Financial Audit
The Department of Agriculture's Fiscal Year 2004 Management Representation Letter on Its Financial Statements Gao ID: GAO-05-595R 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 Department of Agriculture's (USDA) fiscal year 2004 management representation letter. Our objective is to help ensure that future management representation letters submitted by USDA 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."
USDA'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 two of the five key areas we reviewed. First, the letter included 28 of the 29 representations from the FAM that were applicable to USDA. The other representation was not provided at all. Finally, USDA did not include a complete summary of unadjusted misstatements with its management representation letter and also did not provide a description of the misstatements. We believe that these matters can be easily addressed. We are making two recommendations to USDA's Acting Chief Financial Officer targeted to specific changes needed. Also, we are recommending that the USDA Inspector General work with the department to help ensure that future management representation letters meet the key conditions 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-05-595R, Financial Audit: The Department of Agriculture's Fiscal Year 2004 Management Representation Letter on Its Financial Statements
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July 22, 2005:
Ms. Patricia E. Healy:
Acting Chief Financial Officer:
Department of Agriculture:
The Honorable Phyllis K. Fong:
Inspector General:
Department of Agriculture:
Subject: Financial Audit: The Department of Agriculture'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 Department of Agriculture's (USDA) fiscal year 2004
management representation letter. Our objective is to help ensure that
future management representation letters submitted by USDA 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:
USDA'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 two of the five key areas we
reviewed. First, the letter included 28 of the 29
representations[Footnote 4] from the FAM that were applicable to USDA.
The other representation was not provided at all. Finally, USDA did not
include a complete summary of unadjusted misstatements with its
management representation letter and also did not provide a description
of the misstatements.
We believe that these matters can be easily addressed. We are making
two recommendations to USDA's Acting Chief Financial Officer targeted
to specific changes needed. Also, we are recommending that the USDA
Inspector General work with the department to help ensure that future
management representation letters meet the key conditions noted as
needing improvements in this report.
In commenting on a draft of this report, USDA's Acting Chief Financial
Officer and Inspector General stated that they will work to address the
conditions noted in our report. As it relates to the FAM representation
that was not provided, the Acting Chief Financial Officer noted that
her office believed that the disclosure was addressed in other parts of
USDA's management representation letter and the Inspector General noted
that the management representation letter did represent that all
material instances of noncompliance were disclosed as well as all
instances of known fraud. While USDA included representations that
stated (1) there were no instances of noncompliance with applicable
laws and regulations that could have a material effect on the financial
statements and (2) all instances of known fraud were disclosed, it did
not represent that all known instances of noncompliance were disclosed
to the auditor as called for by the FAM. As such, we continue to
believe that this FAM representation was not included in USDA's fiscal
year 2004 management representation letter and should be provided in
USDA's future management representation letters. We are pleased that
USDA's Acting Chief Financial Officer and Inspector General stated that
they will work to include the representation in future management
representation letters.
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 5] 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 USDA's Acting
Chief Financial Officer and Inspector General or their designees. A
joint letter containing written comments from USDA's Acting Chief
Financial Officer and Inspector General is reprinted in enclosure II
and discussed in the Agency Comments and Our Evaluation section.
Identified Issues with USDA's Fiscal Year 2004 Management
Representation Letter:
With respect to USDA's fiscal year 2004 management representation
letter, we identified the following two areas that need some
improvement: (1) providing applicable representations from the FAM and
(2) including a complete summary of unadjusted misstatements. Details
regarding these issues are as follows.
Providing Applicable Representations from the FAM:
Written representations from management ordinarily confirm oral
representations made to the auditor during the audit, document the
continuing appropriateness of those representations, and reduce the
possibility of a misunderstanding. To meet auditing standards and OMB
requirements, federal agencies' management and auditors need to ensure
that management representation letters are complete and accurate.
We found that USDA's fiscal year 2004 management representation letter
included 28 of the 29 representations from the FAM that were applicable
to USDA. The other representation, which was not provided at all, is as
follows.
* FAM #27:We have disclosed to you all known instances of noncompliance
with laws and regulations.
When agencies do not provide all representations in their management
representation letters, it impairs our ability to audit the CFS and
Treasury and OMB's ability to make these types of representations in
the CFS management representation letter.
Including a Complete Summary of Unadjusted Misstatements:
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 the
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.
USDA included a summary of unadjusted misstatements with its management
representation letter, but the summary did not separate "known" and
"likely" misstatements, as called for by the FAM. In addition, USDA
submitted a summary of unadjusted misstatements as part of its closing
package to Treasury as required by the TFM, but the summary did not
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 two of the five key areas we reviewed, USDA'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 USDA. The additional
information needed from USDA is straightforward and should be easy to
address.
Recommendations for Executive Action:
We recommend to USDA's Acting Chief Financial Officer that in the
future the management representation letter:
* fully include all representations from the FAM that are applicable to
USDA and:
* 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 USDA Inspector General work with the department
to help ensure that future management representation letters meet the
key conditions noted as needing improvements in this report.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, which are reprinted in
enclosure II, USDA's Acting Chief Financial Officer and Inspector
General stated that they will work to address the conditions noted in
our report. Specifically, USDA's Acting Chief Financial Officer stated
her office (1) has already changed the format for USDA's fiscal year
2005 management representation letter and all future management
representation letters to include representation #27 and (2) will
ensure that the summary of unadjusted misstatements includes component
audit information on future submissions. In addition, USDA's Inspector
General stated that her office will work with USDA management to help
ensure that future management representation letters fully include all
appropriate representations from the FAM as well as a complete summary
of unadjusted misstatements.
As it relates to FAM representation #27, the Acting Chief Financial
Officer noted that her office believed that the disclosure was
addressed in other parts of USDA's management representation letter and
the Inspector General noted that the management representation letter
did represent that all material instances of noncompliance were
disclosed as well as all instances of known fraud. While USDA included
representations that stated (1) there were no instances of
noncompliance with applicable laws and regulations that could have a
material effect on the financial statements and (2) all instances of
known fraud were disclosed, it did not represent that all known
instances of noncompliance were disclosed to the auditor as called for
by representation #27. As such, we continue to believe that FAM
representation #27 was not included in USDA's fiscal year 2004
management representation letter and should be provided in USDA's
future management representation letters. We are pleased that USDA's
Acting Chief Financial Officer and Inspector General stated that they
will work to include FAM representation #27 in future management
representation letters.
As it relates to the summary of unadjusted misstatements, both USDA's
Acting Chief Financial Officer and Inspector General indicated that the
adjustments included on the departmentwide summary of unadjusted
misstatements is intended to include only those adjustments identified
during the consolidated audit and not unadjusted misstatements
identified during the individual USDA component audits. They stated
that they were not aware that GAO was requesting component audit
information. Our issue was not related to the component units of USDA,
but to USDA's departmentwide summary of unadjusted misstatements. As
stated in our engagement letter dated May 3, 2004, which was issued by
us to Treasury and OMB and copied to the verifying agencies' Chief
Financial Officer and Inspector General, we were to receive a summary
of unadjusted misstatements from the applicable agencies with the
management representation letter. As noted in our report, both the
summary provided with USDA's management representation letter and the
summary included with USDA's closing package lacked certain details
needed for it to be properly used by GAO for preparing the
governmentwide management representation letter. For example, USDA's
summary did not include a description of the misstatements. USDA also
noted that there were not any likely misstatements to include on the
summary. However, FAM 540.03 states that the auditor should quantify
the effects of any misstatements and classify them as either "known
misstatements" or "likely misstatements". We are pleased that USDA's
Acting Chief Financial Officer and Inspector General stated that in the
future they will provide a complete summary of unadjusted
misstatements.
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 - 2:
[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 Department of Agriculture:
USDA:
United States Department of Agriculture:
Office of the Chief Financial Officer:
1400 Independence Avenue, SW:
Washington, DC 20250:
Mr. Gary T. Engel:
Director:
Financial Management and Assurance:
Government Accountability Office:
441 G Street, N. W.
Washington, D.C. 20548:
Dear Mr. Engel:
The Department of Agriculture's (USDA) Office of the Chief Financial
Officer (OCFO) and the Office of Inspector General (OIG) appreciate the
opportunity to comment on the draft report dated May 25, 2005, relating
to your review of the fiscal year (FY) 2004 management representation
letter on its financial statements.
OCFO:
We accept your position that USDA should have included a statement that
all known noncompliance with laws and regulations had been disclosed.
We believe that disclosure was addressed in other parts of our
management representation letter. However, we have already changed the
format for FY 2005 and all future management representation letters to
include this statement.
Additionally, OCFO will ensure that the summary of adjustments passed
includes component audit information on future submissions as you have
recommended.
OIG:
We agree with the recommendation addressed to OIG and will work with
USDA management in the future to help ensure that future management
representation letters meet the conditions you cited relating to fully
including all appropriate representations from the Financial Audit
Manual (FAM) as well as a complete summary of unadjusted misstatements,
including detailed descriptions.
While in agreement with the recommendation, we would like to provide
clarification to the Government Accountability Office's (GAO) comments
so that users can place the report in the proper context. Specifically:
* GAO stated the representations that all known noncompliance with laws
and regulations had been disclosed was inadvertently omitted from the
management representation letter. We will ensure that all required
disclosures are included in the future. However, we feel it is
important to note that the letter did represent that all material
instances of noncompliance were disclosed as well as all instances of
known fraud.
* The summary of adjustments passed for the USDA Consolidated audit is
intended to include only those adjustments identified during the
Consolidated audit. The USDA component audits communicate the
adjustments passed in their standalone management representation
letters as part of the individual audits. We were not aware that GAO
was requesting the component audit information. This information was
available and subsequently provided; however, GAO indicated that it was
not provided in time for them to rely on it if they had been able to
issue an opinion. We will ensure that the detail is provided in the
future. We request that in the future GAO communicate its requests in
detail commensurate with its expectations.
* The detail description of the two misstatements totaling $1 million
and $3 million, respectively, for the USDA audit was not included.
However, these are clearly inconsequential and, in retrospect, did not
warrant being brought forward to the schedule of adjustments passed.
* In addition, the schedule did not include "likely" adjustments;
however, there weren't any. In the future we will so state, if
applicable.
Additionally, please note that OIG had become increasingly concerned
that the overall process to support GAO's financial statement effort
needed improvement. GAO responded to our request to discuss these
concerns and met with us on May 25, 2005. GAO agreed to provide a
single point of contact who will work with OIG and the USDA financial
managers to develop a list of clearly defined deliverables and due
dates. We believe this new process will eliminate misunderstandings
(such as the one discussed in the second dot point above) and help
ensure that we are able to fully meet GAO's needs.
Sincerely,
Signed by:
Patricia E. Healy:
Acting Chief Financial Officer:
Signed for:
Phyllis K. Fong:
Inspector General:
The following are our comments on the Department of Agriculture's
(USDA) letter dated June 9, 2005.
GAO Comments:
1. See the "Agency Comments and Our Evaluation" section of this report.
2. Both GAO and USDA have expressed concerns related to the overall
process of providing us the needed information for the audit of the
consolidated financial statements of the U.S. government (CFS). In a
meeting between USDA and GAO on May 25, 2005, both parties discussed
how this process could be improved for future audits. At this meeting,
we told USDA officials that we believe that we had clearly defined the
deliverables and due dates for information requested that related to
our audit of the CFS. We also noted that some of the information
requested was called for in the engagement letter dated May 3, 2004,
that was issued by us to Treasury and OMB and copied to the verifying
agencies' Chief Financial Officer and Inspector General. Regardless, we
will provide a single point of contact to work with USDA's Office of
the Inspector General to facilitate meetings and data requests. Also,
USDA agreed to appoint a single point of contact, the financial
statement audit liaison, who will coordinate and obtain for us all
necessary information to help ensure that USDA meets its deliverables
and due dates.
(198375):
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] The FAM lists 27 representations that are ordinarily included, if
applicable, in the management representation letter that an agency
provides to the auditor. For 4 of the representations, the agency is
required to address three separate components. As such, each agency is
ordinarily expected to make a total of 35 representations. Six of the
35 representations are not applicable unless the agency received an
opinion on its internal control. Since USDA did not receive an opinion
on its internal control for fiscal year 2004, only 29 of the 35
representations were applicable to USDA's fiscal year 2004 management
representation letter.
[5] 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.
