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. 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. 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. 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.