This is the accessible text file for GAO report number GAO-11-326R 
entitled 'Financial Management: Audit of the Senate Gift Shop 
Revolving Fund for Fiscal Year 2010' which was released on April 6, 
2011. 

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GAO-11-326R: 

United States Government Accountability Office: 
Washington, DC 20548: 

April 6, 2011: 

The Honorable Charles E. Schumer:
Chairman:
The Honorable Lamar Alexander:
Ranking Member:
Committee on Rules and Administration:
United States Senate: 

Subject: Financial Management: Audit of the Senate Gift Shop Revolving 
Fund for Fiscal Year 2010: 

In a letter dated July 22, 2010, you requested that we conduct an 
audit of the Senate Gift Shop's cash receipts and cash disbursements 
recorded in the Senate Gift Shop Revolving Fund for the fiscal year 
ended September 30, 2010. In the letter, you also requested that we 
review the inventory accounting procedures of the Gift Shop. 

The Senate Gift Shop was established on October 6, 1992, to sell gift 
items to members of the Senate, Senate staff, and the general public. 
All sales receipts are taken to the Senate Disbursing Office for 
deposit into the Senate Gift Shop Revolving Fund in the U.S. Treasury. 
The Gift Shop then uses the cash receipts to purchase inventory items 
for resale, supplies, shipping, and other related services expenses. 
The Senate Disbursing Office maintains the money and makes payments on 
behalf of the Senate Gift Shop Revolving Fund. Salaries and benefits 
of Senate employees who work in the Gift Shop are not paid from the 
revolving fund; rather, they are paid from the "Salaries, Officers, 
and Employees" appropriation account of the Senate. Additional costs 
of the Gift Shop such as rent and utilities cannot be readily 
determined and are covered by other appropriated Senate funds. 

Results in Brief: 

We found that recorded cash receipts and cash disbursements of the 
Senate Gift Shop for the fiscal year ended September 30, 2010, were 
consistent with the purpose of the Senate Gift Shop Revolving Fund and 
supported by documentation approved by authorized shop management. We 
also found that overall, the Gift Shop's inventory accounting 
procedures provided reasonable assurance that it appropriately 
accounted for physical quantities on hand and that items were 
safeguarded from theft and loss. However, our testing identified 
instances in which shop personnel either did not fully adhere to 
established policies and procedures, or written policies and 
procedures were not sufficiently detailed for certain control 
activities. Therefore, we are making a recommendation that management 
update the Gift Shop's existing written accounting procedures to 
improve their effectiveness. We are also making a recommendation that 
Gift Shop management disseminate the updated accounting procedures, 
train personnel as necessary, and review subsequent activities for 
compliance. In commenting on a draft of this report, the Secretary of 
the Senate agreed with our recommendations and stated that Gift Shop 
management is in the process of implementing our recommendations. 

Objectives, Scope, and Methodology: 

We obtained and reviewed the accounting procedures used by the Senate 
Gift Shop to record cash receipts, cash disbursements, and to manage 
inventory. We also observed a physical inventory of the Gift Shop at 
the end of September 2010. We reviewed the results of the physical 
inventory, its comparison to book records maintained by the Gift Shop, 
and observed how any differences were reconciled and resolved. We 
particularly focused on how the results of the physical inventory 
compared to recorded inventories to establish evidence of control over 
inventory quantities and to safeguard inventory from theft or loss. 

We used statistical sampling to audit the Gift Shop's nearly $1.6 
million of cash receipts and nearly $1.4 million of cash disbursements 
recorded in the revolving fund for the fiscal year ended September 30, 
2010. We examined sample items for: (1) proper recorded amount, (2) 
consistency with the authorized purposes of the revolving fund, (3) 
proper supporting documentation, and (4) evidence of authorized review 
and approval. For cash receipts, examination of sample items included 
verifying the daily amounts of cash receipts from cash registers and 
other sources and their weekly deposit with the Senate Disbursing 
Office. For cash disbursements, examination of sample items included a 
review of contracts, purchase orders, receiving information, and 
invoices; recalculation of amounts; and validation of payment by the 
Senate Disbursing Office. Because we limited our audit to those 
transactions recorded in the revolving fund, there is a risk that 
there could be unrecorded transactions not included in our 
examination. See enclosure I for more detailed information on our 
scope and methodology. 

Cash Receipts for Fiscal Year 2010: 

Table 1 below presents the Gift Shop's recorded cash receipts by 
department for fiscal year 2010 deposited into the revolving fund. 

Table 1: Senate Gift Shop Recorded Cash Receipts by Department for the 
Fiscal Year Ended September 30, 2010: 

Department: Apparel; 
Amount: $105,467. 

Department: Art; 
Amount: $23,539. 

Department: Books; 
Amount: $306,128. 

Department: Business accessories; 
Amount: $179,627. 

Department: China & crystal; 
Amount: $152,673. 

Department: Coins & medallions; 
Amount: $38,870. 

Department: Flag boxes; 
Amount: $19,910. 

Department: Gift shop use; 
Amount: $17,263. 

Department: Housewares; 
Amount: $118,039. 

Department: Jewelry; 
Amount: $105,393. 

Department: Novelties; 
Amount: $144,568. 

Department: Ornaments; 
Amount: $299,059. 

Department: Pewter & silver; 
Amount: $44,693. 

Department: Special order; 
Amount: $11,254. 

Total recorded cash receipts: 
Amount: $1,566,483. 

Source: GAO, compiled from Senate Gift Shop records. 

[End of table] 

We found that recorded cash receipts were generally approved, 
accurately recorded, and supported by appropriate documentation. 
Additionally, we found cash accounting procedures to be generally 
accurate and up-to-date. However, our testing identified instances 
where personnel either did not fully adhere to established policies 
and procedures, or the Gift Shop lacked detailed written procedures on 
control activities. Effectively designed and properly implemented 
policies and procedures are critical to identifying errors and 
improving internal controls. Specifically, we found: 

* A daily cash receipt and three weekly cash sheets did not have 
evidence of required review. Existing written procedures require this 
documentation. 

* Eighteen of 22 recorded sales returns did not have evidence of 
required review. In addition, all 22 return items tested did not 
contain a notation of why the item was returned on the sales return 
form. Existing written procedures require this documentation. 

* Three sample items did not have documentation of cash drawer counts 
to confirm amounts, detect differences, and document daily cash 
activity. Existing written procedures require this documentation. 

* Weekly deposit envelopes and monthly reconciliations did not have 
evidence of review. While the reconciliation form has a place for a 
reviewer sign-off, it was blank for all sample items we tested. 
Existing procedures did not require documentation of review. 

* The "Notes" sections of the daily and weekly cash sheets did not 
document reasons for manual corrections to amounts on the "X" and "Z" 
reports.[Footnote 1] Existing procedures did not require this 
documentation. 

None of the issues noted above resulted in an incorrect receipt being 
deposited into the revolving fund. However, they did indicate that 
personnel were not always adhering to existing Gift Shop accounting 
procedures regarding the processing of receipts or existing procedures 
were lacking detail. Such procedural deficiencies were primarily 
caused by Gift Shop personnel focusing on the operational aspects of 
their jobs without updating written procedures to document changes 
that occurred over time. Complete and current policies and procedures 
are internal control activities that provide important controls to 
guide staff, particularly new personnel, in performing their daily 
tasks effectively. Control activities, including policies and 
procedures, help ensure that management's directives are carried out 
in an effective and efficient manner to accomplish control objectives. 
They also help ensure actions are taken to address risks and are an 
integral part of planning, implementing, reviewing, and accountability 
for stewardship of government resources and achieving effective 
results. 

Cash Disbursements for Fiscal Year 2010: 

Table 2 below presents the Gift Shop's recorded cash disbursements by 
type for fiscal year 2010 paid from the revolving fund. 

Table 2: Senate Gift Shop Recorded Cash Disbursements by Type for the 
Fiscal Year Ended September 30, 2010: 

Type: Inventory purchases for resale; 
Amount: $1,360,213. 

Type: Supplies expense; 
Amount: $9,641. 

Type: Shipping expense; 
Amount: $9,531. 

Type: Other services expense; 
Amount: $2,165. 

Total recorded cash disbursements: 
Amount: $1,381,550. 

Source: GAO, compiled from Senate Gift Shop records. 

[End of table] 

We found that recorded cash disbursements were approved, accurately 
recorded, and supported by appropriate documentation. We also found no 
instances in which Gift Shop personnel did not adhere to the shop's 
written disbursement policies and procedures. We further found cash 
accounting procedures to be generally accurate and up-to-date. 
However, we found that the monthly reconciliation form has a place for 
a reviewer sign-off, but it was blank for all sample items tested and 
a review was not a specified procedure. 

Review of Inventory Accounting Procedures: 

We found that the Gift Shop's existing written inventory accounting 
procedures were sufficiently complete and current to effectively 
account for and control Gift Shop inventory purchases, sales, and on- 
hand items. 

We found that the accounting records of the Senate Gift Shop valued 
its total inventory at $2,968,126 as of September 30, 2010, and total 
physical counts valued the inventory at $3,527 less. While we found 
that some physical item quantities were less than the recorded 
quantities, indicating a recording error or possible shortage, other 
physical inventory amounts were more, indicating a recording error; 
with the net variance amounting to about 0.001 percent of the 
inventory value. The Gift Shop accordingly adjusted its accounting 
records to reflect the actual quantity and value on hand. We concluded 
that the Gift Shop's physical inventory procedures provided reasonable 
assurance that it appropriately accounted for physical quantities on 
hand and that items were safeguarded from theft and loss. 

Recommendations for Executive Action: 

We recommend that the Secretary of the Senate direct Senate Gift Shop 
management to: 

1. update existing written procedures for cash receipts and cash 
disbursements to include: 

* documented reviews of weekly deposit envelopes (cash receipts), 

* a description of any manual adjustments to amounts on "X" and "Z" 
reports in the "Notes" section of Daily and Weekly Cash Sheets (cash 
receipts), and: 

* documented reviews of monthly reconciliations (cash receipts and 
disbursements). 

2. disseminate updated accounting procedures, train personnel as 
necessary, and establish a mechanism to provide for subsequent review 
of activities for compliance. 

Agency Comments and Our Evaluation: 

The Secretary of the Senate was provided a draft of this report. In 
commenting on the draft report, the Secretary of the Senate stated 
that she agreed with the report's recommendations. She further stated 
that Gift Shop management is in the process of implementing the 
recommendations, citing the fact that the Gift Shop's procedures are 
being better documented as an example. The Secretary of the Senate 
also provided technical comments, which we incorporated as appropriate. 

We are sending copies of this report to the Secretary and interested 
congressional committees. In addition, the report will be available at 
no charge on GAO's Web site at [hyperlink, http://www.gao.gov]. 

Should you or your staff have any questions concerning this report, 
please contact me at (202) 512-3406 or at sebastians@gao.gov. Key 
contributors to this engagement were Roger R. Stoltz, Jacquelyn N. 
Hamilton, Tory E. Wudtke, Taya R. Tasse, and Brian S. Harechmak. 

Signed by: 

Steven J. Sebastian:
Director:
Financial Management and Assurance: 

Enclosure: 

[End of section] 

Enclosure: Objectives, Scope, and Methodology: 

Cash Receipts: 

To achieve our audit objective with respect to cash receipts, we 
gained an understanding of the accounting policies and procedures for 
cash receipts by reviewing Senate Gift Shop control activities and 
documenting them. Using an attribute sampling method, we selected a 
sample of recorded cash receipts to statistically test the nearly $1.6 
million universe of receipts for fiscal year 2010. Our tests included 
recalculation of amounts, review of adherence to established policies 
and procedures, and review of supporting documentation for cash 
receipts. 

We developed the sample of cash receipts from a population of the 242 
days in which the Gift Shop was open for business during fiscal year 
2010. Days were selected as the universe due to the nature of daily 
reconciliations of cash drawers and the weekly deposit of receipts 
with the Senate Disbursing Office. We excluded weekends, federal 
holidays, inclement weather closures, and days the Gift Shop was 
closed for inventory counts. Using IDEA sampling software, we selected 
a random sample of 30 days from the population for detailed testing. 

We developed a data collection instrument based on the Gift Shop's 
written cash receipts policies and procedures and the shop's Desk 
Procedures for the Accounts Administrator. We recalculated cash drawer 
reports, daily totals, weekly deposits, and monthly reconciliations. 
We verified refund controls, evidence of reviews, and existence of 
control activities. 

Cash Disbursements: 

To achieve our audit objective with respect to cash disbursements, we 
gained an understanding of the accounting policies and procedures for 
cash disbursements by reviewing Senate Gift Shop control activities 
and documenting them. Using monetary unit sampling (MUS), we selected 
a sample of recorded cash disbursements to statistically test the 
universe of nearly $1.4 million cash disbursements for fiscal year 
2010. Our tests included recalculation of amounts, review of adherence 
to established policies and procedures, and review of supporting 
documentation for disbursements. 

We developed the sample of cash disbursements from the universe of 
invoices paid by the Gift Shop during fiscal year 2010. Invoices were 
selected due to the assignment of unique numerical identifiers to 
invoices and the required documentation to support invoice payment. 
From its accounting system, the Gift Shop provided a listing of 469 
invoices that were paid during fiscal year 2010. Using MUS, we 
selected a random sample of 25 invoices from the universe for detailed 
testing. 

We developed a data collection instrument based on the Gift Shop's 
written cash disbursement policies and procedures documented and the 
shop's Desk Procedures for the Accounts Administrator. We recalculated 
amounts on purchase orders, receiving reports, invoices, general 
ledgers, and invoice batches. We verified vendors "Made in America" 
[Footnote 2] compliance, safety verifications,[Footnote 3] evidence of 
reviews and approval, and existence of proper documentation. 

Inventory: 

To achieve our audit objective with respect to inventory, we gained an 
understanding of the accounting policies and procedures for inventory 
by reviewing Senate Gift Shop control activities and documenting them. 
We also observed shop personnel counting physical inventories at the 
end of September 2010 for completeness and accuracy, reviewed the 
results of the counts, examined how differences between physical 
counts and book records were reconciled, and observed how inventory 
was properly safeguarded from theft or loss. 

We performed our work in the Washington, D.C. area from August 2, 
2010, through January 28, 2011. We conducted this performance audit 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. 

[End of section] 

Footnotes: 

[1] "X" and "Z" reports are system generated based on opening and 
closing of registers. 

[2] The Secretary of the Senate, when disbursing public moneys, is 
required by statute to purchase only goods of U.S. origin as long as 
the domestic item can be purchased upon as good terms as to quality 
and price as would exist if the foreign item were purchased (2 U.S.C. 
§109). 

[3] Vendors are to certify that items they sell comply with the 
Consumer Product Safety Improvement Act of 2008. 

[End of section] 

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