Audit of the Working Capital Fund for Fiscal Year 1994

EXECUTIVE SUMMARY:

This report provides the results of an audit by the certified public accounting firm Ernst and Young LLP (E&Y) in its examination of the Office of the Secretary, Working Capital Fund (Fund) financial statements for the fiscal year (FY) ended September 30, 1994. The Office of Inspector General exercised technical oversight and quality control of the audit.

We engaged E&Y to audit the financial statements and to express an opinion on them. The firm issued a "qualified" opinion on the Fund financial statements because detail records for property and equipment and the related depreciation expense--recorded as $6,249,000 and $1,522,000, respectively--were incomplete and did not support the purchase price and the date purchased. In addition, support for certain aggregations of expense by object class was not available. Accordingly, E&Y determined that, except for the effects of such adjustments that might have been necessary had the Fund maintained accurate and complete records, the Fund's 1994 financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 1994.

As part of the audit engagement, E&Y also rendered separate reports on internal controls and on compliance with laws and regulations. In the report on internal controls, E&Y noted one material weakness and three reportable conditions. A material weakness was noted for an inability to support property and equipment balances (resulting in the report qualification described above). Reportable conditions were noted in: (1) maintaining control over the general ledger, preparing financial statements, and detecting errors and irregularities; (2) the recording of liabilities; and (3) various aspects of computer security, such as access to the mainframe computer, to the payroll application, and to the core accounting system libraries, and maintaining a disaster recovery plan. In the report on compliance with laws and regulations, E&Y noted no instances of noncompliance required to be reported under government auditing standards.

In our oversight of the audit, we found nothing to indicate that E&Y's work is inappropriate or that E&Y's reports cannot be relied upon. The Assistant Secretary for Management and Budget concurred with E&Y's findings and recommendations.

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