General Government
An Audit Report on The Accuracy of the Fiscal Year 2001 Balance Sheets for the State's Telecommunications Systems
May 2002
Report Number 02-045
Overall Conclusion
The General Services Commission (GSC) provided inaccurate balance sheets for the State's telecommunications systems to the Department of Information Resources (DIR) when these systems were transferred from GSC to DIR on September 1, 2001. The total net combined equity of the Texas Agency Network (TEX-AN) and the Capitol Complex Telephone System (CCTS) was understated by at least $5.3 million on GSC's fiscal year 2001 internal balance sheets for these two systems. GSC was abolished effective September 1, 2001, and the newly created Texas Building and Procurement Commission (TBPC) subsequently assumed most of its responsibilities.
Key Facts and Findings
- This $5.3 million understatement we identified is the sum of two sets of
errors:
- GSC's Accounting Department made errors that resulted in the aggregate
understatement of $10.1 million in assets for both TEX-AN and CCTS. The
Accounting Department failed to manage and analyze the data on the internal
balance sheets. This was the primary reason for the number and significance
of the errors we identified.
- GSC's Telecommunications Services Division, which managed TEX-AN and
CCTS and was transferred from GSC to DIR on September 1, 2001, made errors
that resulted in the understatement of between $3.6 million and $4.8 million
in liabilities on the balance sheet for TEX-AN.
- GSC's Accounting Department made errors that resulted in the aggregate
understatement of $10.1 million in assets for both TEX-AN and CCTS. The
Accounting Department failed to manage and analyze the data on the internal
balance sheets. This was the primary reason for the number and significance
of the errors we identified.
- These errors unnecessarily complicated the transfer of the management of
TEX-AN and CCTS to DIR. Therefore, DIR's ability to make timely management
decisions regarding TEX-AN and CCTS was limited because of uncertainty about
the accuracy of the financial data GSC provided.
- The errors in the TEX-AN balance sheet also impaired GSC's ability to manage
this program as a cost recovery program. The adjusted TEX-AN balance
sheet shows that GSC financed TEX-AN's reported loss of $9.5 million in fiscal year 2001 largely by spending cash left over from fiscal year 2000. After sustaining the $9.5 million loss, TEX-AN still had a net equity (the amount by which assets exceed liabilities) of $2.1 million at the end of fiscal year 2001.
- Project delays, poor vendor performance, and GSC management decisions associated
with an upgrade to TEX-AN telecommunications systems were major contributing
factors in TEX-AN's fiscal year 2001 $9.5 million loss. DIR is aware of these
vendor performance issues and its responsibility for ensuring that these telecommunications
systems and vendor contracts are appropriately managed. These system upgrade
problems resulted in additional expenditures
of $12 million and reduced revenues by $3.9 million in fiscal year 2001. Additional causes for this loss included:
- The lack of effective cost accounting systems, which made ongoing monitoring
of costs difficult.
- Failure to identify services the State no longer uses and have vendors
disconnect these services, despite the fact that staff positions to perform
these tasks existed but were not filled.
- Lack of adequate systems to ensure that TEX-AN customers reimbursed
GSC for all charges GSC paid to vendors.
- The lack of effective cost accounting systems, which made ongoing monitoring
of costs difficult.
Contact the SAO about this report.
Download the PDF version of this report. (02-045.pdf)
HTML Equivalent (utilizing Adobe's PDF Conversion by Simple Form).