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82d Congress, 2d Session House Document No. 338 REPORT ON AUDIT OF THE VIRGIN ISLANDS CORPORATION LETTER FROM COMPTROLLER GENERAL OF THE UNITED STATES TRANSMITTING THE REPORT ON THE AUDIT OF VIRGIN ISLANDS CORPORATION FOR THE FISCAL YEAR ENDED JUNE 30, 1951, PURSUANT TO THE GOVERNMENT CORPORATION CONTROL ACT (31 U. S. C. 841) FEBRUARY 14, 1952.—Referred to the Committee on Expenditures in the Executive Departments and ordered to be printed UNITED STATES GOVERNMENT PRINTING OFFICE 94596 WASHINGTON : 1952 LETTER OF TRANSMITTAL GENERAL ACCOUNTING OFFICE, COMPTROLLER GENERAL OF THE UNITED STATES, Washington 25, February 1, 1952, The honorable the SPEAKER OF THE HOUSE OF REPRESENTATIVES. DEAR MR. SPEAKER: There is presented herein report on the audit Of VIRGIN ISLANDS CORPORATION for the fiscal year ended June 30, 1951. This audit was made by the Division of Audits of the General Accounting Office, pursuant to the Government Corporation Control Act (31 U. S. C. 841). Respectfully submitted. LINDSAY C. WARREN, Comptroller General of the United States. III CONTENTS Page GENERAL COMMENTS Financial position 1 Statement of sources and application of funds 1 Investment of United States Government 2 Land, structures, and equipment 3 Results of operations 3 General Operations Division 3 Rural Electric Division 4 Administrative expenses 5 RECOMMENDATIONS TO THE CONGRESS 5 RECOMMENDATIONS TO THE CORPORATION 5 SCOPE OF AUDIT 5 OPINION 5 Exhibit FINANCIAL STATEMENTS Balance sheet—June 30, 1951 1 9 Income and deficit statement, for the year ended June 30, 1951—General Operations Division 2 10 Income and deficit statement, for the year ended June 30, 1951—Rural Electric Division 3 11 Notes to financial statements 12 Schedule Cost of sugar produced, for the year ended June 30, 1951 1 13 Overhead expenses, for the year ended June 30, 1951 2 14 Summary of miscellaneous activities, for the year ended June 30, 1951 3 15 • REPORT ON AUDIT OF THE VIRGIN ISLANDS CORPORATION FOR THE FISCAL YEAR ENDED JUNE 30, 1951 GENERAL ACCOUNTING OFFICE, DIVISION OF AUDITS, Washington 25, D. C. Hon. LINDSAY C. WARREN, Comptroller General of the United States. DEAR MR. WARREN: We submit herewith our report On the audit of the accounts and financial statements of VIRGIN ISLANDS CORPO- RATION for the fiscal year ended June 30, 1951. The audit was made pursuant to the Government Corporation Control Act (31 U. S. C. 841). GENERAL COMMENTS Virgin Islands Corporation is a wholly owned Government corpora- tion, created by the Virgin Islands Corporation Act approved June 30, 1949 (48 U. S. C. 1407), to succeed The Virgin Islands Company (incorporated in 1934), the assets and liabilities of which were taken over by the present Corporation on July 1, 1949. The general pro- grams engaged in by the predecessor corporation, except the manu- facture of alcoholic beverages, are 'being continued under the new Corporation. In addition, the Corporation was given broad powers to engage in many new activities designed, through economic develop- ment, to promote the general welfare of the inhabitants of the Virgin Islands. The Corporation's major activities during the fiscal year 1951, as in former years, were the growing of sugarcane and operation of a raw sugar mill and the generation and distribution of electric power. In. addition to these activities, the Corporation inaugurated a loan pro- gram during the year. The operations of all activities other than the power operations resulted in a loss of $471,457, while power operations resulted in a profit of $10,799. The activities of the Corporation are carried on by two divisions. All programs except the production and distribution of electric power are under the supervision and control of the General Operations Division. The electric power plant and distribution system are under the supervision of the Rural Electric Division. This segregation has - been recognized throughout our report. FINANCIAL POSITION Statement of sources and application of funds A condensed statement of sources and application of funds for the fiscal year 1951 is given below. 2 REPORT ON AUDIT OF THE VIRGIN ISLANDS Source of funds: U. S. Government: CORPORATION General Rural Operations Electric Combined Division Division From revolving fund in U. S. Treasury $250, 000 $250, 000 Congressional appropriation in the form of a grant to cover the estimated operating loss for the fiscal year 1951 474, 000 474,000 724,000 724,000 Less: Repayment of portion of advance received from the revolving fund during the fiscal year 1950 250, 000 250,000 Repayment of grant received in excess of the actual loss for the fiscal year 1950 33, 231 33, 231 283,231 283,231 Net advances from U. S. Treasury Additional loans from Rural Electrification Ad- ministration (net) Total funds provided by U. S. Govern- ment Net income from power operations (before depre- ciation of $11,898) Decrease in loans, accounts, and mortgage receiv- 440, 769 5, 953 440, 769 $5, 953 446, 722 22, 697 440, 769 5, 953 22, 697 able not due within one year 10,342 10,342 Total funds provided 479, 761 451, 111 28, 650 Application of funds: Net additions to land, structures, and equipment.. 387, 789 351,829 35,960 Net loss from general operations (before deprecia- tion of $158,768) 312, 689 312, 689 Total funds applied 700, 478 664, 518 35, 960 Balance, representing decrease in current assets, less current liabilities $220, 717 $213,407 $7, 310 As shown above, net advances of $440,769 were received from the United States Treasury during the fiscal year 1951. A repayment of $250,000 on funds advanced from the revolving fund in the preceding year was made early in the year under review. This was offset by the advance of a like amount toward the close of the year. The Corpora- tion received a grant of $474,000 to cover its estimated loss for the fiscal1year 1951. This grant was offset in part by the repayment of $33,231, representing the excess of its estimated loss for the fiscal year 1950 over the actual loss for that year. Investment of United States Government The investment of the United States Government totaling $3,269,- 991 at June 30, 1951, is summarized below. Advances from U. S. Treasury: Combined (exhibit I) General Operations Division Rural Electric Division Virgin Islands Corporation revolving fund_ ___ $1, 250, 000 $1, 250, 000 Congressional appropriations in the form of grants: For repayment of notes payable to U. S. Treasury of predecessor corporation 750,000 750,000 For reimbursement of operating losses 716, 769 716, 769 Transfers from the Department of the Interior and the predecessor corporation 957,008 957,008 Notes and accrued interest payable to Rural Elec- trification Administration 392, 773 $392, 773 4,066, 550 3,673, 777 392,773 Less deficit 796, 559 714, 226 82, 333 Tptal investment of U. S. Government $3, 269,991 $2, 959, 551 $310,440 REPORT ON AUDIT OF THE VIRGIN ISLANDS CORPORATION Transfers of $957,008 represent properties transferred from the Department of the Interior at July 1, 1949, valued at $1,170,623 less the excess of total liabilities over total assets ($213,615) of the prede- cessor corporation at that date. The amount of the transfers ($957,008) and the advances from the revolving fund bore interest during 1951 at the rate of 1% percent (compared with 2 percent in 1950) as determined by the Secretary of the Treasury. The Interior Department Appropriations Act, 1952 (Public Law 136, 82nd Cong.) appropriated $795,000 to the Virgin Islands Corpora- tion revolving fund for liquidation of the loans and interest payable to REA and for other items relating to the Rural Electric Division, as follows: Liquidation of Rural Electrification Administration loan $391, 779 New power facilities 208, 221 Purchase of facilities of the St. Croix Power Authority 130,000 Operating capital 40,000 Rehabilitation of lines 25,000 $795, 000 Land, structures, and equipment Net additions of $387,789 to land, structures, and equipment for the year are summarized below. General Operations Division: Purchase and installation of new machinery and other im- provements to sugar factory equipment $169, 285 Tractors, cane carts, and other farm and transportation equip- ment 97,971 Buildings and land improvements, including prefabricated houses for a2;ricu1tura1 workers of approximately $43,900 68, 484 Furniture and fixtures 16, 089 $351, 829 Rural Electric Division: Additional transmission lines and other improvements to dis- tribution plant 27, 927 Improvements to generating plant 7,487 Other 546 35,960 $387,789 There were no changes in depreciation rates during the fiscal year 1951. Depreciation on assets, other than the generating plant and distribution system of the Rural Electric Division, are computed on a straight-line basis applied to individual assets or groups of like assets. Depreciation on the production plant and distribution system of the Rural Electric Division are computed at the group-composite rates of 3 and 3.48 percent, respectively, as prescribed by the Rural Electrification Administration. RESULTS OF OPERATIONS General Operations Division The Corporation undertook the operation of a loan program during the fiscal year 1951. The activity in this program was negligible in relation to the overall operations of the General Operations Division; total loans made amounted to about $14,000. The growing of sugar- cane and the manufacture of raw sugar continued to be the major activity. The 1951 sugar operations resulted in an operating loss of $67,225 before general expenses and other charges, compared with an operating 94596-52 2 4 REPORT ON AUDIT OF MIT VIRGIN ISLANDS CORPORATION profit of $81,424 for the preceding year. This marked decrease in operating revenue is attributable primarily to the following factors: 1. The Corporation harvested 14,336 tons less sugarcane during 1951 than during the preceding year. This was due principally to a lower yield per acre in the current year (23.2 tons per acre in. 1951 compared to 27.8 tons per acre in 1950) and partly to har- vesting less acreage in 1951. 2. The sugar yield was approximately 18 pounds less per ton of sugarcane during 1951 than during the preceding year. The above decreases were attributed by management to a severe 5-month drought during the year 1951, which retarded the development and lowered the sugar content of the cane. 3. The average market price of sugar, after deducting shipping and selling expenses, was $102.54 per ton in 1951 compared with $107.60 in 1950. This decrease was caused principally by the restriction on sales in the domestic market which resulted in pricing approximately 1,500 tons of the anticipated revenue of the 1951 crop at the world market price of $96 per ton. The Corporation's domestic United States market quota, as estab- lished by the Production and Marketing Administration of the Department of Agriculture, was 6,000 tons for the fiscal year 1951. Had it been permitted to dispose of all of its sugar in the domestic market, it would have realized approximately $106 per ton on its 1951 production. Pertinent data on sugar operations for the fiscal years 1951 and 1950 are summarized below. 1951 1950 Sales, less selling expenses $784, 955 $1, 093, 324 Payments received under the Sugar Act of 1948 61, 859 81, 835 846, 814 1, 175, 159 Operating costs and expenses 914, 039 1, 093, 735 Operating gain (*loss) (note a) $67, 225* $81, 424 Tons of sugar produced 7, 400 10, 732 Tons of sugarcane grown 52, 382 66, 717 Tons of sugarcane purchased 22, 098 32, 765 Total tons of sugarcane used in production of sugar 74, 480 99, 482 Cost of sugar produced per ton $123. 52 $101. 91 Cost of sugarcane per ton: Grown 7.63 7.38 Purchased 7. 02 7. 01 Sugarcane yield—tons per acre 23. 2 27. 8 Sugar yield—pounds Per ton of sugarcane 199 217 • Includes the results of molasses operations, the natural byproduct of sugar production. Rural Electric Division The operations of the Rural Electric Division resulted in a net profit of $10,799 for the fiscal year 1951 compared with a net loss of $10,277 for the preceding year. The increase of $21,076 in net income was due principally to an increase of $22,037 in power sales, coupled with a lower cost of raw material (fuel oil) used. In former years fuel oil was brought to St. Croix in drums at a cost of 18.70 per gallon. A fuel oil tank was installed at the power plant in May 1950. Since that date fuel oil has been purchased in bulk at a cost of about 130 per gallon. REPORT ON AUDIT OF THE VIRGIN ISLANDS CORPORATION 5 Administrative expenses Administrative expenses for the year ended June 30, 1951, are summarized: Salaries of officers and employees $84, 714 Travel and transportation 11, 178 Expenses of Board of Directors 3,945 Other 12,321 Total administrative expenses incurred $112, 158 These expenses include all costs of the administrative offices and other functions serving the activities of the Corporation in general. The actual expenses of $112,158, as shown above, were $9,322 less than the limitation of $121,480 authorized by the Interior Depart- ment Appropriation Act, 1951 (64 Stat. 696). RECOMMENDATIONS TO THE CONGRESS During the examination we observed no conditions that would require legislative action. RECOMMENDATIONS TO THE CORPORATION During the examination we observed certain deficiencies in pro- cedures relating to payrolls, travel expenses, and purchases which resulted in expenditures (minor in amount) made without authority of law. These expenditures, as well as other procedures we believed could be improved, were brought to the attention of and discussed with officials of the Corporation who have initiated actions to correct the procedures so as to avoid such expenditures in the future. SCOPE OF AUDIT We have examined the balance sheet of Virgin Islands Corporation as of June 30, 1951, and the related income and deficit statements for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing pro- cedures as we considered necessary in the circumstances and appro- priate in view of the effectiveness of the system of internal control. OPINION During the examination we observed no program, expenditure (except as noted in our recommendations to the Corporation), or other financial transaction or undertaking .which, in view of the broad powers of the Virgin Islands Corporation Act, in our opinion, was carried on or made without authority of law. In our opinion, the accompanying balance sheet (exhibit 1) and statements of income and deficit (exhibits 2 and 3) present fairly the financial position of Virgin Islands Corporation at June 30, 1951, and the results of its operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year and with applicable Federal laws. STEPHEN B. IVES, Associate Director of Audits. FINANCIAL STATEMENTS 7 EXHIBIT VIRGIN ISLANDS CORPORATION BALANCE SHEET-JUNE 30, 1951 ASSETS Combined General Operations Division Rural Electric Division LIABILITIES Combined General Operations Division Rural Electric Division CURRENT ASSETS: CURRENT LIABILITIES: Accounts payable and sundry accruals (includ- Cash in U. S. Treasury and on hand $377, 433 $363, 767 $13, 666 ing $15,621 due other Government agencies) _ _ $333, 195 $273, 466 $59, 729 Accounts and loans receivable (including $62,631 Provision for employees' annual leave Anticipated expenses on unsold portion of 1951 59, 130 52, 019 7, 111 • due from other Government agencies) (note 1) _ 272, 242 236,325 35, 917 crop (note 2) 45, 446 45, 446 Anticipated revenue from unsold portion of 1951 Total current liabilities 437, 771 370, 931 66, 840 crop (note 2) 165,307 165,307 INVESTMENT OF UNITED STATES GOVERNMENT: Inventories: Interest-bearing investment: Sugarcane under cultivation (note 3) 301, 144 301, 144 Advances from revolving fund 1, 250, 000 1, 250, 000 Materials and supplies (note 4) 425. 909 399, 789 26,120 Transfers from the Department of the Inte- rior and the predecessor corporation 957, 008 957, 008 727, 053 700, 933 26, 120 Notes payable to Rural Electrification Ad- ministration, with accumulated interest 1, 542, 035 1, 466,332 75, 703 Total current assets of 2 percent (note 6) 392, 773 392, 773 2, 599, 781 2, 207, 008 392, 773 LAND, STRUCTURES, AND EQUIPMENT (note 5): Land 185, 068 181, 075 3, 993 Non-interest-bearing investment: Buildings and land improvements 727, 956 713, 095 14,861 Grants from revolving fund: Machinery and equipment 1, 500, 561 1, 162, 562 337,999 For repayment of predecessor corpora- Construction work in progress 29, 175 15, 725 13, 450 tion's notes payable to U. S. Treasury at June 30, 1949 750, 000 750, 000 2, 442, 760 2, 072, 457 370,303 Total For reimbursement of operating losses Less accumulated depreciation 342, 081 273, 355 68,726 for fiscal years 1950 and 1951 (note 7),__ 716, 769 716, 769 Net land, structures, and equipment 2, 100, 679 1, 799, 102 301, 577 Less deficit (exhibits 2 and 3 and note 8)____ 1, 466, 769 796, 559 1, 466, 769 714, 226 82,333 OTHER ASSETS: 670, 210 752,543 -82,333 Loans, accounts, and mortgage receivable not due within one year 65, 048 65, 048 Net investment of United States Government__ 3, 269, 991 2, 959, 551 310, 440 $3, 707, 762 $3, 330, 482 $377, 280 $3, 707, 762 $3, 330, 482 $377, 280 10 REPORT ON AUDIT OF THE VIRGIN ISLANDS CORPORATION EXHIBIT 2 VIRGIN ISLANDS CORPORATION GENERAL OPERATIONS DIVISION INCOME AND DEFICIT STATEMENT For the Year Ended June SO, 1951 Sugar operations, 1951 crop' Sales: Sugar $869,944 Molasses 29,245 899,189 Payment due from Production and Marketing Administration of the Depart- ment of Agriculture under the Sugar Act of 1948 61,859 Total revenue from sugar operations Less shipping and selling expenses: Sugar Molasses 111, 182 3, 052 $961, 048 114, 234 Net revenue from 1951 sugar crop 846,814 Less cost of sugar produced (schedule 1) 914, 039 Operating loss on sugar operations (before general expenses and other charges) 67, 225 General expenses and other charges: Depreciation 157, 351 Administrative expenses 112, 158 Interest on investment of U. S. Government 18,595 Other interest, property taxes, audit fees, and general expenses 114,834 422,938 490, 163 Net gain from miscellaneous activities (schedule 3) _ 18,706 Net operating loss 471,457 Deficit, June 30, 1950 242,769 Deficit, June 30, 1951 (exhibit 1) $714,226 REPORT ON AUDIT OF THE VIRGIN ISLANDS CORPORATION 11 EXHIBIT 3 VIRGIN ISLANDS CORPORATION RURAL ELECTRIC DIVISION INCOME AND DEFICIT STATEMENT For the Year Ended June 30, 1951 Operating revenue Less operating expenses: Production Distribution Maintenance $46, 549 5, 162 5,160 $99, 464 Depreciation (see note) 10, 708 Total operating expenses 67, 679 Net operating profit 31, 885 General expenses and other charges: General and administrative 15, 580 Interest 7,632 Other income and expense (net) —2, 126 21, 086 Net profit for the year 10, 799 Deficit, June 30, 1950 93, 132 Deficit. June 30, 1951 (exhibit 1) $82, 333 NOTE: Does not include $1.190 depreciation on transportation equipment distributed to other expense accounts; NOTES TO FINANCIAL STATEMENTS 1. Accounts receivable due from other Government agencies includes $61,859 representing the sugar benefit payment receivable from the Production and Marketing Administration- of the Department of Agriculture under the Sugar Act of 1948. This amount includes $5,096 applicable to sugar produced from July 1, 1951, to the end of the crop year. 2. Anticipated revenue of $165,307 represents the estimated sales value of that part of the 1951 crop unsold and/or unprocessed at June 30, 1951, while anticipated expenses of $45,446 represents the estimated additional operating costs and selling expenses incurred after the end of the fiscal year. Both of these amounts have been included in the income statement (exhibit 2). 3. The amount of $301,144 represents the actual costs accumulated to June 30, 1951, of planting, cultivating, preparation of acreage, etc., for crops to be harvested in the fiscal year 1952. The Corporation follows the practice of charg- ing sugar operations at the time the sugarcane is processed with all the costs accumulated on the crop harvested. 4. Supplies used in the production of sugar are reported at average cost. The inventory of these supplies at June 30, 1951, has been reduced by the cost, of supplies required to complete the processing of the 1951 sugar crop. Elec- trical supplies used by the Rural Electric Division are carried at average cost. 5. Land, structures, and equipment includes properties transferred from the Department of the Interior and from the Virgin Islands Company at July 1, 1949. These properties, except for Bluebeard's Castle Hotel, the central sugar mill, and the abattoir, are carried at cost less accumulated depreciation as of June 30, 1949. The value of Bluebeard's Castle Hotel was recorded in the accounts at $166,000, the amount approved by the Director of the Bureau of the Budget. The central sugar mill and the abattoir were considered of no value to the Corporation and were recorded at the nominal amount of $1 each. Prop- erties acquired by the Corporation after June 30, 1949, are stated at cost. 6. The notes and interest payable to the Rural Electrification Administration are secured to the extent of a mortgage on the land, structures, equipment, and revenues of the Rural Electric Division. Payments of both principal and interest are to be made only from revenues derived from the operation of these properties. The first payment on the notes and interest was made on Septem- ber 5, 1950. A total of $15,864 was paid during the fiscal year 1951. 7. The amount of $716,769 represents the grants covering the actual loss of $242,769 for the fiscal year 1950 and the estimated loss of $474,000 for the fiscal year 1951. The estimated loss for 1951 was $2,543 in excess of the actual loss, which amount will be retained by the Corporation to partially cover estimated losses for the fiscal year 1952, 8. The deficit of $714,226 in the General Operations Division represents the accumulated net loss of that Division since July 1, 1949, whereas the deficit of $82,333 in the Rural Electric Division represents the accumulated net loss of that Division from the beginning of power operations (November 22, 1941) to June 30, 1951. 12 REPORT ON AUDIT OF THE VIRGIN ISLANDS CORPORATION 13 SCHEDULE 1 VIRGIN ISLANDS CORPORATION GENERAL OPERATIONS DIVISION COST OF SUGAR PRODUCED For the Year Ended June 30, 1951 Materials used: Sugarcane: Purchased (22,098 tons at $7.02) Produced (52,382 tons at $7.63) Other materials Sugar- cane growing Sugar mill Total ons operations $41,013 $155, 049 399,785 39, 166 $155, 049 399, 785 80, 179 Total materials 41,013 594,000 635,013 Direct labor 193, 132 102, 837 295, 969 Overhead expenses (schedule 2) 89,477 217, 202 306, 679 Total production costs 323, 622 914, 039 1, 237,661 Add inventory, June 30, 1950 180, 599 180, 599 Total costs to be accounted for 504, 221 914,039 1, 418, 260 Deduct: Sugarcane transferred to sugar mill, at cost 399, 785 399, 785 Growing cost applicable to 658 acres of sugarcane uncut at end of crop year transferred to 1952 crop year 104, 436 104, 436 504,221 504, 221 Cost of sugar produced (exhibit 2) $914,039 $914,039 14 REPORT ON .AUDIT OF THE VIRGIN ISLANIiS ;CORPORATTON SCHEDULE 2 VIRGIN ISLANDS CORPORATION GENERAL OPERATIONS DIVISION OVERHEAD EXPENSES For the Year Ended June 30, 1951 Sugarcane growing Sugar mill Total sugar operations Salaries and wages $40, 494 $68, 295 $108, 789 Maintenance department expenses allocated 5, 679 20, 249 25, 928 Supplies 4, 627 26, 271 30,898 Tractor expenses 19, 698 1, 204 20, 902 Transportation expenses 11, 154 24, 662 35,816 Storekeeping expenses 677 6,637 7,314 Livestock expenses (work animals) 25, 735 25, 735 Fuel oil and water 11, 472 11,472 Supervision of purchased sugarcane growing 2,223 2,223 Other charges 8, 691 56, 189. 64,880 116, 755 217, 202 333,957 Less Cost of cutting cane seeds 27, 278 27, 278 Total overhead (schedule 1) $89, 477 $217, 202 $306, 679 . Includes $41,729 of sugar factory repairs:transferred:from:construction work in progress. REPORT ON AUDIT OF THE VIRGIN ISLANDS CORPORATION 115 SCHEDULE 3 VIRGIN ISLANDS CORPORATION GENERAL OPERATIONS DIVISION SUMMARY OF MISCELLANEOUS ACTIVITIES For the Year Ended June 30, 1951 RENTALS: Tractors and other equipment Leases: Distillery Bluebeard's Castle Hotel Abattoir Houses occupied by officers, supervisory employees, and Income Costs and expenses Net income (—loss) $37, 287 20,383 3,000 $26, 486 7, 927 3,009 8,385 $10, 801 12, 456 —9 —8, 385 others 5, 793 11,033 —5,240 SALES: Cane seed 3, 759 4, 033 —274 Equipment Shop work and material 3, 920 9,797 565 8,884 3, 355 913 Poultry farm 17,000 13,746 3,254 MISCELLANEOUS 6,115 4,280 1,835 $107, 054 $88, 348 $18,706