Financial Audit: The Department of Transportation's Fiscal Year  
2004 Management Representation Letter on Its Financial Statements
(09-JUN-05, GAO-05-396R).					 
                                                                 
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. 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		 
Transportation's (DOT) fiscal year 2004 management representation
letter. Our objective is to help ensure that future management	 
representation letters submitted by DOT 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."		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-396R					        
    ACCNO:   A26220						        
  TITLE:     Financial Audit: The Department of Transportation's      
Fiscal Year 2004 Management Representation Letter on Its	 
Financial Statements						 
     DATE:   06/09/2005 
  SUBJECT:   Audit reports					 
	     Auditing procedures				 
	     Auditing standards 				 
	     Financial records					 
	     Financial statement audits 			 
	     Internal controls					 
	     Reporting requirements				 
	     Financial statements				 
	     Financial management				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-05-396R

United States Government Accountability Office Washington, DC 20548

June 9, 2005

The Honorable Ms. Phyllis Scheinberg Chief Financial Officer Department of
Transportation

The Honorable Mr. Kenneth M. Mead Inspector General Department of
Transportation

Subject: Financial Audit: The Department of Transportation'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.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,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

1The 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. S:
331 (e). The federal government has elected to include certain financial
information on the legislative
and judicial branches in the CFS as well.
2The 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.

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 Transportation's (DOT) fiscal year 2004 management
representation letter. Our objective is to help ensure that future
management representation letters submitted by DOT 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."3

Results in Brief

DOT'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 four of the five key areas we
reviewed. First, DOT did not provide the materiality thresholds used to
determine, for representation purposes, any matters that were individually
or collectively material to its financial statements. Such individual
federal agency thresholds are considered by Treasury and OMB in providing
a materiality threshold for the CFS representation

3GAO, 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).

letter. Second, the letter included 24 of the 29 representations4 from the
FAM that were applicable to DOT. For the other 5 representations, 3 were
not fully included and 2 were not provided at all. Next, DOT did not
provide a summary of unadjusted misstatements that distinguishes between
known and likely misstatements. Finally, DOT's letter included a
representation that was not consistent with an issue identified in the
auditor's report involving the reconciliation of intragovernmental
transactions.

We believe that these matters can be easily addressed. We are making four
recommendations to DOT's Chief Financial Officer targeted to specific
changes needed. Also, we are recommending that the DOT 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, the offices of DOT's Chief
Financial Officer and Inspector General, in separate letters, stated that
they will work to address the conditions noted in our report.

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

4The 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 DOT did not receive an opinion on its
internal control for fiscal year 2004, only 29 of the 35 representations
were applicable to DOT's fiscal year 2004 management representation
letter.

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.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:

o  	the management representation letter was signed by appropriate agency
officials;

o  	the management representation letter included designation as to the
amounts above which matters were considered material (materiality
thresholds);

o  	the management representation letter included applicable
representations from the FAM;

o  	the management representation letter included a properly prepared
summary of unadjusted misstatements for agencies with uncorrected
misstatements; and

o  	the representations in the management representation letter were
reliable based on a review of findings in the auditor's report.

5See 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.

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 DOT's Chief Financial
Officer and Inspector General or their designees. Written comments from
DOT's Deputy Chief Financial Officer and Assistant Inspector General for
Financial and Information Technology Audits are reprinted in enclosures II
and III and are also discussed in the Agency Comments section.

Identified Issues with DOT's Fiscal Year 2004 Management Representation
Letter

With respect to DOT's fiscal year 2004 management representation letter,
we identified the following four areas that need some improvement: (1)
providing the materiality thresholds used, (2) providing or fully
including applicable representations from the FAM, (3) including a
complete summary of unadjusted misstatements, and (4) ensuring the
reliability of representations. Details regarding these issues are as
follows.

Providing the Materiality Thresholds Used Management representations may
be limited to matters that are considered individually or collectively
material to the entity's financial statements, provided that management
and the auditor have reached an understanding on the materiality
thresholds to be used. Likewise, in preparing the overall management
representation letter for the CFS, which is provided to us, Treasury and
OMB limit the letter's representations to matters that are considered to
be material. While an understanding between management and the auditor of
materiality thresholds used is not explicitly required by auditing
standards to be included in the management representation letter, Treasury
and OMB use agency thresholds in providing a materiality threshold for the
governmentwide management representation letter.

For fiscal year 2004, because the materiality thresholds used were not
included in
DOT's and a number of other federal agencies' management representation
letters, or
otherwise provided to Treasury and OMB, Treasury and OMB's ability to
represent
that all matters material to the CFS were properly considered and included
in the
overall management representation letter for the CFS was impaired.

Providing or Fully Including 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 DOT's fiscal year 2004 management representation letter
included 24 of the 29 representations from the FAM that were applicable to
DOT. Of the 5 other

representations, 3 were not fully included and 2 were not provided at all.
For the 3 incomplete representations, the DOT management representation
letter included the following representation intended to cover the fraud
and suspected fraud representations called for by FAM 16a, 16b, and 16c.
(See enc. I for these representations.)

"There has been no material fraud (intentional misstatements or omissions
of amounts or disclosures in financial statements and misappropriation of
assets that could have a material affect on the Principal Statements or
Required Supplementary Stewardship Information) or any fraud involving
management or employees who have significant roles in internal control."

While this representation addresses fraud, it should also address
suspected fraud as called for by FAM 16a, 16b, and 16c.

In addition, the two representations not provided were as follows.

o  FAM #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 the
financial statements and misappropriation of assets that could have a
material effect on the financial statements).

o  FAM #17: We have no knowledge of any allegations of fraud or suspected
fraud affecting the agency received in communications from employees,
former employees, or others.

When agencies do not provide all representations or include incomplete
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.

DOT did not include a summary of unadjusted misstatements with its fiscal
year 2004
management representation letter. However, DOT did submit a summary of
unadjusted misstatements as part of its closing package to Treasury as
required by
the TFM, but the summary did not distinguish between known and likely
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.

Including Representations That Are Reliable
The management representation letter should be consistent with the
auditor's report.
As required by AU Section 333, if a representation is contradicted by
other audit
evidence, the auditor should investigate the circumstances and consider
the
reliability of the representation. The auditor should then consider
whether it is
appropriate to rely on other management representations.

For DOT's fiscal year 2004 management representation letter, there was a
discrepancy between what the auditor found and reported in the auditor's
report and what DOT represented in its management representation letter.
Specifically, management stated that all intragovernmental transactions
and balances had been reconciled with the appropriate trading partners. In
contrast, the agency's auditor stated in its report that DOT had not
identified the other agency associated with about $27 billion of its
intragovernmental transactions processed in fiscal year 2004, or about
half of the total of such transactions.

This discrepancy did not impact our report on the fiscal year 2004 CFS
because problems with intragovernmental transactions are prevalent across
government and have contributed to our disclaimers of opinion for the past
8 fiscal years. Nevertheless, any identified discrepancies at the agency
level need to be addressed and resolved so that Treasury and OMB can
provide us appropriate representations at the governmentwide level.
Treasury and OMB did not follow up with agencies to obtain requisite
satisfaction that discrepancies between representations in the management
representation letters and findings in the auditors' reports were
resolved. We have previously recommended that Treasury and OMB develop
policies

and procedures to require an analysis of the agency management
representation letters to determine if discrepancies exist between what
the agency auditor reported and the representations made by the agency,
including the resolution of such

6

discrepancies.

Conclusions

In four of the five key areas we reviewed, DOT'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 DOT. The additional information needed from DOT
is straightforward and should be easy to address.

Recommendations for Executive Action

We recommend to DOT's Chief Financial Officer that in the future the
management representation letter

o  	include materiality thresholds or such thresholds be provided
separately to Treasury and OMB;

o  fully include all representations from the FAM that are applicable to
DOT;

o  	include a complete summary of unadjusted misstatements, if there are
any uncorrected misstatements; and

o  include representations that are reliable.

We recommend that the DOT 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

In commenting on a draft of this report, the offices of DOT's Chief
Financial Officer and Inspector General, in separate letters, stated that
they will work to address the conditions noted in our report.
Specifically, DOT's Deputy Chief Financial Officer stated that DOT will
incorporate our recommendations in DOT's fiscal year 2005 management
representation letter and all future management representation letters. In
addition, DOT's Assistant Inspector General for Financial and Information
Technology Audits stated that his office will work with staff of the
department's Chief

6GAO, Financial Audit: Process for Preparing the Consolidated Financial
Statements of the U.S. Government Needs Improvement, GAO-04-45
(Washington, D.C.: Oct. 30, 2003).

Financial Officer and ensure that future management representation letters
include the conditions noted in this report. The comments are reprinted in
enclosures II and

III.

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
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.

Gary T. Engel
Director
Financial Management and Assurance

Enclosures - 3

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.

                                  Enclosure I

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.

Enclosure I 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, InternalControl -IntegratedFrameworkissued by the Committee
of Sponsoring Organizations (COSO) of the Treadway Commission).]

Enclosure I

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

Enclosure I 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.

Enclosure II

Comments From the Office of the Chief Financial Officer at the Department
of Transportation

Enclosure III

Comments From the Office of the Inspector General at the Department of
Transportation

(198363)

                                 GAO's Mission

Obtaining Copies of GAO Reports and Testimony

The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site (www.gao.gov). Each weekday, GAO posts newly
released reports, testimony, and correspondence on its Web site. To have
GAO e-mail you a list of newly posted products every afternoon, go to
www.gao.gov and select "Subscribe to Updates."

Order by Mail or Phone 	The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:

U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548

To order by Phone: 	Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

                           To Report Fraud, Contact:

Waste, and Abuse in Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: [email protected] Programs Automated answering system: (800)
424-5454 or (202) 512-7470

Gloria Jarmon, Managing Director, [email protected] (202)
512-4400Congressional U.S. Government Accountability Office, 441 G Street
NW, Room 7125 Relations Washington, D.C. 20548

Public Affairs 	Paul Anderson, Managing Director, [email protected] (202)
512-4800 U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548

                           PRINTED ON RECYCLED PAPER

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
*** End of document. ***