Financial Audit
The United States Agency for International Development's Fiscal Year 2004 Management Representation Letter on Its Financial Statements Gao ID: GAO-05-601R July 22, 2005The Secretary of the Treasury, in coordination with the Director of the Office of Management and Budget (OMB), is required to annually prepare and submit audited financial statements of the U.S. government to the President and the Congress. We are required to audit these consolidated financial statements (CFS) and report on the results of our work. In connection with fulfilling our requirement to audit the fiscal year 2004 CFS, we evaluated the Department of the Treasury's (Treasury) financial reporting procedures and related internal control over the process for compiling the CFS, including the management representation letter provided us by Treasury and OMB. Written representation letters from management, required by U.S. generally accepted government auditing standards, ordinarily confirm oral representations given to the auditor, indicate and document the continuing appropriateness of those representations, and reduce the possibility of a misunderstanding between management and the auditor. The purpose of this report is to communicate our observations on the United States Agency for International Development's (USAID) fiscal year 2004 management representation letter. Our objective is to help ensure that future management representation letters submitted by USAID are sufficient to help support Treasury and OMB's preparation of the CFS management representation letter and our ability to rely on the representations in that letter in combination with individual federal agency representation letters. We reviewed five key areas in each management representation letter: (1) signatures, (2) materiality thresholds, (3) representations, (4) summary of unadjusted misstatements, and (5) reliability of representations. In reviewing the management representation letters, we applied the American Institute of Certified Public Accountants' (AICPA) Codification of Auditing Standards, AU Section 333, Management Representations; OMB Bulletin 01-02, Audit Requirements for Federal Financial Statements; and the GAO/President's Council on Integrity and Efficiency (PCIE) Financial Audit Manual (FAM) section 1001, entitled "Management Representations."
USAID's fiscal year 2004 management representation letter did not provide all the information necessary to support Treasury and OMB's preparation of the CFS management representation letter. This in turn impacted our ability to rely on the representations in the CFS management representation letter in combination with individual federal agency representation letters. We identified some needed improvements in one of the five key areas we reviewed. Specifically, USAID did not provide a summary of unadjusted misstatements that (1) identifies the standard general ledger account number, standard general ledger account name, or financial statement line item for the misstatements and (2) includes a description of the misstatements. We believe that this matter can be easily addressed and are making a recommendation to USAID's Chief Financial Officer targeted to including a complete summary of unadjusted misstatements, if there are any uncorrected misstatements, that also provides a description of the misstatements. Also, we are recommending that the USAID Acting Inspector General work with the agency to help ensure that future management representation letters meet the key condition noted as needing improvements in this report.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-601R, Financial Audit: The United States Agency for International Development's Fiscal Year 2004 Management Representation Letter on Its Financial Statements
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July 22, 2005:
Ms. Lisa Fiely:
Chief Financial Officer:
U.S. Agency for International Development:
Mr. Bruce Crandlemire:
Acting Inspector General:
U.S. Agency for International Development:
Subject: Financial Audit: The United States Agency for International
Development's Fiscal Year 2004 Management Representation Letter on Its
Financial Statements:
As you know, the Secretary of the Treasury, in coordination with the
Director of the Office of Management and Budget (OMB), is required to
annually prepare and submit audited financial statements of the U.S.
government to the President and the Congress. We are required to audit
these consolidated financial statements (CFS) and report on the results
of our work.[Footnote 1] In connection with fulfilling our requirement
to audit the fiscal year 2004 CFS, we evaluated the Department of the
Treasury's (Treasury) financial reporting procedures and related
internal control over the process for compiling the CFS, including the
management representation letter provided us by Treasury and OMB.
Written representation letters from management, required by U.S.
generally accepted government auditing standards, ordinarily confirm
oral representations given to the auditor, indicate and document the
continuing appropriateness of those representations, and reduce the
possibility of a misunderstanding between management and the auditor.
In our report, which is included in the fiscal year 2004 Financial
Report of the United States Government,[Footnote 2] we reported a
limitation on the scope of our work due to identified concerns with the
adequacy of certain federal agencies' management representations on
which Treasury and OMB depend to provide their representations to us
regarding the CFS. Specifically, Treasury and OMB stated that their
representation letter to us on the CFS was based primarily on the
individual federal agency representation letters. Consequently, our
audit considered the content of the individual federal agency letters,
and the incompleteness of certain of these letters impaired our ability
to obtain sufficient evidence in support of our audit of the CFS. This
limitation contributed to our disclaimer of opinion on the CFS. We
performed sufficient audit work to provide the disclaimer of opinion
and issued our audit report, dated December 6, 2004, in accordance with
U.S. generally accepted government auditing standards.
As part of our audit of the fiscal year 2004 CFS, we received and
reviewed selected federal agencies' management representation letters
to assess their adequacy in support of our audit of the CFS. As the
federal government gets closer to an opinion on its financial
statements, it becomes more important that the federal agencies'
management representation letters be complete and reliably prepared.
The purpose of this report is to communicate our observations on the
United States Agency for International Development's (USAID) fiscal
year 2004 management representation letter. Our objective is to help
ensure that future management representation letters submitted by USAID
are sufficient to help support Treasury and OMB's preparation of the
CFS management representation letter and our ability to rely on the
representations in that letter in combination with individual federal
agency representation letters. We reviewed five key areas in each
management representation letter: (1) signatures, (2) materiality
thresholds, (3) representations, (4) summary of unadjusted
misstatements, and (5) reliability of representations. In reviewing the
management representation letters, we applied the American Institute of
Certified Public Accountants' (AICPA) Codification of Auditing
Standards, AU Section 333, Management Representations; OMB Bulletin 01-
02, Audit Requirements for Federal Financial Statements; and the GAO/
President's Council on Integrity and Efficiency (PCIE) Financial Audit
Manual (FAM) section 1001, entitled "Management
Representations."[Footnote 3]
Results in Brief:
USAID's fiscal year 2004 management representation letter, as well as
several other federal agencies' management representation letters, did
not provide all the information necessary to support Treasury and OMB's
preparation of the CFS management representation letter. This in turn
impacted our ability to rely on the representations in the CFS
management representation letter in combination with individual federal
agency representation letters.
We identified some needed improvements in one of the five key areas we
reviewed. Specifically, USAID did not provide a summary of unadjusted
misstatements that (1) identifies the standard general ledger account
number, standard general ledger account name, or financial statement
line item for the misstatements and (2) includes a description of the
misstatements. We believe that this matter can be easily addressed and
are making a recommendation to USAID's Chief Financial Officer targeted
to including a complete summary of unadjusted misstatements, if there
are any uncorrected misstatements, that also provides a description of
the misstatements. Also, we are recommending that the USAID Acting
Inspector General work with the agency to help ensure that future
management representation letters meet the key condition noted as
needing improvements in this report.
In commenting on a draft of this report, USAID's Chief Financial
Officer and Acting Inspector General, in separate letters, disagreed
with our conclusion that USAID's summary of unadjusted misstatements
was incomplete. Specifically, the Chief Financial Officer said that
USAID's summary of unadjusted misstatements identified the financial
statement line item and included a description for the misstatements.
In addition, the Acting Inspector General stated that the financial
statement line items were included in the summary. We disagree with
their conclusions. During our review, it was not clear that the
information called for by the FAM and TFM was provided and, therefore,
USAID's summary of unadjusted misstatements was incomplete.
Specifically, we could not identify the line items referred to in the
summary on USAID's fiscal year 2004 Statement of Net Cost and the
description provided for the misstatements only indicated whether
intragovernmental or public costs increased or decreased, not the
circumstances that gave rise to the unadjusted misstatement. In
addition, USAID's Acting Inspector General requested that the
recommendation to him be deleted because USAID management is ultimately
responsible for the summary of unadjusted misstatements and his office
does not have line authority over them. We disagree with this
statement. The summary of unadjusted misstatements is prepared by the
auditor and given to management to attach to the management
representation letter and management is then responsible for
representing whether the effects of the uncorrected financial statement
misstatements summarized in the attached schedule are immaterial, both
individually and in the aggregate, to the financial statements taken as
a whole. As the auditor of USAID's financial statements, USAID's Office
of the Inspector General is responsible for preparing the summary of
unadjusted misstatements and ensuring that it is complete. We continue
to believe that the recommendation to the Acting Inspector General is
appropriate.
Background:
In conducting agency financial statement audits, U.S. generally
accepted government auditing standards incorporate financial auditing
fieldwork and reporting standards issued by the AICPA. Such auditing
standards (AU Section 333) require auditors to obtain certain
representations from agency management. These representations are part
of the evidential matter to be considered by the auditor in its audit
of the agency's financial statements. The representations obtained will
depend on the circumstances of the engagement and the nature and basis
of presentation of the financial statements. AU Section 333 discusses
specific representations that should be obtained from management,
including a requirement to attach a schedule of unadjusted financial
statement misstatements for entities with uncorrected misstatements.
In addition, OMB Bulletin 01-02 and FAM section 1001 contain guidance
on preparing federal agencies' management representation letters.
According to the FAM, in addition to the representations included in AU
Section 333, the auditor generally should consider the need to obtain
representations on other matters based on the circumstances of the
audited entity. FAM section 1001A lists 35 specific representations
ordinarily included in the management representation letter and also
includes a requirement to attach a schedule of unadjusted financial
statement misstatements for entities with uncorrected misstatements.
(See enc. I for these representations.) Representations listed in FAM
section 1001A should be customized to the situation of the entity being
audited or excluded if inapplicable. We perform our audit of the CFS in
accordance with the FAM and related auditing standards.
Treasury and OMB are to receive management representation letters from
certain federal agencies. This is important because U.S. generally
accepted government auditing standards require that Treasury and OMB
provide us, as principal auditor of the CFS, a management
representation letter, and their letter depends on the information in
such agencies' management representation letters. In their
representation letter to us for the audit of the fiscal year 2004 CFS,
Treasury and OMB stated that their representations are based primarily
on the representations of those agencies covered by the Chief Financial
Officers (CFO) Act and other selected agencies that were made in
connection with the preparation of these entities' respective financial
statements and provided to OMB and Treasury. For this reason, it is
important that all federal agency representation letters be complete
and reliable.
Objectives, Scope, and Methodology:
In connection with our audit of the fiscal year 2004 CFS, we evaluated
Treasury's financial reporting procedures and related internal control,
including the CFS management representation letter. For the fiscal year
2004 CFS, 33 of the 35 "verifying agencies" submitted audited financial
statements along with their management representation letters to
Treasury.[Footnote 4] In our review of these 33 management
representation letters, our overall objective was to assess their
adequacy as it relates to our audit of the CFS. Specifically, we
reviewed each agency management representation letter to determine
whether the following five key conditions were met:
* the management representation letter was signed by appropriate agency
officials;
* the management representation letter included designation as to the
amounts above which matters were considered material (materiality
thresholds);
* the management representation letter included applicable
representations from the FAM;
* the management representation letter included a properly prepared
summary of unadjusted misstatements for agencies with uncorrected
misstatements; and:
* the representations in the management representation letter were
reliable based on a review of findings in the auditor's report.
This report is based on the audit work we performed for the audit of
the fiscal year 2004 CFS, which was performed in accordance with U.S.
generally accepted government auditing standards.
We requested comments on a draft of this report from USAID's Chief
Financial Officer and Acting Inspector General or their designees.
Written comments from USAID's Chief Financial Officer and Acting
Inspector General are reprinted in enclosures II and III, respectively,
and are also discussed in the Agency Comments and Our Evaluation
section.
USAID Did Not Provide a Complete Fiscal Year 2004 Summary of Unadjusted
Misstatements:
We identified that USAID's fiscal year 2004 summary of unadjusted
misstatements was incomplete. U.S. generally accepted government
auditing standards require that for each federal agency with
uncorrected misstatements, a summary of unadjusted misstatements be
attached to the agency's management representation letter. Treasury and
OMB use the summaries of unadjusted misstatements to assess the impact
of federal agencies' unadjusted misstatements on the CFS and make
appropriate management representations to us at the governmentwide
level. The summaries are also used by us, as principal auditor of the
CFS, to develop an overall governmentwide summary of unadjusted
misstatements, which is then attached to the CFS management
representation letter prepared by Treasury and OMB.
Also, in a matter related to the compilation process for the CFS, in
fiscal year 2004, Treasury required agencies to submit a summary of
unadjusted misstatements as part of the closing package using the
standardized format provided for in the Treasury Financial Manual
(TFM). The TFM, however, required additional details to be added to
this summary of unadjusted misstatements than those called for by the
FAM. Specifically, agencies were to also (1) include a description of
the misstatements and (2) distinguish between misstatements affecting
intragovernmental accounts and misstatements affecting accounts with
the public. We need this additional information to develop the overall
governmentwide summary of unadjusted misstatements. In order to avoid
duplication of effort by the agencies in preparing two summaries of
unadjusted misstatements, the additional information should also be
included in the summary of unadjusted misstatements attached to the
management representation letter. As such, we plan to work with PCIE to
modify the FAM to call for these two additional disclosures to be
included in the summary of unadjusted misstatements attached to the
management representation letter.
In its management representation letter, USAID said that "We believe
that the effects of the uncorrected financial statement misstatements
summarized in the accompanying schedule are immaterial, both
individually and in the aggregate, to the financial statements taken as
a whole." However, USAID did not include a summary of unadjusted
misstatements with its fiscal year 2004 management representation
letter.
USAID did submit a summary of unadjusted misstatements as part of its
closing package to Treasury as required by the TFM, but the summary was
incomplete. Specifically, USAID did not (1) identify the standard
general ledger account number, standard general ledger account name, or
financial statement line item for the misstatements and (2) include a
description of the misstatements.
Without a complete summary of unadjusted misstatements from each of the
verifying agencies with uncorrected misstatements, it is not possible
for us, as principal auditor of the CFS, to reasonably determine the
audit risk exposure for each of the line items in the CFS or to prepare
an adequate summary of unadjusted misstatements at the governmentwide
level.
Conclusions:
In one of the five key areas we reviewed, USAID's fiscal year 2004
management representation letter did not provide all the information
necessary to support Treasury and OMB's preparation of the CFS
management representation letter and our ability to rely on the
representations in that letter in combination with individual federal
agency representation letters, including that of USAID. The additional
information needed from USAID is straightforward and should be easy to
address.
Recommendations for Executive Action:
We recommend to USAID's Chief Financial Officer that in the future the
management representation letter include a complete summary of
unadjusted misstatements, if there are any uncorrected misstatements,
that also provides a description of the misstatements.
We recommend that the USAID Acting Inspector General work with the
agency to help ensure that future management representation letters
meet the key condition noted as needing improvements in this report.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, USAID's Chief Financial
Officer and Acting Inspector General, in separate letters that are
reprinted in enclosures II and III, disagreed with our conclusion that
USAID's summary of unadjusted misstatements was incomplete.
Specifically, the Chief Financial Officer said that USAID's summary of
unadjusted misstatements identified the financial statement line item
and included a description for the misstatements. In addition, the
Acting Inspector General stated that the financial statement line items
were included in the summary. We disagree with their conclusions.
During our review, it was not clear that the information called for by
the FAM and TFM was provided. Specifically, after reviewing USAID's
fiscal year 2004 Statement of Net Cost, we could not identify any line
items referred to as "Partnerships, Initiatives", "Institutions, Laws",
or "Improved Capacity" as indicated in USAID's summary of unadjusted
misstatements. In addition, the description provided for the
misstatements only indicated whether intragovernmental or public costs
increased or decreased, not the circumstances that gave rise to the
unadjusted misstatement. As a result, the line item and description was
not provided and, therefore, USAID's summary of unadjusted
misstatements was incomplete.
USAID's Chief Financial Officer stated that her office will ensure that
if a summary of unadjusted misstatements is listed as attached, it is
in fact attached. However, USAID's Acting Inspector General requested
that the recommendation to him be deleted because he believes that
USAID management is ultimately responsible for the summary of
unadjusted misstatements and his office does not have line authority
over them. We disagree with this statement. The summary of unadjusted
misstatements is to be prepared by the auditor and given to management
to attach to the management representation letter. Management is then
responsible for representing whether the effects of the uncorrected
financial statement misstatements summarized in the attached schedule
are immaterial, both individually and in the aggregate, to the
financial statements taken as a whole. As the auditor of USAID's
financial statements, USAID's Office of the Inspector General is
responsible for preparing the summary of unadjusted misstatements and
ensuring that it is complete. We continue to believe that the
recommendation to the Acting Inspector General is appropriate and that
the report should continue to be co-addressed to the Chief Financial
Officer and the Acting Inspector General.
Within 60 days of the date of this report, we would appreciate
receiving a written statement on actions taken to address these
recommendations.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Homeland Security and
Governmental Affairs; the Subcommittee on Federal Financial Management,
Government Information, and International Security, Senate Committee on
Homeland Security and Governmental Affairs; the House Committee on
Government Reform; and the Subcommittee on Government Management,
Finance, and Accountability, House Committee on Government Reform. In
addition, we are sending copies to the Fiscal Assistant Secretary of
the Treasury and the Controller of OMB. Copies will be made available
to others upon request. This report is also available at no charge on
GAO's Web site at [Hyperlink, http://www.gao.gov].
We appreciate the courtesy and cooperation extended to us by your staff
throughout our work. We look forward to continuing to work with your
offices to help improve financial management in the federal government.
If you have any questions about the contents of this report, please
contact me at (202) 512-3406.
Signed by:
Gary T. Engel:
Director:
Financial Management and Assurance:
Enclosures - 3:
[End of section]
Enclosure I: Representations in FAM 1001A:
Guidance contained in FAM 1001 and FAM 1001A deals with the management
representations that the auditor should obtain from current management
as part of the audit. This guidance also acknowledges that judgment
needs to be exercised to obtain representations that depend on the
circumstances of the engagement and the nature and basis of
presentation of the financial statements. Representations given in FAM
section 1001A should be customized to the situation of the entity being
audited, and additional representations may need to be obtained.
FAM 1001A lists 27 representations that are ordinarily included, if
applicable, in the management representation letter that an agency
provides to the auditor. For representations 3, 11, 16, and 18, the
agency should address three separate components. As such, each agency
is ordinarily expected to make a total of 35 representations.
Representations 18, 19, 20, and 21 are not applicable unless the agency
received an opinion on its internal control. In addition,
representations 22, 23, and 24 address the three requirements of the
Federal Financial Management Improvement Act of 1996 and are only
applicable to the 24 CFO Act agencies. The 35 representations in FAM
1001A are as follows.
1. We are responsible for the fair presentation of the financial
statements and stewardship information in conformity with U.S.
generally accepted accounting principles.
2. The financial statements are fairly presented in conformity with
U.S. generally accepted accounting principles.
3. We have made available to you all:
a. financial records and related data;
b. where applicable, minutes of meetings of the Board of Directors [or
other similar bodies, such as congressional oversight committees] or
summaries of actions of recent meetings for which minutes have not been
prepared; and:
c. communications from the Office of Management and Budget (OMB)
concerning noncompliance with or deficiencies in financial reporting
practices.
4. There are no material transactions that have not been properly
recorded in the accounting records underlying the financial statements
or disclosed in the notes to the financial statements.
5. We believe that the effects of the uncorrected financial statement
misstatements summarized in the accompanying schedule are immaterial,
both individually and in the aggregate, to the financial statements
taken as a whole. [If management believes that certain of the
identified items are not misstatements, management's belief may be
acknowledged by adding to the representation, for example, "We believe
that items XX and XX do not constitute misstatements because
[description of reason]."]
6. The [entity] has satisfactory title to all owned assets, including
stewardship property, plant, and equipment; such assets have no liens
or encumbrances; and no assets have been pledged.
7. We have no plans or intentions that may materially affect the
carrying value or classification of assets and liabilities.
8. Guarantees under which the [entity] is contingently liable have been
properly reported or disclosed.
9. Related party transactions and related accounts receivable or
payable, including assessments, loans, and guarantees, have been
properly recorded and disclosed.
10. All intraentity transactions and balances have been appropriately
identified and eliminated for financial reporting purposes, unless
otherwise noted. All intragovernmental transactions and balances have
been appropriately recorded, reported, and disclosed. We have
reconciled intragovernmental transactions and balances with the
appropriate trading partners for the four fiduciary transactions
identified in Treasury's Intra-governmental Fiduciary Transactions
Accounting Guide, and other intragovernmental asset, liability, and
revenue amounts as required by the applicable OMB Bulletin.
11. There are no:
a. possible violations of laws or regulations whose effects should be
considered for disclosure in the financial statements or as a basis for
recording a loss contingency,
b. material liabilities or gain or loss contingencies that are required
to be accrued or disclosed that have not been accrued or disclosed, or:
c. unasserted claims or assessments that are probable of assertion and
must be disclosed that have not been disclosed.
12. We have complied with all aspects of contractual agreements that
would have a material effect on the financial statements in the event
of noncompliance.
13. No material events or transactions have occurred subsequent to
September 30, 20X2 [or date of latest audited financial statements],
that have not been properly recorded in the financial statements and
stewardship information or disclosed in the notes.
14. We are responsible for establishing and maintaining internal
control.
15. We acknowledge our responsibility for the design and implementation
of programs and controls to prevent and detect fraud (intentional
misstatements or omissions of amounts or disclosures in financial
statements and misappropriation of assets that could have a material
effect on the financial statements).
16. We have no knowledge of any fraud or suspected fraud affecting the
[entity] involving:
a. management,
b. employees who have significant roles in internal control, or:
c. others where the fraud could have a material effect on the financial
statements.
[If there is knowledge of any such instances, they should be described.]
17. We have no knowledge of any allegations of fraud or suspected fraud
affecting the [entity] received in communications from employees,
former employees, or others. [If there is knowledge of any such
allegations, they should be described.]
18. Pursuant to 31 U.S.C. 3512(c), (d) (commonly known as the Federal
Managers' Financial Integrity Act), we have assessed the effectiveness
of the [entity's] internal control in achieving the following
objectives:
a. reliability of financial reporting--transactions are properly
recorded, processed, and summarized to permit the preparation of
financial statements and stewardship information in accordance with
U.S. generally accepted accounting principles, and assets are
safeguarded against loss from unauthorized acquisition, use or
disposition;
b. compliance with applicable laws and regulations--transactions are
executed in accordance with (i) laws governing the use of budget
authority and with other laws and regulations that could have a direct
and material effect on the financial statements and (ii) any other
laws, regulations, and governmentwide policies identified by OMB in its
audit guidance; and:
c. reliability of performance reporting--transactions and other data
that support reported performance measures are properly recorded,
processed, and summarized to permit the preparation of performance
information in accordance with criteria stated by management.
[If the entity bases its internal control assessment on suitable
criteria other than 31 U.S.C. 3512(c), (d), this item should cite the
criteria used (for example, Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations (COSO) of the
Treadway Commission).]
19. Those controls in place on September 30, 20X2 [or date of latest
audited financial statements], and during the years ended 20X2 and
20X1, provided reasonable assurance that the foregoing objectives are
met. [If there are material weaknesses, the foregoing representation
should be modified to read:
Those controls in place on September 30, 20X2, and during the years
ended 20X2 and 20X1, provided reasonable assurance that the foregoing
objectives are met except for the effects of the material weaknesses
discussed below or in the attachment.
or: Internal controls are not effective.
or: Internal controls do not meet the foregoing objectives.]
20. We have disclosed to you all significant deficiencies in the design
or operation of internal control that could adversely affect the
entity's ability to meet the internal control objectives and identified
those we believe to be material weaknesses.
21. There have been no changes to internal control subsequent to
September 30, 20X2 [or date of latest audited financial statements], or
other factors that might significantly affect it. [If there were
changes, describe them, including any corrective actions taken with
regard to any significant deficiencies or material weaknesses.]
22. We are responsible for implementing and maintaining financial
management systems that substantially comply with federal financial
management systems requirements, federal accounting standards (U.S.
generally accepted accounting principles), and the U.S. Government
Standard General Ledger at the transaction level.
23. We have assessed the financial management systems to determine
whether they substantially comply with these federal financial
management systems requirements. Our assessment was based on guidance
issued by OMB.
24. The financial management systems substantially complied with
federal financial management systems requirements, federal accounting
standards, and the U.S. Government Standard General Ledger at the
transaction level as of [date of the latest financial statements].
[If the financial management systems substantially comply with only one
or two of the above elements, this representation should be modified as
follows:
As of [date of financial statements], the [entity's] financial
management systems substantially comply with [specify which of the
three elements for which there is substantial compliance (e.g., federal
accounting standards and the SGL at the transaction level)], but did
not substantially comply with [specify which of the elements for which
there was a lack of substantial compliance (e.g., federal financial
management systems requirements)], as described below (or in an
attachment).]
[If the financial management systems do not substantially comply with
any of the three elements, the following paragraph should be used
instead:
As of [date of financial statements], the [entity's] financial
management systems do not substantially comply with the federal
financial management systems requirements.]
[If there is a lack of substantial compliance with one or more of the
three requirements, identify herein or in an attachment all the facts
pertaining to the noncompliance, including the nature and extent of the
noncompliance and the primary reason or cause of the noncompliance.]
25. We are responsible for the [entity's] compliance with applicable
laws and regulations.
26. We have identified and disclosed to you all laws and regulations
that have a direct and material effect on the determination of
financial statement amounts.
27. We have disclosed to you all known instances of noncompliance with
laws and regulations.
[End of section]
Enclosure II: Comments From the Office of the Chief Financial Officer
at the U.S. Agency for International Development:
USAID:
FROM THE AMERICAN PEOPLE:
Gary T. Engel, Director:
Financial Management and Assurance:
U.S. Government Accountability Office:
Washington, D.C. 20548:
June 10, 2005:
Dear Mr. Engel:
This letter is in response to GAO Draft Report entitled "Financial
Audit: The Agency for International Development's Fiscal Year 2004
Management Representation Letter on Its Financial Statements." We
appreciate the opportunity to comment and request that our comments be
included in the final report.
We acknowledge that the Schedule summarizing the Agency's unadjusted
misstatements was not completed and included as an attachment to the
Management Representation Letter. This was an apparent oversight on our
part as we did reference in item 5 of the Management letter that such a
summary was attached. This information was compiled and subsequently
submitted, as required, with our closing package. In response to your
request for the Schedule, please see the Attachment to this letter.
In the future we will ensure that schedules listed as attached are in
fact attached; however, I would like to point out that the policies and
procedures around this requirement are vague at best. The FAM which is
the policy manual used by the audit community is not only not specific
as to what is required it leaves much to the discretion of the auditor
and auditee. I look forward to your making improvements to this
guidance so that it is quite clear what is and is not required in the
future. Ensuring that information required is consistent with the TFM
requirements makes perfect sense.
Also, for the record, I would like to point out that USAID did submit a
summary of unadjusted misstatements as pal of its closing package to
Treasury and while we did not identify the General Ledger (GL) Account
number or name; contrary to your report, we did identify the financial
statement line item for the misstatements and included a description of
same.
I trust that this omission was not a final causal factor in the
consolidated financial statements not receiving an unqualified audit
opinion. If USAID was ever in a position of being responsible for
getting information to you in that regard I would hope that you would
contact us immediately so that we could provide such information to you
right away.
Sincerely,
Signed by:
Lisa Fiely:
Chief Financial Officer:
U.S. Agency for International Development:
1300 Pennsylvania Avenue, NW:
Washington, DC 20523:
www.usaid.gov:
ATTACHMENT:
SUMMARY OF UNADJUSTED MISSTATEMENTS:
FY 2004:
[See PDF for image]
[End of table]
The following are our comments on the United States Agency for
International Development's (USAID) Office of the Chief Financial
Officer's letter dated June 10, 2005.
GAO Comments:
1. See the "Agency Comments and Our Evaluation" section of this report.
2. USAID's Chief Financial Officer noted that the policies and
procedures for attaching a summary of unadjusted misstatements to the
management representation letter are vague. As discussed in our report,
U.S. generally accepted auditing standards (AU Section 333) discusses
specific representations that should be obtained from management,
including a requirement to attach a schedule of unadjusted financial
statement misstatements for entities with uncorrected misstatements. In
addition, the GAO/President's Council on Integrity and Efficiency
(PCIE) Financial Audit Manual (FAM) section 1001A lists 35 specific
representations ordinarily included in the management representation
letter and also includes a requirement to attach a schedule of
unadjusted financial statement misstatements for entities with
uncorrected misstatements. As noted in our report, we plan to work with
PCIE to modify the FAM to call for the additional disclosures on the
summary of unadjusted misstatements that were required by the TFM in
fiscal year 2004.
3. USAID's Chief Financial Officer noted that she believed that the
incompleteness of USAID's summary of unadjusted misstatements was not a
final causal factor in the U.S. government's consolidated financial
statements (CFS) not receiving an unqualified audit opinion. As stated
in our report, we reported a limitation on the scope of our work on the
fiscal year 2004 CFS due to identified concerns with the adequacy of
certain federal agencies' management representations on which Treasury
and OMB depend to provide their representations to us regarding the
CFS. Specifically, the incompleteness of certain of these federal
agencies' letters, including USAID's letter, impaired our ability to
obtain sufficient evidence in support of our audit of the CFS and
contributed to our disclaimer of opinion on the CFS.
[End of section]
Enclosure III: Comments From the Office of the Inspector General at the
U.S. Agency for International Development:
USAID:
FROM THE AMERICAN PEOPLE:
Office of Inspector General:
June 13, 2005:
Mr. Gary T. Engel:
Director:
Financial Management and Assurance:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Engel:
Thank you for the May 31, 2005, draft report entitled "Financial Audit:
The Agency for International Development's Fiscal Year 2004 Management
Representation Letter on Its Financial Statements." We have the
following comments.
We suggest that your references to AID throughout the report be
replaced with either the U.S. Agency for International Development or
USAID.
Page 4 of your draft report states that AID did not provide "..a
summary of unadjusted misstatements that (1) identifies the standard
general ledger account number, standard general ledger account name, or
financial statement line item for the misstatements and (2) includes a
description of the misstatements." The criterion for this statement
cited in the draft report refers to Part 2 Appendix 4, Note 20 of the
Treasury Financial Manual (TFM) 4700, which contains an illustrative
Summary of Unadjusted Misstatements template. To collect this
information from all federal agencies, the Department of Treasury
developed a Summary of Unadjusted Misstatements template as part of the
Government Financial Report System (GFRS). USAID submitted its
information to Treasury in this format, which included an
identification of the financial statement line item for the
misstatements. Neither template developed by the Department of Treasury
specifically requested either standard general ledger account numbers
or standard general ledger account names. Therefore, since USAID
provided the information required by Treasury through the GFRS and
identified the financial statement line items, we believe the
recommendation should be deleted or modified to reflect the specific
criteria that USAID did not comply with.
With respect to the conclusion on Page 9 of your draft report, we agree
that complete information on USAID summary of unadjusted misstatements
is important for the Treasury and OMB to be able to prepare the
Consolidated Financial Statements. However, because the financial
statement line items affected were provided in the submission, we do
not agree USAID's failure to provide SGL account information or a
description of misstatements in its summary of unadjusted misstatements
contributed to the GAO's overall inability to rely on the CFS
management representation letter.
Regarding the recommendation to the Acting Inspector General on page 10
of the draft report, we have and will continue to work closely with
USAID's CFO Office and General Counsel in developing future management
representation letters and summaries of unadjusted misstatements.
However, USAID management is ultimately responsible for these products
and we do not have line authority over USAID management to ensure GFRS
or TFM compliance. Therefore, we suggest that the recommendation to the
Acting Inspector General be deleted. Finally, we request the Acting
Inspector General be copied on the final report rather than listed as
an addressee.
We appreciate the opportunity to comment on your draft report and
appreciate your efforts on the USG Consolidated Financial Statements.
Sincerely,
Signed by:
Bruce N. Crandlemire:
Acting Inspector General:
The following are our comments on the United States Agency for
International Development's (USAID) Office of the Inspector General's
letter dated June 13, 2005.
GAO Comments:
1. See the "Agency Comments and Our Evaluation" section of this report.
2. As requested in the letter, we have modified the report to refer to
the United States Agency for International Development as USAID.
3. USAID's Acting Inspector General stated that the summary of
unadjusted misstatements template in the Treasury Financial Manual
(TFM) for fiscal year 2004 did not specifically request standard
general ledger account numbers or general ledger account names. The TFM
template requests the financial statement line items for the unadjusted
misstatements. Since the standard general ledger account number or name
could be listed instead of the financial statement line item and still
provide the necessary information, we reviewed the agencies' summaries
of unadjusted misstatements to determine whether one of the three items
was listed. However, as discussed in the report, USAID's summary of
unadjusted misstatements did not include any of the three items, and
was, therefore, incomplete.
[End of section]
(198381):
FOOTNOTES
[1] The Government Management Reform Act of 1994 has required such
reporting, covering the executive branch of government, beginning with
financial statements prepared for fiscal year 1997. 31 U.S.C. § 331
(e). The federal government has elected to include certain financial
information on the legislative and judicial branches in the CFS as
well.
[2] The fiscal year 2004 Financial Report of the United States
Government was completed by the Department of the Treasury on December
15, 2004, and is available through both GAO's Web site at www.gao.gov
and Treasury's Web site at www.fms.treas.gov/fr/index.html.
[3] GAO, GAO/PCIE: Financial Audit Manual: Update, GAO-04-1015G
(Washington, D.C.: July 30, 2004), an update to Financial Audit Manual:
Volumes 1 and 2, GAO-01-765G (Washington, D.C.: Aug. 1, 2001).
[4] See Treasury Financial Manual, vol. I, part 2, ch. 4700, for a list
of the 35 agencies. These agencies, for fiscal year 2004, consisted of
23 CFO Act agencies and 12 material other agencies. The 33 agencies we
reviewed did not include the U.S. Securities and Exchange Commission
and the Smithsonian Institution because these audits were not complete
before the fiscal year 2004 Financial Report of the United States
Government was issued. The Department of Homeland Security (DHS)
Financial Accountability Act, Pub. L. No. 108-330, 118 Stat. 1275 (Oct.
16, 2004), added DHS to the list of CFO Act agencies, increasing the
number of CFO Act agencies again to 24 for fiscal year 2005.
