U.S. Capitol Grounds Concerts: Improvements Needed in Management Approval Controls over Certain Payments
Published: 2016-10-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: CCI, a private nonprofit organization in the District of Columbia, has produced the annual Memorial Day and Fourth of July concerts held on the U.S. Capitol Grounds for over 25 years and over 35 years, respectively.
GAO was asked to audit all concerts hosted by CCI for the past 3 years. This report examines (1) how much funding, federal and nonfederal, was received and used by CCI for the 2012 though 2014 Memorial Day and Fourth of July concerts and (2) to what extent CCI's recorded receipts and disbursements related to these concerts were supported by adequate documentation, approved by authorized management, and recorded in the appropriate year. GAO performed data reliability procedures over CCI's 2012 through 2014 receipt and disbursement transactions, classified transactions by funding sources, obtained CCI management's concurrence with the classifications, and selected transactions for each year to test key controls.
section_title: What GAO Found
paragraphs: Capital Concerts, Inc. (CCI) received both federal and nonfederal funding to support the production of the Memorial Day and Fourth of July concerts held on the U.S. Capitol Grounds from 2012 through 2014. CCI received federal funding through a cooperative agreement with the Department of the Interior's National Park Service (NPS) that included funding that NPS received through an interagency agreement with the Department of the Army and funding from NPS's own budget through the National Capital Area Performing Arts Program. CCI obtained nonfederal funding through corporate sponsorship agreements, grant agreements with the Corporation for Public Broadcasting, and license agreements from the Public Broadcasting Service. CCI also received funding from other sources, such as interest revenue, but these transactions represent a minor portion of total funding.
CCI received funding for the 2012 through 2014 Memorial Day and Fourth of July concerts ranging from $8.5 million to $9.2 million each year. CCI disbursed from $8.3 million to $8.9 million each year to produce these concerts, approximately 1.1 to 3.7 percent less than the annual funding received.
Procurement and Accounts Payable Policy has not been updated since November 2008 and does not include all internal control activities over payment approvals. Without incorporating all control activities over payment approvals into its policy and procedures, CCI increases its risk that the control activities will not be implemented consistently and that improper payments, fraud, and abuse may not be prevented or detected.
section_title: What GAO Recommends
paragraphs: GAO recommends that CCI update its existing policy to fully document CCI's management approval controls over payments made by check, including exemptions to regular procedures. The update should include approval procedures to be followed during periods when only one authorized manager is available to sign checks for payment. In commenting on a draft of this report, CCI maintained that all disbursements were properly approved but GAO disagreed as noted in the report. CCI stated it will take appropriate action to address GAO's recommendation.

section_title: Letter
paragraphs: Annual Memorial Day and Fourth of July concerts have been held on the  U.S. Capitol Grounds for many years. The Memorial Day concert, known  as the National Memorial Day Concert, is televised nationwide, honors  fallen soldiers, and features artists who give tribute to servicemembers  and their families. The Fourth of July concert, known as A Capitol Fourth,  is broadcast live from the West Lawn of the U.S. Capitol and features  entertainment and a display of fireworks to celebrate America’s  independence. Capital Concerts, Inc. (CCI), a private nonprofit  organization in the District of Columbia, has produced the annual  Memorial Day and Fourth of July concerts held on the U.S. Capitol  Grounds for over 25 years and over 35 years, respectively. The  production is supported by the Department of the Interior’s National Park  Service (NPS) with performances by the National Symphony Orchestra.
In accordance with the authority in 40 U.S.C. § 5108, which authorizes  GAO to audit the accounts of a private organization that performs  services or conducts activities on U.S. Capitol Grounds, you asked us to  audit all concerts hosted by CCI for the past 3 years. This report  examines (1) how much funding, federal and nonfederal, was received  and used by CCI for the 2012 through 2014 Memorial Day and Fourth of  July concerts and (2) to what extent CCI’s recorded receipts and  disbursements related to these concerts were supported by adequate  documentation, approved by authorized management, and recorded in  the appropriate year.
For this review, we obtained the populations of receipt and disbursement  transactions from CCI’s accounting system for 2012 through 2014. To  verify the completeness and accuracy of these transaction populations,  we performed data reliability procedures by reconciling population totals  to the trial balances and then comparing the trial balances to the audited  financial statements. We then used the account descriptions in CCI’s  accounting system to classify the transactions into categories for  reporting purposes. We obtained CCI management’s concurrence with  our classifications.
To evaluate the controls over CCI’s receipt and disbursement  transactions, we met with officials from CCI to discuss the specific nature  and characteristics of their organization’s receipts and disbursements for  concert-related activities. We discussed the manner in which CCI records  and tracks concert-related receipt and disbursement activity in its system  of records. We also obtained applicable policies and procedures, and  performed walk-throughs to gain an understanding of the flow of  information throughout the organization. Based on the information  obtained, we developed data collection instruments to test receipt and  disbursement transactions.
To perform detailed testing on receipts, we selected the largest receipt  transactions that collectively represented at least 95 percent of the total  dollar value of the recorded revenue for each year (a total of 21  transactions for 2012, 27 transactions for 2013, and 25 transactions for  2014). For each transaction selected, we traced transaction amounts to  their supporting documentation, such as cooperative agreements,  contracts, and deposit records, to determine to what extent each  transaction was supported by documentation, approved by authorized  management, and recorded in the appropriate year.
To perform detailed testing on disbursements, we selected a random  sample of 66 disbursement transactions for each year using attribute  sampling. For each sample item, we traced transaction amounts to their  supporting documentation, such as contracts, vendor invoices, and  payment records, to determine to what extent each transaction was  supported by documentation, approved by authorized management, and  recorded in the appropriate year. Disbursement transactions were  primarily paid by check but also included electronic fund transfers for  payroll and credit card payments. For payments made by check, we used  the signatures found on the check images obtained from CCI’s bank  statements as evidence of management approval. For payments made by  electronic fund transfer, we used other document sources as evidence of  management approval, such as employment letters and expense reports.  See appendix I for additional details on our scope and methodology.
We conducted this performance audit from December 2015 to October  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Producing the Memorial Day and Fourth of July concerts involves  obtaining funding; determining each concert’s artistic program; arranging  for performing artists, talent, and production staff; and arranging for the  television broadcast of the concerts.
CCI received both federal and nonfederal funding to support the  production of the 2012 through 2014 Memorial Day and Fourth of July  concerts. CCI received federal funding from NPS through a cooperative  agreement. As shown in figure 1, funding provided through the  cooperative agreement included funding that NPS received through an  interagency agreement with the Department of the Army (Army) and  funding from NPS’s own budget through the National Capital Area  Performing Arts Program. CCI obtained nonfederal funding through  corporate sponsorship agreements, grant agreements with the  Corporation for Public Broadcasting, and license agreements from the  Public Broadcasting Service (PBS). CCI also received funding from other  sources, such as interest revenue, but these sources represent a minor  portion of total funding.
section_title: CCI Received and Disbursed from $8 Million to $9 Million Each Year for the 2012 through 2014 Concerts
paragraphs: CCI received from $8.5 million to $9.2 million and disbursed from $8.3  million to $8.9 million each year to produce the 2012 through 2014  Memorial Day and Fourth of July concerts.
subsections: section_title: CCI Received from $8.5 Million to $9.2 Million Each Year for the 2012 through 2014 Concerts
paragraphs: We found that CCI received funding for the 2012 through 2014 Memorial  Day and Fourth of July concerts ranging from $8.5 million to $9.2 million  each year. For purposes of our report, we classified funding into three  categories: federal, nonfederal, and other funding sources. These three  categories are presented in table 1.
As shown in figure 2, CCI’s receipts for the 2012 Memorial Day and  Fourth of July concerts totaled $8.5 million, $8.7 million for the 2013  concerts and $9.2 million for the 2014 concerts. Over the 3-year period,  the percentage of funding CCI received from federal sources slightly  decreased, even though the dollar amount remained consistent. The  amount of funding CCI received from nonfederal sources over the 3-year  period increased slightly in both dollar value and percentage. The  increases were mainly attributable to an increase in funding received  through the license agreements with PBS. Other funding sources  remained consistent over the 3-year period.
section_title: CCI Disbursed from $8.3 Million to $8.9 Million Each Year for the 2012 through 2014 Concerts
paragraphs: CCI disbursed from $8.3 million to $8.9 million each year to produce the  2012 through 2014 Memorial Day and Fourth of July concerts,  approximately 1.1 to 3.7 percent less than the annual funding received.  CCI retains the excess of receipts over disbursements to use toward  future concerts in accordance with the cooperative agreements to  produce the concerts. CCI records transactions in its accounting system  under three main account series (i.e., Memorial Day concert, Capitol  Fourth concert, and general and administrative) and uses detailed  subaccounts to classify transaction types. We used the account  descriptions from the subaccounts to classify disbursement transactions  into six categories to present the types of disbursements made in  producing the concerts. These six categories are presented and defined  in table 2.
As shown in figure 3, CCI disbursed $8.4 million for the 2012 Memorial  Day and Fourth of July concerts, $8.3 million for the 2013 concerts and  $8.9 million for the 2014 concerts. Over the 3-year period, there were few  changes among the proportion of disbursements made by CCI in the  overall production of the Memorial Day and Fourth of July concerts.  Production staff is CCI’s largest disbursement category, and it accounted  for 31 percent of all disbursements across the 3-year period. The largest  change in proportion occurred in 2013 when technical equipment rose 3  percent. According to CCI, this was due to upgrades made to the band  shell.
section_title: Transactions Were Adequately Supported and Recorded, but Some Payment Approvals Were Missing in 2013
paragraphs: During our review, we found that the receipt transactions tested for all 3  years were supported by adequate documentation, approved by  authorized management, and recorded in the appropriate year. Similarly,  we found that the disbursement sample items tested for all 3 years were  supported by adequate documentation and recorded in the appropriate  year. However, we found that CCI did not effectively follow its existing  policy for documenting the approval of payments made by check in 2013.
subsections: section_title: Testing Results for Receipt Transactions
paragraphs: We found that all receipt transactions tested (21 transactions for 2012, 27  transactions for 2013, and 25 transactions for 2014) were supported by  adequate documentation, approved by authorized management, and  recorded in the appropriate year. Specifically, we found that the receipt  transactions tested were supported by signed cooperative agreements or  contracts and deposit records. We traced all federal and nonfederal  receipts tested to their respective cooperative agreements or contracts  and verified the amounts agreed without exception. We also found that all  receipt transactions tested were classified appropriately in the accounting  system and recorded in the appropriate year.
section_title: Testing Results for Disbursement Transactions
paragraphs: During our review, we found that all disbursement sample items tested  (66 transactions per year) were supported by adequate documentation  and recorded in the appropriate year, but management approval controls  over certain payments were not implemented effectively for one of the  years tested. All disbursement transactions tested were supported by  contracts or vendor invoices and payment records, and management  approval controls over payments were implemented effectively for the  populations tested in 2012 and 2014. However, in 2013, we found 3  transactions that were not approved in accordance with CCI’s policy.
CCI’s Procurement and Accounts Payable Policy, section D, provides that  invoices less than $500 may be approved and paid for with just one  signature on the related check. For all other payments made by check,  the checks should be signed by two of the following authorized managers:  President, Vice President, Chief Financial Officer, or Treasurer. There  are, however, temporary exemptions to the two-signature rule. For each  year under review, CCI provided us with the memos that establish these  exemptions, titled “Accounts Payable Policy Temporary Exemptions.”  These memos state that for certain periods, specifically, July through  October, authorized managers may be out of the office and not available  to satisfy the two-signature requirement on checks equal to or over $500.  In such instances, a list of vendors with amounts due is to be e-mailed or  faxed to one of the out of office managers for approval. CCI is to retain  the e-mail or fax containing the approval as evidence of a secondary  approval for checks equal to or over $500 issued with only one signature  during the July through October time frame.
In 2013, we found 3 transactions totaling over $12,000 that were paid with  checks over $500 that contained only one signature, and the dates on  these 3 checks did not fall within the stated policy exemption period. For 1  of the 3 checks, CCI provided us with an e-mail approval. However, this  was not consistent with CCI’s exemption policy as the check was  approved and issued in December 2013, which fell outside of the  exemption period. For the other 2 checks, no explanation or evidence of  secondary approval on the check was provided. Furthermore, while the  test of the 2012 population demonstrated effective implementation of  management approval controls over payments, we identified one error  that also related to a missing signature on a check outside the exemption  period. Because of the large dollar value of the error ($43,550) and  related risks of improper payments, fraud, and abuse, we believe the  error warrants management’s attention.
These errors occurred, in part, because CCI’s Procurement and Accounts  Payable Policy has not been updated since November 2008 and does not  include all internal control activities to be performed when authorized  management may be out of the office and regular check authorization  procedures cannot be followed. CCI issued separate memos  documenting exemption periods for each of the years under review.  However, these memos were not incorporated into CCI’s policy.  Furthermore, these memos only covered a certain time frame each year,  but instances were occurring outside these stated time frames. CCI  added that where checks had only one signature, the associated invoices  had been approved. While we received copies of the invoices showing  approval, the signatures on the invoices did not include a date. Therefore,  we were not able to determine whether these transactions were approved  prior to payment and, as a result, could not rely on the invoice approval  as a compensating control. In addition, CCI’s Procurement and Accounts  Payable Policy does not refer to replacing check signatures with invoice  approvals.
Without incorporating all control activities over payment approvals into its  policy and procedures, CCI increases its risk that the control activities will  not be implemented consistently and that improper payments, fraud, and  abuse may not be prevented or detected.
section_title: Conclusions
paragraphs: CCI, a private nonprofit organization, relies on federal and nonfederal  funding to put together concerts that honor military services and celebrate  America’s independence. Over the 3-year period of our review, the  amount of funding CCI received increased slightly, mainly attributable to a  nonfederal source, and disbursements were slightly less than funds  received.
CCI’s 2012 through 2014 concert receipts were adequately documented,  properly approved by authorized management, and recorded in the  appropriate year. In addition, CCI’s 2012 through 2014 concert  disbursements were adequately documented and recorded in the  appropriate year. However, we identified certain disbursements in 2013  that were not properly authorized in accordance with CCI’s policy. Without  incorporating all control activities over payment approvals into its policy  and procedures, CCI increases its risk that improper payments, fraud,  and abuse could not be prevented or detected.
section_title: Recommendation for Executive Action
paragraphs: We recommend that CCI’s Chief Financial Officer update its existing  Procurement and Accounts Payable Policy to fully document CCI’s  management approval controls over payments made by check, including  exemptions to regular procedures. This should include approval  procedures to be followed during periods when only one authorized  manager is available to sign checks for payment.
section_title: Third-Party Comments and Our Evaluation
paragraphs: We provided a draft of this report to CCI for comment. In its written  comments, reprinted in appendix II, CCI stated that it views our report as  a favorable review of its finances. For the four disbursements we found in  which there was only one signature on a check, CCI stated in its  comments that it provided us with records that indicated that these  disbursements were properly approved by management. However, as  noted in this report, checks outside of the exemption period should have  two signatures per CCI’s policy. While CCI provided invoices which it  stated showed evidence of approval for these disbursements, as we  noted in this report, the associated invoices did not have an approval date  and CCI’s policy does not make reference to replacing check signatures  with invoice approvals. Nonetheless, CCI stated that its Board of  Directors will take appropriate action to address our recommendation.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 3 days from the  report date. At that time, we will send copies of this report to the  appropriate congressional committees, Capital Concerts, Inc., and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-3406 or malenichj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) how much funding, federal and  nonfederal, was received and used by Capital Concerts, Inc. (CCI) for the  2012 through 2014 Memorial Day and Fourth of July concerts and (2) to  what extent CCI’s recorded receipts and disbursements related to these  concerts were supported by adequate documentation, approved by  authorized management, and recorded in the appropriate year.
The scope of our audit was limited to the receipts and disbursements of  CCI as the majority of funding received and disbursed to produce the  Memorial Day and Fourth of July concerts held on U.S. Capitol Grounds  rests with this organization. Other minimal costs are incurred by the  National Park Service and the National Symphony Orchestra.
subsections: section_title: Categorizing Receipts and Disbursements
paragraphs: To examine how much funding, federal and nonfederal, was received and  used by CCI for the Memorial Day and Fourth of July concerts, we  obtained the populations of receipt and disbursement transactions from  CCI’s accounting system for 2012 through 2014. To verify the  completeness and accuracy of these populations, we performed data  reliability procedures by reconciling population totals to the trial balances  and then comparing the trial balances to the audited financial  statements. We then used the account descriptions in CCI’s accounting  system to classify the transactions into categories for reporting purposes.
CCI classifies revenue on its financial statements as public support,  license fee, earnings on deferred compensation/retirement plan, royalty  fees and other income, and interest income. For the purposes of this  report and to provide the requesters more useful information about the  sources of funding received, we chose to categorize revenues as federal  funding, nonfederal funding, and other funding sources. To classify  transactions into these three categories, we used the revenue subaccount  descriptions. We obtained CCI management’s concurrence with our  classifications.
CCI classifies expenses on its financial statements into three categories:  Memorial Day concert, Capitol Fourth concert, and general and  administrative. These three categories do not capture the various types of  disbursement activities CCI undertakes. CCI uses over 500 different  subaccounts to classify its disbursements. To provide the requesters with  more useful information, we categorized disbursements into six  categories: production staff, technical crew and postproduction, technical  equipment, talent, promotion, and other administrative and  miscellaneous. To classify transactions into these six categories, we used  the disbursement subaccount descriptions. We obtained CCI  management’s concurrence with our classifications.
section_title: Testing of Receipts and Disbursements
paragraphs: To examine to what extent CCI’s recorded receipts and disbursements  related to the Memorial Day and Fourth of July concerts were supported  by adequate documentation, approved by authorized management, and  recorded in the appropriate year, we met with officials from CCI to discuss  the specific nature and characteristics of their organization’s receipts and  use of concert-related funding. We also discussed the manner in which  they record and track concert-related receipts and disbursements in their  system of records, obtained their receipt and disbursement policies and  procedures, and performed walk-throughs to gain an understanding of the  flow of information throughout the organization. Based on the  understanding we gained, we developed data collection instruments to  test the receipts and disbursements.
To identify our populations for testing, we first obtained from CCI all  transactions that made up total recorded revenue and those that made up  total recorded expenses for each year. We then removed transactions  that canceled each other (offset transactions), and for receipts we also  removed transactions with abnormal balances (debit transactions) and  reviewed these transactions separately to determine the nature of the  transactions and why they occurred. After removing these, the remaining  transactions for each year made up the populations used for the sampling  methodology described below.
subsections: section_title: Receipts
paragraphs: For receipts, we selected the largest receipt transactions that collectively  represented at least 95 percent of the total dollar value of each year’s  population. We chose this methodology because the receipt transactions  that made up at least 95 percent of the total receipts population consisted  mainly of a few high-dollar value transactions, and the remaining  approximately 5 percent consisted of several low-dollar value transactions  that were primarily interest receipts, which were not relevant to the scope  of our audit. For the 3-year period we reviewed, a total of 73 individual  receipt transactions were tested. Table 3 describes the total transaction  count and dollar value of each population and the total number of  transactions tested.
To perform detailed testing on receipts, we verified that (1) the transaction  amount agreed to supporting documentation, such as cooperative  agreements, contracts, and deposit records; (2) the supporting  documentation had evidence of approval; and (3) the transaction was  accurately recorded in the appropriate year.
section_title: Disbursements
paragraphs: For disbursements, using an attribute sampling method, we selected a  random sample of disbursement transactions for each year under review.  We chose this methodology because of the large volume of transactions  in our populations and the nature of the testing we were to perform. We  planned our testing to be 95 percent confident with a tolerable error rate  of 7 percent. Table 4 describes the total transaction count and dollar  value of each population and the total number of sampled transactions  selected for testing.
To perform detailed testing on disbursements, we verified that (1) the  transaction amount agreed to supporting documentation, such as  contracts, vendor invoices, and payment records; (2) the supporting  documentation had evidence of approval; and (3) the transaction was  accurately recorded in the appropriate year. For the 3 years under review,  disbursements made by checks represented approximately 59 to 77  percent of our sample items, and disbursements made by electronic fund  transfers represented approximately 23 to 41 percent of our sample  items. Therefore, for evidence of approval, we reviewed different  documentation for each payment type. For payments made by check, we  obtained check images from the bank to assess whether signatures by  managers authorized to sign checks were evident and in accordance with  CCI’s policy. For payments made by electronic fund transfer, we verified  other document sources, such as employment records for payroll  transactions, and expense reports for petty cash reimbursements and  credit card transactions to assess whether electronic fund transfers were  approved by the appropriate manager prior to disbursement.
We conducted this performance audit from December 2015 to October  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comments from Capital Concerts, Inc.
paragraphs: Appendix II: Comments from Capital Concerts,  Inc.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Nina M. Rostro (Assistant  Director), Sharon Byrd, Natasha Guerra, Brian Harechmak, Jason Kelly,  and Joseph Willert made key contributions to this report.