Financial Management: Review of the Financial Statement Audit of
the White House Commission on the National Moment of Remembrance
for Fiscal Year 2005 and Status of GAO Audit Recommendations
(26-OCT-06, GAO-07-61R).
The White House Commission on the National Moment of Remembrance
(Commission) was created on December 28, 2000, by the National
Moment of Remembrance Act. The Commission's purpose is to sustain
the American spirit through acts of remembrance, not only on
Memorial Day but also throughout the year, for those who died
serving our country. Congress appropriated $1.25 million to the
Commission to fund its operations for fiscal years 2002 through
2005. In fiscal year 2005, the Commission received net
appropriations of approximately $248,000, along with cash and
in-kind donations of approximately $103,000 from individuals and
businesses. In addition, it had approximately $244,000 in
unexpended appropriations from prior fiscal years. The Commission
expended approximately $239,000 of appropriated funds and funded
costs of approximately $103,000 with cash and in-kind donations
received during the fiscal year. The National Moment of
Remembrance Act requires GAO to annually audit the financial
transactions of the Commission. However, as reflected in an
Office of Management and Budget (OMB) memorandum, the Commission
is subject to the Accountability of Tax Dollars Act of 2002 which
was enacted on November 7, 2002. This act requires the Commission
to annually prepare and submit audited financial statements to
OMB and Congress. This is the first year the Commission has
prepared a complete set of financial statements and contracted
with an independent public accountant (IPA) to conduct the
financial statement audit. In lieu of performing an audit of the
Commission's fiscal year 2005 financial transactions, which would
duplicate much of the work performed by the IPA, we performed a
review of the IPA's audit of the Commission's financial
statements. This report provides the results of our review of the
Commission's fiscal year 2005 financial statement audit and
provides the status of the Commission's implementation of
recommendations made by us during prior years' audits of the
Commission's financial transactions.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-61R
ACCNO: A62644
TITLE: Financial Management: Review of the Financial Statement
Audit of the White House Commission on the National Moment of
Remembrance for Fiscal Year 2005 and Status of GAO Audit
Recommendations
DATE: 10/26/2006
SUBJECT: Accountability
Accounting standards
Documentation
Evaluation
Federal regulations
Financial statement audits
Financial statements
Internal controls
Program management
Records management
Reporting requirements
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GAO-07-61R
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* Order by Mail or Phone
October 26, 2006
The Honorable Arlen Specter
Chairman
The Honorable Patrick J. Leahy
Ranking Minority Member
Committee on the Judiciary
United States Senate
The Honorable F. James Sensenbrenner, Jr.
Chairman
The Honorable John Conyers, Jr.
Ranking Minority Member
Committee on the Judiciary
House of Representatives
Subject: Financial Management: Review of the Financial Statement Audit of
the White House Commission on the National Moment of Remembrance for
Fiscal Year 2005 and Status of GAO Audit Recommendations
The White House Commission on the National Moment of Remembrance
(Commission) was created on December 28, 2000, by the National Moment of
Remembrance Act.1 The Commission's purpose is to sustain the American
spirit through acts of remembrance, not only on Memorial Day but also
throughout the year, for those who died serving our country.
The National Moment of Remembrance Act requires us to annually audit the
financial transactions of the Commission. However, as reflected in an
Office of Management and Budget (OMB) memorandum,2 the Commission is
subject to the Accountability of Tax Dollars Act of 2002 which was enacted
on November 7, 2002.3 This act requires the Commission to annually prepare
and submit audited financial statements to OMB and Congress. This is the
first year the Commission has prepared a complete set of financial
statements and contracted with an independent public accountant (IPA) to
conduct the financial statement audit. In lieu of performing an audit of
the Commission's fiscal year 2005 financial transactions, which would
duplicate much of the work performed by the IPA, we performed a review of
the IPA's audit of the Commission's financial statements. This report
provides the results of our review of the Commission's fiscal year 2005
financial statement audit and provides the status of the Commission's
implementation of recommendations made by us during prior years' audits of
the Commission's financial transactions. Our work was performed in
accordance with U.S. generally accepted government auditing standards.
1Pub. L. No. 106-579, 114 Stat. 3078 (Dec. 28, 2000) (reprinted at 36
U.S.C. S: 116 note).
2Office of Management and Budget, Memorandum for the Heads of Executive
Departments and Agencies, Chief Financial Officers and Inspectors General:
Amendments to OMB Bulletin No. 01-02, Audit Requirements for Federal
Financial Statements, M-04-22, at 13 (Washington, D.C.: July 27, 2004).
3Pub. L. No. 107-289, 116 Stat. 2049 (Nov. 7, 2002) (codified, as amended,
at 31 U.S.C. S: 3515).
Results in Brief
We found no instances in which the IPA did not perform sufficient work to
support its opinion and no instances in which the IPA did not comply, in
all material respects, with U.S. generally accepted government auditing
standards. In its audit of the Commission's fiscal year 2005 financial
statements, the IPA found that (1) the financial statements were presented
fairly, except for the Commission's failure to provide a legal
representation letter; (2) the Commission's failure to provide a legal
representation letter also resulted in a reportable condition;4 and (3)
there was no reportable noncompliance with selected provisions of laws and
regulations.
In our report on our audit of the Commission's fiscal year 2004 financial
transactions,5 we made 10 recommendations to the Commission designed to
improve its overall financial management and internal control.
Subsequently, the Commission provided a written statement of actions it
had taken or was planning to take to address the issues we reported that
gave rise to our recommendations. We reviewed the actions taken by the
Commission and found that the Commission had effectively implemented 9 of
our 10 recommendations.
We are not making any new recommendations in this report. The Commission
agreed with the results presented in this report.
Background
The Commission's purpose is to sustain the American spirit through acts of
remembrance, not only on Memorial Day but also throughout the year, for
those who died serving our country. Congress appropriated $1.25 million to
the Commission to fund its operations for fiscal years 2002 through 2005.6
In fiscal year 2005, the Commission received net appropriations of
approximately $248,000, along with cash and in-kind7 donations of
approximately $103,000 from individuals and businesses. In addition, it
had approximately $244,000 in unexpended appropriations from prior fiscal
years. The Commission expended approximately $239,000 of appropriated
funds and funded costs of approximately $103,000 with cash and in-kind
donations received during the fiscal year.
4Reportable conditions are matters coming to the auditor's attention that
in the auditor's judgment should be communicated because they represent
significant deficiencies in the design or operation of internal control,
which could adversely affect the entity's ability to meet the internal
control objectives described in the report.
5GAO, Financial Management: Audit of the White House Commission on the
National Moment of Remembrance for Fiscal Year 2004, GAO-05-791R
(Washington, D.C.: July 21, 2005).
6Congress appropriated $500,000 in fiscal year 2002 and $250,000 per year
in fiscal years 2003 through 2005. See, respectively, Pub. L. No. 107-117,
115 Stat. 2230, 2299 (Jan. 10, 2002); Pub. L. No. 108-7, div. J, title IV,
117 Stat. 11, 460 (Feb. 20, 2003); Pub. L. No. 108-199, div. F, title IV,
118 Stat. 3, 340 (Jan. 23, 2004); and Pub. L. No.108-447, div. I, title
III, 118 Stat. 2809, 3337 (Dec. 8, 2004).
Processing of Commission Financial Transactions
The Commission utilizes the Department of Veterans Affairs (VA)-through an
interagency agreement-for administrative support services, including
payment of the Commission's bills and personnel and payroll services. VA
processes the Commission's obligations, expenditures, and cash and in-kind
donations recorded during the fiscal year. VA also prepares annual
financial statements and monthly standard forms on budget execution for
the Commission. During fiscal year 2005, the Commission employed the
services of a part-time bookkeeper to help maintain its financial records.
Financial Reporting and Audit Requirements
The Commission is required under the Accountability of Tax Dollars Act of
2002 to annually prepare and submit audited financial statements. OMB
Circular No. A-136, Financial Reporting Requirements, as amended,
identifies the basic financial statements to include the Balance Sheet,
Statement of Net Cost, Statement of Changes in Net Position, Statement of
Budgetary Resources, and Statement of Financing. The financial statements
are to be prepared in accordance with U.S. generally accepted accounting
principles, and their production is intended, in part, to provide for
complete, reliable, timely, and consistent financial information for use
by management and Congress in the financing, management, and evaluation of
federal programs.
Federal financial statements are to be audited in accordance with U.S.
generally accepted government auditing standards.8 OMB's guidance in OMB
Circular No.
A-136 requires agencies to prepare and submit their performance and
accountability reports, which include agencies' audited financial
statements, to OMB and Congress no later than November 15 for agencies
with a September 30 fiscal year-end. OMB granted the Commission an
exemption from the requirement to prepare audited financial statements for
fiscal year 20049 but did not exempt the Commission from this requirement
in fiscal year 2005. The Commission did not submit audited financial
statements to OMB by November 15, 2005, as required by OMB guidance, and
the Commission did not request an exemption from this requirement from OMB
for fiscal year 2005.
7In-kind donations are noncash assets and contributed services-such as Web
site hosting and the use of facilities and staff.
8For financial statement audits, generally accepted government auditing
standards incorporate the standards of the American Institute of Certified
Public Accountants.
9Under the Accountability of Tax Dollars Act of 2002, the Director of OMB
may, under certain conditions, exempt certain covered executive agencies
from the financial statement requirements of the Accountability of Tax
Dollars Act of 2002 for a particular fiscal year. See Pub. L. No. 107-289,
S: 2(a)(4), 116 Stat. 2049 (Nov. 7, 2002) (codified at 31 U.S.C. S:
3515(e)).
Financial statement audits of federal departments and agencies, performed
in accordance with generally accepted government auditing standards, are
intended to provide reasonable assurance about whether the financial
statements for an audited entity present fairly, in all material respects,
its financial position, net cost, changes in net position, budgetary
status, and financing, in conformity with U.S. generally accepted
accounting principles. OMB Bulletin No. 01-02, Audit Requirements for
Federal Financial Statements, as amended, establishes the minimum
requirements for audits of federal financial statements.10 OMB audit
guidance requires auditors to
(1) report whether agencies' financial statements are fairly presented in
all material respects, in conformity with U.S. generally accepted
accounting principles; (2) obtain an understanding of the components of
internal controls and assess the level of control risk; and (3) test
whether agencies comply with laws and regulations that have a direct and
material effect on the financial statements.
Objectives, Scope, and Methodology
Our objectives were to determine (1) whether the IPA performed sufficient
work to support its opinion on the fiscal year 2005 financial statements
of the Commission; (2) whether the financial statement audit was performed
in accordance with appropriate auditing standards; and (3) whether, and to
what extent, the Commission effectively implemented recommendations made
by us in our prior audits of the Commission's financial transactions.
To satisfy these objectives, we reviewed the IPA's report and related
audit documentation and, as necessary, met with IPA representatives and
the Commission's management. Our review, as differentiated from an audit
in accordance with generally accepted government auditing standards, was
not intended to enable us to express, and we do not express, opinions on
the Commission's financial statements and about the effectiveness of its
internal control or conclude on its compliance with laws and regulations.
We performed our review in accordance with Section 650 of the
GAO/President's Council on Integrity and Efficiency Financial Audit
Manual. This guidance requires us to
o evaluate the IPA's independence and objectivity,
o evaluate the IPA's qualifications, and
o review and evaluate the IPA's work.
We evaluated the IPA's independence, objectivity, and qualifications by
reviewing the following:
10OMB requirements incorporate both generally accepted government auditing
standards and AICPA auditing standards. OMB Bulletin No. 01-02 was
superseded by OMB Bulletin No. 06-03, Audit Requirements for Federal
Financial Statements, on August 23, 2006.
o the most recent peer review11 report for the IPA (dated
September 30, 2004) and the corresponding letter of response,
o the informal request for proposal sent out by the Commission
when seeking an audit firm to conduct the audit of its fiscal year
2005 financial statements,
o the engagement letter between the IPA and the Commission, and
o resumes for the IPA staff assigned to the Commission's audit.
To determine whether the IPA performed sufficient work to support its
audit opinion and whether the auditor complied with U.S. generally
accepted government auditing standards, we reviewed the IPA's planning,
testing, and reporting audit documentation and made inquiries of the IPA
staff.
To determine whether, and to what extent, the Commission effectively
implemented recommendations we made during prior years' audits of the
Commission's financial transactions, we reviewed the IPA's audit
documentation, made inquiries of Commission personnel, and obtained
certain documentation from the Commission.
Because we did not audit the Commission's financial statements, we do not
express an opinion on the statements. Our work was performed from April
2006 through October 2006 in accordance with U.S. generally accepted
government auditing standards. We provided a draft of our report to the
Commission for review and comment.
IPA Is Independent, Objective, and Qualified
We determined the IPA to be independent and objective with respect to the
Commission. We evaluated the IPA's qualifications by reviewing resumes for
the IPA staff assigned to the Commission's audit, and determined the IPA
to be qualified to perform the audit of the Commission.
The IPA's most recent peer review report was unqualified; however, the
report cited the need for the IPA to improve its quality control policies
and procedures. The results of our review also indicated that the IPA's
quality control policies and procedures should be further enhanced.
Sufficient Audit Work Was Performed, and Audit Was Performed in Accordance
with Generally Accepted Government Auditing Standards
During our preliminary review of the IPA's audit documentation, we found
areas in which further documentation was needed. In all instances, the IPA
provided the additional documentation needed. Our final review of the
audit of the Commission's financial statements disclosed no instances in
which insufficient audit work was performed by the IPA to support its
audit opinion. Our review also disclosed no instances in which the IPA did
not comply, in all material respects, with U.S. generally accepted
government auditing standards.
11U.S. generally accepted government auditing standards require audit
organizations to have an external peer review conducted at least once
every 3 years by reviewers independent of the organization being reviewed.
The external peer review should determine whether, during the period under
review, the reviewed audit organization's internal quality control system
was adequate and whether quality control policies and procedures were
being complied with to provide the audit organization with reasonable
assurance of conforming with applicable professional standards.
Commission Received a Qualified Audit Opinion
The Commission received a qualified opinion on its fiscal year 2005
financial statements. The IPA found that the Commission's financial
statements were presented fairly, except for the Commission's failure to
obtain a legal representation letter.12 The Commission's failure to obtain
a legal representation letter also resulted in a reportable condition in
the IPA's report on internal control over financial reporting. The IPA
found no instances of noncompliance with laws and regulations on the part
of the Commission and noted no other matters to be communicated to the
Commission.
Commission Has Taken Action to Improve Internal Control
In our prior work, we found that the Commission's internal control over
financial transactions needed improvement.13 In particular, we found that
(1) documentation for payroll, benefits, and payments to VA was not
readily available; (2) reconciliations with VA's records were not
routinely performed; (3) financial transactions were not properly coded;
(4) procurement regulations were not followed; (5) travel reimbursements
exceeded allowable rates; (6) cash and in-kind donations were not always
recorded; and (7) greater distinction between the Commission and another
nonprofit organization called No Greater Love was needed. We made 10
recommendations to the Commission for corrective actions to improve its
overall financial management and internal control.
Since our audit of the Commission's fiscal year 2004 financial
transactions, the Commission has taken a number of corrective actions to
improve its internal control and overall accountability. Specifically, we
found that the Commission has taken the following actions:
o maintains appropriate documentation for financial transactions,
including biweekly time sheets for the Commission's employee;
o solicits offers from three commercial vendors before purchasing
goods or services for an amount expected to exceed the $2,500
micropurchase threshold for federal procurements;14
o strengthened procedures for the preparation of travel vouchers
to ensure that allowable rates established by federal regulation
are not exceeded;15
o obtained and retained documentation for all cash and in-kind
donations; and
o discontinued the listing of No Greater Love's e-mail address
and fax number on the Commission's business cards to assist in
furthering the distinction between the Commission and No Greater
Love.
12Generally accepted auditing standards require the auditor to send a
letter of audit inquiry to the entity's legal counsel. A response to this
letter is the auditor's primary means of obtaining corroboration of the
information furnished by management concerning litigation, claims, and
assessments. Evidential matter obtained from legal counsel with whom the
entity consulted during the period under audit may provide the auditor
with the necessary corroboration. Legal counsel for the Commission did not
respond to the auditor's letter of audit inquiry because the Commission
did not have a memorandum of understanding in place with VA, which
provided legal counsel during fiscal year 2005.
13GAO-05-791R.
We have determined that through its actions, the Commission has
effectively addressed most of the issues that gave rise to our
recommendations. However, the Commission has not implemented adequate
procedures to timely reconcile the Commission's financial data to the
financial records maintained by its accounting services provider. The
enclosure provides a list of all financial management-related
recommendations we made to the Commission in our prior audits of its
financial transactions, the actions taken by the Commission in response to
our recommendations, and the status of those recommendations based on our
review.
Agency Comments
We provided a draft of our report to the Commission for review and
comment. The Commission agreed with the results presented in the report.
- - - -
We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Appropriations and the House Committee
on Appropriations; the Chairman of the White House Commission on the
National Moment of Remembrance; the Secretary of Veterans Affairs; the
Director, Office of Management and Budget; and other interested parties.
This report is also available at no charge on the GAO Web site at
http://www.gao.gov .
14See the Federal Acquisition Regulation on simplified acquisition
procedures, codified, in part, at 48 C.F.R. S: 13.104(b)(2004).
15The Federal Travel Regulation implements statutory requirements and
executive branch policies for travel by federal civilian employees. It is
promulgated by the General Services Administration and codified at 41
C.F.R., chapters 300-304.
If you or your staff have any questions, please contact me at (202)
512-3406 or by e-mail at [email protected] . Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. Contributors to this report were Julie T.
Phillips, Assistant Director, and Peggy J. Smith.
Steven J. Sebastian
Director
Financial Management and Assurance
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