of inherent limitations in internal controls, misstatements, losses, or noncompliance may
nevertheless occur and not be detected. We noted no matters involving the internal control and
its operation that we consider to be material weaknesses. We noted other matters involving

internal control and its operation that we have reported in a separate letter dated November 2,
2006.

Offices in 15 states and Washington, DC S:


ANAGEMENT’S DISCUSSION and ANALYSIS .

e

Improper Payments Information Act

Narrative Summary of Implementation Efforts for FY 2006
and
Agency Plans for FY 2006—FY 2009

L The Federal Maritime Commission has not identified any program that in and of itself constitutes a
high-risk for improper payments. Therefore, the FMC considers all of its payments to fall within the
realm of high-risk. As such, the FMC has instituted a separation of duties concerning payments that
has been very successful in curtailing any improper payments. The National Finance Center (“NFC”)
became the agency’s payroll provider in 2002 and is responsible for monitoring and reporting on any
payroll-related payments. Any overpayments made to an FMC employee by the NFC on behalf of the
FMC are offset by NFC. In FY 2006, the FMC had no overpayments. The FMC did not identify any
improper collections through Intergovernmental Payments and Collections (“IPAC”) collections.

I. The FMC did not use a statistical sample to conduct its improper payment rate. The sample contains
one hundred percent of all disbursements made by the FMC. This was the case for all programs.

Ml. In order to reduce the rate of improper payments, the FMC will continue to monitor all payments to
maintain a zero dollar improper payment figure. To this end, the FMC will ensure that there are
sufficient segregation of duties pertaining to payments concomitantly with closer scrutiny of all IPAC
collections made against the Commission. The FMC will continue to monitor all disbursements made
on its behalf to ensure payments are valid and proper.

Iv. The table below represents the improper payments made by the FMC in FY 2006 with percentage
forecasts through FY 2009.

Improper Payment Reduction Outlook FY 2006 - FY2009

(Millions)
FYO6 FY06 | FY06 FY07 FY08 FY09
Program Outlays | IP%| IP$ % % %
Formal Proceedings 0.00 _}0.0000} 0.0000 0.00 0.00 0.00
Inspector General 0.00 0.0000} 0.0000 0.00 0.00 0.00

Equal Employment Opportunity | 0.00 | 0.0000] 0.0000 | 0.00 | 0.00 | 0.00

Operations 0.00 _| 0.0000} 0.0000 0.00 0.00 0.00
Administration 0.00 _|.0.0000} 0.0000 0.00 0.00 0.00
Totals 0.00 | 0.0000} 0.0000 0.00 0.00 0.00

IN AND ANALYSIS FY 2006



APPENDIX A - MANAGEMENT’S DISCUSSION AND ANALYSIS

26


REQUIRED SUPPLEMENTARY INFORMATION

25


Our audits were made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The Management’s Discussion and Analysis is not a required part of the basic
financial statements but is supplementary information required by accounting principles
generally accepted in the United States of America. We have applied certain limited procedures
to such information, which consisted principally of inquiries of FMC management regarding the
methods of measurement and presentation of the supplementary information. However, we did
not audit the information and express no opinion on it.

C4 fet Kielce ZL) P

Calverton, Maryland
November 2, 2006


FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Appropriations are recognized as a financing source when expended. Revenues from service
fees associated with reimbursable agreements are recognized concurrently with the accrued
expenditures for performing the services. Appropriations expended for capitalized property and
equipment are recognized as expenses when an asset is consumed in operations.

FMC recognizes as an imputed financing source the amount of accrued pension and post-
retirement benefit expenses for current employees paid on our behalf by the Office of Personnel
Management (OPM).

There are no earned revenues in the fiscal years ended September 30, 2006 and 2005.
E. Taxes

FMC, as a federal entity, is not subject to Federal, State, or local income taxes, and, accordingly,
no provision for income taxes has been recorded in the accompanying financial statements.

F. Fund Balance with Treasury

The U.S. Treasury processes cash receipts and disbursements. Funds held at the Treasury are
available to pay agency liabilities. FMC does not maintain cash in commercial bank accounts or
foreign currency balances.

G. Accounts Receivable

Accounts receivable consists of amounts owed to FMC by the general public and FMC
employees. Accounts receivable in the Salaries and Expense Fund represents an employee
related receivable. An allowance for uncollectible accounts receivable from the public is
established when either (1) based upon a review of outstanding accounts and the failure of all
collection efforts, management determines that collection is unlikely to occur considering the
debtor’s ability to pay, or (2) an account for which no allowance has been established is
submitted to the Department of the Treasury for collection, which takes place when it becomes
180 days delinquent.

H. General Property, Plant and Equipment

FMC’s property, plant and equipment is recorded at original acquisition cost and is depreciated
using the straight-line method over the estimated useful life of the asset. Major alterations and
renovations are capitalized, except wherein the tenant improvement allowance specified in lease
agreement covers the costs of certain renovations. Maintenance and repair costs are charged to
expense as incurred. FMC’s capitalization threshold is $25,000 for individual purchases.

16


MANAGEMENT?’S DISCUSSION and ANALYSIS

President’s Management Agenda (continued)

Competitive Sourcing - The FMC submitted its FY 2006 Federal Activities Inventory Reform Act Inventory to
OMB in June 2006. The Inventory identified 79 of the agency’s 126 FTEs as commercial activity FTEs. No
challenges to its commercial inventories have ever been received.

Expanded Electronic Government - During the fiscal year, the FMC made a number of filings in significant
docketed proceedings available on the agency’s website, as well as a significant number of historical agency
decisions, Further, the FMC’s SERVCON system was upgraded. The FMC upgraded service and support for the
agency’s online Agreements Library, and also upgraded a number of internal databases to streamline and simplify
agency operations during FY 2006.

Improved Financial Performance - The FMC received an unqualified opinion on its financial statements in FY
2006, for the third straight year. The FMC will continue to strive to achieve unqualified audit opinions.

Financial Performance Overview

As of September 30, 2006, the financial condition of the FMC was sound with respect to having sufficient funds to
meet program needs and adequate control of funds in place to ensure obligations did not exceed budget authority.
The FMC’s accounting services provider, the Bureau of the Public Debt (“BPD”), prepared the agency’s financial
statements in accordance with accounting standards codified in the Statements of Federal Financial Accounting
Standards and the Office of Management and Budget Circular A-136, Financial Reporting Requirements (Revised
7/24/2006).

FY 2006 FEDERAL MARITIME COMMISSION


MANAGEMENT?’S DISCUSSION and ANALYSIS

Sources of Funds

The FMC has a single source of funds,
Salaries and Expenses, funded by an Federal Maritime Commission
annual appropriation that is available
for commitments and obligations
incurred during the fiscal year in which
the authority was granted. The FMC’s
total new budget authority for fiscal
year 2006 was just over 20 million. sa 19,340 20,294
This represents a net increase in budget aes 16,447 46594

authority over fiscal year 2005 of ooo 44.097

$950,000 dollars. Although the FMC 10,000

collects remittances for “user fees” and ter

“fines and penalties,” the agency is not 2000 2001 2002 2003 2004 2005 2006
authorized to offset any of its budget Fiscal Year

authority by utilizing these funds. The
collections are deposited directly into the Treasury General Fund, and captured in the Statement of Custodial
Activity which can be found in Chapter 3, Auditors’ Reports and Financial Statements, in the Performance and
Accountability Report.

Personnel Strength History

The FMC’s actual FTE level has
fluctuated slightly since 2000. After an
initial decline in 2001, the FMC
experienced modest growth in its FTE
level through 2004, followed by a recent Authorized FTEStrength
decline. The agency has endeavored to
develop the appropriate mix of staffing

Federal Maritime Commission FTEStrength

and other available means to ensure the ——‘\ Tie Sah a —
effective accomplishment of our 421 Bae a2?
mission.

2000 2001 2002 2003 2004 2005 2006
In recent years, the Commission has Fiscal Year

been authorized a total of 180 full-time-
equivalent positions. Due to appropriation levels, the Commission has been required to maintain full-time
personnel levels much lower than authorized.

DISCUSSION



FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 5 - LEASES

FMC occupies office space under six lease agreements that are accounted for as operating leases.
The lease locations and terms are listed below:

LEASE
EXPIRATION

LOCATION TERM DATE
Jamaica, NY 9 months 12-31-2006
Jamaica, NY 5 years 1-01-2007
Hollywood, FL 2 years 8-31-2007
Seattle, WA 2 years 5-31-2008
Washington, DC 10 years 11-02-2012

San Pedro, CA Indefinite -

The lease amounts vary from year to year depending on the specific lease. The total operating
lease expense for fiscal years 2006 and 2005 was $2,820,287 and $2,732,261, respectively. The
schedule of future payments for the term of the leases is as follows:

Fiscal Year Lease Payments
2007 $ 2,751,173
2008 2,749,283
2009 2,770,460
2010 2,795,448
2011 2,821,193
Thereafter 3,085,408

Total Future Payments $_16,972.965

NOTE 6 - LIABILITIES NOT COVERED BY BUDGETARY RESOURCES

The liabilities on FMC’s Balance Sheet as of September 30, 2006 and 2005, include liabilities
not covered by budgetary resources, which are liabilities for which congressional action is
needed before budgetary resources can be provided. Although future appropriations to fund
these liabilities are likely and anticipated, it is not certain that appropriations will be enacted to
fund these liabilities. Liabilities not covered by budgetary resources consist entirely of unfunded
leave. Unfunded leave balances are $1,061,614 and $970,557 as of September 30, 2006 and
2005, respectively.

22


2. Payroll Processing (repeat)

Condition: During our testing of internal control over payroll transaction processing we noted
two instances where the balances of accrued annual and sick leave included on the employee’s
Leave and Earnings Statement did not agree to the STAR Time and Attendance records. These
errors had previously been identified by the Commission’s OFM staff and in a subsequent Audit
of Payroll Processing Transactions conducted by the Commission’s OIG. The differences were
minor and management took immediate corrective action.

Recommendation: Management should further investigate the cause of these errors and take
corrective action to avoid similar errors in the future. We also recommend that management

ensure that periodic reconciliations of accrued leave balances be performed and that differences
identified are corrected in a timely manner.

SEC eC EIEIO SOOO

This letter is intended solely for the information and use of the management of FMC, the Bureau
of Public Debt, the Government Accountability Office, OMB and Congress, and is not intended
to be and should not be used by anyone other than these specified parties.

We are available to discuss the items contained in this letter at your convenience.

C4 fie inchs LLP

Calverton, Maryland
November 2, 2006

cc: Department of Treasury, Bureau of Public Debt


FY 2006 FED!

14

ane

AGEMENT’S DISCUSSION and ANALYSIS |

FY 2005 Integrity Act Results (continued)

The first of the two significant deficiencies was the quality of certification and accreditation (“C&A”) documents
and security self-assessments. To mitigate the deficiency, the FMC hired an IT Security Officer who conducted a
review of the agency’s systems and developed updated C&A documents for them. Disaster recovery testing was
accomplished, and infrastructure and security upgrades were implemented on the FMC Network.

The second of the two significant deficiencies was the lack of assurance that a contractor-operated system
(SERVCON) was configured and operated under Federal security guidelines. The FMC terminated the contract to
operate the system off-site, transferred management of SERVCON to FMC in-house staff, and rewrote the
system’s security and password features. Disaster recovery testing was then accomplished.

The FMC is pleased to report that these significant deficiencies were mitigated.

During FY 2006, as a result of the Inspector General’s review of the agency’s implementation of FISMA, a finding
was made which the FMC is reporting as a significant deficiency: C&A documents developed for the FMC
network and applications do not provide enough information to evaluate the threats, vulnerabilities, safeguards and
risks associated with operating the systems in a production environment. The FMC plans to address this deficiency
through an application of appropriate NIST standards and requirements while also taking into account the size of
the agency and the systems involved when developing additional materials for the C&A documents. We anticipate
that this significant deficiency will be mitigated during FY 2007.

The existence of a significant deficiency does not preclude a statement of overall compliance, as the deficiency is
not sufficient to prevent reasonable assurance of overall compliance.

Federal Financial Management Improvement Act

The Federal Financial Management Improvement Act (“FFMIA”) requires agencies to implement and maintain
systems that comply substantially with: Federal financial management system requirements; applicable Federal
accounting standards; and the standard general ledger at the transaction level. The Act requires the agency head to
determine whether the agency’s financial management systems comply with the FFMIA and to develop
remediation plans for systems that do not comply.

FY 2006 Federal Financial Management Improvement Act Results

The Chairman of the FMC determined that, as of September 30, 2006, FMC’s financial management systems were
in substantial compliance with the FFMIA. In making his determination, the Chairman considered the results of
audits conducted by outside auditors in successive fiscal years, in addition to Inspector General reports, among
other resources.

Prompt Payment Act

The Prompt Payment Act requires agencies to make timely payments to vendors for supplies and services, to pay
interest penalties when payments are made after the due date, and to take cash discounts when they are
economically justified. In FY 2006, the FMC maintained a percentage of on-time payments at 92.8%. The interest
payments of $44.11 were primarily a result of new invoice processing procedures that were implemented mid-year.
The FMC will continue to strive towards 100% on-time payments in future years. The FMC has maintained a
100% on-time electronic/credit-card payment to its vendors.



MANAGEMENT?’S DISCUSSION and ANALYSIS

Improper Payments Information Act (continued)

Vi The FMC has in place a segregation of duties to ensure that all invoices processed for payment are
legitimate expenses of the agency. When an invoice is received it is first verified as a valid invoice
belonging to the agency. The invoice is then processed by the OMS to identify the proper purchase order
the payment is to be expensed against. The OFM then processes the invoice against the purchase order to
ensure that there are sufficient funds available on the purchase order to make the payment. If there are
insufficient funds remaining on the purchase order, a request is made to modify the purchase order to
increase funding. Once the payment authorization has been processed, it is verified by a second member of
the OFM. From there the payment request is forwarded to the BPD for processing. When the payment is
loaded into the Oracle database, a final funds availability check is made by the financial system against the
fund controls set for the FMC. Currently the fund controls are set to the summary appropriation level.
Beginning 10/01/06, the original invoices are received by BPD and forwarded to OFM via electronic
media. This effects another level of scrutiny for every invoice and subsequent payment disbursed by BPD
on behalf of the FMC.

The receipt of an invalid IPAC collection must be processed as a payment for the reason that the funds
have already been moved from the Treasury General Fund as a disbursement against the FMC’s Agency
Location Code (“ALC”). The internal controls in place remain unchanged, with a closer scrutiny paid to all
invoices and subsequent payments.

VI. The Chairman, as the Chief Administrative Officer of the FMC, is ultimately responsible for the efficient
and effective utilization of the authority granted the agency by Congress. The Chairman has delegated
financial responsibility to the Director, OFM. The Director of OFM has the responsibility to ensure that all
disbursements made by BPD on behalf of the FMC are legitimate expenses of the agency and that there are
sufficient funds available. The OFM is responsible for reducing and recovering improper payments, and
keeps senior agency officials appraised of all relevant activities.

VII. a. The FMC does not have an in-house information system to help reduce improper payments. The agency
utilizes the infrastructure and financial system maintained in Parkersburg, WV by BPD.

b. In fiscal year 2006, the FMC requested funding to maintain the contract between the FMC and BPD for
financial support and platform access to the Oracle database through Oracle’s Discoverer portal.

Vill. There are no statutory or regulatory barriers that limit the agency’s ability to take corrective actions to
address any improper payments.

Ix. The current IPAC system does not allow an agency to refuse a collection against its ALC through the
General Fund it deems improper. The end result is a requirement to make the payments during the
accounting period in which the collection was made and reverse the collection at a later date. The ability to
challenge the collection would reduce the number of improper collections made against the agency,
therefore reducing the number of improper payments.

FY 2006 FEDERAL MARITIME COMMISSION

12


FEDERAL MARITIME COMMISSION
STATEMENTS OF NET COST
For the Years Ended September 30, 2006 and 2005

2006 2005

PROGRAM COSTS

Office of Administration $ 8,449,512 $ 6,763,548

Office of Operations . 7,132,804 7,352,269

Formal Proceedings 4,958,503 5,771,665

Office of Inspector General 469,885 433,223

Office of EEO 135,722 90,712
NET COST OF OPERATIONS (Note 7) $21,146,426 _$ 20,411,417

The accompanying notes are an integral part of these financial statements.

9


FEDERAL MARITIME COMMISSION

STATEMENTS OF BUDGETARY RESOURCES

For the Years Ended September 30, 2006 and 2005

BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1:
Recoveries of Prior Year Unpaid Obligations

Budget Authority
Appropriation
Spending Authority From Offsetting Collections - Collected
Subtotal - Budget Authority

Permanently Not Available

Total Budgetary Resources (Note 10)

STATUS OF BUDGETARY RESOURCES
Obligations Incurred
Direct
Reimbursable
Total Obligations Incurred
Unobligated Balance - Apportioned
Unobligated Balance - Not Available
Total Status of Budgetary Resources (Note 10)

CHANGE IN OBLIGATED BALANCE
Obligated Balance, Net

Unpaid Obligations, Brought Forward, October 1
Total Unpaid Obligated Balance, Net

Obligations Incurred, Net
Less: Gross Outlays
Less: Recoveries of Prior Year Unpaid Obligations, Actual

Obligated Balance, Net, End of Period
Unpaid Obligations
Total, Unpaid Obligated Balance, Net, End of Period

NET OUTLAYS
Gross Outlays
Less: Offsetting Collections

Net Outlays (Note 10)

$

2006

180,856
150,821

20,499,000

20,499,000
(356,950)

20,473,727

20,346,990

20,346,990

4,636

122,101

20,473,727

2,036,289

2,036,289

20,346,990
19,683,032
150,821

2,549,426

2,549,426

19,683,032

19,683,032

2005

191,241
129,186

19,496,000

19,496,000

(193,698)

19,622,729

19,441,873

19,441,873

1,302

179,554
19,622,729

1,657,763

1,657,763

19,441,873
18,934,161
129,186

2,036,289
2,036,289

18,934,161

18,934,161

The accompanying notes are an integral part of these financial statements.

1


A Clifton
Gunderson LLP

Certified Public Accountants & Consultants

Federal Maritime Commission
Washington, D.C.

We have completed the audit of the financial statements of the Federal Maritime Commission
(FMC) as of September 30, 2006. In connection with our audit, we have issued our reports dated
November 2, 2006. During the course of our audit, we also had the opportunity to observe the
various accounting, operating and procedural matters as they related to FMC and its financial
reporting department, the Administrative Resource Center (ARC) of the Department of Treasury
Bureau of Public Debt, collectively referred to as FMC management. Based on our audit, we
would like to make the following observations and suggestions.

1. Information Technology Security (Repeat)

Condition: Our review of controls related to the FMC included a review of third party reports
issued as well as internal self-assessments to determine whether or not the internal control and
other security weaknesses identified in these reviews were material enough to impact the fairness
of presentation of FMC’s Financial Statements at September 30, 2006. To fulfill this, we
reviewed the following reports:

+ FY06 SAS70 report for the Bureau of Public Debt issued by the KPMG LLP via the Office
of the Inspector General;

+ FY06 SAS70 report for the National Finance Center - General Controls review operated by
the United States Department of Agriculture (USDA); and
FISMA self-assessment review done in conformity with the e-government act and submitted
to the Office of Management & Budget.

Weaknesses relating to these reviews have been issued to FMC management by way of
notification of findings and recommendations and Plan of Action and Milestones (POA&M).

Although management has addressed several issues previously reported and taken action to
mitigate the identified risk, a few corrective actions are not complete as of the end of FY06.

Recommendation: FMC management should continue to follow-up with its service providers to
address information security-related weaknesses identified in the aforementioned reports.

Canterpark I
4041 Powder Mill Road, Suite 410
Calverton, Maryland 20705-3106
tel: 301-931-2050

fax: 301-931-1710

www.cliftoncpa.com Offices in 15 states and Washington, DC


MANAGEMENT?’S DISCUSSION and ANALYSIS

Program Performance Overview

The FMC, like other Federal agencies, provides an annual performance plan to Congress, pursuant to the
Government Performance and Results Act (“GPRA”). The FMC has organized its performance goals to achieve its
strategic goals. The FMC’s FY 2003-FY 2008 Strategic Plan is available on the FMC’s website. The complete FY
2006 Program Performance Report is contained in Chapter 2, Program Performance, in the Performance and
Accountability Report. Briefly, in FY 2006, the Commission focused on refining the agency’s business practices,
specifically on revising and updating internal procedures in line with the amendment of Commission regulations.
This includes facilitating the use and dissemination of filed material in order to improve analysis of required filings
and responsiveness to inquiries, and implementation of procedural changes to enhance the effectiveness of agency
operations. We broadened our efforts to implement the President’s Management Agenda initiative to expand
electronic government by improving the management of information through the more effective use of available
technologies. We also streamlined the delivery of services and information to regulated entities, other government
agencies and the public, and further automated agency systems and enhanced the use of agency databases to allow
staff to discharge program responsibilities more effectively. Further, we simplified and refined the agency’s
performance appraisal system and developed a strategic succession plan for agency senior executives and non-SES
upper level managers. Overall, we are pleased with the success we achieved in addressing our stated goals and
objectives,

Achieving Strategic Goal Results

The FMC has a distinct process for measuring performance. Performance goals are developed to promote one of
the FMC’s strategic goals, and the processes or activities required to achieve the goals are identified. The agency
then specifies the outcomes it believes will result from accomplishing each stated goal, and agrees on performance
indicators as the quantifiers of performance. Finally, performance measures are established for evaluation of
achievement of performance goals. Taken together, performance goals under each strategic goal are designed to
enhance and further those goals each fiscal year, bringing the agency closer to its ideal of full achievement of its
strategic goals.

President’s Management Agenda

The President’s Management Agenda is intended to make Government more citizen-centered, results-oriented, and
market-based. The five initiatives are: 1) Strategic Management of Human Capital; 2) Competitive Sourcing; 3)
Improved Financial Management, 4) Expanded E-Government, and 5) Budget and Performance Integration. The
FMC has achieved some successes in its agenda to address these initiatives. Chapter 2, Program Performance, in
the Performance and Accountability Report discusses our activities in these important areas in more detail.

A brief overview of the agency’s successes includes the following.

Strategic Management of Human Capital —- The FMC focused heavily on succession planning during FY 2006. We
reviewed our performance appraisal system, implemented an SES Candidate Development Program and an
Emerging Leaders Program, and initiated a pilot Individual Development Plan Program.

Budget and Performance Integration — The Strategic Plan and Annual Performance Plan continue to represent the
fundamental framework for the agency’s planning and budgeting activities. Funding and FTE levels are integrated
into the agency’s performance planning document by strategic goal, to identify clearly the budgetary and staff
resources that are committed to each goal.

DISCUSSION AND ANALYSIS FY 2006

5


FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

from the amounts appropriated to FMC for agency operations. Payments from the Judgment
Fund are recorded as an “Other Financing Source” when made. There are no contingencies that
require disclosure.

S. Reclassifications

Statement_of Budgetary Resources - The presentation used for the Statement of Budgetary
Resources (SBR) prior to FY06 has been revised to reflect a new format required pursuant to the
Office of Management and Budget (OMB) Circular A-136, Financial Reporting Requirements.
Circular A-136 requires agencies to present both FY06 and FY05 SBR in the same format.
Accordingly, certain reclassifications were made to the previously issued FY05 SBR to conform
to the new format.

Other - Certain fiscal year 2005 balances have been reclassified, retitled, or combined with other
financial statement line items for consistency with the current year presentation. Due to a change
in the accrual process, certain balances in Other Accrued Liabilities for fiscal year 2005 have
been reclassified to Accounts Payable for consistency with the current year presentation.

T. Expired Accounts and Cancelled Authority

Unless otherwise specified by law, annual authority expires for incurring new obligations at the
beginning of the subsequent fiscal year. The account in which the annual authority is placed is
called the expired account. For five fiscal years, the expired account is available for expenditure
to liquidate valid obligations incurred during the unexpired period. Adjustments are allowed to
increase or decrease valid obligations incurred during the unexpired period but not previously
reported. At the end of the fifth expired year, the expired account is cancelled.

NOTE 2 - FUND BALANCE WITH TREASURY

Fund balance with Treasury as of September 30, 2006 and 2005 consisted of:

2006 2005
Fund Balances:
Appropriated Funds $ 2,676,163 $ 2,217,146
Status of Fund Balance with Treasury:
Unobligated Balance
Available $ 4,636 $ 1,302
Unavailable 122,101 179,554
Obligated Balance not yet Disbursed 2,549,426 2,036,290
Total $_2,676,163 $2,217,146

20


FEDERAL MARITIME COMMISSION
800 North Capitol Street, N.W.
Washington, DC 20573

November 13, 2006

Office of Inspector General
Tel: (202) 523-5863
Fax: (202) 566-0043
E-mail: oig@fmce.gov

Chairman Blust;

1 am pleased to transmit for your review the FY 2006 Audit of the Federal Maritime
Commission’s (FMC) Financial Statements. The audit was conducted by the public
accounting firm of Clifton Gunderson LLP in conformity with auditing principles
generally accepted in the United States of America.

The objective of the audit was to issue an opinion on whether the statements fairly
present the financial position of the agency. This was the third consecutive year that the
agency prepared financial statements for audit. As in the prior years, the agency once
again received an unqualified opinion, the highest opinion given by independent auditors.

In its review of internal control over financial reporting, the auditor noted no matters
involving the internal control and its operations that were considered material weakness
as defined in OMB Bulletin No. 03-06, Audit Requirements for Federal Financial
Statements.. However, it did. note certain matters involving internal control and its
operations that have been reported to management in a separate letter, dated November 2,
2006, a copy of which is also attached.

Iam available to discuss the statements or to answer any questions you may have.

Sincerely, ’

dpe \x,

Adam R. Teak
Inspector General

ce: Director, Office of Administration (w/enclosures)
Deputy Director, Office of Administration (w/enclosures)
Director, Office of Financial Management (w/enclosures)


MANAGEMENT?’S DISCUSSION & ANA

A MESSAGE FROM THE CHAIRMAN

It is my pleasure to present the Federal Maritime Commission’s
Management’s Discussion and Analysis for FY 2006. This Management’s
Discussion and Analysis represents the dedication and achievement of the
agency’s 122 employees. Because of their efforts, the FMC continues to be
held in high regard by the industry it oversees. We are committed to
developing programs and processes that will enable us to meet the changing
demands of an always-evolving industry. In doing so, we strive to increase
performance efficiencies and the effectiveness of our workforce to both be
responsive to changing business practices and to better serve the American
public and our stakeholders.

As a transportation/trade regulatory agency, our Vision is to ensure fairness
and efficiency in U.S. maritime commerce. Our mandate is to help remove
impediments to fair competition — undue controls, influences or non-market
barriers imposed by any nation, carrier, cargo owner or intermediary —
which can adversely affect U.S. oceanbore trade. Our regulatory system
allows for the necessary oversight with minimal disruption to the efficient flow’ of U.S. imports and exports,
ensuring that fair competition cxists in the ocean transportation industry while allowing the industry to conduct
business as efficiently as possible.

I am pleased to report that the FMC continues to position its resources with greater precision and effectiveness in
order to continue to achieve its mandate within budget resources. FMC thus has achieved nearly all of its
performance goals. In FY 2006, the FMC broadened its efforts to implement the President’s Management Agenda
initiative to expand electronic government by improving the management of information through the more
effective use of available technologies, by streamlining the delivery of services and information to regulated
entities, other government agencies and the public, and by further automating agency systems and enhancing the
use of agency databases to allow staff to discharge program responsibilities more effectively.

As the chief administrative officer of the agency, one of my responsibilities is to cnsure that our resources are
efficiently managed and effectively used. The FMC has evaluated its management controls and financial
management system, as required by the Federal Managers’ Financial Integrity Act, and I can certify, with
reasonable assurance, that the Commission is in compliance with the provision of that Act. The FMC is proud of
its FY 2006 accomplishments and looks forward to providing high-quality service to the American public in future
years.

Sincerely,

—, ig
Je Wu att.
> SO fr Or

Steven R. Blust
Chairman, Federal Maritime Commission

ISCUSSION AND ANALYSIS FY 2006

1


MANAGEMENT?’S DISCUSSION and ANALYSIS

FY 2006 FEDERAL M.

10

Analysis of the Statement of Net Cost

The analysis of Net Costs presents the net cost

of FMC’s five Commission Programs as Seminary Of the Statement of

identified in the FMC’s Annual Report. The Net Cost as of September 30, 2006

five agency programs are Formal Proceedings,

Inspector General, Equal Employment FY 2006 FY 2005

Opportunity, Operations and Administration. PETER

The Statement of Net Costs shows the net cost | Office of Administration $8,449,512] $6,763,548

of operations for the agency as a whole and its | Office of Operations $7,132,804] $7,352,269

sub-organizations and/or programs. Net Costs

compared to Budgetary Resources can be | Formal Proceedings $4,958,503] $5,771,665

found in Chapter 3, Auditors’ Report and

Financial Statements, in the Performance and O fice ob lnepecinn cearal Lae sa

Accountability Report Office of Equal Employment $135,722 $90,712
Opportunity

‘Net Cost of Program Services | $21,146,426] $20,411,417

Analysis of the Statement of Changes in Net Position

The Statement of Changes in Net Position, found on page nine, reports the change in the agency’s net position
during the reporting period. The statement is a summary of two factors, Unexpended Appropriations and
Cumulative Results in Operations. The increase of $111,085 from fiscal year 2005 to fiscal year 2006 is duc
principally to the net change in Cumulative Results of Operations due to further depreciation of Capital Assets and
an increase in unexpended appropriations,

Analysis of the Statement of Budgetary Resources

Cabernet eon Summary of the Statement a Batestary Resources
te

budgetary resources and the status of those ee

resources at the end of the reporting period.

The statement also shows the relationship
between budgetary resources and the status of | Total Budgetary Resources $20,473,727 | $19,622,729

FY 2006 FY 2005

the resources. The total budgetary resources Obligations Incurred $20,346,990| $19,441,873
must be equal to the status of budgetary
resources at all times. A more detailed SBR Unobligated Balance $126,737 $180,856

can be found in Chapter 3, Auditors’ Report
and Financial Vanesa, in the Pastas SEs SE AN) | esis
and Accountability Report. For fiscal year 2006, the FMC had total budgetary resources available of $20,473,727.
This represents a 4.3% increase over fiscal year 2005 budgetary resources available of $19,622,729. For fiscal year
2006, the SBR shows the FMC had incurred obligations of $20,346,990, representing 99.4% of funding available,
and had an unobligated balance of $126,737.

Analysis of the Statement of Financing

The Statement of Financing is intended to provide a connection between accrual-based information (financial
accounting) contained within the Statement of Net Cost and the obligation-based information (budgetary
accounting) contained within the SBR. The Statement of Financing provides a reconciliation between the
budgetary and proprietary accounting information within the financial system and ensures that they are in balance.
Non-budgetary resources, costs not requiring resources, and financing sources yet to be provided are deducted
from the budgetary obligations. This balance is then reconciled against the Net Cost of Operations.



FEDERAL MARITIME COMMISSION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended September 30, 2006 and 2005

NOTE 7 - INTRAGOVERNMENTAL COSTS

Intragovernmental costs represent goods and services exchange transactions made between two
reporting entities within the Federal government, and are in contrast to those with non-federal
entitities (the public). Such costs are summarized as follows:

2006 2005
Office of Administration:
Intragovernmental Costs $ 5,487,121 $ 3,841,006
Public Costs 2.962.391 2,922,542
Total Office of Administration Costs $8,449,512 $__ 6,763,548
Office of Operations:
Intragovernmental Costs $ 1,145,281 $ 1,779,211
Public Costs 5.987.523 5,573,058
Total Office of Operations Costs $7,132,804 $7,352,269
Formal Proceedings:
Intragovernmental Costs $ 754,837 $ 1,403,172
Public Costs 4,203,666 4,368,493
Total Formal Proceedings Costs $4,958,503 $5,771,665
Office of Inspector General:
Intragovernmental Costs $ 51,228 $ 85,112
Public Costs 418.657 348.111
Total Office of Inspector General Costs $___ 469,885 $433,223
Office of EEO:
Intragovernmental Costs $ 17,798 $ 32,207
Public Costs 117,924 58.505
Total Office of EEO Costs $135,722 $90,712

FMC had no earned revenues.

NOTE 8 - IMPUTED FINANCING SOURCES

FMC recognizes as imputed financing the amount of accrued pension and post-retirement benefit
expenses for current employees. The assets and liabilities associated with such benefits are the
responsibility of the administering agency, the Office of Personnel Management (OPM). For the
fiscal years ended September 30, 2006 and 2005, respectively, imputed financing from OPM
were $1,115,461 and $1,164,332.

23


FEDERAL MARITIME COMMISSION

FINANCIAL STATEMENTS
September 30, 2006 and 2005

TABLE OF CONTENTS

Balance Sheets
Statements of Net Co:
Statements of Changes in Net Positio
Statements of Budgetary Resources.
Statements of Financing..........
Statements of Custodial Activity
Notes to Financial Statements.

Required Supplementary Information.
Appendix A — Management’s Discussion and Analysis



FEDERAL MARITIME COMMISSION
STATEMENTS OF CHANGES IN NET POSITION
For the Years Ended September 30, 2006 and 2005

Cumulative Results of Operations:
Beginning Balance

Budgetary Financing Sources:
Appropriations Used

Other Financing Sources (Non-Exchange):

Imputed Financing Sources

Total Financing Sources
Net Cost of Operations
Net Change

Cumulative Results of Operations
Unexpended Appropriations:
Beginning Balance

Budgetary Financing Sources:
Appropriations Received
Permanently Not Available
Appropriations Used

Total Budgetary Financing Sources
Total Unexpended Appropriations

Net Position

2006 2005
$ (919.626) $ (867.708)
19,920,517 19,195,167
1,115,461 1,164,332
21,035,978 20,359,499
(21,146,426) (20,411,417)
(110,448) (51,918)
(4,030,074) (919,626)
1,231,683 1,124,548
20,499,000 19,496,000
(356,950) (193,698)
(19,920,517) (19,195,167)
221,533 107,135
1,453,216 1,231,683
312,057

$ 423,142 $

The accompanying notes are an integral part of these financial statements.

10