Financial Audit
The Department of Justice's Fiscal Year 2004 Management Representation Letter on Its Financial Statements Gao ID: GAO-05-602R 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 Department of Justice's (DOJ) fiscal year 2004 management representation letter. Our objective is to help ensure that future management representation letters submitted by DOJ 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."
DOJ'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 DOJ. The other representation was not provided at all. In addition, DOJ 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 DOJ's Chief Financial Officer targeted to specific changes needed. Also, we are recommending that the DOJ Inspector General, with the contracted independent public accountant, 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.
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July 22, 2005:
The Honorable Paul R. Corts:
Chief Financial Officer:
Department of Justice:
The Honorable Glenn A. Fine:
Inspector General:
Department of Justice:
Subject: Financial Audit: The Department of Justice'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
Department of Justice's (DOJ) fiscal year 2004 management
representation letter. Our objective is to help ensure that future
management representation letters submitted by DOJ 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:
DOJ'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 DOJ.
The other representation was not provided at all. In addition, DOJ 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 DOJ's Chief Financial Officer targeted to
specific changes needed. Also, we are recommending that the DOJ
Inspector General, with the contracted independent public accountant,
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, DOJ's Chief Financial Officer
and Inspector General, in separate letters, stated that they will work
to address the conditions noted in our report. As it relates to the FAM
representation that was not provided, both the Chief Financial Officer
and the Inspector General pointed to other representations in DOJ's
management representation letter that they believed partially satisfied
the representation. However, these representations do not represent
that all known instances of noncompliance with laws and regulations
were disclosed to the auditor. As such, we continue to believe that the
FAM representation was not included in DOJ's fiscal year 2004
management representation letter and should be provided in DOJ's future
management representation letters. We are pleased that DOJ's Chief
Financial Officer stated that DOJ will ensure all applicable FAM
representations are included in its fiscal year 2005 management
representation letter.
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 DOJ's Chief
Financial Officer and Inspector General or their designees. Written
comments from DOJ's Chief Financial Officer and Inspector General are
reprinted in enclosures II and III, respectively, and are also
discussed in the Agency Comments and Our Evaluation section.
Identified Issues with DOJ's Fiscal Year 2004 Management Representation
Letter:
With respect to DOJ'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 DOJ's fiscal year 2004 management representation letter
included 28 of the 29 representations from the FAM that were applicable
to DOJ. 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
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.
DOJ included a summary of unadjusted misstatements with its management
representation letter, but the summary did not separately identify the
carry-forward effect of the prior year's unadjusted misstatements, as
called for by the FAM. In addition, DOJ did not submit a summary of
unadjusted misstatements as part of its closing package to Treasury as
required by the TFM. As such, DOJ also 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, DOJ'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 DOJ. The additional
information needed from DOJ is straightforward and should be easy to
address.
Recommendations for Executive Action:
We recommend to DOJ's Chief Financial Officer that in the future the
management representation letter:
* fully include all representations from the FAM that are applicable to
DOJ 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 DOJ Inspector General, with the contracted
independent public accountant, 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, DOJ's Chief Financial
Officer and Inspector General, in separate letters that are reprinted
in enclosures II and III, stated that they will work to address the
conditions noted in our report. Specifically, DOJ's Chief Financial
Officer stated that for the fiscal year 2005 management representation
letter DOJ (1) will ensure all applicable FAM representations are made
and (2) work with the Office of the Inspector General and the
contracted independent public accountant to ensure that the summary of
unadjusted misstatements is prepared and submitted in accordance with
applicable FAM requirements. In addition, the Inspector General stated
that his office (1) has discussed including representation #27 with DOJ
management and the contracted independent public accountant and (2)
will work with DOJ management and the independent public accountant to
ensure that the summary of unadjusted misstatements attached to DOJ's
fiscal year 2005 management representation letter separately identifies
the carry-forward effect of the prior year's unadjusted misstatements.
As it relates to FAM representation #27, both the Chief Financial
Officer and the Inspector General pointed to other representations in
DOJ's management representation letter that they believed partially
satisfied representation #27. Primarily, they pointed to the
representation that DOJ "has complied, in all material respects, with
applicable laws, regulations, and contracts that could have a material
effect on the consolidated financial statements in the event of
noncompliance." While this representation does state that there were no
instances of noncompliance that could have a material effect on the
financial statements, it does not represent that all known instances of
noncompliance were disclosed to the auditor as called for by
representation #27. In addition, the other representations pointed to
by DOJ are called for by the FAM under representations #11a, 16a, 16b,
16c and relate to either (1) violations that effect the financial
statements or (2) fraud. The representations do not represent that all
known instances of noncompliance with laws and regulations were
disclosed to the auditor. As such, we continue to believe that FAM
representation #27 was not included in DOJ's fiscal year 2004
management representation letter and should be provided in DOJ's future
management representation letters. We are pleased that DOJ's Chief
Financial Officer stated that DOJ will include FAM representation #27
in its fiscal year 2005 management representation letter.
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 Department of Justice:
U.S. Department of Justice:
Washington, D.C. 20530:
June 7, 2005:
The Honorable Mr. Gary T. Engel:
Director:
Financial Management and Assurance:
Government Accountability Office:
Dear Mr. Engel:
This letter responds to your request for comments on the Government
Accountability Office's (GAO) draft report entitled Financial Audit:
The Department of Justice's Fiscal Year 2004 Management Representation
Letter on Its Financial Statements. We greatly appreciate the
opportunity to review the draft report. Our comments follow.
General Comment:
Page 1001 - 1.03 of the GAO/PCIE Financial Audit Manual (FAM) - Part II
states that "The specific representation obtained will depend on the
circumstances of the engagement and the nature and basis of
presentation of the financial statement." Following Ns FAM guidance,
the Department's management, with concurrence from the Office of the
Inspector General and KPMG LLP (the Department's Consolidated Auditor),
prepared the representations to be included in the Department's FY 2004
Management Representation Letter.
Draft Report Comments:
Page 4, Paragraph I (also Page 8, Paragraph 3) - In regard to the
Department's omission of the GAO/PCIE FAM Management Representation
#27, which states "We have disclosed to you all known instances of
noncompliance with laws and regulations," we agree that the
Department's FY 2004 Management Representation Letter did not include a
verbatim version of Representation #27 as stated in the FAM; however,
our letter did include, in coordination with our auditors, qualified
assurance in regard to the following representations:
4. The Department has complied, in all material respects, with
applicable laws, regulations, and contracts that could have a material
effect on the consolidated financial statements in the event of
noncompliance.
6. Except as disclosed to you in writing, there have been no:
f. Violations, or possible violations, of laws or regulations whose
effect should be considered for disclosure in the consolidated
financial statements or as a basis for recording a loss contingency,
except for unresolved recommendations in prior Office of the Inspector
General and GAO audit reports, which have been considered in preparing
the consolidated financial statements, and those items noted in the
Independent Auditors' Report on Internal Control over Financial
Reporting and the Independent Auditors' Report on Compliance with Laws
and Regulations.
Page 10, Paragraph - In regard to the Department's omission of a
separate identification of the carry-forward effect of the prior year's
unadjusted misstatements and a summary of unadjusted misstatements as
part of its closing package to Treasury, your draft states "DOJ
included a summary of unadjusted misstatements with its management
representation letter, but the summary did not separately identify the
carry-forward effect of the prior year's unadjusted misstatements, as
called for by the FAM. In addition, DOJ did not submit a summary of
unadjusted misstatements as part of its closing package to Treasury as
required by the TFM. As such, DOI also did not include a description of
the misstatements."
For the FY 2005 Consolidated Management Representation Letter, the
Department will work with the OIG and KPMG to ensure all applicable FAM
representations (including separately identifying the carry-forward
effect of the prior year's unadjusted misstatements) shall be made.
However, we did not see where Treasury's TFM for FY 2005 requires a
separate summary of unadjusted misstatements to be submitted with the
closing package.
Page 11 - Department's Responses to Recommendations for Executive
Action:
* GAO recommends "fully include all representations from the FAM that
are applicable to DOJ."
Department's Response - For the FY 2005 Consolidated Management
Representation Letter, the Department will ensure all applicable FAM
representations (including #27) shall be made.
* GAO recommends "include a complete summary of unadjusted
misstatements, if there are any uncorrected misstatements, that also
provides a description of the misstatements."
Department's Response - For the FY 2005 Consolidated Management
Representation Letter, the Department will work with the OIG and KPMG
to ensure that the summary of unadjusted misstatement is prepared and
submitted in accordance with applicable FAM requirements.
Please contact Melinda Morgan, Director, Finance Staff, JMD at (202)
616-5800, if you have any questions regarding this letter.
Sincerely,
Signed for:
Paul R. Corts:
Assistant Attorney General for Administration:
The following are our comments on the Department of Justice's (DOJ)
Office of the Chief Financial Officer's letter dated June 7, 2005.
GAO Comments:
1. See the "Agency Comments and Our Evaluation" section of this report.
2. DOJ's Chief Financial Officer stated that his office did not see
where the Treasury Financial Manual (TFM) for fiscal year 2005 requires
a separate summary of unadjusted misstatements to be submitted with the
closing package. The template for the summary of unadjusted
misstatements that was included in the TFM for fiscal year 2004 has
been removed from the TFM for fiscal year 2005. However, the TFM for
fiscal year 2005 states under section 4705.55 that each applicable
verifying agency must provide a management representation letter on the
closing package, including a summary of unadjusted misstatements. As
noted in our report, we plan to work with the President's Council on
Integrity and Efficiency (PCIE) to modify the GAO/PCIE Financial Audit
Manual (FAM) to call for the additional disclosures on the summary of
unadjusted misstatements that were required by the TFM in fiscal year
2004.
[End of section]
Enclosure III: Comments From the Office of the Inspector General at the
Department of Justice:
U. S. Department of Justice:
Office of the Inspector General:
June 13, 2005:
Mr. Gary T. Engel:
Director:
Financial Management and Assurance:
U.S. Government Accountability Office:
Room 5476:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Mr. Engel:
This letter is in response to your letter dated May 25, 2005,
transmitting the Government Accountability Office's (GAO) draft report
entitled Financial Audit. The Department of Justice's Fiscal Year 2004
Management Representation Letter on Its Financial Statements. The
Office of the Inspector General (OIG) appreciates the opportunity to
review and comment on the draft report prior to the final report being
issued. The OIG's comments on the draft report recommendations follow:
1. We found that DOD's fiscal year 2004 management representation
letter included 28 of the 29 representations from the FAM that were
applicable to DOJ. 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.
The OIG disagrees with the GAO's conclusion that this representation
was not provided at all, because the Department of Justice (DOJ) did
make a representation that it had "complied, in all material respects,
with applicable laws, regulations, contracts, and grants that could
have a material effect on the consolidated financial statements in the
event of noncompliance." It is correct, however, that the
representation as made was limited to known material instances of
noncompliance. There also were other representations in the management
representation letter, such as disclosure of fraud or suspected fraud,
that were made without regard to materiality.
However, the OIG has discussed adding this representation with DOJ
management and the consolidated auditors. They have indicated their
willingness to consider revising this representation to cover all known
instances of noncompliance with laws and regulations.
2. DOJ included a summary of unadjusted misstatements with its
management representation letter, but the summary did not separately
identify the carry-forward effect of the prior year's unadjusted
misstatements, as called for by the FAM. In addition, DOJ did not
submit a summary of unadjusted misstatements as part of its closing
package to Treasury as required by the TFM. As such, DOJ also did not
include a description of the misstatements.
The OIG agrees with this statement. The summary of unadjusted
misstatements included with the management representation letter did
not separately identify the carry-forward effect of the prior year's
unadjusted misstatements. The consolidated summary of unadjusted
misstatements is a roll-up of the summary of unadjusted misstatements
for each of the ten DOJ components. The carry-forward effect of the
prior year's unadjusted misstatements is shown at the component level
and was not included within the consolidated management representation
letter in fiscal year 2004. As previously indicated to the GAO,
however, this information is available for GAO's review.
For fiscal year 2005, the OIG will work with the DOD's management and
the consolidated auditors to ensure that (1) the consolidated summary
of unadjusted misstatements attached to the management representation
letter separately identifies the carry-forward effect of the prior
year's unadjusted misstatements, and (2) the DOJ submits a summary of
unadjusted misstatements as part of its closing package to Treasury.
If you have any questions or additional concerns, please call Marilyn
Kessinger, the Director of the OIG's Financial Statement Audit Office,
on (202) 616-4660.
Sincerely,
Signed by:
Glenn A. Fine:
Inspector General:
[End of section]
(198382):
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 DOJ did not receive an opinion
on its internal control for fiscal year 2004, only 29 of the 35
representations were applicable to DOJ'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.
