Consolidating Financial Statements

February 26, 1998

MEMORANDUM FOR DAVID J. BARRAM
ADMINISTRATOR (A)

THOMAS R. BLOOM
CHIEF FINANCIAL OFFICER (B)

FROM: WILLIAM R. BARTON
INSPECTOR GENERAL (J)

SUBJECT: Audit of the General Services
Administration's Fiscal Years 1997 and 1996
Financial Statements

This letter transmits Arthur Andersen LLP's (AA LLP) report on its Fiscal Years 1997 and 1996 financial statements audit of the General Services Administration (GSA), and the Office of Inspector General's (OIG) report on selected performance measures.

Audit of Financial Statements and Management's Assertion Regarding Its Internal Controls

The Chief Financial Officers (CFO) Act of 1990 (P.L. 101-576) requires GSA's Inspector General or an independent external auditor, as determined by the Inspector General, to audit the Agency's financial statements. Under a contract monitored by the OIG, AA LLP, an independent public accounting firm, performed the audit of GSA's Fiscal Years 1997 and 1996 financial statements. The contract required that the audit be performed in accordance with Government Auditing Standards issued by the Comptroller General of the United States, and the Office of Management and Budget's Bulletin No. 93-06, "Audit Requirements for Federal Financial Statements."

AA LLP issued unqualified opinions on GSA's Fiscal Years 1997 and 1996 consolidated and individual funds' (Federal Buildings Fund, General Supply Fund, and Information Technology Fund) financial statements. Also, as of September 30, 1997, AA LLP issued an unqualified opinion on GSA management's assertion regarding the internal controls over financial reporting and reported one instance of noncompliance with laws and regulations. In addition, AA LLP reported an update to the status of a 1996 non-compliance issue.

The instances of noncompliance disclosed were:

· The Office of Inspector General reported a violation of the Public Buildings and Anti-Deficiency Acts related to the repair and alterations of a building for the 1997 Presidential Inaugural Committee; and

· In 1996, the Office of Inspector General reported a violation of the Debt Collection Act regarding GSA's legal authority to compromise the debt for the sale of the U.S. Custom House to the City of Boston. GSA management believes it has authority to compromise debts related to the sale of surplus property. In 1997, both the Office of Management and Budget (OMB) and the General Accounting Office (GAO) issued advisory legal opinions on this matter, with OMB agreeing with the Agency's position and GAO finding that GSA did not have the authority to compromise such debts. While GSA management considers this matter to be closed, the Office of Inspector General still seeks a final and binding resolution.

OIG Evaluation of AA LLP's Audit Performance

To ensure the quality of the audit work performed, we conducted a review of AA LLP's audit of GSA's Fiscal Years 1997 and 1996 financial statements. Specifically, we:

· reviewed AA LLP's approach and planning of the audit;

· evaluated the qualifications and independence of the auditors;

· monitored the progress of the audit at key points;

· examined working papers related to assessing internal controls over GSA's financial reporting process and reviewed AA LLP's audit report;

· coordinated issuance of the audit report; and

· performed other procedures we deemed necessary.

However, due to the timing for completing the GSA Fiscal Year 1997 Annual Report, we have not completed our review of the working papers prepared by AA LLP.

AA LLP is responsible for the attached auditor's report dated November 19, 1997 (except with respect to the matter discussed in the section entitled Findings about Compliance with Certain Laws and Regulations, as to which the date is December 15, 1997) and the conclusions expressed therein. Our review, as differentiated from an audit in accordance with generally accepted government auditing standards, was not intended to enable us to express, and accordingly we do not express, an opinion on GSA's financial statements or management's assertion about the effectiveness of its internal controls; or the report on compliance with laws and regulations. However, our review, as qualified above, disclosed no instances where AA LLP did not comply with generally accepted government auditing standards.

Audit of Selected Performance Measures

We did not contract with AA LLP to perform audit work to determine the adequacy of information presented in the financial statements with respect to reported performance measures. However, in our continuing effort to implement the CFO Act as prescribed by the Office of Management and Budget, we completed a review of two performance measures: Federal Technology Service's (FTS) "Minutes of Use," and the Federal Supply Service's (FSS) "Savings Over Competition for the Market Basket." Our preliminary risk assessment of the internal controls over the FTS "Minutes of Use" is low. Regarding the FSS Market Basket performance measure, FSS decided not to report this measure in the Fiscal Year 1997 Annual Report as a result of issues raised during our review. Accordingly, we are not reporting a preliminary risk assessment of the internal controls over this performance measure.

We appreciate the courtesies and cooperation extended to Arthur Andersen LLP and to the Office of Inspector General audit staff during the conduct of the audit and review. If you or your staff have any questions, please contact William E. Whyte, Jr., Assistant Inspector General for Auditing or me.

Report of Independent Public Accountants

To the Inspector General of the United States General Services Administration:

This report presents our unqualified opinions on

· the fiscal year 1997 and 1996 financial statements and supplemental schedules of the United States General Services Administration (GSA), and its three primary revolving funds -- the Federal Buildings Fund (FBF), the General Supply Fund (GSF) and the Information Technology Fund (ITF);

· management's assertion that the FBF, the GSF and the ITF maintained effective internal control structures over financial reporting at September 30, 1997; and

· management's assertion that GSA maintained an effective internal control structure over financial reporting for the consolidated financial statements at September 30, 1997.

This report also presents our findings about GSA's compliance with certain laws and regulations and management's assertion regarding the internal control structures over financial reporting of GSA and the individual funds referred to above. Lastly, this report describes management's responsibilities for financial reporting, the internal control structures over financial reporting and compliance with laws and regulations and our responsibilities for auditing the financial statements, examining management's assertion relating to internal control structures over financial reporting and reporting on GSA's compliance with laws and regulations.

Opinions on Financial Statements

In our opinion, the consolidated financial statements of GSA (GSA Consolidated), and the individual fund financial statements of the FBF, GSF and ITF as of and for the years ended September 30, 1997 and 1996, present fairly, in all material respects, the

· financial position of GSA Consolidated and the FBF, GSF and ITF as of September 30, 1997 and 1996, and

· the results of operations of GSA Consolidated and the FBF, GSF and ITF for the years ended September 30, 1997 and 1996,

in conformity with the accounting principles described in Note 1 to the financial statements, which constitute a comprehensive basis of accounting other than generally accepted accounting principles.

As discussed in Note 1-B, effective October 1, 1996, GSA implemented Statement of Federal Financial Accounting Standards No. 5, "Accounting for Liabilities of the Federal Government."
We did not audit and, accordingly, are unable to express and do not express, an opinion on the financial statements of funds included within Other Funds as of and for the years ended September 30, 1997 and 1996.

Supplemental Schedules

Our audits were made for the purpose of forming opinions on the consolidated and individual fund financial statements referred to above, each taken as a whole. The Supplemental Consolidating Statements of Cash Flows for the years ended September 30, 1997 and 1996 and the Supplemental Schedules of Other Budgetary Results as of and for the years ended September 30, 1997 and 1996, are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in our audits of the 1997 and 1996 consolidated and individual fund financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the 1997 and 1996 consolidated and individual fund financial statements, each taken as a whole.

Other Information

Our audits were performed for the purpose of expressing opinions on the 1997 and 1996 consolidated and individual fund financial statements referred to above. The other information contained in the Annual Report is presented for purposes of additional analysis and is not a required part of the basic financial statements under the comprehensive basis of accounting described in Note 1-B to the financial statements. However, the information contained in the section entitled "GSA's Organization and Performance" is a required part of the financial statements under Office of Management and Budget (OMB) Bulletin 94-01. This information has not been subjected to the auditing procedures applied in our audits of the 1997 and 1996 consolidated and individual fund financial statements and, accordingly, we express no opinion on it.

Opinions on Management's Assertion Regarding the Internal Control Structures Over Financial Reporting

In our opinion, management's assertion (included in its representation letter to us dated November 19, 1997) is fairly stated, in all material respects, based on the objectives stated below in relation to GSA's consolidated financial statements and each Fund's financial statements. Management's assertion, based on its evaluation required under the Federal Managers' Financial Integrity Act and the results of our audits, is that, as of September 30, 1997, it maintained effective internal control structures over financial reporting for GSA Consolidated, the Federal Buildings Fund, the General Supply Fund and the Information Technology Fund.

The objectives of an internal control structure over financial reporting are to provide management with reasonable, but not absolute, assurance that:

· Assets are safeguarded against loss from unauthorized use or disposition.

· Transactions are executed in accordance with budgetary authority and with the laws and regulations to which GSA and each Fund are subject.

· Transactions are recorded properly to maintain accountability over assets and to permit the preparation of GSA's and each Fund's financial statements in accordance with the comprehensive basis of accounting described in Note 1-B to the financial statements.

Because of inherent limitations in any internal control structure over financial reporting, errors or irregularities may occur and not be detected. Also, projection of any evaluation of an internal control structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate.

Under standards established by the American Institute of Certified Public Accountants, reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure over financial reporting that, in our judgment, could adversely affect GSA's ability to record, process, summarize, and report financial data consistent with the assertions of management in the consolidated and individual fund financial statements.

A material weakness is a reportable condition in which the design or operation of the internal control structure over financial reporting does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.

As discussed in management's assertion, the following reportable conditions, none of which we believe to be a material weakness, existed in the design or operation of the internal control structure over financial reporting in effect at September 30, 1997 for GSA Consolidated and the indicated fund. The reportable conditions are more
fully described in a separate letter to management of GSA dated
November 19, 1997.

Reportable Conditions

Federal Buildings Fund

1. Although, the Public Buildings Service (PBS) has addressed certain deficiencies in its internal control structure that were reported in prior years, sustained attention to improving its business and financial processes is required to effectively assess, improve and report the results of program performance.

2. In fiscal years 1994 through 1996, we reported that procedures to identify completed construction projects were insufficient to ensure the accuracy of property account classifications. In fiscal year 1997, procedures continued to be insufficient. As a result, reclassifications among property accounts of $130 million were recorded in the financial statements.

3. In accordance with the comprehensive basis of accounting described in Note 1-B to the financial statements, an asset and related liability should be recorded for capital leases. PBS did not properly conclude that the lease for the Atlanta Federal Building constituted a capital lease. As such, assets and liabilities were understated by $256 million in FBF's financial statements.

General Supply Fund

4. The design of the security and access controls over the Federal Supply Service's information systems require improvement to prevent and detect errors or irregularities that could occur due to intentional or unintentional changes in programs or data. These weaknesses could result in a misappropriation of assets or misstatement of financial or operating information.

These matters were considered by us during our audits of the financial statements and our examinations of management's assertion relating to GSA's and each Fund's internal control structure and do not modify the opinions expressed above. We also noted other matters involving the design or operation of the internal control structures that we have reported to management of GSA in a separate letter dated November 19, 1997.

Findings About Compliance With Certain Laws and Regulations

We performed tests of GSA's compliance with certain provisions of laws and regulations, noncompliance with which could have a direct and material effect on the determination of financial statement amounts and certain other laws and regulations specified in OMB Bulletin 93-06, as amended, including the requirements referred to in the Federal Financial Management Improvement Act (FFMIA) of 1996.

Under FFMIA, we are required to report whether GSA's financial management systems substantially comply with Federal financial management systems requirements, applicable accounting standards, and United States Standard General Ledger requirements. To meet this requirement, we performed tests of compliance using the implementation guidance for FFMIA issued by OMB on September 9, 1997.
The results of our tests of compliance with laws and regulations disclosed the following instances of noncompliance that are required to be reported under Government Auditing Standards (1994 Revision) and OMB Bulletin 93-06, as amended. Additionally, the results of our tests disclosed no instances where GSA's financial management systems did not substantially comply with the requirements of FFMIA discussed above. However, the objective of our audits of the GSA Consolidated and individual Fund financial statements was not to provide an opinion on overall compliance with provisions of certain laws and regulations. Accordingly, we do not express such an opinion.

Additionally, the objective of our audits was not to determine whether GSA's systems are Year 2000 compliant. GSA's management is solely responsible for Year 2000 compliance for its systems and any other systems that impact GSA's operations, such as those of GSA's vendors, service providers, or any other third parties. Accordingly, we have no responsibility to determine, and provide no assurance on, whether GSA has addressed or will be able to address the affected systems on a timely basis.

In November 1997, the Office of Inspector General issued a final report noting that PBS violated the Public Buildings and Anti-Deficiency Acts by incurring costs in excess of the prospectus level without prior approval from Congress. These costs, which approximated $3.3 million, were related to renovation work in the Suitland Federal Building No. 2. The OIG report is currently being addressed through GSA's formal audit follow up system.

In July 1996, the Office of Inspector General reported that GSA "exceeded its legal authority when restructuring the debt for the sale of the U.S. Custom House to the City of Boston," resulting in a violation of the Debt Collection Act. GSA's Office of General Counsel "is of the opinion that GSA was well within its statutory authorities on all aspects of the U.S. Custom House transaction." The Office of General Counsel of the Office Management and Budget reviewed this issue, and on May 19, 1997, issued an opinion supporting GSA's authority to compromise the City of Boston's debt. On December 15, 1997, in response to the request of the Office of Inspector General, the General Accounting Office's (GAO) Office of General Counsel concluded that GSA does not have the authority to compromise this debt under Section 204 (g) of the Federal Property and Administrative Services Act of 1949. GAO suggested that GSA "formally request a decision from the Attorney General interpreting Section 204 (g)" as the Attorney General has the sole authority to compromise debts exceeding $100,000. GSA management considers this matter closed. The issue is still under consideration by the Office of Inspector General.

Management's Responsibilites

Management is responsible for:

· Preparing the financial statements and supplemental schedules referred to above in conformity with the comprehensive basis of accounting described in Note 1-B to the financial statements and for preparing the other information contained in the Annual Report.

· Establishing and maintaining internal control structures over financial reporting. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures.

· Complying with laws and regulations applicable to GSA.

Auditors' Responsibilities

We have audited the accompanying consolidated financial statements of GSA (GSA Consolidated) as of and for the years ended September 30, 1997 and 1996. Also, we have audited the individual fund financial statements of the FBF, GSF and ITF as of and for the years ended September 30, 1997 and 1996. Our responsibility is to express an opinion on these financial statements and management's assertion on the internal control structures based on our audits and examinations.

We conducted our financial statements audits in accordance with generally accepted auditing standards, the standards for financial audits contained in Government Auditing Standards (1994 Revision) issued by the Comptroller General of the United States, and OMB Bulletin 93-06, as amended, except for paragraph 6.a.(3) relating to data that support reported performance measures. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our financial statement opinions.

Also, we have examined management's assertion (included in its representation letter to us dated November 19, 1997) that, as of September 30, 1997, GSA, the Federal Buildings Fund, the General Supply Fund and the Information Technology Fund maintained effective internal control structures over financial reporting. These examinations were made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included obtaining an understanding of the internal control structure over financial reporting, testing and evaluating the design and operating effectiveness of the internal control structure, and such other procedures as we considered necessary in the circumstances. We believe that our examinations provide a reasonable basis for our opinions on management's assertion on the internal control structures.

As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of GSA's compliance with certain provisions of laws and regulations.

We have read the other information presented in the Annual Report and considered whether such information, or the manner of its presentation, is materially inconsistent with the information, or the manner of its presentation, appearing in the financial statements. If based on such reading, we believe that there is a material inconsistency, we would be required to determine whether the financial statements, our report or the other information should be revised.
This report is intended for the information of the Inspector General and management of GSA. However, this report is a matter of public record, and its distribution is not limited.

/s/Arthur Andersen LLP
Washington, D.C.,
November 19, 1997 (except with respect to the matter discussed in the section entitled Findings About Compliance With Certain Laws and Regulations, as to which the date is December 15, 1997)

IG Report on Selected Performance Measures

February 26, 1998

MEMORANDUM FOR DAVID J. BARRAM
ADMINISTRATOR (A)

THOMAS R. BLOOM
CHIEF FINANCIAL OFFICER (B)

FROM: WILLIAM R. BARTON
INSPECTOR GENERAL (J)

SUBJECT: Report on Selected Performance Measures

This report presents our conclusions regarding our preliminary risk assessment of the internal controls over the data supporting selected Agency performance measures. The report also describes the auditors' responsibilities for conducting performance measure reviews.

Results of Audit

We assigned a "low" risk assessment to the Federal Technology Service (FTS), "Minutes of Use" performance measure. We did not assign a risk assessment to the Federal Supply Service (FSS) "Savings Over Competition for the Market Basket," because FSS elected to omit this measure from the Annual Report as a result of issues raised during our review.

We will be issuing separate reports to the Commissioners, FTS and FSS, as well as the Chief Financial Officer, discussing in detail, the results of our reviews. These reports will also address the suitability of this data for performance measure purposes.

Scope and Methodology

The Office of Management and Budget's (OMB) Bulletin No. 93-06, "Audit Requirements for Federal Financial Statements," paragraph 6a(3), requires the auditor to obtain an understanding of the internal control structure and to assess the control risk that the Agency's plan of organization and policies and procedures provide reasonable assurance that the data supporting the reported performance measures exist and are complete, so as to permit preparation of reliable and complete performance information.

Under a contract monitored by the Office of Inspector General (OIG), Arthur Andersen LLP (AA LLP), an independent public accounting firm, performed the audit of GSA's Fiscal Years 1997 and 1996 financial statements. We did not contract with AA LLP to perform the additional performance measure audit work. However, in our continuing effort to implement the Chief Financial Officers (CFO) Act, as prescribed by the OMB, we initiated reviews of two selected performance measures: 1) Federal Technology Service "Minutes of Use" and 2) Federal Supply Service "Savings Over Competition for the Market Basket."

Audit standards define control risk as the risk that a material misstatement could occur in any of the five financial statement assertions (existence or occurrence, completeness, rights and obligations, valuation or allocation, or presentation and disclosure) and would not be prevented or detected on a timely basis by the entity's internal control structure policies and procedures. For these audits, in accordance with OMB Bulletin No. 93-06, we limited our work to assessing the control risk over the two financial statement assertions of existence and completeness described in AU Section 319.45 of the AICPA's Codification of Statements on Auditing Standards. Also, relative to these assertions, our reviews did not include testing whether the internal controls over the data, the systems, or the reporting of the data from the systems in support of the performance measures were properly designed and operating effectively. As a result, we provide no opinion regarding the accuracy of the performance measures that were selected or not selected. Because we did not perform tests of the effectiveness of the control procedures for this internal control structure, our assertions of control risk should be considered preliminary assessments.

U.S. General Services Administration, Consolidating Statements of Operations For the Fiscal Years Ended September 30, 1997 and 1996 (Dollars in Millions)

U.S. General Services Administration, Consolidating Statements of Financial Position As of September 30, 1997 and 1996 (Dollars in Millions)

U.S. General Services Administration, Notes to Consolidating Financial Statements For the Fiscal Years Ended September 30, 1997 and 1996

ORGANIZATION

The U.S. General Services Administration (GSA) was created by the U.S. Federal Property and Administrative Services Act of 1949, as amended (the Act). The U.S. Congress enacted this legislation to provide for the Federal Government an economic and efficient system for the procurement and operation of buildings, procurement and distribution of general supplies, acquisition and management of a motor vehicle fleet, management of automated data processing resources, and management of telecommunications programs.

The Administrator of General Services, appointed by the President of the United States with the advice and consent of the U.S. Senate, oversees the operations of GSA. GSA carries out its responsibilities through the operation of several appropriated and revolving funds.

1. SIGNIFICANT ACCOUNTING POLICIES

A. Reporting Entity

For its principal financial statements, GSA uses a consolidating format to display its three largest revolving funds; the Federal Buildings Fund (FBF), General Supply Fund (GSF), and Information Technology Fund (ITF). All other funds have been combined under Other Funds.

The accompanying consolidating financial statements of GSA include the accounts of all funds under GSA control which have been established and maintained to account for resources of GSA management. The entities included in the Other Funds category are as follows, with a discussion of the different fund types.

Revolving Funds are accounts established by law to finance a continuing cycle of operations with receipts derived from such operations usually available in their entirety for use by the fund without further action by the U.S. Congress. The revolving funds in the Other Funds category consist of the following:

Consumer Information Center Fund
Land Acquisition and Development Fund
Pennsylvania Avenue Activities Fund
Working Capital Fund

General Funds are accounts used to record financial transactions arising under congressional appropriations or other authorizations to spend general revenues. GSA manages 13 General Fund accounts of which three are funded by current year appropriations, two by no-year appropriations, and eight cannot incur new obligations. The general funds included in the Other Funds category are as follows:

Allowances and Office Staff for Former Presidents
Budget Clearing Account
Excess and Surplus Real and Related Personal
Property Holding Account
Expenses, Presidential Transition
Office of Inspector General
Office of Inspector General (Automation Program)
Operating Expenses, Federal Property
Resources Service
Operating Expenses, General Services Administration
Operating Expenses, Information Resources
Management
Operating Expenses, Personal Property
Real Property Relocation
Salaries and Expenses, General Management and
Administration
Salaries and Expenses, Pennsylvania Avenue
Development Corporation

Special Funds are accounts established for receipts earmarked by law for a specific purpose, but are not generated by a cycle of operations for which there is continuing authority to reuse such receipts. GSA uses Special Fund receipts to pay certain costs associated with the disposal of surplus real property and for funding of the Transportation Audits Program. GSA's special funds consist of the following:

Expenses, Disposal of Real and Related Personal Property
Expenses, Transportation Audits
Operating Expenses, Disposal of Real and Related Personal Property
Other Receipts, Surplus Real and Related Personal Property
Receipts of Rent, Leases and Lease Payments for
Government Owned Real Property
Receipts, Transportation Audits
Transfer of Surplus Real and Related
Personal Property

Deposit Funds accounts hold monies outside the budget. Accordingly, their transactions do not affect budget surplus or deficit. These accounts include (1) deposits received for which GSA is acting as an agent or custodian, (2) unidentified remittances, (3) monies withheld from payments for goods and services received, and (4) monies whose distribution awaits a legal determination or investigation. The deposit funds in the Other Funds category consist of the following:

Credits for Withholding and Contributions, Civil Service Retirement and Disability Fund
Employees' Payroll Allotment Account,
U.S. Savings Bonds
Proceeds from Sale of Surplus Property
Reserve for Purchase Contract Projects
Suspense
Suspense, Transportation Audits
Unconditional Gifts of Real, Personal or
Other Property
Withheld State and Local Taxes

B. Basis of Accounting

The Consolidating Financial Statements are prepared in accordance with generally accepted accounting principles under the heirarchy prescribed by the Federal Accounting Standards Advisory Board (FASAB) as follows:

1. Individual standards agreed to and published by the JFMIP Principals.

2. Form and content requirements included in OMB Bulletin 93-02, dated October 22, 1992, and subsequent issuances.

3. Accounting standards contained in agency accounting policy, procedures manuals, and/or related guidance as of March 29, 1991, so long as they are prevalent practices.

4. Accounting principles published by other authoritative standard-setting bodies and other authoritative sources (a) in the absence of other guidance in the first three parts of this hierarchy, and (b) if the use of such accounting principles improves the meaningfulness of the financial statements.

With the approval of OMB, GSA's financial statements are prepared using formats different than those prescribed in OMB Bulletin 94-01, "Form and Content of Agency Financial Statements." In the opinion of GSA's management, the financial statement formats currently in use go beyond the OMB prescribed formats to provide a better presentation of GSA's financial results.

Effective October 1, 1996, GSA adopted FASAB Statement of Federal Financial Accounting Standards Number 5, "Accounting for Liabilities of the Federal Government," and FASAB Interpretation Number 2, "Accounting for Treasury Judgment Fund Transactions."

Under this standard, reporting entities must now recognize costs incurred in the Federal government that arose as a result of, or can be assigned to such entities, regardless of the ultimate funding source or level of management involvement or control. Accordingly, GSA recorded $68 million of costs for employee pension and post-retirement benefit plans and a corresponding imputed financing source in its fiscal year 1997 financial statements (see Note 4). Additionally, GSA recorded a liability and a reduction to Equity of the U.S. Government amounting to $127 million for certain legal situations (see Note 6).

Additional FASAB standards related to managerial accounting, property plant and equipment, revenues and financing sources, and stewardship reporting are required to be implemented beginning in fiscal year 1998.

The most significant impact of implementing these standards will be to GSA's financial statement presentation and footnote disclosures in accordance with the standards and OMB Bulletin 97-01, "Formats and Instructions for the Form and Content of Agency Financial Statements," both of which will require significant changes to the current financial statement presentation. Generally, there will be no significant impact of these standards on GSA's financial position and results of operations.

In accordance with Statement of Federal Financial Accounting Standards Number 1, "Accounting for Selected Assets and Liabilities," balances on the Statements of Financial Position must differentiate assets and liabilities as being either "intragovernmental" or "governmental." In the Statements of Financial Position, intragovernmental assets and liabilities are generally indicated as "Federal." In addition, all Earnings Payable to Treasury, $149 million and $114 million, respectively, of Deferred Revenue balances, and $65 million and $39 million, respectively, of balances in Other Long-term Liabilities at September 30, 1997 and 1996, are considered Federal. All other assets and liabilities are governmental in nature as defined in the standard.

Certain prior year balances have been reclassified to conform with the current year's presentation.

All significant intra-agency balances and transactions have been eliminated in consolidation.

C. Revenue Recognition and Expended Appropriations

Generally, Revolving Fund revenue is recognized when goods have been delivered or services rendered. Revenue under nonrecurring reimbursable building repair and alteration projects is recognized under the percentage-of-completion method.

Appropriations for General Fund and Special Fund activities are recorded as a financing source when expensed. Unexpended appropriations are recorded as equity of the U.S. Government.

D. Reimbursements

Certain work performed for other Federal agencies and entities is initially financed through General Funds and subsequently reimbursed by such clients.

Reimbursements are recognized as revenues when the related expenses are incurred. In fiscal years 1997 and 1996, these reimbursable services amounted to $10 million and $96 million, respectively, after elimination of intra-GSA transactions. Reimbursable services included activities such as Federal employee training, accounting and various professional services.

GSA is authorized to collect reimbursement for the majority of its internal operating expenses rather than relying on direct appropriations from the U.S. Congress. Activities such as GSA's Office of Administration, Office of the Chief Financial Officer, and Office of General Counsel are reimbursable from the other GSA funds using these services.

Reimbursable income in these activities totaled $165 million and $172 million in fiscal years 1997 and 1996, respectively.

E. Funds with U.S. Treasury

This total represents all unexpended balances for GSA's accounts with the U.S. Treasury. Amounts in Funds with U.S. Treasury are based on the balances recorded by GSA in the National Electronic Accounting and Reporting (NEAR) system. No significant differences existed between the total balance reported by GSA and those reported by the Department of the Treasury at September 30, 1997 and 1996.

Included in GSA's accounts are certain amounts that may be transferred to either the U.S. Treasury or the Land and Water Conservation Fund (see Note 1-H). These amounts, related to the Transportation Audits program and surplus real property disposals, are subject to transfer subsequent to GSA's determination of the internal working capital needs of these programs. Such amounts totaled $78 million and $84 million at September 30, 1997 and 1996, respectively, of which $15 million and $29 million were recorded as liabilities in the Statements of Financial Position.

At the end of fiscal year 1997 and 1996, respectively, $5 million and $6 million in Funds with Treasury were no longer available for expenditure. Of these amounts, $4 million and $6 million were transferred back to the Special Fund Receipt Account from which it was appropriated, and the balance returned to Treasury.

In accordance with Statement of Federal Financial Accounting Standards Number 1, "Accounting for Selected Assets and Liabilities," the following information is provided to further identify amounts in Funds with U.S. Treasury as of September 30, 1997 against which obligations have been made, and, for unobligated balances, to identify amounts budgetarily available for future expenditures and those only available to liquidate prior obligations (dollars in millions).

F. Inventories

Operating supplies, which are consumed in operations, are valued at the lower of cost, determined principally on the first-in, first-out method, or market. Inventories held for sale to other Federal agencies consist primarily of General Supply Fund inventories which are valued at the lower of cost, generally determined on a moving average basis, or market. The recorded values are adjusted for the results of physical inventories taken periodically in accordance with a cyclical counting plan.

In the Federal Buildings Fund, inventory balances consist of operating supplies. In all other instances, inventory balances reported are inventories held for sale. In the General Supply Fund, $2 million of the balances in inventories held for sale are excess inventories. Excess inventories are defined as those exceeding the economic retention limit (i.e., the number of units of stock which may be held in inventory without incurring excessive carrying costs). Excess inventories are generally transferred to another Federal agency, sold, or donated to state or local governments.

G. Property and Equipment (See Note 8)

Property and equipment purchases and additions are valued at cost. Property and equipment transferred to GSA from other Federal agencies on the date GSA was established is stated at the transfer value which approximates historical cost. Subsequent thereto, equipment transferred to GSA is stated at net book value, and surplus real and related personal property transferred to GSA is stated at the lower of net book value or appraised value. Expenditures for major additions, replacements, and alterations are capitalized. Normal repair and maintenance costs are expensed as incurred. The cost of repair and alteration and of leasehold improvements performed by GSA, but financed by other agencies, is not capitalized in GSA's financial statements as such amounts are transferred to the other agencies upon completion of the project. Substantially all land, buildings, and leasehold improvements are leased to other Federal agencies under short-term cancellable agreements. Generally, these agencies are billed for leased space at rent based upon commercial rates for comparable space.

Depreciation and amortization of property and equipment, exclusive of that acquired under capital leases, are calculated on a straight-line basis over their initial or remaining useful lives. Leasehold improvements are amortized over the lesser of their useful lives or the unexpired lease term. Buildings capitalized by the Federal Buildings Fund at its inception in 1974 were assigned remaining useful lives of 30 years. Prior to 1974, no depreciation was recorded by GSA. Upon completion, construction costs are capitalized in the Land and Buildings accounts. Major and minor building renovation projects carry estimated useful lives of 20 years, and 10 years, respectively. In fiscal year 1997, GSA recorded capitalized interest costs of $41 million in the Construction in Process account associated with debt provided by the U.S. Treasury's Federal Financing Bank, as discussed in Note 3. Interest capitalized in fiscal year 1996 amounted to $21 million.

Telecommunications equipment and automated data processing equipment are used in operations to perform services for other Federal agencies for which billings are rendered. Most of the assets comprising other equipment are used internally by GSA. Telecommunications and other equipment, exclusive of that acquired under capital leases, is depreciated over periods generally ranging from 5 to 10 years. Telecommunications equipment under capital leases are generally depreciated over their estimated useful lives (approximately 10 years). Automated data processing equipment is depreciated over periods generally ranging from 3 to 5 years.

Motor vehicles are generally purchased and subsequently depreciated over 4 years.

H. Receipts from Disposal of Property and Equipment

GSA acts as a disposal agent for surplus Federal real and personal property. In some cases, public law entitles the owning agency to the sales proceeds, net of disposal expenses incurred by GSA. Proceeds from the disposal of equipment are generally retained by GSA to replace equipment. Under GSA's legislative authorities, the gross proceeds from some sales are deposited in GSA's Special Fund receipt accounts and recorded as Other Revenues in the Consolidating Statements of Operations. A portion of these proceeds is subsequently transferred to a Special Fund to finance expenses incurred in disposing of surplus property. The remainder is periodically accumulated and transferred, by law, to the Land and Water Conservation Fund administered by the U.S. Department of the Interior. Transfers in fiscal years 1997 and 1996 were $2 million and $10 million, respectively.

I. Annual, Sick, and Other Types of Leave

Annual leave is accrued as it is earned and the accrual is relieved as leave is taken. Each year the balance in the accrued annual leave account is adjusted to reflect current pay rates.

Sick leave and other types of nonvested leave are expensed as taken.

J. Supplemental Consolidating Statements of Cash Flows

These statements identify cash receipts and payments and classify them into operating, financing, and investing activities. This additional disclosure of information is intended to help assess the ability to generate funds from current operations, to identify financing acquired from outside sources, and to identify the major non-operating (investing) uses of funds. Cash, for the purposes of these schedules, equals Funds with U.S. Treasury as defined in Note 1-E.

K. Workers' Compensation Benefits

The Federal Employees' Compensation Act (FECA) provides income and medical cost protection to covered Federal civilian employees injured on the job, employees who have incurred a work-related occupational disease, and beneficiaries of employees whose death is attributable to a job-related injury or occupational disease. The FECA program is administered by the U.S. Department of Labor (DOL) which initially pays valid claims and subsequently seeks reimbursement from the Federal agencies employing the claimants. The DOL provides the actuarial liability for claims outstanding at the end of each fiscal year. This liability includes the estimated future costs of death benefits, workers' compensation, and medical and miscellaneous costs for approved compensation cases. The present value of these estimates at the end of fiscal year 1997 was calculated by DOL using discount rates by fiscal year as follows: 1998 - of 6.24 percent; 1999 - 5.82 percent; 2000 - 5.60 percent; 2001 - 5.45 percent; 2002 - 5.40 percent; and 2003 and there-after - 5.40 percent. At the end of fiscal year 1996, the discount rate used was 7.0 percent. The actuarial liability recorded by GSA totaled $184 million and $149 million as of September 30, 1997 and 1996,
respectively (see Note 5-B).

2. LEASING ARRANGEMENTS

A. Rental Income

Under agreements transferred to GSA from the former Pennsylvania Avenue Development Corporation, GSA receives rental income from non-cancellable long-term operating leases. Two of these leases, in the Land Acquisition and Development Fund (LADF) are with developers of PADC properties that also contain contingent rental amounts, based on the developers' actual cash flows. In the Pennsylvania Avenue Activities Fund (PAAF), GSA accounts for a capital lease agreement established between the former PADC and GSA's Federal Buildings Fund (FBF) for the Ronald Reagan Building under construction in Washington, D.C. The investment in this capital lease and the related lease liability in the FBF are eliminated in consolidation.

The future minimum rental revenues under these leasing activities are as follows (dollars in millions): 1998 - $58; 1999 - $58; 2000 - $58; 2001 - $58; 2002 - $58; 2003 and beyond - $1,410.

B. Rental Costs

As of September 30, 1997, GSA was committed to various noncancellable operating leases primarily covering administrative office space and storage facilities maintained by the Federal Buildings Fund (FBF), and for motor vehicles in the General Supply Fund (GSF). Many of these leases contain escalation clauses and renewal options.

GSA was also committed to various capital leases covering telecommunications equipment maintained through the Information Technology Fund (ITF). Capital leases covering telecommunications equipment generally transfer ownership to GSA at the end of the lease term. For those capital leases that do not transfer ownership, GSA has the right to renew such leases at the fair rental value.

The following are schedules of future minimum rental payments required under leases that have initial or remaining noncancellable lease terms in excess of one year, and under capital leases together with the present value of the future minimum lease payments (dollars in millions).

Of the Federal Buildings Fund current and noncurrent obligations under capital leases, $9 million and $705 million, respectively, is eliminated in consolidation.

Substantially all leased space maintained by the Federal Buildings Fund is sublet to other Federal agencies at rent charges based upon approximate commercial rates for comparable space. The agreements covering the sublease arrangements allow customer agencies, among other things, to terminate the sublease at any time. In most cases, however, GSA believes the subleases will continue without interruption. Rental income under subleasing agreements approximated $2.6 billion for the two fiscal years ended September 30, 1997 and 1996. Rent expense under all operating leases, including short-term noncancellable leases, was approximately $2.4 billion for both years.

The Statements of Financial Position as of September 30, 1997, includes capital lease assets of $23 million for telecommunications equipment, $754 million for buildings and buildings under construction, and $14 million of aggregate accumulated amortization on such equipment and structures. Ongoing construction on the Ronald Reagan Building in Washington, DC accounted for an $106 million increase in leased real property.

For substantially all of its leased property, GSA expects that in the normal course of business such leases will be either renewed or replaced in accordance with the needs of its customer agencies.

3. DEBT FINANCING

A. Federal Buildings Fund

Purchase Contract and Lease Purchase Debt

Purchase contract debt consists of two distinct financing methods employed to finance construction of Federal buildings. The Dual System provided monies via publicly issued Participation Certificates and Participation Certificates of the Department of the Treasury's Federal Financing Bank (FFB). The Package System, originally consisted of mortgage notes where construction and financing were arranged by the same party. GSA is not authorized to obtain any additional purchase contract debt without congressional approval.
In fiscal years 1993 through 1995, GSA refinanced all outstanding publicly issued Participation Certificates and Package System mortgage notes with the FFB. GSA now has title to all purchase contract buildings.

Starting in fiscal year 1991, GSA entered into several agreements to fund the purchase of land and construction of buildings under the Federal Buildings Fund (FBF) lease purchase authority. Under these agreements, the FBF borrows monies through the FFB or executes lease-to-own contracts to finance the lease purchases. The program authorizes total expenditures of $1,945 million for 11 projects. In fiscal year 1997 and 1996, respectively, the FFB made advance payments on the behalf of GSA totaling $21 million and $39 million.

Aggregate debt maturities are as follows (dollars in millions): 1998 - $101; 1999 - $129; 2000 - $112; 2001 - $77; 2002 - $78; 2003 and beyond - $1,431.

B. Pennsylvania Avenue Debt

The Land Acquisition and Development Fund (LADF), transferred to GSA from the Pennsylvania Avenue Development Corporation (PADC) on April 1, 1996, accounts for various borrowings from the Department of the Treasury that financed several of PADC's property development activities from 1978 through 1994.

The terms of the loan agreements provide for the accumulation and deferral of interest over the 40-year life of the loans, with no payment required prior to the end of the loan term. At the loan expiration date, all principal and accrued interest become due. Periodically, PADC made payments to pay off portions of the accrued interest. However, in recent years, resources have not been available to reduce the interest accruing on the loans. As resources from the former PADC's property development activities are not expected to be sufficient to retire these loans and the associated accrued interest, GSA has pursued legislative remedies to provide additional resources to extinguish these balances (see Note 10).

The aggregate principal on these loans of $85 million will reach maturity between 2018 and 2033. Accumulated and deferred interest through September 30, 1997 totaled $159 million.

The former PADC also had authority to borrow from the FFB to finance construction of the Ronald Reagan Building in Washington, D.C., with a project budget of $738 million. Balances for this project are accounted for in GSA's Pennsylvania Avenue Activities Fund (PAAF). In 1990, PADC entered into a long-term lease agreement with the FFB and GSA, whereby GSA leases and will ultimately receive title to the building. The agreement requires GSA to make rental payments over a 30-year period to retire the PADC debt with the FFB (see Note 2). In fiscal year 1997 and 1996, the FFB made $150 million and $48 million, respectively, in advance payments on the behalf of GSA for this project.

Aggregate maturities on FFB advances made are as follows (dollars in millions): 1998 - $9; 1999 - $8; 2000 - $9; 2001 - $10; 2002 - $10; 2003 and beyond - $655.

C. Schedules of Debt Arrangements

GSA's outstanding debt arrangements at September 30, 1997 and 1996 were as follows (dollars in millions):

4. EMPLOYEE BENEFIT PLANS

A. Background

Although GSA funds a portion of pension benefits for its employees under the Civil Service Retirement System and the Federal Employees Retirement System and makes the necessary payroll withholdings from them, GSA is not required to disclose the assets of the systems or the actuarial data with respect to accumulated plan benefits or the unfunded pension liability relative to its employees. Reporting such amounts is the direct responsibility of the Office of Personnel Management (OPM). Reporting of health care benefits for retired employees are also the direct responsibility of OPM.

In accordance with Statement of Federal Financial Accounting Standards (SFFAS) Number 5, "Accounting for Liabilities of the Federal Government," GSA began recognizing the normal cost of pension programs and the normal cost of other post employment health and life insurance benefits, as defined in that standard, under the caption "Personnel Salaries and Benefits" on the Statement of Operations for fiscal year 1997. While these costs will ultimately be funded out of direct appropriations made to OPM and do not require funding by GSA activities, they are an element of government-wide costs incurred as a result of GSA's operations. See Note 1-B.

B. Civil Service Retirement System

Certain GSA employees were covered by the Civil Service Retirement System (CSRS), a defined benefit plan, during 1997 (48.7 percent of employees). Total GSA (employer) contributions (7.5 percent of base pay for law enforcement employees, and 7 percent for all others) to CSRS for all employees in fiscal years 1997 and 1996 were $27 million and $29 million, respectively.

C. Federal Employees Retirement System

On January 1, 1987, the Federal Employees Retirement System (FERS), a defined contribution plan, went into effect pursuant to Public Law 99-335. Employees hired after December 31, 1983, were automatically covered by FERS and Social Security while employees hired prior to January 1, 1984, elected to either join FERS and Social Security or remain in CSRS. As of September 30, 1997, 50.5 percent of GSA's employees were covered under FERS. One of the primary differences between FERS and CSRS is that FERS offers automatic and matching contributions into the Federal Government's Thrift Savings Plan (TSP) for each employee. Under CSRS, employees can invest up to 5 percent of their base pay in the TSP. Employees under FERS can invest up to 10 percent of base pay, plus GSA will automatically contribute 1 percent of base pay and then match employee contributions up to an additional 4 percent of base pay. During fiscal years 1997 and 1996, total GSA (employer) contributions to FERS were $34 million and $33 million, respectively. Additional GSA contributions to the TSP in fiscal years 1997 and 1996 totaled $13 million and $12 million, respectively.

D. Social Security System

GSA also makes matching contributions to the Social Security Administration (SSA) under the Federal Insurance Contributions Act (FICA). For employees covered by FERS, GSA contributed matching amounts of 6.20 percent of gross pay (up to $65,400) to SSA's Old-Age, Survivors, and Disability Insurance (OASDI) program in calendar year 1997. Additionally, GSA makes matching contributions for all employees of 1.45 percent of gross pay to SSA's Medicare Hospital Insurance program in calendar year 1997. Only 0.8 percent of GSA's employees are covered exclusively by these Social Security programs. Payments to these programs in fiscal years 1997 and 1996 amounted to $32 million and $31 million, respectively.

E. Schedule of Unfunded Benefit Costs

Amounts recorded in fiscal year 1997 in accordance with SFFAS Number 5 for post employment benefits are as follows (dollars in millions.)

5. INVESTED CAPITAL, FUTURE FUNDING REQUIREMENTS, AND CUMULATIVE RESULTS OF OPERATIONS

A. Invested Capital

Invested capital represents U.S. Government resources invested in certain GSA assets, principally land, buildings, construction in process, and equipment. Increases to invested capital are recorded only when such assets are acquired with direct appropriations or with monies transferred to GSA for that purpose, or when existing properties are transferred to GSA.

GSA records no diminution in invested capital for depreciation in its Revolving Funds since it recovers depreciation expense through interagency billings. Resources obtained through such billings are generally used to replace, repair, or otherwise alter GSA's existing capital asset base, thus maintaining the value of invested capital.

B. Future Funding Requirements

Future funding requirements are recorded to recognize the amount of appropriated funding that will be needed in future periods to liquidate liabilities incurred through the current fiscal year. Funding for these items, such as legal claims and actuarial liabilities, is generally received in the year that amounts become due and payable. Such liabilities are generally not intended to be absorbed by the existing capital of the associated fund.

Included in future funding requirements are amounts related to the unfunded liabilities associated with legal actions brought by employees of GSA for on-the-job injuries which fall under the Federal Employees Compensation Act (FECA), administered by the U.S. Department of Labor (DOL). DOL bills each agency annually as claims are paid, and such bills are due in two years to allow funding through the budget process. GSA records these liabilities, which included unfunded portions totaling $2 million at September 30, 1997 and 1996, when the bills are received. DOL also provides GSA with an actuarial estimate of the present value of long-term payments related to claims incurred at the end of the fiscal year (see Note 1-K). The actuarial present value of unfunded FECA liability for appropriated funds was $8 million and $7 million as of September 30, 1997, and 1996, respectively, and corresponding amounts have been established in Future Funding Requirements in the Consolidating Statements of Financial Position for the respective fiscal years. Also included in future funding requirements are amounts relating to the long-term pension fund liability for former Presidents and their spouses. The current portion of this liability is funded by an annual appropriation. This liability amounted to $7 million and $6 million at the end of fiscal years 1997 and 1996, respectively. Accrued unfunded annual leave liability totaled $7 million and $8 million as of September 30, 1997 and 1996, respectively.

The Land Acquisition and Development Fund transferred from the former Pennsylvania Avenue Development Corporation, contained a significant balance requiring future funding. This fund had authority to borrow from the Department of the Treasury for various development projects. The interest accruing on the loans is an unfunded expense. With no assets available to liquidate these balances, the entire balance of accumulated interest and principal will require future funding to liquidate (see Notes 3 and 10). Accordingly, Future Funding Requirements in the LADF totaled $244 million at September 30, 1997.
As discussed in Note 6, GSA began recording the unfunded costs and liabilities associated with legal contingencies where funding will be provided by other Federal entities as claims are settled. Total unfunded liabilities recorded in this regard were $121 million. As these liabilities were incurred in previous years, this amount is recorded as a prior period adjustment and is reflected as such in the schedule following in Note 5-D.

C. Cumulative Results of Operations

Cumulative results of operations for Revolving Funds include revenues in excess of expenses since their inception, reduced by funds returned to the U.S. Treasury, by congressional rescissions, and by transfers to other Federal agencies.

GSA's Federal Buildings Fund (FBF), General Supply Fund (GSF), Information Technology Fund (ITF), Working Capital Fund (WCF), and Consumer Information Center Fund (CICF) have legislative authority to retain portions of their cumulative results for specific purposes. The FBF retains cumulative results to finance future operations and construction, subject to appropriation by Congress. In the GSF, earnings are retained to cover the cost of replacing the motor vehicle fleet and supply inventory. The ITF retains cumulative results to provide financing for major systems acquisitions and improvements, contract conversion costs, major contingencies, and to maintain sufficient working capital. The WCF retains earnings to finance future operations and to offset the cost of equipment replacement. The CICF retains cumulative results to finance future operations, subject to appropriation by Congress.

D. Summary

Below is a summary of changes in Equity of the U.S. Government for fiscal years 1997 and 1996 (dollars in millions)

6. COMMITMENTS AND CONTINGENCIES

A. Commitments

In addition to future lease commitments discussed in Note 2, GSA is committed under obligations for goods and services which have been ordered but not yet received (undelivered orders) at fiscal year-end. Aggregate undelivered orders for all GSA activities increased to $3.7 billion from $3.5 billion between fiscal years 1997 and 1996.

In fiscal year 1989, GSA awarded two contracts for telecommunications services (FTS2000) to replace the existing intercity voice Federal Telecommunications System. The contracts cover a 10-year period and provide enhanced telecommunications capabilities for Federal agencies, including transition to an integrated services digital network. Costs over the remaining term of the contracts are estimated to be $1 billion.

B. Contingencies

GSA is a party in various administrative proceedings, legal actions, environmental suits, and claims brought by or against it. In the opinion of GSA management and legal counsel, the ultimate resolution of these proceedings, actions, and claims will not materially affect the financial position or results of operations of GSA.

As of September 30, 1997 and 1996, GSA recorded contingent liabilities in total of $101 million and $123 million, respectively, for pending and threatened legal matters for which, in the opinion of GSA management and legal counsel, GSA will probably incur losses. Of these balances, $94 million and $112 million, respectively, were reported in the Other Long-Term Liabilities section of the Consolidating Statements of Financial Position, with the remainder reported as Accounts Payable.

In addition, GSA had another $126 million and $73 million in contingencies at September 30, 1997 and 1996, respectively, where it is only possible, but not probable, that GSA will incur some cost. Accordingly, no balances have been recorded in the financial statements for these contingencies.

In most cases, legal matters which directly involve GSA relate to contractual arrangements GSA has entered into either for property and services it has obtained or procured on behalf of other Federal agencies. The costs of administering, litigating, and resolving these actions are generally borne by GSA unless it can recover the cost from another Federal agency. Certain legal matters in which GSA may be named party are administered and, in some instances, litigated by other Federal agencies. Amounts to be paid under any decision, settlement, or award pertaining thereto are sometimes funded by those agencies.

In most cases, tort and environmental claims are administered and resolved by the U.S. Department of Justice and any amounts necessary for resolution are obtained from a special Judgment Fund maintained by the Department of the Treasury. In accordance with the FASAB's Interpretation Number 2, "Accounting for Treasury Judgment Fund Transactions," starting in fiscal year 1997, costs incurred by the Federal government are to be reported by the agency responsible for incurring the liability, or to which liability has been assigned, regardless of the ultimate source of funding. In accordance with the interpretation, GSA recorded an additional $127 million of costs and other long-term liabilities for contingencies which will require funding exclusively through the Judgment Fund. In some instances, the estimated liability is not a particular amount, but within a range of amounts. For those instances, inclusive of the high end of those ranges, the probable liability could reach $412 million. Most of the costs to be borne by the Judgment Fund result from several environmental cases where GSA has been named as a potentially responsible party.

Additional contingencies subject to ultimate funding from the Judgment Fund where the risk of loss is possible but not probable ranged from $158 million to $2.7 billion at September 30, 1997.

The recognition of claims to be funded through the Judgment Fund on GSA's Consolidating Statements of Operations and Consolidating Statements of Financial Position is, in effect, recognition of these liabilities against the Federal government as a whole, and should not be interpreted as claims against the assets, or resources of any GSA fund, nor will any future resources of GSA be required to liquidate any resulting losses. Further, for most environmental claims, GSA has no managerial responsibility other than as custodian and successor on claims made against former Federal entities, particularly former World War II defense related activities.

Amounts paid from the Judgment Fund on behalf of GSA were $16 million and $8 million in fiscal years 1997 and 1996, respectively. Of these amounts $13 million and $7 million, respectively, related to claims filed under the Contract Disputes Act for which payments have been or will be made to reimburse the Judgment Fund by the GSA funds liable under the contacts in dispute. The balance of claims paid on the behalf of GSA do not require reimbursement to the Judgment Fund.

7. ACCOUNTS AND NOTES RECEIVABLE

Substantially all accounts receivable are from other Federal agencies. Unbilled accounts receivable result from the delivery of goods or performance of services for which bills have not yet been rendered.

Notes receivable are from the sale of surplus real and related personal property, from motor vehicle damage claims, and from contract claims. Interest rates range from 0 percent to 10.375 percent. A summary of Accounts and Notes Receivable is as follows (dollars in millions).

8. PROPERTY AND EQUIPMENT

Balances in GSA's Property and Equipment accounts are summarized below (dollars in millions).

9. OTHER REVENUES

Other revenues of GSA are summarized below (dollars in millions).

10. Subsequent Events

Included in the Treasury and General Government Appropriation Act, 1998 (Public Law 105-61) enacted October 10, 1997, GSA was provided appropriations to retire the entire amount of debt and associated accumulated and deferred interest in the Land Acquisition and Development Fund (see Note 3). Through September 30, 1997, original principal and accumulated interest balances totaled $85 million and $159 million, respectively.

U.S. General Services Administration Supplemental Schedules of Other Budgetary Results As of and For the Fiscal Years Ended September 30, 1997 and 1996 (Dollars in Millions)

U.S. General Services Administration Supplemental Consolidating Statements of Cash Flows For the Fiscal Years Ended September 30, 1997 and 1996 (Dollars in Millions)

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