Financial Audit: Congressional Award Foundation's Fiscal Years 2005 and 2004 Financial Statements
Published: 2006-05-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This report presents our opinion on the financial statements of the Congressional Award Foundation for the fiscal years ended September 30, 2005, and 2004. These financial statements are the responsibility of the Congressional Award Foundation. This report also presents (1) our opinion on the effectiveness of the Foundation's related internal control as of September 30, 2005, and (2) our conclusion on the Foundation's compliance in fiscal year 2005 with selected provisions of laws and regulations we tested. We conducted our audit pursuant to section 107 of the Congressional Award Act, as amended (2 U.S.C. 807), and in accordance with U.S. generally accepted government auditing standards. This report also includes our determination required under section 104(c)(2)(A) of the Act (2 U.S.C. 804(c)(2)(A)) relating to the Foundation's financial operations.
section_title: What GAO Found
paragraphs: We have audited the statements of financial position of the Congressional Award Foundation (the Foundation) as of September 30, 2005, and 2004, and the related statements of activities and statements of cash flows for the fiscal years then ended. We found (1) the financial statements are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles, although substantial doubt exists about the Foundation's ability to continue as a going concern; (2) the Foundation did not have effective internal control over financial reporting (including safeguarding assets) but did have effective control over compliance with laws and regulations; and (3) no reportable noncompliance with the provisions of laws and regulations we tested during fiscal year 2005.

section_title: Letter
paragraphs: This report presents our opinion on the financial statements of the  Congressional Award Foundation for the fiscal years ended September 30,  2005, and 2004.  These financial statements are the responsibility of the  Congressional Award Foundation.  This report also presents (1) our  opinion on the effectiveness of the Foundation’s related internal control as  of September 30, 2005, and (2) our conclusion on the Foundation’s  compliance in fiscal year 2005 with selected provisions of laws and  regulations we tested.  We conducted our audit pursuant to section 107 of  the Congressional Award Act, as amended (2 U.S.C. § 807), and in  accordance with U.S. generally accepted government auditing standards.   This report also includes our determination required under section  104(c)(2)(A) of the Act (2 U.S.C. § 804(c)(2)(A)) relating to the  Foundation's financial operations.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-3406 or by e-mail at sebastians@gao.gov.  Contact  points for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this letter.  Key contributors to this report were  Amy Bowser, Ryan Geach, Julie Phillips, Zakia Simpson, and Patricia  Summers.
The President of the Senate   The Speaker of the House of Representatives We have audited the statements of financial position of the Congressional  Award Foundation (the Foundation) as of September 30, 2005, and 2004,  and the related statements of activities and statements of cash flows for the  fiscal years then ended.  We found  the financial statements are presented fairly, in all material respects, in  conformity with U.S. generally accepted accounting principles, although  substantial doubt exists about the Foundation’s ability to continue as a  going concern;  the Foundation did not have effective internal control over financial  reporting (including safeguarding assets) but did have effective control  over compliance with laws and regulations; and  no reportable noncompliance with the provisions of laws and  regulations we tested during fiscal year 2005.
The following sections provide additional detail about our conclusions and  the scope of our audit.
subsections: section_title: Opinion on Financial Statements
paragraphs: The financial statements and accompanying notes present fairly, in all  material respects, in conformity with U.S. generally accepted accounting  principles, the Foundation’s financial position as of September 30, 2005,  and 2004, and the results of its activities and its cash flows for the fiscal  years then ended.  However, material misstatements may nevertheless  occur in other information reported by the Foundation on its financial  status to its Board of Directors and others as a result of the material weakness in internal control over financial reporting described in this  report.
As discussed in a later section of this report and in Note 12 to the financial  statements, the Foundation continues to experience difficulties in meeting  its financial obligations.  The Foundation’s continuing financial difficulties  raise substantial doubt, for the fourth consecutive year, about its ability to  continue as a going concern.  The financial statements have been prepared  under the assumption that the Foundation would continue as a going  concern, and do not include any adjustments that would need to be made if  the Foundation were to cease operations.
section_title: Opinion on Internal Control
paragraphs: Because of the material weakness in internal control discussed below, the  Foundation did not maintain effective internal control over financial  reporting (including safeguarding assets) but did have effective control  over compliance with laws and regulations.  The Foundation’s controls did  not provide reasonable assurance that losses and misstatements material in  relation to the financial statements would be prevented or detected on a  timely basis.  Our opinion is based on criteria established in our Standards  for Internal Control in the Federal Government.
In our report on the results of our audit of the Foundation’s fiscal year 2004  financial statements, we reported that the deteriorating financial condition  of the Foundation led to further deterioration in controls over the financial  reporting process, impeding its ability to prepare timely and accurate  financial statements.  At the conclusion of our audit of the Foundation’s  fiscal year 2004 financial statements, we stressed to the Foundation’s  management the importance of documenting the Foundation’s financial  reporting policies and procedures, and further stressed that the policies  and procedures should detail such functions as the monthly closing  process, preparation of the financial statements, and review of financial  data by management.
During fiscal year 2005, the Foundation hired an accountant to help ensure  that accurate and timely accounting and reporting of financial information  occurred.  This enabled the Foundation to provide us with a draft of the  financial statements within 5 months after the fiscal year-end, something  the Foundation had been unable to do in each of the preceding two  financial statement audits.  However, the Foundation continued to lack  appropriate written procedures during fiscal year 2005 for making closing  entries in its financial records and for preparing complete and accurate  financial statements.  The continued lack of written policies and  procedures during fiscal year 2005 contributed to errors we identified  during our audit of the Foundation’s fiscal year 2005 financial statements.   For example, the Foundation did not adequately perform its year-end bank  reconciliation and misclassified the forgiveness by vendors of some of its  outstanding debt.  Both of these issues resulted in audit adjustments to the  financial statements.  In addition, numerous errors in the financial  statements were not detected by management’s review.  This resulted in the  need for management to make material adjustments to correct errors we  identified during our audit.  The Foundation was ultimately able to produce  financial statements that were fairly stated in all material respects for fiscal  years 2005 and 2004, but not without substantial adjustments identified  during our audit.
Subsequent to fiscal year 2005, the Foundation’s Board of Directors’ newly  elected Treasurer worked with the National Office staff to improve internal  control over financial reporting and develop written fiscal policies and  procedures for financial operations and reporting.  Since these procedures  were not drafted until after fiscal year 2005, and the procedures related to  financial reporting were not implemented in fiscal year 2005, they had no  effect on the fiscal year 2005 financial statements.  However, if properly  implemented, they should lead to improvements in financial management  going forward.  We will evaluate the effectiveness of these new policies and  procedures during our audit of the Foundation’s fiscal year 2006 financial  statements.
Foundation management asserted that, with the exception of the material  weakness in financial reporting, its internal control during the period was  effective based on criteria established under GAO’s Standards for Internal  Control in the Federal Government.  In making its assertion, Foundation  management stated the need to improve control over financial reporting.   Although the weakness did not materially affect the final fiscal year 2005  financial statements as adjusted for errors identified by the audit process,  deficiencies in internal control may adversely affect any decision by  management that is based, in whole or in part, on other information that is  inaccurate because of the deficiencies.  Unaudited financial information  reported by the Foundation may also contain misstatements resulting from  these deficiencies.
section_title: Compliance With Laws and Regulations
paragraphs: Our tests for compliance with relevant provisions of laws and regulations  for fiscal year 2005 disclosed no instances of noncompliance that would be  reportable under U.S. generally accepted government auditing standards.   However, the objective of our audit was not to provide an opinion on  overall compliance with laws and regulations.  Accordingly, we do not  express such an opinion.
For the fiscal year 2004 audit, our tests for compliance with relevant  provisions of laws and regulations disclosed one area of material  noncompliance that was reportable under U.S. generally accepted  government auditing standards.  This concerned the Foundation’s ability to  ensure that it had appropriate procedures for fiscal control and fund  accounting and that its financial operations were administered by  personnel with expertise in accounting and financial management.
Specifically, section 104(c)(1) of the Congressional Award Act, as amended  (2 U.S.C. § 804(c)(1)), requires the Director, in consultation with the  Congressional Award Board, to “ensure that appropriate procedures for  fiscal control and fund accounting are established for the financial  operations of the Congressional Award Program, and that such operations  are administered by personnel with expertise in accounting and financial  management.”   The Comptroller General is required by section  104(c)(2)(A) of the Congressional Award Act, as amended (2 U.S.C. §  804(c)(2)(A)), to (1) annually determine whether the Director has  substantially complied with the requirement to have appropriate  procedures for fiscal control and fund accounting for the financial  operations of the Congressional Award Program and to have personnel  with expertise in accounting and financial management to administer the  financial operations, and (2) report the findings in the annual audit report.
For 2004, because the Foundation did not have appropriate fiscal  procedures and did not have an individual with expertise in accounting and  financial management to routinely administer the procedures and account  for the financial operations of the Foundation, we determined that the  Director did not substantially comply with the requirements in section  104(c)(1) of the Congressional Award Act, as amended (2 U.S.C. §  804(c)(1)).
As discussed earlier, during fiscal year 2005, the Foundation hired an  accountant to focus on improving financial management.  Subsequent to  fiscal year 2005, the newly elected Treasurer and Audit Committee Chair  worked with the National Office staff to improve internal control over  financial reporting and develop written fiscal policies and procedures for  financial operations and reporting.  Due to these actions, we were able to  conclude that for the year under audit, the Foundation was in compliance  with the provisions of the Act.
section_title: The Foundation’s Ability to Continue as a Going Concern
paragraphs: The Foundation incurred a gain (increase in net assets) of about $10,000 in  fiscal year 2005 as compared to a loss (decrease in net assets) of almost  $168,000 in fiscal year 2004.  This difference of approximately $178,000 was  due primarily to a reduction in salary expenses in fiscal year 2005.  Salary  expenses were less in fiscal year 2005 because the National Director, who  retired at the end of fiscal year 2004, was not replaced during fiscal year  2005.  The Program Director functioned in two positions, serving as the  Acting National Director as well as the Program Director.  As a result, the  Foundation’s salary costs were reduced by over $172,000 between fiscal  years 2004 and 2005.
Although the Foundation’s overall expenses decreased by over $130,000  between fiscal years 2004 and 2005, operating revenues and other support  decreased by over $134,000, attributable in part to a nearly $64,000 decline  in contributions.  The Foundation attributed this decline in contributions to  the fact that the Foundation was not reauthorized by the Congress for fiscal  year 2005 which, it believes, discouraged some donors from contributing to  the Foundation.  The Foundation’s previous authorization expired on  October 1, 2004.  On December 22, 2005, the President signed Public Law  109-143, which reauthorized the Congressional Award Foundation through  September 30, 2009.
During fiscal year 2002, the Foundation borrowed $100,000, the maximum  amount allowable against its revolving line of credit, due to ongoing cash  flow problems associated with its daily operations.  This debt, partially  secured by a $50,000 certificate of deposit, remained outstanding at  September 30, 2005.
Note 12 to the financial statements acknowledges the Foundation’s  difficulties in meeting its financial obligations.  The Foundation has taken  steps to decrease its expenditures and liabilities.  For example, accounts  payable at September 30, 2005, were approximately $16,000, down from  $135,500 in fiscal year 2004.  This decrease in accounts payable was due to  the Foundation using funds from the Congressional Award Fellowship  Trust to pay off a substantial portion of its liabilities, and its ability to  negotiate with certain of its vendors to cancel about $63,000 in liabilities to  these vendors during fiscal year 2005.  In addition, the Foundation showed  considerable cost reductions as evidenced by the decrease in operating  expenses (primarily salaries) from over $594,000 in fiscal year 2004 to  about $464,000 in fiscal year 2005.  However, these steps may not be  sufficient to allow it to continue operations.
Unaudited financial data compiled by the Foundation as of March 31, 2006,  showed that its financial condition has not improved through the first half  of fiscal year 2006.  While the Foundation has $112,000 in contributions  receivable as of March 31, 2006, $52,000 of this contribution is to be used to  cover costs associated with its planned Congressional Award Golf Classic  fundraising event in May, and $30,000 is to be used to cover costs  associated with the annual Gold Award ceremony in June.  The golf  fundraising event resulted in net revenues for the first time in fiscal year  2004, so its ability to raise funds annually cannot be assured, and the Gold  Award ceremony is not a fundraising event.  There are also indications that  the Foundation is continuing to have difficulty meeting its obligations;  according to the minutes of the January 31, 2006, Board of Directors’  meeting, the Acting National Director and the Controller delayed cashing  their pay checks for two pay periods in January 2006 due to cash flow  problems at the Foundation.
In addition, the Foundation has a $100,000 line of credit that is payable  upon demand.  If this liability needed to be paid immediately, the  Foundation would have to liquidate its $55,000 certificate of deposit, equity  securities of about $36,000 (reported as outstanding at March 31, 2006), and  its remaining cash balance of about $6,700.
In its plan to deal with its financial difficulties and increase its revenues,  the Foundation modified its approach to fundraising during the past 2 years  by holding more frequent but smaller and less expensive fundraising events  than in the past.  However, these smaller fundraisers did not increase  contributions, which decreased by over $64,000, or 23 percent, from fiscal  years 2004 to 2005.
In an effort to further improve fundraising efforts, the Foundation stated  that its Board created a Congressional Liaison Committee, Development  Committee, and Program Committee during fiscal year 2005.  The  Foundation reported that these committees have raised the visibility of the  Foundation.  In addition, the Development Committee has increased the  number of fundraisers from one in the first half of fiscal year 2005 to three  in the first half of fiscal year 2006.  The newly elected Development  Chairperson is leading fundraising initiatives in the corporate community,  including pursuing grant opportunities, and the Foundation continues to  work with professional fundraisers to more actively involve congressional  members.  The Foundation is currently prohibited from receiving federal  funds, but is permitted to receive certain in-kind and indirect resources, as  explained in Note 5 to the financial statements.
section_title: Objectives, Scope, and Methodology
paragraphs: The Foundation’s management is responsible for  preparing the annual financial statements in conformity with U.S.  generally accepted accounting principles;  establishing, maintaining, and assessing the Foundation’s internal  control to provide reasonable assurance that the Foundation’s control  objectives are met; and  complying with applicable laws and regulations.
We are responsible for obtaining reasonable assurance about whether (1)  the financial statements are presented fairly, in all material respects, in  conformity with U.S. generally accepted accounting principles; and (2)  management maintained effective internal control, the objectives of which  are the following.
Financial reporting–-transactions are properly recorded, processed, and  summarized to permit the preparation of financial statements, in  conformity with U.S. generally accepted accounting principles, and  assets are safeguarded against loss from unauthorized acquisition, use,  or disposition.
Compliance with laws and regulations–-transactions are executed in  accordance with laws and regulations that could have a direct and  material effect on the financial statements.
We are also responsible for testing compliance with selected provisions of  laws and regulations that have a direct and material effect on the financial  statements.
In order to fulfill these responsibilities, we  examined, on a test basis, evidence supporting the amounts and  disclosures in the financial statements;  assessed the accounting principles used and significant estimates made   evaluated the overall presentation of the financial statements and notes;  read unaudited financial information for the Foundation for the first 6  months of fiscal year 2006;  obtained an understanding of the internal control related to financial  reporting (including safeguarding assets) and compliance with laws and  regulations;   tested relevant internal control over financial reporting and compliance  and evaluated the design and operating effectiveness of internal control;  and  tested compliance with selected provisions of the Congressional Award  Act, as amended.
We did not evaluate internal control relevant to operating objectives, such  as controls relevant to ensuring efficient operations.  We limited our  internal control testing to controls over financial reporting and compliance.
We did not test compliance with all laws and regulations applicable to the  Foundation. We limited our tests of compliance to those provisions of laws  and regulations that we deemed to have a direct and material effect on the  financial statements for the fiscal year ended September 30, 2005.  We  caution that noncompliance may occur and not be detected by our tests  and that such testing may not be sufficient for other purposes.
We performed our work in accordance with U.S. generally accepted  government auditing standards.
section_title: Foundation’s Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, the Foundation stressed its efforts  to secure funds to adequately support the program.  The Foundation noted  that contributions and pledges received through April 2006 showed  significant increases over funding received in fiscal year 2005.  The  Foundation attributed this to both the recent reauthorization of the  program in December 2005, and the Congress reaffirming its commitment  to the Foundation, resulting in donors being more willing to contribute  financially.  The Foundation also discussed its plans to hold more  fundraising events with Members of Congress.   Additionally, the  Foundation noted its efforts to reduce its operating expenses in order to  meet its financial obligations.  The Foundation also discussed efforts it has  made to improve its internal controls over accounting and financial  reporting through its development of written policies and procedures for  financial operations and reporting.
As we discuss in our report, these written policies and procedures were not  drafted until after the period covered by our fiscal year 2005 financial audit.   Consequently, they had no impact on the preparation of the Foundation’s  fiscal year 2005 financial statements.  If properly implemented, however,  they should lead to improvements in the Foundation’s financial  management.  We will evaluate the effectiveness of these new policies and  procedures during our audit of the Foundation’s fiscal year 2006 financial  statements.
The complete text of the Foundation’s comments is reprinted in appendix I.
section_title: Financial Statements
paragraphs: Contributions receivable (note 3)
Congressional Award Fellowship Trust (note 4)
Equipment, furniture, and fixtures, net  Accounts payable (note 9)
Line of credit (note 8)
Accrued payroll, related taxes, and leave Temporarily restricted (note 6)
Total liabilities and net assets The accompanying notes are an integral part of these financial statements.
Changes in unrestricted net assets: Operating revenue and other support Contributions - In-kind (note 5)
Interest and dividends applied to current operations Net assets released from restrictions (note 6)
Total operating revenue and other support Operating expenses (note 11)
Salaries, benefits, and payroll taxes Program, promotion, and travel (22,452) (18,548)
Unrealized investment gains not applied to current operations Realized investment (losses) applied to current operations (3,279) (1,669)
Increase (decrease) in unrestricted net assets (3,785)
Changes in temporarily restricted net assets: Net assets released from restrictions (note 6) (3,060) (164,171) (Decrease) in temporarily restricted net assets (3,060) (164,171)
Increase (decrease) in net assets (167,956)
The accompanying notes are an integral part of these financial statements.
Cash flows from operating activities: $10,016 ($167,956)
Adjustments to reconcile change in net assets to net cash (38,807) (16,432)
Realized loss on sale of investments   Certificate of deposit interest not applied to current operations (1,401) (1,572)
Change in operating assets: (1,068)
Change in operating liabilities: (119,686) (14,840)
Accrued payroll, related taxes and leave (47,641) (462)
Net Cash (Used) in Operating Activities (172,420) (52,268)
Cash Flows from Investing Activities:    Proceeds from sale of investments Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents (2,590)
Cash and Cash Equivalents, beginning of year Cash and Cash Equivalents, end of year                           The accompanying notes are an integral part of these financial statements.
For the Fiscal Years Ended September 30, 2005 and 2004 The  Congressional  Award  Foundation  (the  Foundation)  was  formed  in  1979  under  Public  Law  96-114  and  is  a  private,  nonprofit,  tax-exempt  organization  under  Section  501(c)(3)  of  the  Internal  Revenue  Service  Code  established  to  promote  initiative,  achievement,  and  excellence  among  young  people  in  the  areas  of  public  service,  personal  development,  physical  fitness,  and  expedition.  New  program  participants  totaled  over  3,000  in  fiscal  year  2005.    During  fiscal  year  2005,  there  were  approximately 21,000 participants registered in the Foundation’s Award program.  The  Foundation’s  previous  authorization  expired  on  October  1,  2004.    On  December  22,  2005, the President signed Public Law 109-143, which reauthorized the Congressional  Award Foundation through September 30, 2009.
The  financial  statements  are  prepared  on  the  accrual  basis  of  accounting  in  conformity with U.S. generally accepted accounting principles applicable to not-for- profit organizations.
B.  Cash Equivalents and Certificate of Deposit  The Foundation considers funds held in its checking account and all highly liquid  investments with an original maturity of 3 months or less to be cash equivalents.       Money  market  funds  held  in  the  Foundation’s  Congressional  Award  Fellowship  Trust  (the  Trust)  are  not  considered  cash  equivalents  for  financial  statement  reporting purposes.
The Foundation has a $50,000 certificate of deposit which is pledged as collateral  on the $100,000 line of credit (see note 8).
Unconditional  promises  to  give  are  recorded  as  revenue  when  the  promises  are  made.    Contributions  receivable  to  be  collected  within  less  than  one  year  are  measured at net realizable value.
D.  Equipment, Furniture and Fixtures, and Related Depreciation   Equipment, furniture, and fixtures are stated at cost.  Depreciation of furniture and  equipment is computed using the straight-line method over estimated useful lives  of 5 to 10 years.  Expenditures for major additions and betterments are capitalized;  expenditures for maintenance and repairs are charged to expense when incurred.
For the Fiscal Years Ended September 30, 2005 and 2004 Upon retirement or disposal of assets, the cost and accumulated depreciation are  eliminated from the accounts and the resulting gain or loss is included in revenue  or expense, as appropriate.
E.  Congressional Award Fellowship Trust - Investments  The Trust investments consist of equity securities and money market funds which  are stated at market value.
F.  Classification of Net Assets  The net assets of the Foundation are reported as follows:   Unrestricted net assets represent the portion of expendable funds that are  available for the general support of the Foundation.
Temporarily  restricted  net  assets  represent  amounts  that  are  specifically  restricted by donors or grantors for specific programs or future periods.
The Foundation has no permanently restricted net assets.
Contribution  revenue  is  recognized  when  received  or  promised  and  recorded  as  temporarily  restricted  if  the  funds  are  received  with  donor  or  grantor  stipulations  that  limit  the  use  of  the  donated  assets  to  a  particular  purpose  or  for  specific  periods.    When  a  stipulated  time  restriction  ends  or  purpose  of  the  restriction  is  met,  temporarily  restricted  net  assets  are  reclassified  to  unrestricted  net  assets  and reported in the statement of activities as net assets released from restrictions.
H.  Functional Allocation of Expenses  The  costs  of  providing  the  various  programs  and  other  activities  have  been  summarized  on  a  functional  basis  as  described  in  note  11.  Accordingly,  certain  costs have been allocated among the programs and supporting services benefitedThe preparation of financial statements in conformity with U.S. generally accepted   accounting  principles  requires  management  to  make  estimates  and  assumptions  that  affect  certain  reported  amounts  and  disclosures.    Accordingly,  actual  results  could differ from those estimates.
For the Fiscal Years Ended September 30, 2005 and 2004 Certain  reclassifications  have  been  made  to  the  fiscal  year  2004  Statement  of  Cash Flows to conform to the fiscal year 2005 presentation.  In fiscal year 2005,  the  Foundation  changed  the  format  of  its  Statement  of  Cash  Flows  from  direct  method to the indirect method for purposes of reporting cash flows from operating  activities.    Accordingly,  the  Statement  of  Cash  Flows  for  2004  contains  certain  reclassifications to conform to the Foundation’s current financial statement format.   For  fiscal  years  2004  and  2005,  the  reconciliation  of  net  income  to  net  cash  provided by operating activities is included in the Statement of Cash Flows.
Note 3.  Contributions Receivable At  September  30,  2005,  and  2004,  promises  to  give  totaled  $45,000  and  $60,573,  respectively, none of which was temporarily restricted by the donors.  At September 30,  2005,  and  2004,  $45,000  and  $60,573,  respectively,  were  due  within  1  year.    At  September 30, 2005, and 2004, net assets of $28,568 and $31,626, respectively, were  temporarily restricted by donors for future periods.
Note 4.  Congressional Award Fellowship Trust The  Congressional  Award  Fellowship  Trust  (the  Trust)  was  established  in  1990  to  benefit  the  charitable  and  educational  purposes  of  the  Foundation.    The  Trust  Fund  received $264,457 of contributions since 1990, which were designated as permanently  restricted  by  the  donors  when  the  donations  were  originally  made.    During  the  fiscal  year ended September 30, 2004, the trust conditions changed.  The Declaration of Trust  of  the  Congressional  Award  Trust  was  amended,  with  the  consent  of  the  original  declarants  of  the  Trust  and  the  Trustees,  effective  December  2003.    Among  other  changes, the Amended Trust Declaration removes the permanent restriction on the use  of endowment donations. Trust Fund amounts may be distributed to the Foundation at  the  discretion  of  the  Trustees. During  the  fiscal  year  ended  September  30,  2005,  the  Trustees authorized the use of $178,563 of the Trust Fund to support fiscal year 2005  operations.
For the Fiscal Years Ended September 30, 2005 and 2004 Activity in the Trust Fund for the fiscal years ended September 30, 2005, and 2004 was  as follows:                                                                         Net realized gains (losses) (3,279) (1,669)
Net unrealized gains (losses)
Total investment gains (losses)
Investments transferred to current operations    (178,563) (55,092)
Investment earnings applied to current operations  Net change in Trust Fund investments     (137,020) (34,915)
Trust Fund investments, beginning of year  Trust Fund investments, end of year During fiscal year 2005, the Foundation received in-kind (non-cash) contributions from  donors.  Donated professional services are accounted for as contribution revenue and  as current period operating expenses.  In-kind contributions received also resulted from  the forgiveness of debts which were accounted for as contribution revenue. During fiscal  year  2005,  the  Foundation  negotiated  cancellation  of  $63,262  of  its  liabilities  with  vendors.    The  vendors  offered  these  balances  owed  as  in-kind  contributions  to  the  Foundation.  The value of the in-kind contributions recognized was $131,114 for fiscal  year  2005  and  $94,596  for  fiscal  year  2004.    These  non-cash  contributions  are  as  follows.
For the Fiscal Years Ended September 30, 2005 and 2004 In addition, Section 7(c) of Public Law 101-525, the Congressional Award Amendments  of  1990,  provided  that  "the  Board  may  benefit  from  in-kind  and  indirect  resources  provided  by  the  Offices  of  Members  of  Congress  or  the  Congress."    Resources  so  provided  include  use  of  office  space,  office  furniture,  and  certain  utilities.    In  addition,  section  102  of  the  Congressional  Award  Act,  as  amended,  provides  that  the  United  States Mint may charge the  United States  Mint  Public Enterprise Fund for the cost of  striking Congressional Award Medals.  The costs of these resources cannot be readily  determined and, thus, are not included in the financial statements.
Note 6.  Temporarily Restricted Net Assets Temporarily restricted net assets at September 30, 2005, and 2004 were available for  the following programs and future periods:         Puerto Rico Council development                                       17,396              17,561         Nevada Council development                                             10,381              12,282         Oklahoma Council development                                        ___791                1,783        Total net assets temporarily restricted for use:   Net assets released from restrictions during the years ended September 30, 2005, and  2004 were as follows:                                                                                                        2005                  2004         Contributions released from restriction for use             in fiscal years 2005 and 2004, respectively              Puerto Rico Council development                                            166           Nevada Council development                                               1,901                  1,765          Oklahoma Council development                                               993                  2,246        Total temporarily restricted net assets released for use:    $    3,060            $164,171 Note 7.   Employee Retirement Plan For the benefit of its employees, the Foundation participates in a voluntary 403(b) tax- deferred  annuity  plan,  which  was  activated  on  August  27,  1993.    Under  the  plan,  the  Foundation may, but is not required to, make employer contributions to the plan. There  was no contribution to the plan in fiscal years 2005 and 2004.
Note 8.   Line of Credit The Foundation has a $100,000 revolving line of credit with its bank that bears interest  at 7.75 percent per annum.  The line of credit is partially secured by the Foundation’s  investment in a $50,000 certificate of deposit held by the same bank.  At September 30,  2005 and 2004, the outstanding balance on the line of credit was $100,000.
Note 9.  Accounts Payable The accounts payable balance is $15,817 at September 30, 2005.  The accounts  payable balance at September 30, 2004 was $135,503.  During fiscal year 2005,  $63,262 in amounts owed to vendors for goods and services received primarily in fiscal  year 2002 were forgiven by the vendors.  These amounts are reflected as in-kind  contributions on the Foundation’s Statements of Activities (see note 5).
Note 10.     Related Party Activities During  fiscal  year  2005,  an  ex-officio  director  of  the  Board  provided  pro  bono  legal  services to the Foundation.  The value of legal services has been included in the in-kind  contributions and professional fees line items (see note 5).
In addition, a former Board Member served as portfolio manager with the brokerage firm  responsible  for  managing  the  Congressional  Award  Fellowship  Trust  account  during  fiscal years 2005 and 2004.
During March 2004, the Foundation entered into an agreement with a professional  fundraiser.  Also in 2004, the spouse of this professional fundraiser was elected to the  Board of Directors of the Foundation.  The professional fundraiser was retained on a 10  percent commission basis for fiscal year 2004.  During fiscal year 2005, the commission  basis was increased to 15 percent.  Expenses incurred by the Foundation during fiscal  year 2005 and 2004 to the related party totaled $12,891 and $9,756, respectively.
Note 11.  Expenses by Functional Classification The  Foundation  has  presented  its  operating  expenses  by  natural  classification  in  the  accompanying Statements of Activities for the fiscal years ending September 30, 2005,  and 2004.  Presented below are the Foundation's expenses by functional classification  for the fiscal years ended September 30, 2005, and 2004.
Note 12.   The Foundation’s Ability to Continue as a Going Concern  The Congressional Award Foundation is dependent on contributions to fund its  operations and, to a far lesser extent, other revenues, interest, and dividends.  The  Foundation’s net assets increased by $10,016 in fiscal year 2005 and decreased by  $167,956 in fiscal year 2004.  The increase in net assets in fiscal year 2005 was due  primarily to increases in unrealized investment gains. In fiscal year 2005, the  Foundation released Trust funds to eliminate past due accounts payable and improve  the Foundation’s fiscal position.  As a result, the Foundation’s investments decreased  $137,020 in fiscal year 2005 from $195,551 to $58,531.  The Foundation has taken  steps to substantially decrease administrative expenses, and has implemented  numerous initiatives to increase fundraising revenue.  The Foundation’s ability to  continue as a going concern is dependent on increasing revenues.  Unaudited financial  data compiled by the Foundation as of March 31, 2006, show that the Foundation’s  financial condition has not improved from September 30, 2005.
During fiscal year 2005, the Board elected several new Members and the Foundation  hired an accountant, who was promoted to Controller in fiscal year 2006, to focus on  improving financial management.  Subsequent to fiscal year 2005, the newly elected  Treasurer and Audit Committee Chair worked with the National Office staff to improve  internal control over financial reporting by developing written fiscal policies and  procedures, and financial reporting guidelines.  These efforts are expected to provide  more accurate and timely accounting and reporting.
To improve fundraising efforts, the Board created a Congressional Liaison Committee,  Development Committee, and Program Committee during fiscal year 2005.  The newly  elected Development Chairperson is leading fundraising initiatives in the corporate  community and continuing to work with professional fundraisers to more actively involve  congressional members with monthly Capitol Hill fundraising events focused around key  Members.  These events are generating funds from new donors and providing  opportunities to maintain relations with current Foundation supporters.
Note 13.   Subsequent Events On December 22, 2005, the President signed Public Law 109-143, which reauthorized  the Congressional Award Foundation for another five years, “as though no lapse or  termination of the Board ever occurred.”
Four Foundation Board Members were appointed by the Speaker of the House of  Representatives to serve on the National Board on March 30, 2006.  One new  Foundation Board Member was elected at the April 3, 2006, meeting of the Board of  Directors.
The Spouse Executive Council, made up of spouses of Congressional members, was  created and held its first meeting on February 6, 2006, to assist with fundraising and the  overall mission of the Foundation.
section_title: Appendix I