Financial Audit: The General Services Administration's Fiscal
Year 2004 Management Representation Letter on Its Financial
Statements (14-JUL-05, GAO-05-604R).
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 General Services
Administration's (GSA) fiscal year 2004 management representation
letter. Our objective is to help ensure that future management
representation letters submitted by GSA 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-05-604R
ACCNO: A30018
TITLE: Financial Audit: The General Services Administration's
Fiscal Year 2004 Management Representation Letter on Its
Financial Statements
DATE: 07/14/2005
SUBJECT: Audit reports
Auditing procedures
Auditing standards
Financial management
Financial records
Financial statement audits
Financial statements
Internal controls
Reporting requirements
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GAO-05-604R
* Results in Brief
* Background
* Objectives, Scope, and Methodology
* GSA's Fiscal Year 2004 Management Representation Letter Did Not
Include a Complete Summary of Unadjusted Misstatements
* Conclusions
* Recommendations for Executive Action
* Agency Comments and Our Evaluation
* Enclosure I: Representations in FAM 1001A
* Enclosure II: Comments From the Office of the Chief Financial Officer
at the General Services Administration
* GAO Comments
* end of correspondence.pdf
* Order by Mail or Phone
A
United States Government Accountability Office Washington, D.C. 20548
July 14, 2005
Ms. Kathleen M. Turco Chief Financial Officer General Services
Administration
The Honorable Daniel R. Levinson Inspector General General Services
Administration
Subject: Financial Audit: The General Services Administration'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
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.
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
General Services Administration's (GSA) fiscal year 2004 management
representation letter. Our objective is to help ensure that future
management representation letters submitted by GSA 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
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).
Page 2 GAO-05-604R GSA's Management Representation Letter
Results in Brief
GSA's fiscal year 2004 management representation letter, as well as
several other federal agencies' management representation letters, did not
provide all the information necessary to support Treasury and OMB's
preparation of the CFS management representation letter. This in turn
impacted our ability to rely on the representations in the CFS management
representation letter in combination with individual federal agency
representation letters.
We identified some needed improvements in one of the five key areas we
reviewed. Specifically, GSA did not include a complete summary of
unadjusted misstatements with its management representation letter and
also did not distinguish between misstatements affecting intragovernmental
accounts and misstatements affecting accounts with the public. We believe
that this matter can be easily addressed and are making a recommendation
to GSA's Chief Financial Officer to ensure future management
representation letters include a complete summary of unadjusted
misstatements if there are any uncorrected misstatements. Also, we are
recommending that the GSA Inspector General, with the contracted
independent public accountant, work with the agency to help ensure that
future management representation letters meet the key condition noted as
needing improvements in this report.
In commenting on a draft of this report, GSA's Chief Financial Officer
stated that her office will make sure that GSA's fiscal year 2005 summary
of unadjusted misstatements includes the appropriate details. GSA's Chief
Financial Officer did not believe that the item missing from GSA's summary
of unadjusted misstatements was required by the FAM and, therefore,
disagreed with our conclusion that GSA's summary was incomplete. It should
be noted that FAM section 595D calls for the financial statement line
items for the unadjusted misstatements to be included and GSA's summary of
unadjusted misstatements did not include such. GSA's Deputy Assistant
Inspector General for Finance and Administrative Audits concurred with the
Chief Financial Officer's comments and provided no additional comments.
In conducting agency financial statement audits, U.S. generally accepted
Background
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
Page 3 GAO-05-604R GSA's Management Representation Letter
Objectives, Scope, and Methodology
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.
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
Page 4 GAO-05-604R GSA's Management Representation Letter
Treasury.4 In our review of these 33 management representation letters,
our overall objective was to assess their adequacy as it relates to our
audit of the CFS. Specifically, we reviewed each agency management
representation letter to determine whether the following five key
conditions were met:
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.
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 GSA's Chief Financial
Officer and Inspector General or their designees. Written comments from
GSA's Chief Financial Officer are reprinted in enclosure II and are also
discussed in the Agency Comments and Our Evaluation section. GSA's Deputy
Assistant Inspector General for Finance and Administrative Audits
4See 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.
GSA's Fiscal Year 2004 Management Representation Letter Did Not Include a
Complete Summary of Unadjusted Misstatements
concurred with the Chief Financial Officer's comments and provided no
additional comments.
With respect to GSA's fiscal year 2004 management representation letter,
we identified that the letter did not include 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 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.
GSA included a summary of unadjusted misstatements with its management
representation letter, but the summary did not identify the standard
general ledger account number, standard general ledger account name, or
financial statement line item for the misstatements, as called for by the
FAM. In addition, GSA submitted 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 misstatements affecting
intragovernmental accounts and misstatements affecting accounts with the
public.
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.
In one of the five key areas we reviewed, GSA'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 GSA. The additional information needed from GSA
is straightforward and should be easy to address.
Conclusions
Recommendations for Executive Action
We recommend to GSA's Chief Financial Officer that in the future the
management representation letter include a complete summary of unadjusted
misstatements, if there are any uncorrected misstatements, that also
distinguishes between misstatements affecting intragovernmental accounts
and misstatements affecting accounts with the public.
We recommend that the GSA Inspector General, with the contracted
independent public accountant, work with the agency to help ensure that
future management representation letters meet the key condition noted as
needing improvements in this report.
Agency Comments and Our Evaluation
In written comments on a draft of this report, which are reprinted in
enclosure II, GSA's Chief Financial Officer stated that her office will
make sure that GSA's fiscal year 2005 summary of unadjusted misstatements
includes the appropriate details.
GSA's Chief Financial Officer did not believe that the standard general
ledger account number, standard general ledger account name, or financial
Page 7 GAO-05-604R GSA's Management Representation Letter
statement line item was required by the FAM and, therefore, disagreed with
our conclusion that GSA's summary was incomplete. However, the first
column of the example summary of unadjusted misstatements in FAM section
595D lists the financial statement line items for the unadjusted
misstatements. Since the standard general ledger account number or name
could be listed instead of the financial statement line item and still
provide the necessary information, we reviewed the agencies' summaries of
unadjusted misstatements to determine whether one of the three items was
listed. However, GSA's summary of unadjusted misstatements did not include
any of the three items, and was, therefore, incomplete.
GSA's Deputy Assistant Inspector General for Finance and Administrative
Audits concurred with the Chief Financial Officer's comments and provided
no additional comments.
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 - 2
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.
statements and stewardship information in conformity with U.S.
generally accepted accounting principles.
ng the financial statements
or disclosed in the notes to the financial statements.
ity] is contingently liable have been
properly reported or disclosed.
r 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.
Enclosure I: Representations in FAM 1001A
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.
pliance.
spected fraud affecting
the [entity] involving:
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;
d, 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
Enclosure I: Representations in FAM 1001A
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.]
,
describe them, including any corrective actions taken with regard to
any significant deficiencies or material weaknesses.]
.
[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)],
Enclosure I: Representations in FAM 1001A
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.]
r at
the General Services Administration
Enclosure II: Comments From the Office of the Chief Financial Officer at the
General Services Administration
The following are our comments on the General Services Administration
(GSA) Office of the Chief Financial Officer's letter dated May 31, 2005.
1. See the "Agency Comments and Our Evaluation" section of this report.
GAO Comments
2. GSA's Chief Financial Officer noted in her letter that the summary of
unadjusted misstatements template referred to in our draft report had been
deleted from the Treasury Financial Manual (TFM) with the May 2005 update.
We have deleted the reference to the template and, as noted in our report,
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.
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