    Financial Audit Manual: Volume 2, July 2008 (25-JUL-08,
    GAO-08-586G).

    The U.S. Government Accountability Office (GAO) and the
    President's Council on Integrity and Efficiency (PCIE) maintain
    the GAO/PCIE Financial Audit Manual (FAM). The FAM provides
    guidance for performing financial statement audits of federal
    entities. The FAM is a key tool for enhancing accountability over
    taxpayer-provided resources.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-08-586G
        ACCNO:   A83086
      TITLE:     Financial Audit Manual: Volume 2, July 2008
         DATE:   07/25/2008
      SUBJECT:   Auditing procedures
    	     Auditing standards
    	     Auditors
    	     Audits
    	     Federal agencies
    	     Financial statement audits
    	     Internal auditors
    	     Internal audits

    ******************************************************************
    ** 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-08-586G

    This text file was formatted by the U.S. Government Accountability
    Office (GAO) to be accessible to users with visual impairments, as part
    of a longer term project to improve GAO products' accessibility. Every
    attempt has been made to maintain the structural and data integrity of
    the original printed product. Accessibility features, such as text
    descriptions of tables, consecutively numbered footnotes placed at the
    end of the file, and the text of agency comment letters, are provided
    but may not exactly duplicate the presentation or format of the printed
    version. The portable document format (PDF) file is an exact electronic
    replica of the printed version. We welcome your feedback. Please E-mail
    your comments regarding the contents or accessibility features of this
    document to Webmaster@gao.gov.

    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. 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.

    Financial Audit Manual:

    Volume 2:

    July 2008:

    United States Government Accountability Office:

    GAO-08-586G:

    July 2008:

    To Audit Officials, Agency Cfos, And Others Interested In Federal
    Financial Auditing And Reporting:

    This letter transmits the revised Financial Audit Manual (FAM) Volume 2
    of the Government Accountability Office (GAO) and the President’s
    Council on Integrity and Efficiency (PCIE). GAO and the PCIE issued the
    joint FAM in July 2001. The FAM presents a methodology to perform
    financial statement audits of federal entities in accordance with
    professional standards. We have updated the FAM for significant changes
    that have occurred in auditing financial statements in the U.S.
    government since the last major revisions to the FAM were issued in
    July 2004.

    To help the FAM continue to meet the needs of the federal audit
    community and the public it serves, GAO and the PCIE created a joint
    FAM Working Group. The Group is comprised of auditors from GAO and
    several Offices of the Inspectors General experienced in conducting
    audits of federal entity financial statements. Through a collaborative
    effort, the FAM Working Group prepared a revised FAM Volume 2 that
    contains audit tools. A revised FAM Volume 1 that contains the audit
    methodology is being issued separately. FAM Volume 3, which contains
    checklists for Federal Accounting (FAM 2010) and Federal Reporting and
    Disclosures (FAM 2020), was issued on August 28, 2007 (GAO-07-1173G).

    On October 5, 2007, we issued exposure drafts of FAM Volumes 1 and 2
    for an extended public comment period that ended on January 31, 2008.
    We received 15 letters of comment which have been considered in this
    issued version of FAM Volume 2, as well as FAM Volume 1.

    The revisions to the FAM are primarily due to changes in (1)
    professional auditing and attestation standards of the Auditing
    Standards Board of the American Institute of Certified Public
    Accountants (AICPA); (2) Government Auditing Standards issued by GAO;
    (3) audit and reporting guidance issued by the Office of Management and
    Budget (OMB); (4) accounting standards issued by the Federal Accounting
    Standards Advisory Board (FASAB); and (5) laws.

    Summary of Major Revisions and Improvements for FAM Volume 2:

    FAM Volume 2 incorporates changes based on (1) AICPA Statement of
    Auditing Standards (SAS) No. 100 through 114, which include the audit
    risk standards (SAS Nos. 104 through 111); (2) Government Auditing
    Standards (July 2007 Revision); (3) audit guidance in OMB Bulletin No.
    07-04, Audit Requirements for Federal Financial Statements (September
    4, 2007); and (4) financial reporting guidance in revised OMB Circular
    No. A-136, Financial Reporting Requirements (June 29, 2007).

    FAM Volume 2 also includes the effects on financial audits of FASAB
    accounting concepts and standards issued through May 31, 2007. This
    includes accounting, reporting, and disclosure requirements for social
    insurance, heritage assets and stewardship land, and earmarked funds.
    Finally, throughout the updated FAM Volume 2, revisions were made for
    new terminology, changes in the federal audit environment, and effects
    of applicable laws. A table of major changes to FAM Volume 2 is
    presented in attachment 1 to this letter.

    This FAM Volume 2 supersedes previously issued versions of FAM Volume 2
    through July 2004 and can be used to audit federal entity financial
    statements for the fiscal year ended September 30, 2008.

    Should you need additional information, please contact us at
    fam@gao.gov or call GAO’s Financial Management and Assurance Assistant
    Directors Roger Stoltz, at (202) 512-9408; or Janet Krell, at (202) 512-
    4716; Director Steve Sebastian at (202) 512-9521; or PCIE FAM Working
    Group Leaders Alex Biggs, at (202) 693-5258; or Joel Grover, at (202)
    927-5768. Other GAO FAM Project Team and PCIE FAM Working Group members
    are presented in attachment 2 of this letter.

    Sincerely yours,

    /Signed/:

    McCoy Williams:
    Managing Director:
    Financial Management and Assurance:

    The Honorable Jon T. Rymer:
    Chairman, Audit Committee:
    President’s Council on Integrity U.S. Government Accountability Office
    and Efficiency:

    Attachments and enclosures:

    Attachment I: Table of Major Changes to FAM Volume 2:

    FAM section: Various;
    Major change: SAS references, particularly the audit risk standards
    (SAS No.104 through No. 111) have been codified in the appropriate AU
    section.

    FAM section: 650;
    Major change: Some clarifications and new terminology throughout were
    added for using the work of others.

    FAM section: 701A;
    Major change: Consistent with OMB audit guidance, performance measures
    are excluded from internal control definitions effective starting in
    fiscal year 2008 at FAM 701 A-8, II H.

    FAM section: 802;
    Major change: The general compliance checklist in FAM 802.06 lists five
    general laws for compliance consistent with OMB audit guidance while
    four other laws commonly assessed by auditors are now presented in FAM
    802.07.

    FAM section: 803;
    Major change: New audit procedures for checking on Antideficiency Act
    violations were added at FAM 803-6, steps 7 and 8.

    FAM section: 902;
    Major change: Auditing related parties and intragovernmental activity
    and balances have been revised to be consistent with OMB auditing
    guidance.

    FAM section: 903;
    Major change: The discussion of full costing per SFFAS No. 30 was
    expanded at FAM 903.02.

    FAM section: 921;
    Major change: Treasury’s development and implementation of a new
    Government Wide Accounting (GWA) system that will have a significant
    impact on auditing Fund Balance with Treasury (FBWT) is discussed at
    FAM 921.11-.12. Treasury’s plan to discontinue use of certain suspense
    accounts is discussed at FAM 921.13. Because these changes are to occur
    over several years, auditors should reevaluate their FBWT audit
    procedures, some examples of which are now presented in FAM 921.17-.22.

    FAM section: 921A;
    Major change: Treasury processes and reports are being substantially
    revised as a result of the implementation of the GWA system and other
    changes.

    FAM section: 921D;
    Major change: The audit program was eliminated.

    FAM section: 931;
    Major change: This new section provides guidance on auditing heritage
    assets and stewardship land as a result of SFFAS No. 29.

    FAM section: 941;
    Major change: This new section provides guidance on auditing the
    Statement of Social Insurance as a result of SFFAS Nos. 17, 25, 26, and
    28.

    FAM section: 1001;
    Major change: This section on management representation letters has
    been revised to be consistent with changes in professional standards.
    The effect of a change in management on representation letters was
    added at FAM 1001.19.

    FAM section: 1001A;
    Major change: The example management representation letter was changed
    to group representations by category (financial statements, internal
    control, fraud, etc.) Representations were added for Antideficency Act
    violations at FAM 1001 A.27, Statement of Social Insurance at FAM 1001
    A.28-.36, consistency of budget information required by OMB audit
    guidance at FAM 1001 A.37, and earmarked funds at FAM 1001 A.38.
    “Government-wide polices” was deleted at FAM 1001 A.13 b.

    FAM section: 1002;
    Major change: A table for analyzing contingent losses was added to FAM
    1002.06 and a new FAM 1002.12 was added for certain legal claims where
    no monetary damages are being sought. FAM 1002.16 expanded the
    discussion and timing of interim and final legal letters.

    FAM section: 1003;
    Major change: The audit completion checklist was revised to be
    consistent with new professional standards and the revised FAM.

    [End of table]

    Attachment 2:

    GAO FAM Project Team:

    McCoy Williams, Managing Director: Steven J. Sebastian, Director:
    Robert F. Dacey, Chief Accountant: Abraham D. Akresh, Senior Level
    Expert for Auditing Standards: Roger R. Stoltz, Assistant Director:
    Janet M. Krell, Assistant Director: Corinne P. Robertson, Senior
    Auditor and Project Manager: William E. Boutboul, Project Manager:
    Charles R. Fox, Project Manager: Suzanne Murphy, Project Manager: Vera
    M. Seekins, Senior Auditor: Sharon O. Byrd, Audit Sampling Specialist:
    Francis L. Dymond, Assistant General Counsel: Jacquelyn N. Hamilton,
    Deputy Assistant General Counsel:

    PCIE FAM Working Group Members:

    The Honorable John P. Higgins, Jr., Chairman, Audit Committee, PCIE:
    Alex Biggs, PCIE Working Group Leader, Office of Inspector General,
    U.S. Department of Labor: Joel Grover, PCIE Working Group Leader,
    Office of Inspector General, U.S. Department of Treasury: Debra Alford,
    Office of Inspector General, U.S. Department of Defense: Morgan
    Aronson, Office of Inspector General, U.S. Department of Interior: Ade
    Bankole, Office of Inspector General, U.S. Department of Treasury:
    Susan Barron, Office of Inspector General, U.S. Department of Treasury:
    Paul Curtis, Office of Inspector General, Environmental Protection
    Agency: Mary Harmison, Office of Inspector General, Federal Trade
    Commission: Mark L. Hayes, Office of Inspector General, U.S. Department
    of Justice: David S. Laun, Office of Inspector General, U.S. Department
    of Justice: Marie Maguire, Office of Inspector General, National
    Science Foundation: Kelly A. McFadden, Office of Inspector General,
    U.S. Department of Justice: Joon Park, Office of Inspector General,
    U.S. Department of Labor: Kieu Rubb, Office of Inspector General, U.S.
    Department of Treasury: Gregory Spencer, Office of Inspector General,
    U.S. Department of Education:

    Contents-FAM Volume 2-Tools:

    Planning And General:

    Introduction to FAM Volume 2 – Tools: Using the Work of Others: Summary
    of Audit Procedures and Documentation for Review of Other Auditors’
    Work: Example Audit Procedures for Using the Work of Others: Example
    Reports When Using the Work of Others: Agreed-Upon Procedures: Example
    Agreed-Upon Procedures Engagement Letter: Example Representation Letter
    from Responsible Entity on Agreed-Upon Procedures Engagement: Agreed-
    Upon Procedures Engagement Completion Checklist: Example Agreed-Upon
    Procedures Report:

    Internal Control (See also FAM 900):

    Assessing Agency Systems with the Federal Financial Management
    Improvement Act (FFMIA): Example Audit Procedures for Testing Systems
    Compliance with FFMIA: Summary Schedule of Instances of Systems
    Noncompliance with FFMIA:

    Compliance:

    General Compliance Checklist:
    Antideficiency Act:
    Federal Credit Reform Act of 1990: Provisions Governing Claims of the
    U.S. Government (31 U.S.C. 3711- 3720E) (Including the Debt Collection
    Improvement Act of 1996) (DCIA): Prompt Payment Act: Pay and Allowance
    System for Civilian Employees, as Provided Primarily in Chapters 51-59
    of Title 5, U.S. Code: Civil Service Retirement Act, 5 U.S.C. Chapter
    83: Federal Employees Health Benefits Act, 5 U.S.C. Chapter 89: Federal
    Employees’ Compensation Act (FECA), 5 U.S.C. Chapter 81: Federal
    Employees’ Retirement System Act of 1986 (FERS), 5 U.S.C.: Chapter 84:

    Substantive Testing:

    Related Parties, Including Intragovernmental Activity and Balances:
    Example Account Risk Analysis for Intragovernmental Activity and
    Balances: Example Specific Control Evaluation for Intragovernmental
    Accounts: Example Audit Procedures for Intragovernmental and Other
    Related Parties’ Activity and Balances: Auditing Cost Information:
    Auditing Fund Balance with Treasury (FBWT): Treasury Processes and
    Reports Related to FBWT Reconciliation: Example Account Risk Analysis
    for Fund Balance with Treasury: Example Specific Control Evaluation for
    Fund Balance with Treasury: Auditing Heritage Assets and Stewardship
    Land: Auditing the Statement of Social Insurance:

    Reporting:

    Management Representations:
    A Example Management Representation Letter: Inquiries of Legal Counsel:
    Example Audit Procedures for Inquiries of Legal Counsel: Example Legal
    Letter Request: Example Legal Representation Letter: Example Management
    Summary Schedule: Financial Statement Audit Completion Checklist:
    Subsequent Events Review:

    Section 600:

    Planning and General:

    601 – Introduction to FAM Volume 2 – Tools:

    .01: Volume 2 of the GAO/PCIE Financial Audit Manual (FAM) consists of
    tools to assist the auditorp[Footnote 1] in performing a financial
    statement audit of a federal entity. These tools are generally
    organized according to the phases of the audit and are presented in

    * FAM 600, the planning phase and general issues;
    * FAM 700, the internal control phase;
    * FAM 800, compliance;
    * FAM 900, substantive testing; and
    * FAM 1000, the reporting phase.

    .02: Many of the tools in the various FAM sections include activities
    that would be performed during other phases of the audit. Thus, the
    auditor may refer to the FAM sections in volume 2 early in the audit.
    For example, FAM 701, Assessing Compliance of Agency Systems with the
    Federal Financial Management Improvement Act, includes procedures that
    would be performed throughout the audit, not just during the internal
    control phase, although many of them would be performed then. Also, FAM
    902, Related Parties, Including Intragovernmental Activity and
    Balances, has procedures that the auditor may decide to perform in the
    planning and internal control phases of the audit as well as during the
    testing phase.

    .03: The audit procedures presented in the examples in this and other
    FAM sections of volume 2 are examples of some of the audit steps
    typically performed in each area. They are used in conjunction with the
    appropriate FAM sections. In using these procedures, the auditor uses
    professional judgment to add additional procedures, delete irrelevant
    procedures, modify procedures, indicate the extent and timing of
    procedures, and change the terminology to that used by the federal
    entity to be audited. The auditor may integrate these steps with the
    audit programs for related line items. For example, tests of
    intragovernmental activity and balances in FAM 902 may be integrated
    with tests of accounts receivable and payable, and, to improve
    effectiveness, the auditor may coordinate those tests with related
    nonintragovernmental activity and balances.

    650 - Using the Work of Others:

    .01: In many financial statement audits, the auditor uses the work and
    reports of other auditors and specialists that may include CPA firms,
    inspectors general[Footnote 2] (IG), state auditors, and internal
    auditors. Specialists include actuaries and information systems (IS)
    personnel. The auditor may contract with a CPA firm to perform parts of
    an audit, or to perform the entire audit. The auditor expressing the
    opinion on the financial statements is usually “the principal auditor”
    as defined by AU 543.02, but this is a matter of professional judgment.

    .02: FAM 650 provides guidance to auditors on designing and performing
    oversight and other procedures when using the work of other auditors
    and specialists. Various professional standards also provide guidance
    in this area. These standards include AU 543, “Part of Audit Performed
    by Other Independent Auditors;” AU 322, “The Auditor’s Consideration of
    the Internal Audit Function in an Audit of Financial Statements;” AU
    336, “Using the Work of a Specialist;”[Footnote 3] and AU 315
    “Communications Between Predecessor and Successor Auditors.” These
    standards have different requirements depending on whether the auditor
    is using the work of an independent auditor, an internal auditor, or a
    specialist.

    .03: In the federal environment, the auditor may use the work of other
    auditors and specialists in various situations. For example:

    * Audits of federal entity financial statements, either consolidated or
    individual bureaus, agencies, funds, or other components, by IGs or CPA
    firms in accordance with GAGAS (which includes U.S. GAAS) and OMB audit
    guidance.

    * CPA firms, IGs, or specialists engaged to do parts of an audit (for
    example, review information system (IS) controls, review actuarial
    calculations, or test specific accounts).

    * Reports on the processing of transactions by service organizations
    (i.e. SAS No. 70 reviews under AU 324).

    * Single audits or audits of federal funds provided to units of state
    and local governments performed by state auditors and CPA firms.

    * Work performed by internal audit functions (or equivalent, such as a
    program review office or those performing A-123 internal control
    reviews).

    * Work performed by internal audit staff who provide direct assistance
    to the auditor.

    .04: AU 543.13 states that in some circumstances the auditor may find
    it appropriate to participate in discussions regarding the accounts
    with management personnel of the component whose financial statements
    are being audited by other auditors and/or to make supplemental tests
    of such accounts. The determination of the extent of additional
    procedures, if any, to be applied rests with the principal auditor
    alone in the exercise of professional judgment and in no way
    constitutes a reflection on the adequacy of the other auditor’s work.

    An auditor transmitting the other auditor’s opinion is not a principal
    auditor; neither is the auditor expressing negative assurance on the
    other auditor’s work. However, if the auditor assumes responsibility
    for the opinion on the financial statements on which the auditor
    reports without making reference to the audit performed by the other
    auditor, the auditor taking responsibility should determine the extent
    of procedures to be undertaken.

    .05: FAM 650 provides guidance in making the judgments necessary for
    the auditor to use the work of others, including the:

    * type of reporting (FAM 650.09-.10);

    * evaluation of the other auditors’ or specialists’ independence and
    objectivity (FAM 650.11-.24);

    * evaluation of the other auditors’ or specialists’ qualifications (FAM
    650.25-.35); and:

    * determination by the auditor on the level of review (FAM 650.36-.42
    and: FAM 650 A).

    .06: The auditor should coordinate with the other auditor whose work is
    to be used. In turn, the other auditor should determine the needs of
    the auditor who plans to use the work being performed so that the
    professional judgments exercised by both auditors can satisfy the needs
    of both. This is best done before major work is started. For example,
    auditors of a consolidated entity (such as the U.S. government or an
    entire department or federal entity) are likely to plan to use the work
    of other auditors of subsidiary entities (such as individual
    departments, agencies, bureaus, funds, or other components). This
    coordination can result in more efficient and effective government
    audits and avoid duplication of effort.

    In addition, both auditors should coordinate throughout the audit so
    that the timing needs of the auditor and the other auditor are met. The
    auditor should provide instructions on audit procedures to be
    performed, materiality considerations, reporting format, and any other
    information deemed appropriate. The other auditor should perform the
    requested procedures in accordance with these instructions and report
    the findings solely for use by the auditor (AU 9543.03). The other
    auditor should also provide full and timely access to appropriate
    individuals and audit documentation for review by the auditor (GAGAS
    par. 4.23). This may occur on an ongoing basis during the audit,
    although this work may not be completely reviewed.

    .07: In this coordination, the auditor should inform other auditors on
    how their work and report will be used. AU 543.07 indicates that if the
    auditor’s report will name the other auditor, the principal auditor
    should obtain permission to do so and should present the other
    auditor’s report together with its report. For CPA firms, this
    permission may be obtained as part of the contracting process. As a
    professional courtesy, the auditor generally should also provide other
    auditors with a draft of its report to avoid surprises before final
    issuance.

    .08: When there is a difference of opinion, the auditor should confer
    with the other auditor in an attempt to reach an agreement as to the
    procedures that would be necessary to satisfy both auditors’
    professional judgments. If both auditors are unable to reach agreement,
    see FAM 650.54-.56. FAM 650 B contains example audit procedures for
    using the work of others, which depend on the professional judgments
    made.

    Types of Reporting:

    .09: There are various types of reporting when using the work of other
    auditors and specialists. The type of reporting depends on the degree
    of responsibility the auditor accepts and the work the other auditors
    and specialists will perform. Factors for the auditor to evaluate in
    deciding which type of reporting to use include the degree of assurance
    to provide, legal requirements, and cost-benefit considerations. The
    amount of resources required varies by type of report and generally
    increases in the order presented below.

    The auditor generally should decide the type of reporting in planning
    the engagement. The auditor generally should discuss the type of
    reporting with the other auditors or specialists early in the audit.
    The auditor exercises professional judgment in making these decisions
    and should document the basis for the decisions. AU 504.03 indicates
    that an auditor is associated with financial statements when the
    auditor has consented to the use of its name in a report, document, or
    written communication containing the financial statements. The type of
    reporting will depend on the auditor’s association with the report:

    a. No association with report. In this situation, the other auditors or
    specialists provide the report directly to the audited entity and/or to
    significant users. The auditor may use this method when procuring the
    audit but not acting as “the auditor.” Examples are when there is no
    legal requirement for a separate audit report, or the user does not
    need a separate audit report, or a separate audit report would provide
    no additional information. When the auditor is required by law to
    perform the audit, the auditor should not use this option as the
    auditor is associated with the report.

    b. Association with report. In this situation, there are two possible
    types of transmittal letters: one expressing no assurance and one
    expressing negative assurance on the other auditors’ work. For either
    type, the auditor is associated with the financial statements as
    described in AU 504. The fourth standard of reporting was amended by
    SAS No. 113 in AU 150.02 to state “In all cases where an auditor’s name
    is associated with financial statements, the auditor should clearly
    indicate the character of the auditor’s work, if any, and the degree of
    responsibility the auditor is taking, in the auditor’s report.”

    Because the auditor did not perform the audit, the auditor should
    disclaim an opinion and should not express its concurrence with the
    other auditors’ opinion. The auditor may use this approach when the
    auditor did not perform the audit but wants to issue a report or
    letter. The auditor may also expand the letter to highlight certain
    findings or information or to indicate that certain procedures were
    performed. See example 1 of FAM 650 C for wording for both types of
    transmittal letters which:

    * Express no assurance. For this letter, the auditor issues a
    transmittal letter without reviewing the other auditors’ audit
    documentation. In these situations, the transmittal should be clear as
    to the limitations of the work of the auditor who generally has the
    responsibility to monitor audit contracts, as applicable, to meet the
    requirements of statutory audit provisions, such as in the IG Act, CFO
    Act, or Accountability of Tax Dollars Act of 2002.

    * Express negative assurance. This letter indicates that the auditor
    reviewed the other auditors’ or specialists’ report and related audit
    documentation, inquired of their representatives, and found no
    instances where the other auditors did not comply, in all material
    respects, with U.S. GAAS or GAGAS.

    c. The auditor issues a report that refers to other auditors’ reports
    and indicates a division of responsibilities. To use this approach, the
    auditor has two decisions to make: (1) whether the auditor may serve as
    the principal auditor (AU 543.01-.03) and (2) whether the auditor will
    refer to the work of the other auditors (AU 543.01-.10). For audits of
    federal entities, auditors may be designated by law.[Footnote 4] The
    auditor exercises professional judgment in making these decisions and
    should document the basis for the decisions. One consideration in
    deciding whether the auditor is the principal auditor is sufficient
    knowledge of the entire entity, including portions audited by other
    auditors. Another consideration is the materiality and importance of
    the consolidated assets, liabilities, expenses, revenues, or net
    position the auditor has not audited.

    The auditor may issue a report that refers to other auditors when (1)
    the other auditors have reported on financial statements for a
    component entity that is part of the entity whose financial statements
    the principal auditor is reporting on and (2) the principal auditor
    does not wish to take responsibility for the other auditors’ work. (See
    AU 543.09 for example wording.) This approach may be used only for CPA
    firms or for other auditors that are organizationally independent (see
    FAM 650.14) and should not be used for internal auditors or
    specialists.

    However, a reader of the report could question the basis for the
    principal auditor issuing the opinion because of the significant
    materiality and importance of the portion of the financial statements
    audited by the other auditors. In this case, the principal auditor
    should determine whether there is a need to issue a report that does
    not mention the other auditors’ work, which may require additional work
    (see FAM 650.09 e).

    d. The auditor issues a report that expresses concurrence with the
    other auditors’ report and conclusions. The auditor may use this
    approach when other auditors have reported on financial statements and
    the principal auditor needs or wants to provide more assurance than
    what is provided in the transmittal letter. For example, a certain
    audit may be required by law, in which the auditor, although allowed to
    hire other auditors to do the work, is required to give its opinion. In
    the absence of such a requirement, a report expressing concurrence is
    generally not cost-effective because of the resources required.

    Expressing concurrence means that the auditor would have reached the
    same opinion or conclusion had it done the audit. Therefore, the
    auditor should do the same level of work it would have done to take
    responsibility for the other auditor’s work. In this instance both the
    other auditor and the auditor that expresses concurrence are principal
    auditors because both have sufficient knowledge of the overall
    financial statements and the important issues, and the concurring
    auditor, by reason of the level of work done, has also audited the
    financial statements.

    The auditor usually accomplishes this by reviewing the audit
    documentation of the other auditor, having discussions with entity
    management, and/or performing supplemental tests, (see example 2 in FAM
    650 C for report wording).

    This approach may be used only for CPA firms or for other auditors who
    are organizationally independent (see FAM 650.14). The auditor should
    not use this report for specialists, since AU 336.15 prohibits
    reference to a specialist’s report unless the auditor issues a
    qualified or adverse opinion or a disclaimer of opinion based on the
    specialist’s work. The auditor also should not use this approach for
    internal auditors. AU 322.19 states that the responsibility to report
    on the financial statements rests with the auditor and cannot be shared
    with internal auditors.[Footnote 5]

    e. The auditor issues a report that does not mention the other
    auditors’ or specialists’ work. In this situation, the auditor issues
    the example report in FAM 595 A and/or FAM 595 B (as if no other
    auditors or specialists were involved). This means the auditor takes
    responsibility for the other auditors’ or specialists’ work. (See FAM
    650.09 c for a discussion of principal auditor issues.) The auditor may
    use this approach when the other auditors have done part of the audit.
    (This approach also may be used when the other auditors have done
    substantially the entire audit.) For example, a number of other
    auditors may have audited individual components of an entity and the
    auditor may audit the consolidation process. The auditor may use this
    approach if the auditor has sufficient knowledge of the entire entity
    and does additional work (see FAM 650.10).

    The auditor generally should accomplish this by reviewing the audit
    documentation, having discussions with entity management, and/or
    performing supplemental tests. The auditor also should use this
    approach when using the work of specialists and internal auditors
    because professional standards do not permit referring to specialists’
    or internal auditors’ work (unless, for specialists, the auditor issues
    a qualified or adverse opinion or a disclaimer of opinion based on the
    specialists’ work). GAO uses this approach in the audit of the
    consolidated financial statements of the U.S. government.

    .10: Table 650.1 presents an overview of the work the auditor generally
    shouldperform for each type of report or letter. “Yes” means that the
    auditor should perform some of that category of work. “No” means that
    the auditor need not perform that category of work. The extent of work
    in each category depends on the auditor’s professional judgment. See
    FAM 650.36 for discussion on the level of review.

    Table 650-1: Overview of Work Performed for Each Type of Reporting:

    Type of reporting: No association with report (FAM 650.09 a);
    Evaluate the other auditors' independence and objectivity (FAM 650.22-
    .24): No[A];
    Evaluate the other auditors' qualifications (FAM 650.25-.35): No;
    Level of review (FAM 650.36-.42): None;
    Hold discussions and/or perform supplemental tests (FAM 650.43-.47):
    No.

    Type of reporting: Auditor transmittal letter expresses no assurance
    (FAM 650.09 b, first bullet);
    Evaluate the other auditors' independence and objectivity (FAM 650.22-
    .24): Yes;
    Evaluate the other auditors' qualifications (FAM 650.25-.35): Yes;
    Level of review (FAM 650.36-.42): Low or none;
    Hold discussions and/or perform supplemental tests (FAM 650.43-.47):
    No.

    Type of reporting: Auditor transmittal letter expresses negative
    assurance (FAM 650.09 b, second bullet);
    Evaluate the other auditors' independence and objectivity (FAM 650.22-
    .24): Yes;
    Evaluate the other auditors' qualifications (FAM 650.25-.35): Yes;
    Level of review (FAM 650.36-.42): Moderate or low;
    Hold discussions and/or perform supplemental tests (FAM 650.43-.47):
    No.

    Type of reporting: Report refers to the other auditors’ report and
    indicates a division of responsibilities (FAM 650.09 c);
    Evaluate the other auditors' independence and objectivity (FAM 650.22-
    .24): Yes;
    Evaluate the other auditors' qualifications (FAM 650.25-.35): Yes;
    Level of review (FAM 650.36-.42): Low or none;
    Hold discussions and/or perform supplemental tests (FAM 650.43-.47):
    No.

    Type of reporting: Report concurs with the other auditors’ report or
    does not mention the other auditors’ work (FAM 650.09 d and e);
    Evaluate the other auditors' independence and objectivity (FAM 650.22-
    .24): Yes;
    Evaluate the other auditors' qualifications (FAM 650.25-.35): Yes;
    Level of review (FAM 650.36-.42): High, moderate, or low;
    Hold discussions and/or perform supplemental tests (FAM 650.43-.47):
    Yes for internal auditors’ work (should include supplemental tests);
    yes for auditors’ work for high level of review;
    no for auditor’s work for moderate or low level of review.

    [End of table]

    Evaluating the Other Auditors’ or Specialists’ Independence and
    Objectivity:

    .11: Unless the auditor has no association with the report, the auditor
    should evaluate the other auditors’ or specialists’ independence and
    objectivity. Where the auditor has previously used the work of the same
    other auditor, the auditor generally should update the previous
    evaluation. Under GAGAS, chapter 3, audit organizations and individual
    auditors should be free both in fact and appearance from personal,
    external, and organizational impairments to independence. The auditor
    should first evaluate organizational independence. Different standards
    apply to CPA firms, other organizationally independent auditors,
    internal auditors, and specialists.

    .12: For CPA firms and specialists, the auditor may use a contracting
    process that is part of its organization or a procurement function
    within the entity to be audited. The auditor should determine whether
    the firm selected represented [in the statement of work (SOW) or
    request for proposal (RFP)] that it (and the assigned engagement team)

    * is independent and objective with respect to the audited entity;
    * will remain independent throughout the audit;
    * will disclose any independence issues discovered;
    and
    * will immediately notify the COTR if it considers submitting a
    proposal on any contracts involving the audited entity to permit
    evaluation of whether its auditors’ independence could be impaired.

    Firms should be asked to describe in their proposals all work,
    including nonaudit services, they have done for the audited entity in
    the last several years. See GAGAS, chapter 3, and Government Auditing
    Standards: Answers to Independence Questions (GAO-02-870G, July 2002).

    The auditor generally should determine whether the SOW or RFP indicate
    that “The government will determine whether a firm is independent for
    the purpose of performing an audit of financial statements of the
    federal entity.” This avoids a potential dispute where, for example,
    the firm does substantial nonaudit work for the entity to be audited
    that the auditor views as a conflict. The technical evaluation panel
    should evaluate whether the nature and extent of nonaudit services or
    other factors causes an independence or objectivity issue, either in
    fact or in appearance. In this evaluation, the panel generally should
    determine whether (1) the other auditors will need to audit their own
    work or (2) whether the other auditors made management decisions or
    performed management functions.

    .13: The auditor generally should have a role in contracting for the
    CPA firm or specialist.[Footnote 6] When the auditor does not
    participate in contracting for the CPA firm or specialist, the auditor
    generally should obtain an overview of the contracting process,
    including:

    * reading the SOW or RFP;
    * reviewing the proposal of the firm selected; and:
    * understanding the evaluations of the panel selecting the firm.

    The auditor should determine whether the firm provided a representation
    as to independence and objectivity (usually in its proposal). If the
    firm has not provided a representation as to independence and
    objectivity, the auditor should obtain a representation from the firm.
    If the auditor is not familiar with the firm, the auditor should
    inquire of professional organizations, such as the AICPA or the Public
    Company Accounting Oversight Board (PCAOB), as to the firm’s
    professional reputation and standing.

    .14: For government auditors, the auditor should decide whether the
    other auditor is organizationally independent to report externally or
    whether to consider it as an internal audit organization. The auditor
    may refer to the work of organizationally independent government
    auditors but should not refer to the work of internal audit
    organizations in the audit report. The auditor generally should perform
    more extensive review and supervision when dealing with internal
    auditors. The auditor should obtain written representations from
    appropriate officials[Footnote 7] of the government audit organization
    that to the best of their knowledge, the organization and the
    individual auditors doing the work are independent of the entity being
    audited. This means that the individual auditors are free of personal
    impairments to independence and maintain an independent attitude and
    appearance. It also means that the auditor is free from external
    impairments and is organizationally independent (see GAGAS, chapter 3).

    The representation letter may indicate the general criteria for
    determining independence, such as “under the criteria in GAGAS.” The
    auditor should obtain representations for the period of the financial
    statements to the date of the other auditors’ report. Since the auditor
    decides on the independence and objectivity of the other auditors to
    plan its work, the auditor generally should obtain oral representations
    early in the audit and written representations at the end of the audit.

    .15: Government auditors may be presumed to be free from organizational
    impairments to independence when reporting externally to third parties
    ifthey are organizationally independent of the audited entity.
    Government auditors may meet the requirement for organizational
    independence in a number of ways. There is a presumption that a
    government auditor is organizationally independent (GAGAS, chapter 3)
    if the auditor is assigned to:

    a. a level of government other than the one to which the audited entity
    is assigned (federal, state, or local), for example, a federal auditor
    auditing a state government program; or:

    b. a different branch of government within the same level of government
    as the audited entity, for example, a legislative auditor auditing an
    executive branch program.

    .16: There is also a presumption of organizational independence if the
    head of the government audit organization (GAGAS, chapter 3) meets one
    of the following criteria:

    a. directly elected by voters of the jurisdiction being audited;

    b. elected or appointed by a legislative body, subject to removal by a
    legislative body, and reports the results of audits to and is
    accountable to a legislative body;

    c. appointed by someone other than a legislative body, so long as the
    appointment is confirmed by a legislative body and removal from the
    position is subject to oversight or approval by a legislative body, and
    reports the results of audits to and is accountable to a legislative
    body; or:

    d. appointed by, accountable to, reports to, and can only be removed by
    a statutorily created governing body, the majority of whose members are
    independently elected or appointed and come from outside the
    organization being audited.

    .17: If the other auditor or its head meets one of the above criteria,
    the auditor need not perform any procedures concerning organizational
    independence other than to obtain a representation letter from an
    appropriate official of the government audit organization as noted in
    FAM 650.14 (see FAM 650.23 for tests of personal independence).
    However, if the auditor encounters evidence that the other auditor
    might not be organizationally independent, the auditor should determine
    the need for inquiries and other procedures, and then evaluate the
    results of these procedures.

    .18: In addition to the presumptive criteria, GAGAS recognizes that
    there may be other organizational structures under which a government
    audit organization could be free from organizational impairments. The
    auditor should determine whether these other structures provide
    sufficient safeguards to prevent the audited entity from interfering
    with the government auditor’s ability to perform the work and report
    the results impartially. For the auditor to determine that the
    government audit organization is free from organizational impairments
    to report externally under a structure different from the ones listed
    above, the government auditor (GAGAS, chapter 3) should have all of the
    following safeguards:

    a. statutory protections that prevent the audited entity from
    abolishing the government audit organization;

    b. statutory protections that require that if the head of the
    government audit organization is removed from office, the head of the
    federal entity report this fact and the reasons for the removal to the
    legislative body;

    c. statutory protections that prevent the audited entity from
    interfering with the initiation, scope, timing, and completion of any
    audit;

    d. statutory protections that prevent the audited entity from
    interfering with the reporting on any audit, including the findings and
    conclusions, or the manner, means, or timing of the government audit
    organization’s reports;

    e. statutory protections that require the government audit organization
    to report to a legislative body or other independent governing body on
    a recurring basis;

    f. statutory protections that give the government audit organization
    sole authority over the selection, retention, and dismissal of its
    staff; and:

    g. statutory access to records and documents related to the federal
    entity, program, or function being audited, and access to government
    officials or other individuals as needed to conduct the audit.

    .19: If the auditor concludes that the government audit organization
    has all the safeguards listed in FAM 650.18, the auditor may determine
    that the governmental auditor is free from organizational impairments
    to independence when reporting externally. The auditor should document
    the statutory provisions in place that provide these safeguards.

    .20: When using the work of other government auditors that meet these
    requirements, the auditor should request a representation letter (see
    FAM 650.14) from an appropriate official of the government audit
    organization. The auditor should review this document and as necessary
    discuss it with appropriate officials of the government audit
    organization, the external quality assurance reviewer, legal counsel
    for the government audit organization, and the auditor’s legal counsel.

    .21: If the auditor decides that the government audit organization is
    not organizationally independent to report externally (either because
    it does not meet the criteria in GAGAS or for another reason), the
    auditor should determine whether the other auditor is organizationally
    independent to report internally. Such auditors are internal auditors.
    The Institute of Internal Auditors’ (IIA), International Standards for
    the Professional Practice of Internal Auditing defines internal
    auditing as “an independent, objective assurance and consulting
    activity designed to add value and improve an organization’s
    operations. It helps an organization accomplish its objectives by
    bringing a systematic, disciplined approach to evaluate and improve the
    effectiveness of risk management, control, and governance processes.”
    GAGAS contain guidance on organizational independence for government
    internal auditors. For example, internal auditors should be outside the
    staff or line management function of the unit under audit. They should
    report their results and be accountable to the head or deputy of their
    federal entity. IIA standards require internal auditors to be objective
    for the activities they audit. These GAGAS and IIA standards of
    independence for internal auditors differ from independence under the
    AICPA Code of Professional Conduct or independence for external
    auditors under GAGAS.

    The auditor generally should determine whether the internal auditors
    whose work is to be used are independent of the activities they audit.
    The auditor also should determine the organizational status of the head
    of the audit organization. For the audit organization to be considered
    free from organizational impairments to report internally to
    management, the head of the audit organization (GAGAS, chapter 3)
    should meet all criteria:

    a. is accountable to the head or deputy head of the government entity,
    or those charged with governance;

    b. is required to report the results of the audit organization’s work
    to the head or deputy head of the government entity and those charged
    with governance;

    c. is located organizationally outside the staff or line management
    function of the unit under audit;

    d. has access to those charged with governance; and:

    e. is sufficiently removed from political pressures to conduct audits
    and report findings, opinions, and conclusions objectively without fear
    of political reprisal.

    .22: If the auditor concludes that the internal auditors are not
    independent under GAGAS and IIA standards, the auditor should treat the
    work as if the audited entity prepared it. If the auditor concludes
    that the internal auditors are independent under GAGAS and IIA
    standards, the auditor may use their work to the extent permitted by AU
    322. In either case, the auditor should not issue a report referring to
    or concurring with the work of internal auditors.

    .23: In addition to evaluating the other auditors’ organizational
    independence, the auditor should evaluate whether the audit team has
    any personal impairments. For both internal auditors and
    rganizationally independent government audit organizations, the auditor
    generally should ask how the other auditors monitor the personal
    independence of individual staff members, especially those doing the
    work the auditor would like to use.

    .24: The auditor should document the work performed and the conclusions
    reached as to independence and objectivity. The documentation should
    indicate the auditor’s conclusion as to whether the other auditors are
    independent and objective and the basis for that conclusion. The
    auditor should consult with the reviewer if there are questions about
    the other auditors’ independence or objectivity.

    Evaluating Other Auditors’ or Specialists’ Qualifications:

    .25: After evaluating the other auditors’ or specialists’ independence
    and objectivity, the auditor should evaluate their qualifications to
    perform the specific tasks required. This involves evaluating the
    qualifications of the firm or audit organization and evaluating the
    qualifications of the specific audit team. Where the auditor has
    previously used the work of the same other auditors, the auditor
    generally should update the previous evaluation.

    .26: For CPA firms and specialists, the auditor generally should
    evaluate qualifications through the contracting process, usually by
    using a technical evaluation panel to select a qualified firm. A firm
    submits résumés for its audit team members, demonstrates why its team
    is qualified to do the work, and submits its plan for doing the audit.
    Each CPA firm should submit its latest peer review report, letter of
    comments, and response to the peer review report. The firm should also
    agree to submit updated peer review reports during the period of the
    contract. If the peer review report was issued more than three years
    earlier, the evaluation panel may obtain documentation relating to the
    internal quality control policies and procedures of the selected firm,
    or read the firm’s inspection report and response.[Footnote 8]

    A CPA firm may also be asked to submit its latest public inspection
    report prepared by the PCAOB, but these reports pertain to audits of
    publicly traded companies and related quality controls. However, to the
    extent they raise issues about quality controls or methodology, they
    may be applicable to audits of federal entities.[Footnote 9]

    .27: Where the auditor did not participate in the contracting process,
    the auditor should determine how the qualifications of a firm were
    evaluated. For example, did the technical evaluation panel review:

    * Résumés of the team members?

    * The audit approach?

    * The peer review report and related letter of comments (if any)?

    * The firm’s response to the peer review report?

    The auditor should read these documents and reach a conclusion as to
    qualifications.

    .28: For auditors other than CPA firms, the auditor should ask whether
    the audit organization had a peer review and the date of that review.
    IGs have peer reviews performed every 3 years by other IGs. Most state
    auditors also have peer reviews every 3 years. To comply with GAGAS,
    the audit organization should have a peer review every 3 years. The IIA
    standards indicate that “[e]xternal assessments, such as quality
    assurance reviews, should be conducted at least once every five years
    by a qualified, independent reviewer or review team from outside the
    organization.”

    While reviews under the IIA standard are not designed to report whether
    the audit organization’s quality control adheres to GAGAS, they do
    provide evidence about whether the work adheres to a recognized set of
    professional standards. The auditor should read the peer review report,
    the letter of comments, and the audit organization’s response. Where
    the audit organization has received an unqualified peer review report
    recently (usually less than 3 years ago), the auditor generally need
    not perform further review of the audit organization’s qualifications.

    .29: Where the peer review report is not recent, the auditor generally
    should review the results of the audit organization’s internal
    inspection program for any new quality control issues. The inspection
    generally should include reviews of audit documentation, interviews of
    staff members, and tests of functional areas. Where the inspection is
    recent (usually within the past year) and the inspection report is
    unqualified, the auditor generally need not perform further review of
    the audit organization’s qualifications.

    .30: Where the peer review or inspection report is qualified or
    adverse, the auditor should evaluate whether the quality control system
    has since been strengthened to allow the auditor to use the other
    auditors’ work. The auditor may review the organization’s action plan
    for improving quality controls and inspection results in determining
    whether quality controls have improved since the peer review. The
    auditor should evaluate the effect of remaining weaknesses in
    determining the nature and extent of procedures to be performed.

    .31: Where the latest peer review was completed more than 3 years
    earlier and there is no inspection program, the auditor should obtain
    an overview of the important quality control policies and procedures of
    the other auditor.[Footnote 10]

    The overview generally should cover the functional areas of:

    * independence, integrity, and objectivity (FAM 650.11-.24);

    * leadership responsibilities;

    * ethical requirements;

    * acceptance and continuance of clients and engagements;

    * human resources (includes recruiting and hiring, advancement,
    professional development and training, and assigning personnel to
    assignments);

    * engagement performance (includes supervision and consultation); and:

    * monitoring programs.

    .32: The auditor may obtain this information through interviews of the
    other auditor’s management and staff and through reading its quality
    control summary document. The auditor also may read the other auditor’s
    manuals and other guidance for conducting audits.

    .33: In addition to evaluating the other auditor’s qualifications, the
    auditor also should evaluate the overall qualifications of the team
    assigned to do the work. The auditor may review résumés of key team
    members to accomplish this. The auditor should review the specific
    education, training, certifications, and experience of key team
    members. In evaluating qualifications, the auditor should review the
    specific role of staff members on the job. When the auditor has
    knowledge of qualifications from prior experience for key team members,
    the auditor should inquire about their experience in the time since the
    last audit.

    .34: Where the auditor is not satisfied as to the qualifications of the
    other auditor, the auditor generally should perform a more detailed
    review of the documentation and/or perform supplemental tests of key
    line items (see FAM 650.36).

    The auditor should document the work performed and the conclusions
    reached as to the other auditors’ qualifications. The documentation
    should indicate the auditor’s conclusion as to whether the other
    auditors are qualified to perform the tasks required and the basis for
    that conclusion. The auditor should consult with the reviewer if there
    are questions about the other auditors’ qualifications.

    .35: If the auditor has significant concerns about the other auditors’
    independence, objectivity, or qualifications, the auditor should revise
    its audit strategy. For example, the auditor may:

    * contract with another firm;

    * ask the other auditors to substitute more highly qualified or
    objective staff members;

    * do the audit without using the other auditors’ work, treating any
    work done by the other auditors as prepared by the audited entity;

    * divide the work so that the other auditors test the areas where they
    are qualified, and the auditor does the rest of the audit; or:

    * issue a disclaimer of opinion.

    Planning the Review and Testing of Other Auditors’ or Specialists’
    Work:

    .36: After evaluating the other auditors’ or specialists’ independence,
    objectivity, and qualifications, the auditor should develop an audit
    strategy and audit plan for reviewing and, if necessary, testing the
    work done. In this strategy, the auditor generally should document the
    level of review as high, moderate, or low. In some situations, the
    auditor should perform significantly more work than the work shown for
    the high level to include performing significant supplemental tests. In
    other situations, the auditor may decide less review or no review is
    necessary. These situations typically involve entities or line items
    that are very small in relation to the financial statements taken as a
    whole. In these situations, the auditor may decide to read the other
    auditors’ report and the financial statements and ask questions if
    anything seems unusual.

    The auditor should reevaluate the audit strategy and plan as the work
    progresses. If serving as the COTR, the auditor will assist the
    contracting officer to ensure contractor compliance with the terms and
    conditions of the contract. In addition, the IG Act requires that the
    IG take appropriate steps to assure that any work performed by
    nonfederal auditors complies with GAGAS. The level of review is a
    professional judgment the auditor generally should make for significant
    assertions in each material line item considering the following
    factors:

    a. The type of report or letter the auditor will issue, as less review
    is needed for a transmittal letter than for reports in which the
    auditor takes responsibility for the other auditors’ work (see FAM
    650.10).

    b. Whether the other auditors issue a disclaimer of opinion because of
    a scope limitation, as less work is needed to concur with a scope
    limitation than to concur with an unqualified opinion (see FAM 650.37).

    c. Whether the auditor’s report might contain a disclaimer because of a
    scope limitation, as less work is needed if the auditor’s report will
    contain a scope limitation (see FAM 650.39).

    d. The other auditors’ independence, objectivity, and integrity (both
    for the audit organization and its audit team) are impaired, as the
    level of review increases as independence, objectivity, and integrity
    decreases.

    e. The other auditors’ qualifications (both for the audit organization
    and its audit team) to perform the work the auditor wishes to use, as
    the level of review increases as the other auditors’ qualifications
    decrease.

    f. The auditors’ prior experience with the other auditors (both for its
    audit organization and its audit team), as the level of review tends to
    decrease as the auditor’s confidence increases from working with the
    other auditors.

    g. The materiality of the line item in relation to the financial
    statements the auditor is reporting on, taken as a whole, as the level
    of review increases as the line item becomes more material.

    h. The risk of material misstatement, including the risk of material
    fraud for the line item and assertion in the financial statements the
    other auditors are auditing, as the level of review increases as the
    risk of material misstatement increases.

    .37: If the other auditors’ work has a scope limitation, this generally
    affects the level of review, except for transmittal letters with no
    assurance. If the other auditors disclaim an opinion on the financial
    statements because of a scope limitation, the auditor should also issue
    a disclaimer of opinion, unless the financial statements the other
    auditors audited are not material to the financial statements the
    auditor is auditing. The auditor generally need not perform extensive
    procedures to be satisfied that this disclaimer is appropriate.
    Additionally, the auditor generally need not hold discussions with
    entity management and/or perform supplemental tests in this situation,
    and may limit the review of documentation to summary documentation.
    Thus, the level of review is usually low or no review (see FAM 650.10).
    However, the auditor may do additional work to learn about the entity,
    to help the other auditor plan future audits, or to help entity
    management correct the causes of the scope limitation.

    .38: If the other auditors’ work had a scope limitation that results in
    a qualified opinion, the auditor generally should perform a moderate or
    high level of review to determine whether the other auditors should
    have disclaimed an opinion and that the only issues are those relating
    to the qualification.

    .39: A scope limitation on the auditor’s work that results in a
    disclaimer also may affect the level of review. Since the auditor has
    already decided that not enough work can be done on the overall
    financial statements, no amount of review of the other auditors’ work
    is likely to change that conclusion. Thus, as in FAM 650.37,
    discussions with entity management and/or supplemental tests are not
    required, the review of the other auditors’ documentation may be
    limited to summary documentation; and the level of review is usually
    low or no review (see FAM 650.10). However, the auditor may do
    additional work to learn about the entity, to help the other auditor
    plan future audits, or to help entity management correct the causes of
    the scope limitation.

    .40: If there is a scope limitation on the auditor’s work that results
    in a qualified opinion, the auditor should perform a similar amount of
    work as for an unqualified opinion (i.e., enough to support the
    qualification).

    .41: FAM 650 A illustrates the audit work that the auditor generally
    should perform for each level of review on each significant line item,
    as well as what to retain in audit documentation.

    Review of Audit Documentation:

    .42: The extent of the auditor’s review of the other auditors’ or
    specialists’ documentation depends on the level of review and is a
    professional judgment based on the factors in FAM 650.36.

    * For a low level of review, the auditor may limit the review of
    documentation to key summary planning and completion documentation.

    * For a moderate level of review, the auditor generally should review
    more of the other auditors’ or specialists’ documentation, especially
    those evidencing important decisions. For financial statement audits,
    this includes the audit strategy and audit procedures (or equivalent
    documents); the ARA (or equivalent documentation) for significant
    accounts; the SCE (or equivalent documentation) for significant
    applications; the documentation for accounts, estimates, and judgments
    with high risk of material misstatement; the analytical procedures; the
    audit completion checklist at FAM 1003 (or equivalent documentation);
    the audit summary memorandum; and the summary of uncorrected
    misstatements (see FAM 595 C).

    * For a high level of review, the auditor generally should review all
    of the items for the moderate level of review plus the important
    detailed documentation.

    Discussions and/or Supplemental Tests for a High Level of Review:

    .43: AU 543.13 states that “In some circumstances the principal auditor
    may consider it appropriate to participate in discussions regarding the
    accounts with management personnel of the component whose financial
    statements are being audited by other auditors and/or to make
    supplemental tests of such accounts.” The auditor may interpret “in
    some circumstances” to mean when the level of review is high. Thus,
    where the level of review is high, the auditor generally should (1)
    review audit documentation, and (2) hold discussions with audited
    entity management and/or perform tests of original documents.

    The objective of these additional procedures is for the auditor to
    obtain additional evidence about whether key items are properly handled
    and supported by sufficient appropriate evidence. For example, the
    auditor generally should discuss key items with entity management,
    especially estimates and judgments. This discussion generally should be
    with the other auditors present. The auditor generally should attend
    the entrance and exit conferences and other key meetings held by other
    auditors or specialists. For key items that have high risk of material
    misstatement, discussions with entity management may not provide
    sufficient evidence, and the auditor should perform supplemental tests.

    .44: The auditor may perform supplemental tests on a selection of the
    other auditors’ work, additional tests of the accounting records, or
    both. To perform supplemental tests, the auditor should obtain access
    to the entity’s personnel and its books and records. The auditor may
    coordinate access to the entity’s personnel and records through the
    other auditor. The auditor and the other auditor also may jointly
    perform parts of a test, where the sample is planned jointly and the
    results are evaluated jointly. Although supplemental tests are usually
    performed only when the level of review is high, the auditor may
    perform supplemental tests in other situations to learn about the
    entity, to help the other auditor plan future audits, or to help entity
    management correct problems.

    .45: Where the other auditor is an internal auditor, the auditor should
    perform supplemental tests. The extent of this testing depends on
    circumstances and should be sufficient for the auditor to make an
    evaluation of the overall quality and effectiveness of the internal
    control work done by the internal auditor (see AU 322.26).

    .46 The auditor generally should limit discussions with entity
    management and/or supplemental tests to significant assertions in line
    items that have a high risk of material misstatement. This is
    especially true in areas involving estimates and judgments or in areas
    on which users place extensive reliance. The auditor’s supplemental
    tests generally should include some items tested by the other auditor,
    particularly any that appear to be exceptions, in order to determine
    whether they were appropriately evaluated in formulating an opinion.
    The auditor generally should plan to perform supplemental tests while
    the other auditors are at the entity and have access to records, as
    this can minimize the inconvenience for everyone.

    .47: It is not necessary to perform supplemental tests of the work of
    specialists. As indicated in AU 336.12, the auditor should understand
    the methods and assumptions used by the specialists, test the data
    provided to the specialists (extent of testing is based on risk and
    materiality), and evaluate whether the specialists’ findings support
    the financial statement assertions. If the auditor believes the
    findings are unreasonable, the auditor should apply additional
    procedures and/or determine the need to obtain another specialist.

    Subsequent Events Review and Dating of the Auditor’s Report:

    .48: The auditor should date the report when the auditor has obtained
    sufficient appropriate audit evidence to support the opinion on the
    financial statements (AU 339.23 and AU 530). If the other auditors’ or
    specialists’ report is dated earlier and the auditor’s report does not
    mention the other auditors’ report or concurs with the other auditors’
    report as in example 2 of FAM 650 C, the auditor should update the
    subsequent events review to the date of the auditor’s report.

    The auditor may ask the other auditors to update the subsequent events
    review to the required date, or the auditor may update the subsequent
    events review. However, since this requires additional work, the
    auditor should attempt to complete audit work when the other auditors
    complete their work. The auditor should evaluate this issue and
    coordinate with the other auditor when planning the audit. The auditor
    need not update the subsequent events review when the auditor issues a
    transmittal letter, as in example 1 of FAM 650 C.

    Staffing the Review of the Other Auditors’ or Specialists’ Work:

    .49: When staffing the review, the auditor should determine the extent
    to which the other auditors or specialists have reviewed their work.
    The other auditor should have performed at least one level of review
    for all audit work, with more material or sensitive areas having
    multiple reviews. In some cases, before the audit is complete, the
    other auditor may not have completed all levels of review, particularly
    at its top level, and may be reluctant for the auditor to access the
    audit documentation before these reviews are done.

    The auditor’s staff reviewing the work generally should have enough
    experience in financial statement auditing to understand the
    professional judgments that need to be made and to interact with the
    higher levels of the other auditor. An assistant director or a senior
    manager who has significant experience in performing and reviewing
    financial statement audit work should perform most of the review. Less
    qualified staff members may perform supplemental tests when supervised
    by more qualified auditors.

    The assistant director, audit manager, or auditor-in-charge should
    review the documentation of any supplemental tests performed by less
    experienced staff members. Except for key areas or issues, the
    auditdirector may designate another qualified auditor to perform the
    primary review of audit documentation prepared by the assistant
    director.

    .50: When the other auditors’ work involves the review of IS controls,
    an IS controls specialist should participate in the auditor’s review.
    Together they should determine if IS controls were adequate, audit work
    was properly documented, and related audit objectives were achieved.

    Evaluating the Work of Other Auditors or Specialists:

    .51: After the auditor has completed the review of the other auditors’
    or specialists’ work, and, if necessary, any supplemental testing, the
    auditor should determine whether the work is sufficient and acceptable
    for the auditors’ use. The auditor should document this evaluation.

    .52: Sometimes, other auditors use methodologies or audit approaches
    that are different from those the auditor would have used. Auditing
    requires a great deal of professional judgment and there often are
    alternative ways to achieve audit objectives. Many CPA firms have
    developed, at considerable expense, proprieary audit methodologies to
    use on a wide range of public and private sector clients. Many of these
    audit methodologies utilize electronic technology where the entire
    audit documentation exists only in electronic form. Thus, the auditor
    should understand the other auditors’ audit methodology and basis for
    the nature, extent, and timing of audit procedures. This may require
    obtaining permission to use proprietary software to review the audit
    documentation. Additionally, where the CPA software is retained, the
    auditor should develop a process to maintain the operability of the
    software to access the audit documentation in the future.

    The auditor should evaluate whether sufficient appropriate
    evidence[Footnote 11] has been obtained to meet the audit objectives,
    particularly for significant assertions in line items with a high risk
    of material misstatement. If the auditor has concerns about whether the
    other auditors’ work provides sufficient appropriate evidence, the
    auditor generally should discuss the matter with the audit director and
    the reviewer before formally discussing the issue with the other
    auditors.

    .53: The auditor should determine the significance of the test results
    to the audit of the financial statements the auditor is reporting on.
    As an example, the other auditors may have selected a nonstatistical
    sample and/or the sample size may be smaller than the sample size the
    auditor would have selected. The auditor may decide that this provides
    sufficient evidence in an area that is less material or has low or
    moderate risk of material misstatement. However, if the risk of
    material misstatement is high, the auditor may conclude that sufficient
    appropriate evidence has not been obtained and that additional work is
    needed.

    In this case, after consulting with the audit director and the
    reviewer, the auditor generally should either ask the other auditors to
    perform additional tests or perform the additional tests. If this
    additional testing is not done, the auditor should determine the effect
    on the auditor’s report of the scope limitation. Because reaching this
    conclusion after the work is performed is inefficient, especially when
    the level of review is high, the auditor generally should coordinate or
    concur with major planning decisions of the other auditor before audit
    work is started.

    .54: Sometimes, the auditor may disagree with the conclusions or
    judgments of the other auditors. In this case, the auditor should
    evaluate the other auditors’ work as well as any other evidence or
    testing necessary to determine the appropriate conclusion.

    .55: The auditor should discuss any issues of disagreement with the
    other auditors to attempt to resolve the disagreement. The auditor
    should attempt to resolve professional disagreements early to reduce
    confusion that may arise from differing auditor views. Once identified,
    the auditor should discuss the issues with the other auditors to
    resolve them in a timely manner and before the completion of the audit.

    .56: If the auditor does not reach agreement with the other auditors,
    the auditor should determine how to report. For disagreements involving
    matters that are material to the financial statements, the auditor may
    decide not to transmit the other auditors’ report, instead issuing a
    disclaimer of opinion due to a scope limitation or doing additional
    work, if necessary, to issue an appropriate opinion. For disagreements
    involving matters that are not material to the financial statements,,
    the auditor may transmit the other auditors’ report, issue the
    transmittal letter or report, and describe the disagreement and the
    basis for the auditor’s conclusions.

    Documenting the Review of Other Auditors’ or Specialists’ Work:

    .57: Regardless of the type of reporting or the level of review, the
    auditor’s documentation generally should contain the items listed in
    FAM 650 A under “documentation,” either electronically or in hard copy.

    .58: In addition, where the auditor performs supplemental tests of the
    accounting records, the auditor’s documentation should contain a
    description of the work (this may be a list of the documents the
    auditor examined or tick marks on a copy of the other auditors’
    documentation if that is the basis for the selection) and the auditor’s
    conclusion. It is not necessary to retain copies of the documents
    examined.

    .59: There is a difference between the auditor’s responsibilities to
    review the documentation of other auditors and what the auditor may
    copy and retain from that documentation. The auditor uses professional
    judgment in deciding which of the other auditors’ or specialists’
    documents to copy and retain. However, many auditors use electronic
    technology to retain documentation for the entire audit. The auditor
    may cite this documentation as part of the review to include any
    supplemental testing performed on the other auditors’ work. The auditor
    may print any documents as necessary.

    .60: The auditor may retain other documentation if it might be useful
    in understanding the entity, training staff members, planning future
    audits, reviewing the documentation, or writing the report.
    Documentation in this category includes the entity profile (or
    equivalent), audit strategy, audit procedures, ARA and SCE forms (or
    equivalent), trial balance or lead schedules, management representation
    letter, and legal representation letter. Auditors often find it helpful
    to keep copies of documents (either electronically or in hard copy) in
    case questions are raised in review but not to include those copies in
    the audit documentation unless they are needed to document the work
    performed.

    The auditor should retain documents in accordance with the contract or
    other legal requirements, but not less than 5 years from the report
    release date (AU 339.32). Audit procedures may indicate which documents
    to retain. The auditor may not discard documents after 60 days from the
    report release date (AU 339.27-.30). In documenting the review,
    auditors may indicate the document number or index number used by the
    other auditor in order to locate the document at a later date.

    Ownership and confidentiality of audit documentation is determined by
    contract and legal requirements (see AU 339.31).

    Using Internal Audit Staff to Provide Direct Assistance to the Auditor:

    .61: Sometimes, the auditor or the audited entity requests that
    internal auditors provide direct assistance to the auditor. Before this
    is done, the auditor should be satisfied with the independence,
    objectivity, and qualifications of the staff assigned to do the work
    requested. AU 322.27 indicates that in these situations, “The auditor
    should inform the internal auditors of their responsibilities, the
    objectives of the procedures they are to perform, and matters that may
    affect the nature, timing, and extent of procedures, such as possible
    accounting and auditing issues.”

    The auditor should direct, review, test, and evaluate the work done by
    internal auditors to the extent appropriate based on the auditor’s
    evaluation of risk, materiality, objectivity, and qualifications.

    Using Federal Entity Specialists:

    .62: Many federal entities have actuaries, security specialists,
    statistical specialists, and other specialists whose work the auditor
    would like to use. However, unless these specialists are part of an
    entity that is organizationally independent or are under contract to
    such an entity, the auditor should evaluate their work as the work of
    an employee of the entity under audit. The auditor should use the
    specialists of other auditors or contract for outside specialists to
    develop and implement appropriate tests.

    Multiple Levels of Other Auditors:

    .63: Sometimes there are several levels of other auditors. For example,
    an IG may hire a CPA firm to perform an audit of a federal entity’s
    financial statements. The IG may issue a report concurring with the
    firm’s report or a letter transmitting the firm’s report. GAO auditors
    may then use the work of the IG as part of the audit of the financial
    statements of the U.S. government.

    .64: When there are multiple levels of other auditors, each audit
    organization should follow the guidance in FAM 650. IG auditors should
    evaluate the independence (see FAM 650.11-.24) and qualifications of
    the CPA firm (see FAM 650.25-.35); should review the audit
    documentation (see FAM 650.42); and may need to have discussions with
    entity management and/or perform supplemental tests of key accounts
    depending on the level of review deemed appropriate (see FAM 650.43-
    .47).

    GAO auditors should evaluate the qualifications of the IG organization
    (by reading the peer review report, the letter of comments, and the
    audit organization’s response as described in FAM 650.25) and the
    qualifications of the IG team doing the monitoring of the CPA firm. GAO
    auditors should also review the IG auditor’s documentation of its
    review of the CPA firm work and may perform supplemental tests as
    deemed necessary. If GAO auditors find that the IG auditor has
    completed and documented adequate work, including discussions with
    entity management and/or supplemental tests, further discussions and/or
    supplemental tests would be quite limited, perhaps a walk-through of
    work done in areas with high-risk of material misstatement. Often, GAO
    auditors will attend fewer meetings than the IG auditor attends and
    would concentrate the review on the IG auditor’s documentation. GAO
    auditors may then issue a report on the financial statements.

    .65: Because of the potential for inefficiency, there generally should
    be close coordination between the various auditors. The IG and GAO may
    perform the review jointly. Sometimes, a memorandum of understanding
    may be useful in documenting responsibilities. A chart that describes
    the review to be done by each organization may be useful. The following
    is a useful format for this chart (with more detail added as necessary
    under each phase of the audit).

    Phase of the audit: Planning;
    Procedures: Other auditor: [Empty]; Procedures: IG review: [Empty];
    Procedures: GAO review: [Empty].

    Phase of the audit: Internal Control;
    Procedures: Other auditor: [Empty];
    Procedures: IG review: [Empty];
    Procedures: GAO review: [Empty].

    Phase of the audit: Testing;
    Procedures: Other auditor: [Empty];
    Procedures: IG review: [Empty];
    Procedures: GAO review: [Empty].

    Phase of the audit: Reporting;
    Procedures: Other auditor: [Empty];
    Procedures: IG review: [Empty];
    Procedures: GAO review: [Empty].

    Reports on Other Auditors’ Work:

    .66: The auditor may be asked to issue a report evaluating work done by
    other auditors in a situation where the auditor is not using the work
    of the other auditors. For example, the auditor may be asked to
    evaluate an audit done by a CPA firm. While AU 543, 322, and 336 are
    not directed toward these situations, the guidance in FAM 650 is
    helpful in planning and reporting on those assignments.

    650 A - Summary of Audit Procedures and Documentation for Review of
    Other Auditors’ Work:

    .01: Table 1 on the following page presents a summary of audit
    procedures that the auditor generally should perform at the entity
    level and for significant assertions, line items, accounts, or
    applications when reviewing the work of other auditors. As discussed in
    FAM 650.36, the three levels of review are high, moderate, or low, as
    determined by the auditor’s professional judgment.

    Table 2 on the next following page presents a summary of documentation
    that the auditor generally should retain from the auditor’s review of
    the work of other auditors. However, the summary does not include work
    to be done by the auditor on other auditor independence, objectivity,
    and qualifications. (See FAM 650.11-.35 for a discussion of that work.)
    Where the other auditor uses equivalent documents, the auditor should
    review those documents.

    .02: In both tables, procedures to be performed and documents to be
    retained at the low level of review are indicated by regular font. The
    moderate level of review includes the low level plus those in bold
    letters. The high level of review includes the moderate level plus
    those in BOLD CAPITALS.

    Table 1: Summary of Audit Procedures from Reviewing Other Auditors’
    Work:

    Audit Procedures:

    At entity level:

    1. Communicate with the other auditors:

    * as to the objectives of the work;
    * discuss their procedures and results;
    * Attend key entrance and exit meetings;
    * Coordinate Or Concur In Significant Planning Decisions Before Major
    Work Is Started

    2. Review:

    * audit strategy;
    * scope of work;
    * audit summary memorandum;
    * summary of uncorrected misstatements;
    * analytical procedures;
    * completion checklist;
    * determination of planning and design materiality;
    * representation letters;
    * information systems background;
    * general and application controls; documentation (with assistance from
    IS controls specialist);
    * other key documentation;

    3. Read:

    * other auditor’s report;
    * financial statements and notes;
    * supplementary information;
    * MDA and other accompanying information;
    * Management’s response;

    For significant assertions, line items, accounts, or applications:

    1. Review:

    * audit procedures (plan);
    * conclusions about significant issues and their resolution (often in
    audit summary);
    * account risk analysis (ARA);
    * specific control evaluations (SCE);
    * cycle memo;
    * flowcharts;
    * determination of tolerable misstatement;
    * sampling plan;
    * other auditors’ key documentation;
    * high risk accounts, estimates, and judgments;
    * analytical procedures;
    * Evaluation Of Sample Results;
    * Summary Of Uncorrected Misstatements;

    2. Participate In Discussions With Management Personnel And/or Perform
    Supplemental Tests Of The Line Items (Especially Key Items, Estimates
    And Judgments); Compare Conclusions;

    [End of table]

    Table 2: Summary of Documentation from Reviewing Other Auditors’ Work:

    Documentation:

    Retain:

    1. Auditor prepared:

    * audit strategy;
    * memo documenting entrance and exit conference;
    * Memos Documenting Key Meetings Attended And Discussions With Audited
    Entity Management;
    * results of review of documentation;
    * Supplemental Test Documentation;
    * summary memo;

    2. Other auditor prepared:

    At entity level:

    * other auditor’s report;
    * entity’s final financial statements, notes, and supplementary info;
    * management letter;
    * other auditor’s unadjusted known and likely misstatements,
    consideration of risk of further misstatements, and comparison with
    materiality;

    * audit completion checklist;

    * other auditor’s audit summary memo;

    At line item or assertion level:

    * documentation that evaluates exceptions;
    * other auditor’s documentation evidencing significant judgments and
    conclusions;

    Optional:

    1. Auditor and other preparers:

    * entity profile;
    * audit procedures (plan);
    * account risk analyses;
    * specific control evaluations;
    * sampling plan;
    * trial balance;
    * lead schedules;
    * evaluation of sample results;
    * management representation letter;
    * legal representation letter;

    [End of table]

    650 B - Example Audit Procedures for Using the Work of Others:

    These example procedures are appropriate when using the work of other
    auditors or the work of specialists to perform a full or partial audit
    of financial statements and are applicable to GAO financial statement
    audits. Auditors may use these procedures or a monitoring tool for
    financial audits developed by the Federal Audit Executive Council, a
    subcommittee of the President’s Council on Integrity and Efficiency
    that can be found at
    [hyperlink,http://www.ignet.gov/pande/faec/fsan0906.xls].

    As stated in FAM 650.08, these procedures depend upon the professional
    judgments that the auditor makes. The auditor should tailor the
    procedures to the circumstances and the planned level of review (high,
    moderate, or low) as discussed in FAM 650.36. The auditor should modify
    or add procedures as necessary, and delete them if not applicable. When
    other auditors or specialists have done only part of an audit, the
    auditor may delete many of the procedures below. The auditor may also
    delete procedures for the low level of review or when the auditor plans
    to issue only a transmittal letter as discussed in FAM 650.09 b. The
    audit procedures are presented in three sections: (1) evaluating
    independence, objectivity, and qualifications for CPA firms and
    specialists; (2) evaluating independence, objectivity, and
    qualifications for government audit organizations; and (3) monitoring
    the work (for all types of other auditors and for specialists). The
    auditor should use the applicable one of the first two sections and the
    third section. The auditor generally should use a separate form for
    each other auditor or specialist.

    Entity:
    Job code:
    Period of audit:

    Step: 1. Evaluating Independence, Objectivity, And Qualifications For
    Cpa Firms And Specialists: General:
    1. Read the statement of work or request for proposal to determine
    whether this contracting document provides sufficient background on the
    audited entity and indicates the objectives of the work, what the
    contractor should include in its proposal, how proposals will be
    evaluated, and how the report will be used;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Independence and objectivity: 2. Determine whether proposal of
    selected firm includes a representation as to the firm’s independence
    and objectivity;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Independence and objectivity: 3. If proposal does not include a
    representation as to independence and objectivity, obtain written
    representation from firm;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Qualifications:
    4. Read proposal of selected firm. In reviewing proposal, evaluate the
    overall qualifications of the team performing the work. Review resumes
    and determine for key team members their educational level,
    professional certifications, and professional experience, including
    whether key team members have current knowledge and experience in the
    type of work done;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 5. Review the selected firm’s peer review report, letter of
    comments, and response letter. If the peer review report was issued
    more than three years earlier, obtain documentation relating to the
    firm’s internal quality control policies and procedures or review the
    firm’s inspection program;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 6. Communicate orally or in writing with the other auditors to be
    satisfied that they understand the requirements, the timetable, and the
    report or letter the auditor expects to issue;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 2. Evaluating Independence, Objectivity, And Qualifications For
    Government Auditors: Independence And Objectivity:
    1. For all government audit organizations, obtain written
    representation from an appropriate official that the organization and
    its individual auditors are independent of the entity being audited;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 2. Determine whether the government audit organization meets ONE
    of the criteria in FAM 650.15, or the head meets ONE of the criteria in
    FAM 650.16. If the organization (or its head) meets one of these
    criteria, no further work is needed unless the auditor finds contrary
    evidence as to independence and objectivity in other parts of the
    audit. Indicate the criteria met and document the evaluation of any
    other evidence obtained. (Go to step 6.);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 3. If the government audit organization (or its head) does not
    meet any of the criteria in step 2, determine whether it meets ALL of
    the criteria in FAM 650.18;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 4. Review the government audit organization’s documentation of
    how it meets the requirements of step 3. Discuss with an appropriate
    official of the organization and consider discussions with quality
    assurance advisors, legal counsel for the organization, and auditor’s
    legal counsel. (Go to step 6.);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 5. If the government audit organization does not meet the
    criteria for organizational independence to report externally,
    determine whether the organization is an independent internal audit
    organization under GAGAS and IIA standards. Determine whether the
    internal auditors are objective for the activities they audit. For the
    audit organization to be considered free from organizational
    impairments, determine if the head of the audit organization meets all
    of the criteria indicated in FAM 650.21;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 6. For government auditors, obtain an understanding of the
    organization’s policies to enhance the objectivity of individual
    auditors as discussed in FAM 650.23, including
    * policies to prohibit auditors from auditing areas where relatives are
    employed,
    * policies to prohibit auditors from auditing areas where they were
    recently assigned or are scheduled to be assigned after they complete
    their tour of duty in auditing, and
    * policies to require representations as to objectivity and lack of
    conflicts of interest from each auditor;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 7. Prepare a memorandum documenting work performed and
    conclusions reached as to government audit organization’s independence
    and objectivity;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Qualifications:
    8. Read the latest peer review report or equivalent, letter of
    comments, and the audit organization’s response as discussed in FAM
    650.28. Note the date of the report and whether it is unqualified. If
    the report is recent (usually within the past year) and unqualified, go
    to step 12;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Qualifications:
    9. If the peer review is not recent, review the latest inspection
    report[Footnote 12], if any, and the organization’s response as
    discussed in FAM 650.29. Note the date of the report and whether it is
    unqualified. If the inspection is recent (usually in the past year) and
    unqualified, go to step 12;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Qualifications:
    10. If the organization has not had a recent peer review or inspection
    as discussed in FAM 650.31, obtain an overview of the important
    policies and procedures in the functional areas through interviews of
    management and staff and through reading the summary quality control
    document, if any. Consult with the reviewer on the potential effect of
    using work with no recent peer review or inspection before performing
    this step;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Qualifications:
    11. If the peer review or inspection report was qualified or adverse,
    determine whether the quality control system has since been
    strengthened as discussed in FAM 650.30. Review the organization’s
    action plan for strengthening its quality control system. Evaluate the
    effect of remaining weaknesses in determining the level of review;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Qualifications:
    12. Inquire how the government audit organization determined staffing
    of the audit. Evaluate the overall qualifications of the team
    performing the work as discussed in FAM 650.33. Review resumes for key
    team members and consider:
    * educational level, professional certifications, and professional
    experience;
    * continuing professional education, especially training and current
    knowledge in the type of work done;
    * supervision and review of work;
    * whether the audit team has adequate sources for consultation and use
    of specialists, especially for audit sampling, audit methodology, and
    review of computer controls; and:
    * quality of documentation, reports, and recommendations;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: Qualifications:
    13. As discussed in FAM 650.35, if the auditor has significant concerns
    about the government audit organization or its team’s objectivity or
    qualifications, the auditor, in developing the audit plan, may either:
    * ask the other auditors to substitute more objective or highly
    qualified staff members;
    * do the work, treating any work done by the other auditors as prepared
    by the audited entity;
    * divide the work so that the other auditors test the areas where they
    are qualified and the auditor does the rest of the audit; or
    * issue a disclaimer of opinion;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 3. Monitoring The Work (For All Types Of Other Auditors And
    Specialists): 1. As discussed in FAM 650.36, develop a strategy and a
    plan for reviewing the other auditors’ or specialists’ work and, if
    necessary, performing supplemental tests of the accounting records.
    Determine the level of review for each line item;
    Done by/date: [Empty];

    Doc Ref: [Empty].

    Step: 2. Monitor audit planning (For All Levels Of Review):
    * Review the entity profile.
    * Review the audit strategy or equivalent document and audit plan. (For
    Moderate And High Level Of Review)
    * Attend entrance meeting and key planning meetings.
    * Review the determination of planning materiality and design
    materiality.
    * Have an IS controls specialist participate with the auditor in
    reviewing the information resource management background information
    and the documentation for review of general and application controls.
    * Document line items and applications to be reviewed.
    * For each such line item, review the Account Risk Analyses, the
    Specific Control Analyses, the cycle flowcharts, the cycle memoranda,
    the determination of tolerable misstatement, and the audit plan or
    equivalent documents;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 3. Monitor the execution of the audit for reports following
    example 2 of FAM 650 C or FAM 595 A and/or FAM 595 B Where Level Of
    Review Is High.
    * Attend key meetings, especially those discussing highrisk areas,
    significant estimates and judgments, fraud brainstorming, and the other
    auditors’ conclusions.
    * Discuss key items with audited entity management, especially
    significant estimates and judgments.
    * Perform supplemental tests of the accounting records:
    -- Generally for high risk and material line items, especially in areas
    involving estimates and judgments or ones which users rely on
    extensively.
    -- Generally while the other auditors are at the audited entity
    location and have access to the records.
    -- Examine some of the same documents the other auditors examined or
    make own selection or both.
    -- Compare results of other auditors’ work to results of supplemental
    tests.
    -- Document scope of supplemental testing and conclusions reached;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 4. Monitor the completion of the audit (items with * are usually
    not necessary for LOW level of review):
    * Review the overall analytical procedures.
    * *Review the key documentation for the line item and for completing
    the audit; consider evaluations of sample results. (For example, were
    projections appropriate? Was appropriate action taken based on sample
    results?)
    * *Determine whether the subsequent events review was updated to the
    date of the auditor’s report.
    * Review the audit summary memorandum, conclusions about line items,
    and the summary of uncorrected misstatements.
    * Review the audit completion checklist at FAM 1003 (or equivalent
    document).
    * Review the management representation letter and the legal
    representation letter.
    * *Attend key exit conference(s).
    * Read the other auditors’ report, the financial statements, the notes,
    the other accompanying information, and management’s response;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 5. Prepare a summary memorandum;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Step: 6. Write the auditor’s report or transmittal letter;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    650 C - Example Reports when Using the Work of Others:

    Example 1 – Transmittal Letters:

    As discussed in FAM 650.09 b, there are two types of transmittal
    letters, one expressing no assurance and one expressing negative
    assurance on the other auditor’s work. Examples of both types are
    presented as follows:

    [Addressee]

    We contracted with the independent certified public accounting firm of
    [name of firm] to audit the financial statements of [name of entity] as
    of [date] and for the year then ended, to provide an opinion [or a
    report] on internal control over financial reporting (including
    safeguarding assets) and compliance with laws and regulations, to
    provide an opinion on whether [entity’s] financial management systems
    substantially complied[Footnote 13] with the requirements of the
    Federal Financial Management Improvement Act of 1996 (FFMIA) (for CFO
    Act agencies), and to report any reportable noncompliance with laws and
    regulations they tested. The contract required that the audit be done
    in accordance with U.S. generally accepted government auditing
    standards, OMB audit guidance, and the GAO/PCIE Financial Audit Manual
    [if required by the contract].

    In its audit of [name of federal entity], [name of CPA firm] found
    * the financial statements were fairly presented, in all material
    respects, in conformity with U.S. generally accepted accounting
    principles,

    * [federal entity] had effective[Footnote 14] internal control over
    financial reporting (including safeguarding assets) and compliance with
    laws and regulations,

    * [entity’s] financial management systems substantially
    complied[Footnote 15] with the requirements of the Federal Financial
    Management Improvement Act of 1996 (FFMIA) (for CFO Act agencies),
    and:[Footnote 16]

    * no reportable noncompliance with laws and regulations tested. [Name
    of CPA firm] also described the following significant matters (if any):

    * [Discuss any significant matters].

    For transmittal letters expressing no assurance, use the following
    paragraph:

    [Name of CPA firm] is responsible for the attached auditor’s report
    dated [date] and the conclusions expressed in the report. We do not
    express opinions on [name of entity]’s financial statements or internal
    control or on whether [entity]’s financial management systems
    substantially complied with FFMIA (for CFO Act agencies); or
    conclusions on compliance with laws and regulations.

    For transmittal letters expressing negative assurance, use the
    following paragraph:

    In connection with the contract, we reviewed [name of CPA firm]’s
    report and related documentation and inquired of its representatives.
    Our review, as differentiated from an audit in accordance with U.S.
    generally accepted government auditing standards, was not intended to
    enable us to express, and we do not express, opinions on [name of
    entity]’s financial statements or internal control[Footnote 17] or on
    whether [entity]’s financial management systems substantially complied
    with FFMIA (for CFO Act agencies);[Footnote 18] or conclusions on
    compliance with laws and regulations. [Name of CPA firm] is responsible
    for the attached auditor’s report dated [date] and the conclusions
    expressed in the report. However, our review disclosed no instances
    where [name of CPA firm] did not comply, in all material respects, with
    U.S. generally accepted government auditing standards.[Footnote 19]

    Example 2 – Report Concurring with Other Auditors’ Opinion (Presenting
    Report of Other Auditors after the Auditor’s Report)[Footnote 20]:

    As discussed in FAM 650.09 d, the auditor may use this approach when
    other auditors have reported on financial statements and the auditor
    wants to provide more assurance than what is provided in the
    transmittal letter example 1 above.

    [Addressee]

    Under [citation of statute], we are responsible for auditing [name of
    entity]. To help fulfill these responsibilities, we contracted with
    [name of firm], an independent certified public accounting firm. [Name
    of firm]’s report dated [date] is attached.

    We concur[Footnote 21] with [name of firm]’s report that indicated:

    * the financial statements were fairly presented, in all material
    respects, in conformity with U.S. generally accepted accounting
    principles,

    * [entity] had effective internal control over financial reporting
    (including safeguarding assets) and compliance with laws and
    regulations,

    * [entity’s] financial management systems substantially complied with
    the requirements of the Federal Financial Management Improvement Act of
    1996 (FFMIA) (for CFO Act agencies), and:

    * no reportable noncompliance with laws and regulations it tested.
    Details of their conclusions are in their report.

    Objectives, Scope, and Methodology:

    Management is responsible for (1) preparing the financial statements in
    conformity with U.S. generally accepted accounting principles, (2)
    establishing, maintaining, and assessing internal control to provide
    reasonable assurance that the broad control objectives of 31 U.S.C.
    3512 (c), (d) (commonly known as the Federal Managers’ Financial
    Integrity Act) are met, (3) ensuring that [entity]’s financial
    management systems substantially comply with FFMIA requirements (for
    CFO Act agencies), and (4) complying with applicable laws and
    regulations.

    We are responsible for obtaining reasonable assurance about whether (1)
    the financial statements are presented fairly, in all material
    respects, in conformity with U.S. generally accepted accounting
    principles, and (2) management maintained effective internal control,
    the objectives of which are the following:

    * Financial reporting: Transactions are properly recorded, processed,
    and summarized to permit the preparation of financial statements in
    conformity with U.S. generally accepted accounting principles, and
    assets are safeguarded against loss from unauthorized acquisition, use,
    or disposition.

    * Compliance with laws and regulations: Transactions are executed in
    accordance with 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 any other laws, regulations, and
    governmentwide policies identified by OMB audit guidance.

    We are also responsible for (1) testing whether [entity’s] financial
    management systems substantially comply with the three FFMIA
    requirements (for CFO Act agencies), (2) testing compliance with
    selected provisions of laws and regulations that have a direct and
    material effect on the financial statements and laws for which OMB
    audit guidance requires testing, and (3) performing limited procedures
    with respect to certain other information appearing in the Performance
    and Accountability Report.

    To help fulfill these responsibilities, we contracted with the
    independent certified public accounting (CPA) firm of [name of firm] to
    perform a financial statement audit in accordance with U.S. generally
    accepted government auditing standards and OMB audit guidance. We
    evaluated the nature, extent, and timing of the work, monitored
    progress throughout the audit, reviewed the documentation of the CPA
    firm, met with partners and staff members, evaluated the key judgments,
    met with officials of [federal entity being audited], performed
    independent tests of the accounting records, and performed other
    procedures we deemed appropriate in the circumstances. We conducted our
    work in accordance with U.S. generally accepted government auditing
    standards.

    660 – Agreed-Upon Procedures:

    .01: In an engagement to apply agreed-upon procedures, a client engages
    an auditor to perform specific procedures on a subject matter and
    report on the results to assist users in evaluating a subject matter or
    an assertion. Agreed-upon procedures should be performed in accordance
    with GAGAS which incorporates the financial audit and attestation
    standards established by the AICPA. The Statements on Standards for
    Attestation Engagements (SSAE), specifically AT 101, Attest
    Engagements, and AT 201, Agreed-Upon Procedures Engagements, contains
    standards and guidance for these engagements.

    .02: The auditor may perform an agreed-upon procedures engagement on a
    variety of subject matters. The engagement will vary depending on the
    needs of the user. The engagement may assist entity management by
    providing information for making decisions and give report users
    information on important areas. Examples of agreed-upon procedures are:

    * compare payroll information reported to the Office of Personnel
    Management with the entity’s payroll records and general ledger; (Refer
    to OMB audit guidance for additional information);

    * compare entity reconciliations of intragovernmental activity and
    balances with supporting documentation and compare amounts with the
    financial statements and with reports to the Department of the Treasury
    (Treasury); (Refer to OMB audit guidance for additional information);

    * trace tax collections from the master file to deposit confirmations,
    determine whether they were recorded in the appropriate period, and in
    the correct tax class;

    * trace amounts on the entity’s financial statements to an “account
    grouping worksheet,” foot the worksheet, read the CFO’s explanation for
    any differences, and compare the explanation with supporting
    documentation; and:

    * examine official receipt documents to determine whether they were
    included in the weekly deposit; compare deposit amounts to amounts
    reported on the statement of funding.

    .03: In agreed-upon procedures engagements, all parties involved, which
    include the report users, the entity responsible for the subject matter
    (which may or may not be the same as the user), and the auditor, should
    clearly understand the procedures to be applied. Since users may have
    different needs, the nature, extent, and timing of agreed-upon
    procedures also may differ. Therefore, the users, and not the auditor,
    assume the responsibility for the sufficiency of the design and extent
    of the procedures since they best understand their own needs, although
    the auditor may assist the user in designing the procedures.

    .04: The auditor should establish and document an understanding with
    the users regarding the nature, extent, and timing of agreed-upon
    procedures to be performed. The auditor may document this understanding
    using an engagement letter to the users, an example of which is
    provided in FAM 660 A.

    .05: The auditor should perform agreed-upon procedures only if the
    subject matter is capable of evaluation against criteria that are
    suitable and available to users. Suitable criteria should have
    objectivity, measurability, completeness, and relevance. The auditor
    should perform procedures that are subject to reasonably consistent
    measurement and the users have agreed on. The auditor should not
    perform overly subjective procedures or use terms with uncertain
    meaning unless they are defined in the agreedupon procedures report.

    .06: The auditor need not perform additional procedures beyond the
    agreedupon procedures. If matters come to the auditor’s attention by
    other means that significantly contradict the subject matter (or
    assertion), the auditor should include these matters in the report. For
    example, if during the course of applying agreed-upon procedures
    regarding an entity’s operation, the auditor becomes aware of a
    material weakness related to the assertion by means other than the
    agreed-upon procedures, the auditor should include this matter in the
    report. The auditor may do this by mentioning the material weakness
    with a footnote reference to another report where it is described in
    detail.

    .07: Where circumstances impose restrictions on the performance of the
    agreed-upon procedures, the auditor should attempt to obtain agreement
    from the users of the report to modify the agreed-upon procedures. When
    agreement cannot be obtained (for example, when the agreed-upon
    procedures are published by a regulatory entity that will not modify
    the procedures), the auditor should describe restrictions in the report
    or withdraw from the engagement.

    Written Representations:

    .08: The auditor generally should determine if a representation letter
    is necessary. The auditor may determine that a representation letter is
    necessary, for example, if (1) the responsible entity is so large there
    is a risk as to whether one person knows whether pertinent information
    has been made available to the auditor, (2) the subject matter depends
    on estimates, judgments, or future events (such as whether the subject
    matter is less objective and fact-based and more subjective), or (3)
    the user of the report believes written representations should be
    obtained. Although generally not required by AT 201 (unless
    specifically required by another attestation standard, such as in a
    compliance engagement) a representation letter may nonetheless be a
    useful means of documenting the responsible entity’s representations.
    FAM 660 B provides an example representation letter for an agreed-upon
    procedures engagement.

    .09: The responsible entity’s refusal to furnish written
    representations the auditor determines to be necessary constitutes a
    scope limitation. In such circumstances, the auditor should do one of
    the following:
    * disclose in the report the inability to obtain representations from
    the responsible entity,
    * withdraw from the engagement, or
    * change the engagement to another form of engagement (such as to a
    performance audit) with the client’s consent.

    Documentation:

    .10: In accordance with GAGAS, the auditor should prepare and maintain
    documentation in connection with an agreed-upon procedures engagement
    that is appropriate for the engagement. The auditor should document
    sufficient information to enable an experienced auditor having no
    previous connection with the engagement to ascertain from the
    documentation the nature, extent, timing, and results of procedures
    performed and the evidence that supports the auditors’ agreed-upon
    procedures report, including its sources and the auditors’ conclusions.

    .11: Although the quantity, type, and content of documentation varies
    with the circumstances, the auditor should document sufficient
    information to demonstrate that the work was adequately planned and
    supervised and that evidential matter provides a reasonable basis for
    the report as discussed in GAGAS chapter 6.

    .12: The auditor generally should prepare a summary memorandum that
    recaps the work performed, refers to the detailed documentation,
    includes the auditor’s conclusion on whether the work was performed in
    accordance with GAGAS, the attestation standards, and the GAO/PCIE FAM,
    and whether the report is appropriate. FAM 660 C provides an agreed-
    upon procedures engagement completion checklist.

    Reporting:

    .13: The auditor should report on the agreed-upon procedures in the
    form of results. The auditor should not provide any opinion or negative
    assurance about whether the subject matter or the assertion is fairly
    stated based on the criteria. The auditor should report the
    identification of the entities that agreed to the procedures and took
    responsibility for the sufficiency of the design and extent of the
    procedures for their purposes, as shown in the example report in FAM
    660 D.

    .14: The auditor should report all results arising from application of
    the agreed upon procedures. The concept of materiality does not apply
    to results reported in an agreed-upon procedures engagement unless the
    users of the report agree to the definition of materiality. This could
    be included in the engagement letter at FAM 660 A. The auditor should
    describe any agreed upon materiality limits in the report.

    .15: The auditor should include a statement indicating that the report
    is intended for the specified users who have agreed upon the procedures
    performed and taken responsibility for the sufficiency of the design
    and extent of the procedures for their needs. However, since
    governmental reports are generally a matter of public record, the
    distribution of the report is not limited and the audit organization
    may provide copies upon request.

    .16: The auditor may have performed agreed-upon procedures on an
    element, account, or item of financial statements and also audited the
    same financial statements. If the audit report on the financial
    statements includes a departure from a standard report, the auditor
    generally should include a reference to the audit report and the
    departure from the standard report in the agreed-upon procedures
    report.

    .17: The auditor also may include explanatory language about such
    matters as the following:

    * stipulated facts, assumptions, or interpretations (including the
    source);

    * description of the condition of records, controls, or data to which
    the procedures were applied;

    * explanation that the auditor has no responsibility to update the
    report; and:

    * explanation of sampling risk.

    .18: The auditor should state the results in definitive, rather than
    qualified, language and avoid vague or ambiguous language. The
    following table provides examples of appropriate and inappropriate
    descriptions of findings.

    Table: Examples of appropriate/inappropriate description of findings:

    Procedures agreed-upon: Based on the total tax liability, select and
    recompute the 50 largest excise tax returns from the quarter ended
    September 30, 20XX, and compare these amounts with the certified audit
    file; Description of findings: Appropriate: Recomputed amounts for the
    selected excise tax returns agreed with the amounts in the certified
    audit file; Description of findings: Inappropriate: Nothing came to our
    attention as a result of applying this procedure.

    Procedures agreed-upon: Select a random sample of 45 Treasury SF-224
    reconciliations; determine if XYZ reported revenue receipts were
    properly classified and reconciled to Treasury FMS records; Description
    of findings: Appropriate: Revenue receipts selected randomly from the
    monthly Treasury SF-224 reconciliation process were properly classified
    and agreed with Treasury FMS records; Description of findings:
    Inappropriate: The revenue receipts approximated the amount shown in
    the Treasury FMS records.

    Procedures agreed-upon: Examine personnel files of 40 individuals
    randomly selected from the timekeeping records for the year; determine
    if all the selected files contain a current and approved Notification
    of Personnel Action (SF-50); Description of findings: Appropriate:
    Thirty of the selected files contained a current and approved
    Notification of Personnel Action. Ten files did not contain a current
    and approved Notification of Personnel Action (list and identify
    exceptions). Based on our sample, we are 95% confident that the
    population deviation is between X and Y; Description of findings:
    Inappropriate: Some of the personnel files did not contain a current
    and approved Notification of Personnel Action.

    Other Report Issues:

    .19: The auditor should address the report to the users who have agreed
    upon the procedures to be performed (see FAM 660.03). The auditor
    should use the date of completion of the agreed-upon procedures as the
    date of the agreed-upon procedures report. If the audit organization’s
    procedure is to date reports with the issue date, the auditor may state
    the date of completion of the engagement in the report, such as “We
    completed the agreed-upon procedures on [date].”

    .20: The auditor should obtain entity comments from the entity
    responsible for the subject matter. These comments can be either
    written or oral. If oral comments are obtained the auditor should
    document them in a memo.

    660 A - Example Agreed-Upon Procedures Engagement Letter:

    [Date]:

    Management of ABC Federal Entity:

    Subject: Fiscal Year 20X8 Agreed-Upon Procedures for the Tax Trust Fund
    Dear Management Official:

    This letter responds to your letter of [date] requesting that we assist
    ABC Federal Entity in determining the completeness and accuracy of
    receipts transferred to the tax trust fund. On [date] we met with you
    to discuss the scope and timing of our work. The detailed procedures we
    agree to perform are enclosed. We plan to perform these procedures on
    [provide date(s)]. This letter documents our agreement to perform these
    agreed-upon procedures related to fiscal year 20X8. We will perform
    these procedures in accordance with U.S. generally accepted government
    auditing standards, which incorporate the financial audit and
    attestation standards established by the American Institute of
    Certified Public Accountants (AICPA). We will provide you with a draft
    copy of our report for your review and comment and plan to issue the
    report by [date]. We will meet with you as needed to discuss the agreed-
    upon procedures, results, and other issues that may arise.

    The sufficiency of the agreed-upon procedures is solely the
    responsibility of XYZ Federal Entity. Accordingly, we make no
    representation regarding their sufficiency to meet your needs or for
    any other purpose. In addition, because of the nature of agreed-upon
    procedures, the results we obtain will only be applicable to for the
    period they are performed. We are not engaged to perform, and will not
    perform, an examination or audit, the objective of which would be to
    express an opinion on the amount of receipts transferred to the tax
    trust fund for fiscal year 20X8. Accordingly, we will not express such
    an opinion. If we were to perform an examination or audit, other
    matters beyond the scope of our agreed-upon procedures might come to
    our attention.

    The report we will prepare is intended solely for your information and
    use and is not intended to be, and should not be, used by any other
    party. However, our report will be a matter of public record and will
    be provided to others upon request. Unless we hear from you, we will
    assume your concurrence with these procedures and their sufficiency for
    your purposes.[Footnote 22] If you have any questions, please contact
    me at [telephone number and e-mail address] or [alternative contact] at
    [telephone number and e-mail address].

    Sincerely yours,
    [Signed]:

    [Name of Director]:

    Enclosure:
    cc: XYZ Federal Entity:

    Enclosure:

    Agreed-Upon Procedures:
    Tax Receipts and Refunds:

    General:

    a. Compare fiscal year 20X8 tax collections for the ABC tax trust fund
    per XYZ’s Statement of Custodial Activity with:
    * the trust fund’s accounting records, and:
    * ABC’s consolidated financial statements.

    b. Obtain explanations and examine supporting documentation for
    differences.

    Sampling:

    a. Use monetary unit sampling (MUS) with an 80-percent confidence level
    to select a sample of ABC tax trust fund tax revenue receipts and
    refunds for fiscal year 20X8. Use $300 million as the tolerable
    misstatement, which is 1 percent of the total revenue collected. Use an
    expected aggregate misstatement of $100 million, or one-third of
    tolerable misstatement. The projected sample size for this population
    is expected to be 40 transactions.

    For the sample items selected:

    * Receipts testing — Compare tax receipts transactions (for example
    cash receipts, federal tax deposit (FTD) receipts, reversals, and
    adjustments) with source documents to determine whether the amounts
    agree, the transactions are recorded in the appropriate period based on
    the transaction date, and they are properly categorized as ABC tax
    trust fund receipts.

    * Refunds testing — Compare refund transactions with the source
    documents (for example, payment vouchers, FTD coupons, tax returns) to
    determine whether the amounts agree, the transactions are recorded in
    the appropriate period based on the transaction date, and they are
    properly categorized as ABC tax trust fund refunds.

    b. Use MUS and the same sampling parameters as above to extract
    statistical samples of total XYZ revenue receipts and refunds for
    fiscal year 20X8.

    For the sample items selected:

    * Test whether the tax receipt or refund amounts and tax category from
    source documentation agrees with amounts recorded for each of the
    revenue receipts or refunds sample items.

    660 B - Example Representation Letter from Responsible Entity on Agreed-
    Upon Procedures Engagement [XYZ Entity letterhead]:

    [Date]:

    Dear Auditor:

    In connection with the agreed-upon procedures engagement for XYZ’s
    budget execution process for the period from October 1, 20X7 through
    September 30, 20X8, we confirm to the best of our knowledge and belief,
    the following representations made to you in performing these agreed-
    upon procedures.

    * We acknowledge responsibility for XYZ’s budget execution process.

    * We acknowledge responsibility for selecting the criteria [state
    criteria] and for determining the appropriateness of the criteria for
    our purposes.

    * Our budget execution process is [state assertion about budget
    execution process based on the criteria selected].

    * We know of no matters that would contradict our assertion about our
    budget execution process.

    * There have been no communications from regulatory or oversight
    agencies concerning our budget execution process or noncompliance with
    budgetary laws or the Antideficiency Act.

    * We have made available to you all records and related data pertaining
    to our budget execution process during the period from October 1, 20X7
    through September 30, 20X8.

    * XYZ’s budget execution process is designed to meet the requirements
    of the Antideficiency Act.

    * XYZ’s employees check the accounting records and fund status reports
    quarterly to determine whether all source documents that affect the
    appropriation and fund balance have been recorded properly, accurately,
    and timely.

    * XYZ’s accounting system provides timely disclosure of total valid
    obligations incurred to date and total budgetary resources available
    for obligations within each apportionment.

    * The system also provides timely disclosure of the authorization or
    creation of commitments, obligations, or expenditures that exceed
    apportionments and allotments.

    * We are not aware of instances of noncompliance with the above-stated
    procedures.

    * We are not aware of instances of fraud involving management,
    employees, or contractor staff that have significant roles in the
    operation of our budget execution process.

    * We have no plans or intentions that would materially affect our
    budgetary process or operations.

    Sincerely yours,

    [signed]:

    Management:
    XYZ Entity:

    660 C – Agreed-Upon Procedures Engagement Completion Checklist:

    Entity:
    Job code:
    Principal report:

    .01: This checklist is a tool to help auditors comply with the
    standards for agreed-upon procedures engagements. No signatures are
    required on the checklist in the planning phase.

    .02: Several of the last questions include steps in GAO’s quality
    control process, GAO Audit Documentation Set, second partner review,
    and reading of the report by the Technical Accounting and Auditing
    Expert (Chief Accountant at GAO) when that person is not the second
    partner. GAO auditors should complete these questions and forms. IG
    auditors and other auditors may use these questions and forms or may
    substitute questions and forms that consider their reporting style and
    quality control.

    Step: 1. Has the audit team documented an understanding with the
    individuals requesting the agreed-upon procedures engagement?; N/A:
    [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 2. Were appropriate engagement acceptance and risk designation
    procedures followed?; N/A: [Empty]; Yes/No: [Empty];
    Ref: [Empty].

    Step: 3. Does the documentation cover the following?
    * Independence of professionals working on the engagement.
    * The nature of the engagement.
    * Identification of the subject matter, the responsible entity, and the
    criteria.
    * Identification of the users of the report.
    * Auditor’s responsibilities.
    * Reference to GAGAS and the attestation standards.
    * Agreement on the nature, extent, and timing, of procedures.
    * Anticipated reporting.
    * Any involvement of a specialist.
    * Materiality limits;
    N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 4. Was an entrance conference held with the responsible entity?;
    N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 5. Has the auditor determined whether a letter of representation
    from the responsible entity is necessary? (Note: This is not a
    requirement.); N/A: [Empty]; Yes/No: [Empty];
    Ref: [Empty].

    Step: 6. If part of the procedures, were applicable laws and procedures
    documented?; N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 7. Were review responsibilities communicated to individuals on
    the assignment?; N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 8. Does the documentation contain the following? a. The scope and
    methodology, including any sampling criteria used and consideration of
    the results of any previous agreed-upon procedures and follow up on any
    known significant findings that directly relate to the agreed-upon
    procedures engagement. b. Any indication of fraud, illegal acts,
    violations of provisions of contracts or grant agreements, or abuse,
    and—if there was such indication— the directed procedures performed,
    results obtained, and related communications. c. Descriptions of
    transactions and records examined. d. Documentation of the work
    performed to support reported results. e. Evidence of supervisory
    review; N/A: ; Yes/No: [Empty]; Ref: [Empty].

    Step: 9. Does the documentation record that the applicable standards
    were followed (AT 101, AT 201, and GAGAS, chapter 6)?; N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 10. Does the documentation record a reasonable basis for the
    results of the agreed-upon procedures?; N/A: [Empty]; Yes/No: [Empty];
    Ref: [Empty].

    Step: 11. Does the summary memorandum summarize the results of the
    procedures and refer to the documentation?; N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 12. Did the auditor document any deviations from the standards?
    Did the director approve the documentation with copies to the
    reviewer?; N/A: [Empty]; Yes/No: [Empty];
    Ref: [Empty].

    Step: 13. Was an exit conference held with the responsible entity?;
    N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 14. Was the report referenced?; N/A: [Empty]; Yes/No: [Empty];
    Ref: [Empty].

    Step: 15. Did the assistant director review the following? a.
    Documentation of the understanding with the individuals requesting the
    procedures and officials of the entity. b. Memorandum of entrance
    conference with the responsible entity. c. Completed work plans and
    procedures. d. Memorandums on key engagement issues. e. Summary of the
    results of the procedures. f. Memorandum of exit conference with the
    responsible entity. g. Deviations from standard reporting language. h.
    Financial schedules/statements. i. Agreed-upon procedures report. j.
    GAO Audit Documentation Set (or equivalent); N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 16. Did the audit director review the following? a. Documentation
    of the understanding with the individuals requesting the procedures and
    officials of the entity. b. Summary of results of the procedures. c.
    Memorandum of exit conference with responsible entity. d. Deviations
    from standard reporting language. e. Agreed-upon procedures report. f.
    GAO Audit Documentation Set (or equivalent); N/A: [Empty]; Yes/No:
    [Empty];
    Ref: [Empty].

    Step: 17. Did the assistant director or the auditor in charge determine
    that all significant review notes were resolved appropriately?; N/A:
    [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 18. Did the assistant director initial all documentation bundle
    covers to indicate that all documentation was sufficiently reviewed?;
    N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 19. Is the report appropriate as to the following? a. Wording. b.
    Scope of work.
    c. GAGAS.
    d. Explanatory paragraphs;
    N/A: [Empty];
    Yes/No: [Empty];
    Ref: [Empty].

    Step: 20. Was the report reviewed by the following? a. Office of the
    General Counsel. b. Technical Accounting and Auditing Expert. c. Second
    partner (or equivalent), if not Technical Accounting and Auditing
    Expert; N/A: [Empty]; Yes/No: [Empty];
    Ref: [Empty].

    Step: 21. Is the agreed-upon procedures report dated appropriately or
    does the report indicate when the auditor completed the engagement?;
    N/A: [Empty]; Yes/No: [Empty];
    Ref: [Empty].

    Note: The auditor should discuss all “No” answers in attached
    documentation. If the reason that a question is “Not Applicable” is not
    obvious, the auditor should document the reason on the checklist or in
    an attachment.

    [End of table]

    Date of completion of the engagement:

    Auditor-in-charge (senior):

    Date:

    Audit Manager:

    Date:

    Assistant Director:

    Date:

    Audit Director:

    Date:

    Second Partner’s (Or Equivalent) Review Of Agreed-Upon Procedures Work:

    Objective of second partner (or equivalent) review: To objectively
    review significant engagement matters to conclude, based on all facts
    the second partner (or equivalent) has knowledge of, that no matters
    were found that caused the second partner (or equivalent) to believe
    that (1) the procedures were not performed in accordance with GAGAS,
    which incorporate financial audit and attestation standards established
    by the AICPA and (2) the report does not meet professional standards
    and audit organization policies.

    Procedures: Before the report was issued, I performed the following
    procedures:

    * as necessary, discussed significant engagement issues with the audit
    director;
    * read documentation of key decisions and consultations;
    * read the agreed-upon procedures report; and
    * confirmed with the audit director that there are no unresolved
    issues.

    Conclusions: Based on all the relevant facts of which I have knowledge,
    I found no matters that caused me to believe that (1) the agreed-upon
    procedures were not performed in accordance with GAGAS and the AICPA’s
    attestation standards related to agreed-upon procedures engagements and
    (2) the report is not in accordance with professional standards and
    audit organization policies.

    In signing this form, I acknowledge that there have been no personal or
    external impairments to independence regarding my work on this
    engagement.

    Title:

    Signature:

    Date:

    Technical Accounting And Auditing Expert’s Reading Of Agreed-Upon
    Procedures Report:

    Objective of review: When the Technical Accounting and Auditing Expert
    is not the second partner (or equivalent), the Technical Accounting and
    Auditing Expert should read the report. The Technical Accounting and
    Auditing Expert should then sign the conclusions below.

    Conclusions: Based on my reading of the report, I found no matters that
    caused me to believe that (1) the agreed-upon procedures were not
    performed in accordance with GAGAS and the AICPA’s attestation
    standards related to agreed-upon procedures engagements and (2) the
    report is not in accordance with professional standards and audit
    organization policies.

    In signing this form, I acknowledge that there have been no personal or
    external impairments to independence regarding my work on this
    engagement.

    Title:

    Signature:

    Date:

    660 D – Example Agreed-Upon Procedures Report:

    [Date]:

    Management of [Federal Entity]:

    Subject: Applying Agreed-Upon Procedures: Count of Cash and Related
    Items:

    Dear Management Official:

    We have performed the procedures contained in the enclosure to this
    letter, which we agreed to perform and with which you concurred, solely
    to meet your needs for an independent count of cash and cash-related
    items as of September 30, 20XX.

    We conducted the engagement in accordance with U.S generally accepted
    government auditing standards, which incorporate financial audit and
    attestation standards established by the American Institute of
    Certified Public Accountants. You are responsible for the adequacy of
    the procedures to meet your objectives and we make no representation in
    that respect. The procedures we agreed to perform consist of counting
    amounts for cash and related receipts and comparing combined totals to
    the authorized amounts. The enclosure contains the agreed-upon
    procedures and our results.

    We were not engaged to perform, and did not perform, an examination,
    the objective of which would have been to express an opinion on the
    amount of cash on hand. Accordingly, we do not express such an opinion.
    Had we performed additional procedures, other matters might have come
    to our attention that we would have reported to you. We completed our
    agreedupon procedures on [date of completion].

    We provided a draft of this letter, along with the enclosure, to your
    representatives for review and comment. They agreed with the results
    presented in this letter and its enclosure.

    This letter is intended solely for the use of the management of
    [Federal Entity] and should not be used by those who have not agreed to
    the procedures or have not taken responsibility for the sufficiency of
    the procedures for their purposes. However, the report is a matter of
    public record and its distribution is not limited; thus, we will post
    the report on our Web site and provide copies upon request. If you have
    any questions, please call [name, title, and telephone number].

    Sincerely yours,

    [Signed]:

    [Name of Director], Director:

    Enclosure:

    Results of Cash Counts:

    Procedures:

    We counted and totaled cash on hand for the petty cash fund as of
    September 30, 20XX. We also listed and totaled the receipts on hand
    evidencing disbursements from the fund. Finally, we compared the
    combined total of cash and receipts available to the amount authorized
    for the fund of $500.

    Results:

    We counted cash totaling $258.96 and scheduled 14 receipts totaling
    $174.85 which accounted for $433.81 of the $500 in authorized petty
    cash funds. In addition, the custodian provided us two separate Expense
    Summary Report and Petty Cash Itemization Sheets and related receipts
    for an additional $65.09, which had been submitted for reimbursement to
    the fund. There remains an unexplained difference (shortage) of $1.10
    between the authorized amount and the total cash and receipts
    evidencing petty cash fund disbursements.

    Section 700:

    Internal Control:

    701 – Assessing Agency Systems with the Federal Financial Management
    Improvement Act (FFMIA)[Footnote 23]:

    .01: Under FFMIA, agencies need to have systems that can generate
    timely, reliable, and useful information with which to make informed
    decisions and to provide accountability. FFMIA requires the 24 CFO Act
    departments and agencies to implement and maintain financial management
    systems that comply substantially with:

    (1) federal financial management systems requirements; (2) applicable
    federal accounting standards; and: (3) the U.S. Government Standard
    General Ledger (SGL) at the transaction level.

    .02: The law also requires auditors to state in their CFO Act financial
    statement audit reports whether entities’ financial management systems
    substantially comply with these three FFMIA requirements. OMB provided
    FFMIA implementation guidance to help agencies and their auditors
    determine compliance. This section also provides guidance for assessing
    agency systems with FFMIA. It explains the FFMIA requirements and
    discusses audit issues related to testing for compliance with the act.
    An example audit program is included in FAM 701 A.

    FFMIA Requirements:

    .03: OMB Circular No. A-127, Financial Management Systems, addresses
    the three FFMIA requirements and can be found at www.omb.gov. First,
    regarding federal financial management systems requirements, the
    circular prescribes policies and standards for executive branch
    departments and agencies to follow in developing, operating,
    evaluating, and reporting on financial management systems. In its FFMIA
    implementation guidance, OMB identifies the applicable requirements
    from OMB Circular No. A-127 that the entity and its auditors should
    assess when determining FFMIA compliance.

    The circular also refers to the federal financial management systems
    requirements, a series of publications issued by the Joint Financial
    Management Improvement Program (JFMIP), now issued by the Office of
    Federal Financial Management (OFFM)[Footnote 24] as the source of
    governmentwide requirements for financial management systems software
    functionality. JFMIP’s Framework for Federal Financial Management
    Systems issued in April 2004[Footnote 25] describes the basic elements
    of an integrated financial system, including the core financial system.
    Agency financial management systems fall into four categories: core
    financial systems; other financial and mixed systems (such as
    procurement, property, budget, payroll, and travel systems); shared
    systems[Footnote 26]; and departmental executive information systems
    (systems to provide information to all levels of management.)

    .04: JFMIP/OFFM published systems requirements for the core financial
    system and for some of the mixed or feeder systems which can be found
    at [hyperlink, http://www.fsio.gov/fsio/fsiodata/]. The systems
    requirements are either mandatory (required) or value-added (optional).
    Agencies will use the mandatory functional and technical requirements
    in planning system improvement projects, whereas the agencies may use
    value-added requirements as needed. The core financial management
    system affects all financial event transaction processing because it
    maintains reference tables for editing and classifying data, controls
    transactions, and maintains security. The core financial management
    system consists of six functional areas: general ledger management,
    funds management, payment management, receivable management, cost
    management, and reporting.

    .05: OMB Circular No. A-127 requires agencies to use for agency core
    financial management systems commercial-off-the-shelf (COTS) software
    that has been tested and certified through the JFMIP/Financial Systems
    Integration Office (FSIO)[Footnote 27] software certification process.
    Core financial management system certification does not mean that
    agencies that install qualified software packages will have financial
    systems that are in compliance with FFMIA. Many other factors can
    affect the capability of the systems to comply with FFMIA, including
    modifications made to the JFMIP/FSIOcertified core financial management
    system software, the validity and completeness of data from feeder
    systems, and whether internal controls are effective. The JFMIP/FSIO’s
    certification process does not eliminate or significantly reduce the
    need for agencies to develop and conduct a comprehensive testing effort
    to determine whether the software product meets their requirements and
    is working properly.

    .06: The second requirement of FFMIA is the system’s use of federal
    accounting standards, promulgated by FASAB. FASAB promulgates federal
    accounting standards after considering the financial and budgetary
    information needs of Congress, executive agencies, and other users of
    federal financial information as well as comments from the public.
    FASAB standards are at www.fasab.gov. FAM 560 describes the
    relationship of the FASAB standards to the hierarchy of U.S. generally
    accepted accounting principles.

    .07: The third requirement of FFMIA is implementing the SGL at the
    transaction level. The SGL provides a uniform chart of accounts and
    guidance for use in standardizing federal agency accounting and
    supports the preparation of standard external reports required by OMB
    and Treasury. Information on the SGL can be found at [hyperlink,
    http://www.fms.treas.gov/ussgl]. The SGL is defined in the latest
    supplement, which is released annually to the Department of the
    Treasury’s Treasury Financial Manual (TFM). The supplement is composed
    of six major sections:

    (1) chart of accounts,
    (2) accounts and definitions,
    (3) accounting transactions,
    (4) account attributes for GFRS, FACTS I, and FACTS II
    reporting,[Footnote 28] (5) crosswalks to standard external reports,
    and: (6) crosswalks to the closing package.

    .08: Each agency should implement a chart of accounts that is
    consistent with the SGL and meets the agency’s information needs. OMB
    Circular No. A-127 states that application of the SGL at the
    transaction level means that financial management systems will process
    transactions following the definitions and defined uses of the general
    ledger accounts as described in the SGL. Transaction detail supporting
    SGL accounts are required to be available in the financial management
    systems and directly traceable to specific SGL account codes. In
    addition, the agency should develop criteria for recording financial
    events in all financial management systems that are consistent with
    accounting transaction definitions and processing rules defined in the
    SGL.

    .09: FFMIA requires the CFO Act agency financial statement auditors to
    report (1) whether the entity’s financial management systems
    substantially complied with FFMIA requirements, or (2) instances in
    which the entity’s systems did not substantially comply with the
    requirements (or state that the audit disclosed no instances in which
    the reporting entity’s systems did not substantially comply). Auditors
    who report that agency financial management systems do not
    substantially comply with FFMIA requirements should include in their
    reports:

    (1) The entity or organization responsible for the financial management
    systems that have been found not to be substantially compliant and all
    pertinent facts relating to the noncompliance.

    (2) The nature and extent of the noncompliance including areas in which
    there is substantial but not full compliance.

    (3) The primary reason or cause of the noncompliance.

    (4) The entity or organization responsible for the noncompliance.

    (5) Any relevant comments from any responsible officer or employee.

    (6) A statement with respect to the recommended remedial actions for
    each instance of noncompliance and the entity’s estimated time frames
    for implementing these actions.

    FFMIA as well as OMB’s FFMIA implementation guidance require agencies
    to report whether the agencies’ financial management systems
    substantially comply with FFMIA requirements. Agencies should prepare
    remediation plans that include resources, remedies, and intermediate
    target dates necessary to bring the agency’s financial management
    systems into substantial compliance.

    .10: According to OMB’s FFMIA implementation guidance, auditors should
    plan and perform their audit work in sufficient detail to enable them
    to determine the degree of compliance and report on instances of
    noncompliance for all of the applicable FFMIA requirements. The
    guidance describes requirements from OMB Circular No. A-127 that
    agencies should meet to achieve compliance and provides indicators of
    compliance.[Footnote 29] The indicators included in OMB’s
    implementation guidance are examples. The four primary factors OMB
    identifies as critical to assessing compliance with FFMIA are
    determining whether agencies can:

    (1) Prepare financial statements and other required financial and
    budgetary reports using information generated by the financial
    management system(s).

    (2) Provide reliable and timely financial information for managing
    current operations.

    (3) Account for their assets reliably, so that they can be properly
    protected from loss, misappropriation, or destruction.

    (4) Do all of the above in a way that is consistent with federal
    accounting standards and the Standard General Ledger.

    Audit Issues:

    .11: Auditors should design and implement appropriate testing to apply
    the criteria in FFMIA. For example, in performing financial statement
    audits, auditors generally should evaluate the capability of the
    financial management systems to process and summarize financial
    information that flows into agency financial statements. In contrast,
    under FFMIA auditors must assess and report on whether an agency’s
    financial management systems substantially comply with systems
    requirements. To do this, auditors should determine whether agency
    systems provide complete, accurate, and timely information for managing
    day-to-day operations as discussed in FAM 701.10 and OMB guidance. This
    is based on a Congressional expectation, in enacting FFMIA, that agency
    managers have necessary information to measure performance on an
    ongoing basis rather than just at year-end.

    .12: As a result of the overlapping scope and nature of FFMIA
    assessments and financial statements audits, the auditor may use the
    audit work performed as part of the financial statement audit. In the
    example audit program at FAM 701 A for testing controls for compliance
    with FFMIA, several procedures indicate that the auditor may have
    performed the procedure as part of the financial statement audit;
    whereas, other procedures needed to assess FFMIA compliance require
    additional work not normally performed in financial statement audits.

    .13: While the example audit procedures provides steps the auditor may
    perform, the auditor may tailor the steps to satisfy the objectives or
    intent of the step. Because of the broad scope of federal operations
    and the many variations that can and do flow from such a broad scope,
    the degree of specificity in the example audit program varies. For
    example, each agency will likely use a variety of reports for managing
    operations. These reports may be on line electronically or in hard
    copy. Auditors may use other work that addresses the objectives of the
    example audit procedures.

    .14: As discussed in FAM 350, the auditor need not perform specific
    tests of the systems compliance with FFMIA requirements for agencies
    with longstanding, well-documented financial management systems
    weaknesses that severely affect the systems’ ability to comply with
    FFMIA. The auditor should evaluate management’s process for determining
    whether its systems substantially comply with FFMIA and report any
    deficiencies in management’s process along with previously identified
    problems.

    .15: FAM 580.65-.67 and FAM 595 A provide FFMIA reporting guidance to
    the auditor. FAM 595 B provides guidance to the auditor for reporting a
    systems’ lack of substantial compliance. FAM 580.35-.37 provides
    guidance to the auditor on reporting for FMFIA. For FISMA
    considerations, the auditor should refer to FAM 260.67-.70 and FAM
    580.38-.39. FAM 1603 provides guidance that GAO auditors should use to
    provide an opinion on compliance with FFMIA.

    701 A – Example Audit Procedures for Testing Systems for Compliance
    with FFMIA:

    Entity:

    Date of review:

    Job code:

    Objective: FFMIA requires the 24 departments and agencies covered by
    the CFO Act to implement and maintain financial management systems that
    comply substantially with (1) federal financial management systems
    requirements, (2) applicable federal accounting standards, and (3) the
    U.S. Government Standard General Ledger (SGL) at the transaction level.
    OMB also requires certain designated entities to determine FFMIA
    compliance. The objective of these audit procedures are to assess
    whether agencies’ systems’ comply with FFMIA requirements.

    Procedure: I. Planning (May be combined with the work to plan the
    financial statement audit): A. To understand the FFMIA requirements,
    read:
    * Federal Financial Management Improvement Act (FFMIA), P.L. 104-208.
    * Audit Requirements for Federal Financial Statements (OMB Audit
    Guidance).
    * Revised Implementation Guidance for the Federal Financial Management
    Improvement Act (OMB Memorandum, January 4, 2001).
    * JFMIP/OFFM Publications of Federal Financial Management System
    Requirements including the Framework and Core Financial System
    Requirements.
    * Financial Reporting Requirements (OMB Circular No. A-136).
    * FASAB Standards.
    * Treasury Financial Manual (TFM) sections related to the SGL (see
    transmittal letter S2--02 and TFM Volume I, Part 2, Chapter 4700).
    * Management’s Responsibility for Internal Control (OMB revised
    Circular No. A-123).
    * Financial Management Systems (OMB Circular No. A-127).
    * Management of Federal Information Resources (OMB Circular No. A-130).
    * Federal Information Security Management Act of 2002 (FISMA), Title
    III, E-Government Act of 2002 Pub. L. No 107-347; Done by/date:
    [Empty];
    Doc Ref.: [Empty].

    Procedure: B. Read the prior year’s audit documentation and audit
    report to identify (1) the auditors’ FFMIA determinations, (2) reported
    instances of noncompliance with FFMIA, and (3) material weaknesses and
    significant deficiencies related to the entity’s financial management
    systems.
    * Prepare a schedule of the previously identified deficiencies for
    follow up. See FAM 701 B for an example of the schedule; Done by/date:
    [Empty];
    Doc Ref.: [Empty].

    Procedure: C. Read the most recent FMFIA, FISMA[Footnote 29], IG, and
    GAO reports and internal control documentation from the financial
    statement audit or other reports related to financial systems. Evaluate
    the impact of any reported weaknesses on the FFMIA assessment.
    * Obtain an update on the status of the issues and document problems
    identified in the schedule in FAM 701 B; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: D. Read the cycle memoranda for each of the audit cycles
    completed for the current year audit. Document issues related to FFMIA
    compliance in the schedule in FAM 701 B; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: E. From the work performed in part I (planning), decide
    whether it is necessary to perform the remaining steps. If the
    information gathered indicates “longstanding, welldocumented financial
    management systems weaknesses” that preclude compliance with FFMIA
    requirements, then: 1. Document recognition of longstanding,
    welldocumented financial management systems weaknesses and identify the
    source for this conclusion. 2. Obtain and document an understanding of
    management’s process for determining whether its systems comply with
    FFMIA requirements. Report any deficiencies identified in management’s
    process. 3. Complete step V (summary), except for completion of the
    schedule in FAM 701 B; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: II. Testing for Compliance with Federal Financial Management
    Systems Requirements: A. Ask whether the entity has an entity wide
    inventory of its systems. If so, obtain the inventory and any
    supporting documentation; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: B. From the entity’s inventory of systems, identify the core
    financial management systems and the feeder systems. 1. Document the
    key internal controls and theinformation flows between the core
    financial systems and the feeder systems in a flowchart or narrative.
    (The auditor may perform this step as part of the internal control
    phase).

    a. Determine whether the feeder systems are integrated or interfaced
    with the core financial system. Note: Feeder systems that are
    integrated with the core financial system share data tables. Therefore,
    the entity need not prepare reconciliations.

    b. If the feeder systems interface with the core systems, determine
    whether reconciliations are performed between the systems. If
    reconciliations are performed, determine how often and by whom; assess
    the adequacy of the reconciliation, including follow-up activities and
    supervisory review.

    c. Through interviews with entity management and reading of systems
    documentation, determine if the entity’s systems have detective
    controls (i.e., batch control or hash totals or supervisory reviews)
    and preventive controls (i.e. segregated duties, appropriate
    authorizations, or access controls) to process transactions properly
    and timely. (The auditor may perform this step as part of the internal
    control phase); Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 2. Using the documentation prepared in step II.B.1 above,
    identify those JFMIP/OFFM financial management systems requirements
    that are applicable to the entity’s operations. For example, for those
    agencies that do not have grant or loan programs, the auditor would not
    need to assess whether JFMIP/OFFM requirements related to grants or
    loans are applicable. Document the results; Done by/date: [Empty]; Doc
    Ref.: [Empty].

    Procedure: C. Determine whether the entity’s core financial management
    system and the financial portions of its applicable feeder systems, as
    identified in step II.B.2 above, conform to JFMIP/OFFM federal
    financial management systems requirements.
    * Ask whether the entity’s core financial management system is a
    JFMIP/FSIO-certified COTS system.[Footnote 30] If so, ask which version
    of the software is being used and obtain the entity’s FSIO
    certification for that software version. [Agencies replacing software
    to meet core financial system requirements must use JFMIP/FSIO
    certified core financial management systems as required by OMB Circular
    No. A-127 Financial Management Systems, but it is not an automatic
    noncompliance issue.]
    * During implementation of a JFMIP/FSIO-certified core financial
    system, agencies can make changes and select options that could
    adversely affect the original certification. Auditors cannot rely
    solely on the original JFMIP/FSIO certification as sufficient evidence
    of compliance with FFMIA. Perform testing to determine whether agency
    specific enhancements to an otherwise JFMIP/FSIO-certified system
    render the system non-compliant; Done by/date: [Empty]; Doc Ref.:
    [Empty].

    Procedure: 1. Ask whether there have been significant changes in the
    entity’s automated business processes since compliance testing with
    JFMIP/OFFM requirementswere last performed. If so, ask whether the
    entity has performed an assessment of any new functionality using the
    JFMIP/OFFM system requirements documents, GAO checklists, or similar
    tools. Document the results; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 2. For those agencies with a core financial management
    system that is not a JFMIP/FSIO-certified COTS and for any feeder
    systems, obtain any analyses performed by entity management to support
    its FFMIA and FMFIA assessments that document how the entity’s systems
    conform to the applicable JFMIP/OFFM systems requirements. If
    management has not performed an analysis of systems functionality, go
    to step C.5; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 3. Select several important functions that management has
    reported as complying with the systems requirements and determine if
    management’s assessment can be relied upon using JFMIP/OFFM system
    requirement documents, GAO checklists, or other similar tools; Done
    by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 4. If management’s results cannot be relied upon for each
    system, assess the functionality of the applicable systems using
    JFMIP/OFFM system requirement documents, GAO checklists or other
    similar tools; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: 5. Document in FAM 701 B, the instances and related impact
    in which the entity’s systems did not comply with JFMIP/OFFM
    requirements; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: D. Ask line manager if they receive appropriate reports that
    are significant to performing day-to-day management operations. 1.
    Determine the adequacy of reports used to manage day-to-day operations.
    a. For reports that are produced by the entity’s financial management
    systems, ask knowledgeable users, read the entity’s financial
    management systems documentation, and from other audit work, use
    professional judgment to determine if the reports produced by the
    systems are timely, useful, reliable, complete, and appropriately
    summarized for the management level receiving the report. Use
    professional judgment, entity policy, and/or criteria evident from each
    report to determine its timeliness and accuracy. For example, if a
    report is due by the 10th of each month, determine whether it was
    provided by the 10th of each month. If only on-line access is provided
    for important internal reports, through observation, documentation, and
    inquiry—such as obtaining systems logs and asking key managers about
    their work habits—assess whether the reports were available and
    accessed. Through inquiry and observation, assess if management uses
    the reports to manage operations. Ask management what improvements are
    needed in the current reporting methods. Document the results; Done
    by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: D. Ask line manager if they receive appropriate reports that
    are significant to performing day-to-day management operations. 1.
    Determine the adequacy of reports used to manage day-to-day operations.
    a. For reports that are produced by the entity’s financial management
    systems, ask knowledgeable users, read the entity’s financial
    management systems documentation, and from other audit work, use
    professional judgment to determine if the reports produced by the
    systems are timely, useful, reliable, complete, and appropriately
    summarized for the management level receiving the report. Use
    professional judgment, entity policy, and/or criteria evident from each
    report to determine its timeliness and accuracy. For example, if a
    report is due by the 10th of each month, determine whether it was
    provided by the 10th of each month. If only on-line access is provided
    for important internal reports, through observation, documentation, and
    inquiry—such as obtaining systems logs and asking key managers about
    their work habits—assess whether the reports were available and
    accessed. Through inquiry and observation, assess if management uses
    the reports to manage operations. Ask management what improvements are
    needed in the current reporting methods. Document the results; Done
    by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: b. If the reports were not produced by the entity’s
    financial management systems, ask how the reports were prepared and
    perform a similar assessment as described in step D.1.a; Done by/date:
    [Empty]; Doc Ref.: [Empty].

    Procedure: 2. Determine whether appropriate levels of management
    receive adequate and timely management information. See FAM 903.12 for
    questions related to determining FFMIA systems’ compliance with SFFAS
    No. 4. a. Using professional judgment and industry best practices,
    identify internal management performance-related information needed for
    managing day-to-day operations. b. Determine whether appropriate levels
    of management receive the information identified in step D.2.a. c. If
    full costing is not used in these management reports, assess whether
    the lack of full cost information affects the usefulness of the
    information. Evaluate management’s justification that full costing
    would not be beneficial for the internal reports. This may need to be
    assessed on a case-by-case basis; Done by/date: [Empty]; Doc Ref.:
    [Empty].

    Procedure: 3. Include any deficiencies identified and related impact in
    the schedule shown in FAM 701 B; Done by/date: [Empty]; Doc Ref.:
    [Empty].

    Procedure: E. Identify the entity’s external reports that are related
    to financial management such as those used for budget formulation and
    execution, fiscal management of entity programs, funds management,
    payments and receipts management, and to support the legal, regulatory,
    and other special requirements of the entity. 1. Through interviews
    with knowledgeable users and reading of the entity’s financial
    management system documentation, determine if the reports are produced
    by the systems. a. For external reports that are tested as part of the
    financial statement audit, include any deficiencies identified and the
    related impact in FAM 701 B. b. For external reports that are not
    tested as part of the financial statement audit, using professional
    judgment select several reports and assess whether the reports are
    reliable, timely, and complete. Include any deficiencies identified and
    the related impact in FAM 701 B; Done by/date: [Empty]; Doc Ref.:
    [Empty].

    Procedure: 2. As an indicator of systems deficiencies, determine the
    magnitude and type of adjustments made to prepare financial statements
    each quarter and annually; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: F. Determine if the entity’s financial management systems
    track financial events and summarize information to facilitate the
    preparation of auditable financial statements. This determination can
    result from work performed as part of the financial statement audit.
    Document the deficiencies and the related impact in the schedule shown
    in FAM 701 B; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: G. Determine if the financial management systems enable the
    entity to prepare, execute, and report on the entity’s budget in
    accordance with the requirements of OMB Circular No. A-11, Preparation,
    Submission and Execution of the Budget. This determination can result
    from work performed as part of the financial statement audit. Document
    the deficiencies and the related impact in the schedule shown in FAM
    701 B; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: H. Coordinate with an IS controls specialist to determine if
    the entity has implemented and maintains a program to provide adequate
    security for all entity information that is collected, processed,
    transmitted, stored, or disseminated in financial management systems.
    1. Have the IS controls specialist review the annual management testing
    and evaluation of the effectiveness of information security, policies,
    procedures, and practices in accordance with the Federal Information
    Security Management Act of 2002 (FISMA); Done by/date: [Empty]; Doc
    Ref.: [Empty].

    Procedure: 2. Document the deficiencies and related impact identified
    by the IS controls specialist in the schedule shown in FAM 701 B; Done
    by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: I. Determine if financial management systems include
    internal control to safeguard resources against waste, loss, and
    misuse, and whether reliable data are obtained, maintained, and
    disclosed in system generated reports. The auditor may obtain some of
    the information needed to make this determination from the work
    performed in the internal control phase. The auditor may identify other
    systems internal control weaknesses from other audit reports reviewed
    and steps performed. Document the results in FAM 701 B; Done by/date:
    [Empty]; Doc Ref.: [Empty].

    Procedure: III. Testing for Compliance with the Federal Accounting
    Standards: A. Determine if the entity’s financial statements are
    compiled in accordance with applicable accounting standards:
    * Determine if any issues reported as part of the financial statement
    audit were related to the lack of the entity’s implementation of the
    accounting standards in their systems or the standards were not
    properly applied because of inadequate or improperly implemented manual
    procedures. Document the results in the schedule shown in FAM 701 B;
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: B. Perform tests to determine if the entity’s cost
    accounting systems:
    * use the entity’s accounting classification elements to identify and
    establish unique cost objects to capture, accumulate, and report costs
    and revenues;
    * allocate and distribute the full cost and revenue of cost objects as
    defined by OMB including services provided by one federal entity to
    another for external reporting; and:
    * transfer cost data directly to and from other cost
    ystems/applications that produce or allocate cost information. Also,
    see step II.D.2 of these audit procedures; Done by/date: [Empty]; Doc
    Ref.: [Empty].

    Procedure: C. From the deficiencies identified in performing steps in
    FAM 701 A (testing for compliance with federal financial management
    systems requirements) and from tests conducted as part of the financial
    statement audit, determine if the financial systems record and
    summarize transactions in accordance with applicable accounting
    standards. Document the results and the related impact in the schedule
    shown in FAM 701 B; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: IV. Testing for Compliance with the SGL: A. Determine
    whether the entity financial management systems use financial data that
    can be traced directly to SGL accounts to produce reports providing
    financial information for both internal and external reporting. 1. Ask
    entity management and from the documentation prepared in step II.B.1
    above, determine how financial transaction data are summarized from the
    financial systems to the core financial system; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: 4. Document any deficiencies and the related impact in the
    schedule shown in FAM 701 B; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: B. Ask whether the entity uses a crosswalk from its chart of
    accounts for its core financial management system to the SGL. If so,
    perform tests to determine the accuracy of the crosswalk. 1. Trace all
    SGL accounts to the crosswalk; Done by/date: [Empty]; Doc Ref.:
    [Empty].

    Procedure: 2. Identify any SGL accounts that are not included in the
    crosswalk. Identify any entity accounts not associated with an SGL
    account in the crosswalk; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 3. Compare the posting rules used by the system to those
    included in the SGL to determine whether the posting rules used by the
    system conform to the SGL; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 4. Document deficiencies and the related impact in the
    schedule shown in FAM 701 B; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Procedure: V. Summary:
    A. Summarize the results of the work performed above and assess the
    entity’s compliance with the federal financial management systems
    requirement of FFMIA. 1. Finalize the schedule of the FFMIA
    noncompliances identified in the schedule prepared in FAM 701 B; Done
    by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 2. Read the entity’s management representation letter
    covering the year under audit to obtain the entity management’s FFMIA
    determination. a. Document the entity or organization responsible for
    the financial management systems that have been found not to comply. b.
    Document facts pertaining to the: i. nature and extent of the
    noncompliance and areas where there is substantial but not full
    compliance; ii. primary reason or cause of the noncompliance; iii.
    impact of the noncompliance; and: iv. relevant comments from any
    responsible officer or employee. c. Assess the recommended remedial
    actions for each instance of noncompliance and management’s time frames
    for implementing these actions. Include this assessment in the schedule
    in FAM 701 B; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 3. After reviewing the nature and extent of deficiencies
    identified, conclude whether the systems deficiencies identified
    constitute lack of substantial compliance with FFMIA requirements.
    Consider the four factors from OMB’s FFMIA implementation guidance when
    drawing this conclusion; Done by/date: [Empty]; Doc Ref.: [Empty].

    Procedure: 4. Prepare the FFMIA section of the report. See FAM 580.65-
    .67 and FAM 595 A, FAM 595 B, and FAM 1603, as appropriate; Done
    by/date: [Empty];
    Doc Ref.: [Empty].

    Table: 701 B – Summary Schedule of Instances of Systems Noncompliance
    with FFMIA:

    [See PDF for image]

    [End of table]

    Section 800:

    Compliance:

    802 - General Compliance Checklist:

    .01: The compliance testing section consists of a General Compliance
    Checklist (questionnaire) for identifying laws and regulations for
    compliance testing. It also supplements the laws OMB requires auditors
    of executive departments, agencies and government corporations to test
    for compliance (see FAM 295.01 H) and other laws of general
    applicability auditors may decide to test during federal financial
    audits (see FAM 295.02 H). The compliance supplements provide detailed
    guidance for assessing the effectiveness of compliance controls and
    testing compliance with the significant provisions of each law. .02 The
    auditor generally should complete the General Compliance Checklist
    (Form 802), or equivalent, for federal financial statement audits. With
    the exception of the Antideficiency Act which has no materiality limit,
    the auditor should decide if an individual law is significant for
    purposes of compliance testing. The auditor generally should complete
    compliance supplements only for laws required to be tested (FAM 802.06)
    and for other laws (FAM 802.07) identified for compliance testing on
    the General Compliance Checklist. Use of these documents is described
    below.

    .03: To understand and evaluate compliance controls, the auditor also
    should follow the guidance in FAM 260 on identifying risk factors and
    in FAM 320 on understanding information systems. The FAM also provides
    additional guidance on compliance considerations for all audit phases.
    Instructions For General Compliance Checklist

    .04: The checklist contains a summary of each law. The auditor
    generally should use this checklist or equivalent to determine which of
    these laws are significant for testing compliance, as discussed in FAM
    245. The auditor may indicate whether each law meets the criteria for
    significance by placing a check mark in the appropriate column (yes or
    no). As noted in FAM 295 H, auditors should test certain laws and may
    also test for other laws if they could have a direct and material
    effect on the financial statements.

    .05: The auditor may use estimates or interim information in the
    preliminary column. The final amounts (based on the audited amounts or
    the final amounts of available budget authority) are used to determine
    whether all laws that would be significant in quantitative terms have
    been identified for control and compliance testing. The auditor should
    document the sources of all amounts included in this checklist. If the
    auditor determines the law is significant from a qualitative
    standpoint, the auditor should document the reasons for this
    conclusion.

    .06 Laws required for testing (if applicable)[Footnote 31] contained in
    supplements to the General Compliance Checklist (Form 802) are:

    Law: Antideficiency Act;
    Supplement number: FAM 803.

    Law: Federal Credit Reform Act of 1990 (FCRA); Supplement number: FAM
    808.

    Law: Provisions Governing Claims of the U.S. Government as provided
    primarily in 31 U.S.C. 3711-3720E (Including the Debt Collection
    Improvement Act of 1996 (DCIA); Supplement number: FAM 809.

    Law: Prompt Payment Act;
    Supplement number: FAM 810.

    Law: Pay and Allowance System for Civilian Employees as Provided
    Primarily in Chapters 51-59 of Title 5, U.S. Code; Supplement number:
    FAM 812.

    .07: Other frequently encountered laws contained in supplements to the
    General Compliance Checklist (Form 802) that the auditor may test are:

    Law: Civil Service Retirement Act; Supplement number: FAM 803.

    Law: Federal Employees Health Benefits Act; Supplement number: FAM 803.

    Law: Federal Employees’ Compensation Act; Supplement number: FAM 803.

    Law: Federal Employees’ Retirement System Act of 1986; Supplement
    number: FAM 803.

    Entity:

    Period of financial statements:

    Job code:

    Table:

    Description of Law: Antideficiency Act, 31 U.S.C. 1341 and 1517: This
    law imposes restrictions on the amounts of obligations or expenditures
    that agencies may make. As discussed in FAM 250, the auditor should
    obtain information on the entity’s budget authority, from sources such
    as appropriation legislation, and identify all legally binding
    restrictions on budget execution. Does the entity have appropriations
    or funds that are limited to an amount or a specified period of
    availability? OMB audit guidance requires auditors to test for
    compliance with this law. Individual: Preliminary/Final;
    Budget authority: Preliminary/Final; Since the Act has no materiality
    limit, the auditor should complete the compliance supplement at FAM
    803; Yes: [Empty]; No: [Empty].

    Description of Law: Federal Credit Reform Act of 1990 (FCRA), 2 U.S.C.
    661-661f This law contains numerous provisions relating to the
    recording of activity related to direct loans, loan guarantees, and
    related modifications for budget accounting purposes. The law provides
    that after October 1, 1991, an agency may incur new direct loan
    obligations or make new loan guarantee commitments only to the extent
    that Congress has provided budget authority to cover the costs of the
    loan or loan guarantee. Does the entity’s budget authority available
    during the audit period for direct loan obligations, loan guarantee
    commitments, or any related modifications exceed planning materiality
    or did the auditor determine that the FCRA could have a direct and
    material effect on the entity’s financial statements? OMB audit
    guidance requires auditors to test for compliance with this law. Total
    appropriations or other budget authority available during the fiscal
    year for costs of FCRA activities (direct loans, loan guarantees, and
    related modifications): Preliminary/Final; Planning materiality:
    Preliminary/Final; If yes, complete compliance supplement FAM 808; Yes:
    [Empty]; No: [Empty].

    Description of Law: Provisions Governing Claims of the U.S. Government,
    Including the Debt Collection Improvement Act of 1996 (DCIA), 31 U.S.C.
    3711-3720E

    These provisions address the collection of amounts owed to the federal
    government. Interest generally accrues from the date that a notice
    stating the amount due and the interest policies is first mailed to the
    debtor. Interest generally accrues at a rate established by the
    Secretary of the Treasury. Administrative costs and penalties shall
    also be charged.

    The provisions also require the entity to take all appropriate steps to
    collect the debt before discharging it and to notify Treasury about
    delinquent debt for administrative offset, collection by a debt
    collection center, or tax refund offset. Entities shall also
    participate in a computer match of delinquent debt with federal
    employees, and when collection actions are terminated, the entity
    holding delinquent debt shall sell it. Provisions also require the
    entity (or entities making loans the government guarantees) to notify
    credit-reporting agencies about delinquent debt and not make or
    guarantee loans to persons who owe delinquent debt.

    Does the cumulative amount of receivables created during the audit
    period that are subject to provisions governing claims of the U.S.
    government, including DCIA, exceed planning materiality? Does the
    amount of receivables at the end of the audit period that are subject
    to provisions governing claims of the U.S. government, including DCIA,
    exceed planning materiality?

    Did the auditor determine that laws governing claims of the U.S.
    government, including the DCIA, could have a direct and material effect
    on the entity’s financial statements? OMB audit guidance requires
    auditors to test for compliance with this law.

    Provisions Governing Claims of the U.S. Government, Including the Debt
    Collection Improvement Act of 1996 (DCIA), 31 U.S.C. 3711-3720E:

    Cumulative amount of receivables created during the audit period that
    are subject to provisions governing claims of the U.S. government,
    including DCIAL: Preliminary/Final; or: Amount of receivables at the
    end of the audit period that are subject to provisions governing claims
    of the U.S. government, including DCIA: Preliminary/Final; Planning
    materiality: Preliminary/Final; If yes, complete compliance supplement
    FAM 809. Note: These provisions of the law generally do not apply to
    amounts payable to the entity under the Internal Revenue Code, the
    Social Security Act, or tariff laws. Those laws contain specific
    provisions for these amounts; Yes: [Empty];
    No: [Empty].

    Description of Law: Prompt Payment Act, 31 U.S.C. 3901- 3907: The
    Prompt Payment Act requires federal entities to make payments for
    property or services by the due date specified in the related contract
    or, if a payment date is not specified in the contract, generally 30
    days after the invoice for the amount due is received. If payments are
    not made within the appropriate period, the entity shall pay an
    interest penalty. Also, discounts offered by vendors may be taken only
    during the specified period. If they are taken after the time period
    has expired, an interest penalty shall be paid. Do the entity’s
    payments for property or services subject to the Prompt Payment Act for
    the audit period exceed planning materiality or did the auditor
    determine that the Prompt Payment Act could have a direct and material
    effect on the entity’s financial statements? OMB audit guidance
    requires auditors to test for compliance with this law. Amount of
    payments made for property and services subject to the Prompt Payment
    Act: Preliminary/Final; Planning materiality: Preliminary/Final; If
    yes, complete compliance supplement FAM 810; Yes: [Empty]; No: [Empty].

    Description of Law: Pay and Allowance System for Civilian Employees,
    provided primarily in Chapters 51-59 of Title 5, U.S. Code: These laws
    require that employees be paid at the appropriate rates established by
    law. Does the entity’s payroll expense for the audit period exceed
    planning materiality or did the auditor determine that the Pay and
    Allowance System for Civilian Employees (as provided primarily in
    Chapters 51-59 of Title 5, U.S. Code) could have a direct and material
    effect on the entity’s financial statements? OMB audit guidance
    requires auditors to test for compliance with this law. Payroll
    expense: Preliminary/Final; Planning materiality: Preliminary/Final; If
    yes, complete compliance supplement FAM 812. The entity’s expense for
    performance awards, cash awards, overtime, travel, transportation,
    subsistence, or allowances for the audit period usually do not exceed
    planning materiality. However, if the auditor determines that these
    items or related provisions of the Pay and Allowance System for
    Civilian Employees are otherwise significant, the auditor should
    consult with the Office of General Counsel (OGC) for specific
    provisions to be compliance tested; If yes, complete compliance
    supplement FAM 810; Yes: [Empty]; No: [Empty].

    Description of Law: Civil Service Retirement Act, 5 U.S.C. Chapter 83:
    This law provides retirement benefits to employees who were hired prior
    to January 1, 1984. For each employee, the entity withholds a
    percentage of basic pay from the employee’s compensation and
    contributes an equal amount for retirement. The employee and entity
    amounts are remitted to Treasury. Does the entity’s expense for
    retirement costs under the Civil Service Retirement Act for the audit
    period exceed planning materiality or did the auditor determine that
    provisions of the Civil Service Retirement Act could have a direct and
    material effect on the entity’s financial statements? Expense for
    retirement contributions: Preliminary/Final; Planning materiality:
    Preliminary/Final; If yes, complete compliance supplement FAM 813; Yes:
    [Empty]; No: [Empty].

    Description of Law: Federal Employees Health Benefits Act, 5 U.S.C.
    Chapter 89: This law provides health insurance coverage to employees
    who elect health insurance benefits. For each employee who elects
    coverage, the entity pays an amount set by OPM for insurance costs. The
    entity portion cannot exceed 75 percent of the insurance cost. The
    employee pays the remainder of the total cost. Information on the
    employee and entity cost of the insurance is published by OPM. The
    entity withholds the amount of the employee’s portion of the cost from
    the employee’s pay and remits this amount, along with its own
    contribution, to Treasury. Does the entity’s expense for health
    insurance costs for the audit period exceed planning materiality or did
    the auditor determine that the Federal Employees Health Benefits Act
    could have a direct and material effect on the entity’s financial
    statements? Preliminary Final Expense for health insurance:
    Preliminary/Final; Planning materiality: Preliminary/Final; If yes,
    complete compliance supplement FAM 814; Yes: [Empty]; No: [Empty].

    Description of Law: Federal Employees’ Compensation Act (FECA), 5
    U.S.C. Chapter 81: This law provides for the compensation of employees
    injured while performing their duties. Claims are paid out of the
    Federal Employees’ Compensation Fund. Federal entities are billed
    annually by the fund for claims paid on their behalf. Does the entity’s
    expense for the audit period for benefits paid by the Federal
    Employees’ Compensation Fund on the entity’s behalf exceed planning
    materiality or did the auditor determine the FECA could have a direct
    and material effect on the entity’s financial statements?; Expense for
    Compensation Fund claims: Preliminary/Final; Planning materiality:
    Preliminary/Final; If yes, complete compliance supplement FAM 816; Yes:
    [Empty]; No: [Empty].

    Description of Law: Federal Employees’ Retirement System (FERS) Act of
    1986, 5 U.S.C. Chapter 84: This law provides retirement benefits for
    employees who were hired after December 31, 1983. For each employee,
    the entity withholds a percentage of basic pay from the employee’s
    compensation and contributes an amount equal to the employing agency’s
    applicable normal cost percentage less the employee deduction rate for
    retirement. The employee and entity amounts are remitted to Treasury.
    Does the entity’s expense for retirement costs under the FERS Act for
    the audit period exceed planning materiality or did the auditor
    determine that the FERS Act could have a direct and material effect on
    the entity’s financial statements?; Expense for retirement
    contributions: Preliminary/Final; Planning materiality:
    Preliminary/Final; If yes, complete compliance supplement FAM 817; Yes:
    [Empty]; No: [Empty].

    Description of Law: Other Laws: The auditor should perform the
    following procedures and include references to supporting
    documentation: 1. As described in FAM 245.02, read the list of laws and
    regulations identified by the entity as significant to others. (See .)
    2. With OGC assistance, identify any other laws or regulations that
    have a direct effect on determining financial statement amounts.
    Determine whether the direct effect could be material to the financial
    statements. (See .) 3. Determine whether to test compliance with any
    indirect laws or regulations and make inquiries of management as
    discussed in FAM 245.04-.06. See .) 4. For all laws or regulations
    identified for testing above, identify significant provisions using the
    criteria in FAM 245.02. Test compliance controls and compliance as
    described in FAM 300 and FAM 460. Are any other laws or regulations
    identified for compliance testing? If yes, attach a list of the laws or
    regulations identified to this form and reference it to control and
    compliance work performed; Yes: [Empty]; No: [Empty].

    Instructions For Compliance Supplements .08: Each compliance supplement
    in FAM 803-817 consists of (1) a compliance summary, (2) compliance
    audit procedures, and (3) notes.

    Compliance Summary:

    .09: For each law identified for compliance testing on the General
    Compliance Checklist, the auditor generally should complete the related
    compliance summary or prepare equivalent documentation. The compliance
    summary is designed to assist the auditor in planning compliance
    control tests and summarizing the results of compliance control tests
    and compliance tests for reporting the results of the work performed.

    .10: The first column of the compliance summary contains a description
    of the specific provisions of the law that have been identified for
    compliance testing, the type of provision, and the reference to the
    law.

    .11: The second column of the compliance summary contains the objective
    related to the specific provision to be used for both compliance
    control and compliance testing.

    .12: In the third column of the compliance summary, the auditor should
    identify the control activities that the entity has in place to achieve
    each objective and document the control activity. If the entity does
    not have a control activity that achieves the objective, the auditor
    should document this condition in the third column.

    .13: The fourth column of the compliance summary is used to indicate
    (Yes or No) whether the control activity is information systems (IS)
    related as described in FAM 270.04. IS controls are those the
    effectiveness of which depends on computer processing. They can
    generally be classified into general, application, and user controls.
    The auditor generally should perform tests of IS controls with
    assistance from an IS specialist.

    .14: The fifth column of the compliance summary indicates whether the
    auditor believes that compliance controls are effective (Yes or No).
    The auditor should design control tests to determine whether the
    control activities that have been identified in the third column are in
    place and operating effectively. A control activity is considered to be
    effective if it achieves the control objective. The auditor should
    provide a reference in the fifth column to the supporting documents of
    the control testing procedures, the control tests, the results of these
    tests, and the auditor’s conclusions on the effectiveness of the
    compliance controls.

    .15: The sixth column of the compliance summary indicates whether the
    auditor has noted any instances of noncompliance (Yes or No). The
    auditor generally should perform compliance tests using the related
    Compliance Audit Procedures in the next paragraph. The auditor should
    provide a reference in the sixth and last column to the supporting
    documents of the results of the compliance tests.

    Compliance Audit Procedures:

    .16: Compliance audit procedures are provided for each law. For each
    law identified for compliance testing on the General Compliance
    Checklist, the auditor generally should perform each step of the
    related compliance audit procedures in the first column. Because the
    subject matter of some laws is closely related to matters the auditor
    will test in other parts of the audit, the auditor may coordinate with
    that other testing and design multipurpose tests. For example, payroll
    compliance testing could be performed using multipurpose tests of
    payroll controls and/or substantive payroll testing.

    The auditor performing the procedure in the first column should initial
    and date in the second column when the procedure is performed. The
    auditor should include a reference to the documentation recording the
    work performed for each step in the third and last column of the
    compliance audit procedures.

    Notes:

    .17: Notes are provided for each compliance supplement to assist the
    auditor in understanding criteria, definitions, exemptions, and
    restrictions of law. The notes also provide guidance to the auditor in
    testing and evaluating controls to achieve the compliance objective.

    803 – Antideficiency Act:

    Note: The auditor may complete this compliance summary or prepare
    equivalent documentation as provisions of the Antideficiency Act are
    applicable to entities receiving federal funds, with no limit on
    materiality. OMB guidance on budget execution, including the
    Antideficiency Act, is included in OMB Circular A-11, Part 4.

    Table:

    [See PDF for image]

    [End of table]

    Note: The auditor may perform these procedures or prepare equivalent
    documentation for the Antideficiency Act as indicated on Form 802 -
    General Compliance Checklist at FAM 802-3. These procedures test
    compliance with the provisions listed on the Compliance Summary for
    this law.

    Name of entity:

    Audit period:

    Reviewed by:

    Table:

    Audit Procedures: 1. List the appropriations or other budget authority
    and the related budget accounts that were identified for compliance
    testing on Form 802 - General Compliance Checklist. Per FAM 802-3, the
    auditor should identify all legally binding restrictions on budget
    execution, from sources such as appropriation legislation. (The auditor
    may coordinate the following tests for compliance with the
    Antideficiency Act with tests of the Statement of Budgetary Resources
    and with tests of expenses.); Done by/date: [Empty]; Doc ref: [Empty].

    Audit Procedures: 2. As discussed in FAM 460.03, the auditor should
    determine whether the summarized budget information (obligations and
    expenditures) used for compliance tests are reasonably accurate and
    complete. The auditor may obtain assurance through effective controls
    the auditor tests (usually the budget controls) or, if the controls are
    not effective, through substantive testing of budget amounts for
    validity, completeness, cutoff, recording, classification, and
    summarization as described in FAM 495 B. For the accounts listed in
    step 1, document if the auditor will obtain this assurance by testing
    controls (as indicated on Form 803 - Compliance Summary) or if
    substantive tests of the budget information are necessary. If the
    auditor determines that controls are not effective in meeting some or
    all of the budget control objectives listed in FAM 395 F, the auditor
    should perform substantive tests of the budget amounts (obligations and
    expenditures) as discussed in FAM 495 B. The auditor should perform
    substantive tests only for those potential misstatements for which the
    entity does not have effective budget controls; Done by/date: [Empty];
    Doc ref: [Empty].

    Audit Procedures: After the auditor is satisfied as to the
    reasonableness of the budget amounts to be used for the compliance
    tests, perform the compliance tests in steps 3 and 4; Done by/date:
    [Empty]; Doc ref: [Empty].

    Audit Procedures: 3. Compare the actual amounts of recorded obligations
    and expenditures with the related appropriation or other budget
    authority listed in step 1. If the entity does not appear to have
    complied with the provision, perform step 6. (31 U.S.C. 1341(a)(1)(A) ;
    Done by/date: [Empty]; Doc ref: [Empty].

    Audit Procedures: 4. Compare timing of legal obligations (contractual
    or otherwise) with available appropriation or other budget authority
    listed in step 1. If the entity does not appear to have complied with
    the provision, perform step 6 (31 U.S.C. 1341(a)(1)(B); Done by/date:
    [Empty];
    Doc ref: [Empty].

    Audit Procedures: 5. Determine the entity’s legally binding level of
    budget authority (below the appropriation level) that was identified
    during the planning phase. This level is usually the apportionment
    level unless the entity has elected a lower level, such as allotments.
    Compare the amount of actual obligations and expenditures to the
    legally binding level of restrictions on budget authority identified
    for compliance testing (the apportionment or allotment level). If the
    entity does not appear to have complied with the provision, perform
    step 6. (31 U.S.C. 1517(a)); Done by/date: [Empty]; Doc ref: [Empty].

    Audit Procedures: 6. If the entity does not appear to be in compliance
    based on the results of tests performed, discuss these matters with OGC
    and, when appropriate, the Special Investigator Unit to conclude if
    noncompliance actually has occurred and the implications of such
    noncompliance. For any noncompliance noted:
    * identify the weakness in controls that allowed the noncompliance to
    occur, if not previously identified during control testing;
    * report the nature of any weakness in controls and consider
    modification of the opinion on internal control as appropriate (see FAM
    580.32-.61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75.); Done by/date: [Empty];
    Doc ref: [Empty].

    Audit Procedures: 7. Contact the entity office responsible for
    submitting Antideficiency Act (ADA) violations to the President,
    Congress, and GAO and:
    * Obtain a listing of violations for the year under audit.
    * Inquire if all known violations have been included on the list and
    reported.
    * For each ADA violation determine if it was reported to the President,
    the Congress, and GAO; Done by/date: [Empty]; Doc ref: [Empty].

    Audit Procedures: 8. Check GAO’S ADA reporting website:
    http:/www.gap.gov/ada/antideficiencyrpts.htm to identify and obtain
    background about ADA violations reported by the entity and compare
    audit evidence with what the entity reported in ADA violation reports.
    There may be time lags as to when violations are reported, particularly
    at year end; Done by/date: [Empty]; Doc ref: [Empty].

    Audit Procedures: 9. Document conclusions on compliance with each
    provision on Form 803 - Compliance Summary; Done by/date: [Empty]; Doc
    ref: [Empty].

    Note 1: Entities are required to establish regulations that provide for
    a system of administrative controls over their execution of budget
    authority (31 U.S.C. 1514(a)). As discussed in FAM 250.03, the entity
    may elect to lower the level at which budget limitations are legally
    binding in these regulations. For example, the entity may elect to
    reduce the legally binding limit on the obligation and expenditure of
    budget funds from the apportionment to the allotment level. The auditor
    should determine the level at which the entity’s legally binding limit
    has been established.

    Note 2: The auditor should consider the results of the evaluation and
    testing of budget controls (FAM 370.11). These controls relate to the
    execution of budget authority and usually are the same controls that
    are used to comply with the Antideficiency Act. Accordingly, additional
    determinations of controls that achieve the compliance objective
    generally is not necessary if the auditor has assessed whether the
    entity achieves all of the budget control objectives listed in FAM 395
    F. The auditor should reference this compliance summary to the budget
    control evaluation and testing and perform any additional procedures
    determined to be necessary to conclude if compliance controls are
    effective.

    808 - Federal Credit Reform Act of 1990:

    Table:

    [See PDF for image]

    [End of figure]

    Note: The auditor may complete these procedures or prepare equivalent
    documentation only if provisions of the Federal Credit Reform Act
    (FCRA) are significant as indicated on Form 802 - General Compliance
    Checklist. These procedures test compliance with the provisions listed
    on the Compliance Summary. OMB guidance on FCRA programs is included in
    OMB Circular No. A-11, part 5, Federal Credit.

    Name of entity:
    Audit period:
    Reviewed by:

    Audit Procedures: 1. List the appropriations or other budget authority
    and the related budget accounts that were identified for compliance
    testing on Form 802 - General Compliance Checklist at FAM 802-4; Done
    by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 2. As discussed in FAM 460.03, the auditor should
    determine whether summarized budget information (obligations and
    expenditures) used for compliance tests is reasonably accurate and
    complete. The auditor may obtain assurance through effective controls
    the auditor tests (usually the budget controls) or, if the controls are
    not effective, through substantive testing of budget amounts for
    validity, completeness, cutoff, recording, classification, and
    summarization as described in FAM 495 B. For the accounts listed in
    step 1, document if the auditor will obtain assurance by testing
    controls (as indicated on Form 808 - Compliance Summary) or whether
    substantive tests of the budget information are necessary. If the
    auditor determines that controls are not effective in meeting some or
    all of the budget control objectives listed in FAM 395 F, plus the
    supplemental objectives for FCRA listed in FAM 395 F Sup, the auditor
    should perform substantive tests of the budget amounts (obligations and
    expenditures) as discussed in FAM 495 B. The auditor should perform
    substantive tests only for those potential misstatements for which the
    entity does not have effective budget controls. After the auditor is
    satisfied as to the reasonableness of the budget amounts to be used for
    the compliance tests, perform the compliance tests in steps 3 and 4;
    Done by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 3. For each appropriation account or other budget
    authority listed in step 1, perform the following procedures that are
    applicable for direct and guaranteed loan programs that have a positive
    subsidy (i.e., cash outflows exceed cash inflows); (for direct and
    guaranteed loan programs that have a negative subsidy (i.e., cash
    inflows exceed cash outflows), perform step 4): (a) Compare the amount
    of obligations for direct loans to the amount of the available
    appropriation or other budget authority. (Note: This budget restriction
    is applicable only to obligations for direct loans made on or after
    October 1, 1991.); Done by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 3. (b) Compare the amount of obligations for
    modifications of direct loan obligations or outstanding direct loans to
    the amount of available budget authority. (Note: The sale of a direct
    loan is considered a modification. Discuss applicability of this budget
    restriction to direct loans and direct loan obligations that were
    outstanding prior to October 1, 1991, with OGC prior to performing
    compliance test.); Done by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 3. (c) Compare the amount of obligations for loan
    guarantee commitments to the amount of the available appropriation or
    other budget authority. (Note: This budget restriction is only
    applicable to obligations for loan guarantee commitments made on or
    after October 1, 1991.); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 3. (d) Compare the amount of obligations for
    modifications of loan guarantee commitments or outstanding loan
    guarantees to the amount of available budget authority. (Note: Discuss
    applicability of this budget restriction to loan guarantees and loan
    guarantee commitments that were outstanding prior to October 1, 1991,
    with OGC prior to performing compliance test.) (2 U.S.C. 661c(b) and
    (e)) If the amounts of obligations in any of these comparisons exceed
    the available budget authority, the entity may not be in compliance.
    Perform step 5; Done by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 4. Direct and guaranteed loan programs that have a
    negative subsidy (cash inflows exceed cash outflows) do not receive an
    appropriation. However, such programs often have a loan limit that
    cannot be exceeded, i.e., a maximum number of loans that can be made or
    guaranteed. For these programs, compare the total number and dollar
    volume of loans made to the loan limit in the applicable appropriations
    act or other law. Perform step 5; Done by/date: [Empty]; Doc Ref:
    [Empty].

    Audit Procedures: 5. If the entity does not appear to be in compliance
    based on the results of tests performed, the auditor should discuss
    these matters with OGC and, when appropriate, the Special Investigator
    Unit to conclude if noncompliance actually has occurred and the
    implications of such noncompliance. For any noncompliance noted, the
    auditor should
    * identify the weakness in controls that allowed the noncompliance to
    occur, if not previously identified during control testing;
    * report the nature of any weakness in controls and consider
    modification of the report on internal control as appropriate (see FAM
    580.32-.61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 6. Document conclusions on compliance with each
    provision on Form 808 - Compliance Summary; Done by/date: [Empty]; Doc
    Ref: [Empty].

    Note 1: A direct loan is a disbursement of funds by the government to a
    non-federal borrower under a contract that requires the repayment of
    such funds with or without interest. The term also includes the
    purchase of, or participation in, a loan made by another lender. The
    term does not include the acquisition of a federally guaranteed loan in
    satisfaction of default claims or the price support loans of the
    Commodity Credit Corporation. (2 U.S.C. 661a(1));

    Note 2: A direct loan obligation is a binding agreement by a federal
    agency to make a direct loan when specified conditions are fulfilled by
    the borrower. (2 U.S.C. 661a(2));

    Note 3: A loan guarantee is any guarantee, insurance, or other pledge
    with respect to the payment of all or a part of the principal or
    interest on any debt obligation of a nonfederal borrower to a
    nonfederal lender, but does not include the insurance of deposits,
    shares, or other withdrawable accounts in financial institutions. (2
    U.S.C. 661a(3));

    Note 4: A loan guarantee commitment is a binding agreement by a federal
    agency to make a loan guarantee when specified conditions are fulfilled
    by the borrower, the lender, or any other party to the guarantee
    agreement. (2 U.S.C. 661a(4));

    Note 5: Appropriations or other budget authority to cover the cost of
    budget obligations for direct loan obligations and loan guarantee
    commitments must be made in advance by Congress. For revolving or other
    funds that otherwise would be available for these budget obligations,
    Congress must enact a limit on the use of such funds for these purposes
    to make them available for use. (2 U.S.C. 661c(b));

    Note 6: Costs are defined as the estimated long-term cost to the
    government of a direct loan, loan guarantee or modification, calculated
    on a net present value basis, excluding administrative costs and any
    incidental effects on governmental receipts or outlays. These
    calculations are described in further detail under the valuation
    control objective for obligations in FAM 395 F. (2 U.S.C. 661a(5));

    Note 7: There is an exemption from this requirement for entitlements
    (mandatory programs such as the guaranteed student loan program and the
    VA home loan guaranty program) and credit programs of the Commodity
    Credit Corporation existing on the date of enactment of FCRA (November
    5, 1990). (2 U.S.C. 661c(c));

    Note 8: Modifications are government actions that alter the estimated
    net present value of a direct loan or loan guarantee for which an
    obligation has been recorded, for example, the sale of a direct loan,
    per SFFAS No. 2, paragraph 53, or a policy change affecting the
    repayment period or interest rate for a group of existing loans.
    (Changes within the terms of existing contracts or through other
    existing authorities are not considered to be modifications. Also,
    “work outs” of individual loans, such as a change in the amount or
    timing of payments to be made, are not considered modifications.) The
    effects of these changes should be included in the annual reestimates
    of the estimated net present value of the obligations. Permanent
    indefinite authority is provided by FCRA for these reestimates.

    Note 9: Discuss applicability of this budget restriction to direct
    loans, direct loan obligations, loan guarantees, or loan guarantee
    commitments that were outstanding prior to October 1, 1991, with OGC
    prior to performing control or compliance tests.

    Note 10: The auditor should determine the results of the evaluation and
    testing of budget controls and testing of the Statement of Budgetary
    Resources. These controls relate to the execution of budget authority
    and usually are the same controls that are used to comply with the
    Antideficiency Act and FCRA. Accordingly, additional consideration of
    controls that achieve the compliance objective generally is not
    necessary if the auditor has assessed whether the entity achieves all
    of the budget control objectives listed in FAM 395 F, including the
    supplemental control objectives for FCRA. The auditor should reference
    to the budget control evaluation and testing and perform any additional
    procedures considered necessary to conclude if compliance controls are
    effective.

    809 - Provisions Governing Claims of the U.S. Government (31 U.S.C.
    3711-3720E), Including the Debt Collection Improvement Act of 1996
    (DCIA):

    Note: The auditor may complete this compliance summary or prepare
    equivalent documentation only if provisions governing claims of the
    U.S. government, as provided primarily in sections 3711-3720E of Title
    31, U.S. Code (including provisions of the Debt Collection Improvement
    Act of 1996) are significant, as indicated on Form 802 - General
    Compliance Checklist at FAM 802-5.

    Table:

    [See PDF for image]

    [End of table]

    Note: The auditor may perform these procedures or prepare equivalent
    documentation only if provisions governing claims of the United States
    government as provided primarily in sections 3711-3720E of Title 31,
    U.S. Code (including provisions of the Debt Collection Act of 1996) are
    significant, as indicated on Form 802 - General Compliance Checklist at
    FAM 802-5. These procedures test compliance with the provisions listed
    on the Compliance Summary.

    Name of entity:
    Audit period:
    Reviewed by:

    Audit Procedures: 1. Based on the preliminary assessment of compliance
    control effectiveness (as documented on Form 809 -Compliance Summary),
    select a sample of amounts owedto the entity during or at the end of
    the audit period. (Thesample size will vary based on the expected
    effectiveness of compliance controls, as discussed in FAM 460.02).
    Document the sampling approach using the documentation in FAM 495 E.
    See note 8 regarding sampling efficiencies and completeness of the
    sample population. Sample size: Sample selection method;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 2. For each item selected in step 1 obtain the loan
    file or other supporting documentation and note the following
    information as of the date selected for testing
    * due date of debt;
    * amount owed;
    * date the notice of the amount due and the interest policies is first
    mailed to the debtor;
    * amount of interest accrued and other administrative charges and
    penalties charged, if any; and
    * number of days the debt is past due, if any. Perform step 3 if the
    debt is past due. Perform step 4 if the debt is not past due; Done
    by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 3. If the amount selected is past due: (a) Calculate
    the number of days that interest should be accrued on the debt as of
    the date selected for testing. Interest generally accrues from the date
    that the notice of the amount due is first mailed to the debtor. (See
    note 1.) Compare the auditor’s calculation with the calculation
    performed by the entity and obtain explanation and examine support for
    any differences. (31 U.S.C. 3717(b)); Done by/date: [Empty]; Doc Ref:
    [Empty].

    Audit Procedures: 3. (b) Determine the interest rate that should be
    used to accrue interest on the debt. The rate is published in the
    Federal Register and should be the rate that was in effect on the date
    that the notice of the amount due is first mailed to the debtor.
    Compare the auditor’s determination of the rate to the rate used by the
    entity and obtain explanation and examine support for any differences.
    (31 U.S.C. 3717(a) and (c)); Done by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 3. (c) Calculate the amount of interest that should
    be owed as of the date selected for testing using the number of days
    tested in (a) and the interest rate tested in (b). Compare the
    auditor’s calculation to the amount calculated by the entity and obtain
    explanation and examine support for any differences. See notes 2 and 3
    regarding the waiver of interest; Done by/date: [Empty]; Doc Ref:
    [Empty].

    Audit Procedures: 3. (d) Obtain the entity’s schedule of administrative
    charges and late payment penalties and determine if the appropriate
    amounts were charged to the debtor. See note 3 regarding the waiver of
    these charges. (31 U.S.C. 3717(e) and (f)); Done by/date: [Empty]; Doc
    Ref: [Empty].

    Audit Procedures: 4. If the debt is not past due, determine through
    examination of the entity’s records whether (a) interest,
    administrative charges, or penalties are not being charged; and: (b)
    the debtor had no outstanding nontax delinquent federal debt at the
    time the loan was obtained. (31 U.S.C. 3720B); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 5. The objectives listed below relate to procedural-
    based provisions. As discussed in FAM 460.06, the auditor usually
    performs sufficient procedures in conjunction with tests of compliance
    controls for these proceduralbased provisions to conclude on the
    entity’s compliance without performing additional procedures. The
    auditor should not perform additional procedures to obtain evidence
    regarding compliance with the provisions related to the following
    objectives unless sufficient evidence regarding compliance was not
    obtained during compliance control tests documented on Form 809 -
    Compliance Summary. (a) Claims of more than $100,000 (excluding
    interest, penalties, and administrative costs) are referred to the
    Justice Department for compromise, termination, or suspension. See note
    4. (31 U.S.C. 3711) (b) Claims delinquent for a period of 180 days have
    been referred to Treasury for collection. See notes 5, 6, and 7. (31
    U.S.C. 3711(g)); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 6. If the entity does not appear to be in compliance
    based on: the results of tests performed, the auditor should discuss
    these matters with OGC and, when appropriate, the Special Investigator
    Unit to conclude if noncompliance actually has occurred and the
    implications of such noncompliance. For any noncompliance noted, the
    auditor should:
    * identify the weakness in compliance controls that allowed the
    noncompliance to occur, if not previously identified during compliance
    control testing;
    * report the nature of any weakness in compliance controls and consider
    modification of the conclusion on internal control as appropriate (see
    FAM 580.32- .61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and:
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 7. Document conclusions on compliance with each
    provision on Form 809 - Compliance Summary; Done by/date: [Empty]; Doc
    Ref: [Empty].

    Note 1: Claims are amounts owed to the government, including amounts
    owed for loans insured or guaranteed by the government. The term
    “claim” is used interchangeably with the term “debt” in this law. (31
    U.S.C. 3701(b)) Interest normally accrues from the date that notice of
    the debt and the agency’s interest policies is first mailed to the
    debtor. If the agency sends a bill to the debtor in advance of the due
    date and that bill states the interest policies, interest would accrue
    from the due date specified in the bill. The provisions regarding
    accrual of interest and other charges do not apply to the extent that a
    statute, related regulation, loan agreement, or contract provides
    otherwise, or if a claim is under a contract executed befre October 25,
    1982, that is in effect on October 25, 1982. (31 U.S.C. 3717(g))
    Accrual of interest and penalties under this law does not apply to
    amounts owed by other agencies of the federal government, or to amounts
    payable to the entity under the Internal Revenue Code, the Social
    Security Act, or tariff laws. (31 U.S.C. 3701 (c) and (d));

    Note 2: The entity shall waive the collection of interest on a claim
    (or any portion of the claim) that is paid within 30 days after the
    date on which interest began to accrue. The agency may extend this 30-
    day period. (31 U.S.C. 3717(d)) Interest that is either accrued or
    collected on claims that are paid within the 30-day period would
    usually not be material or otherwise significant for purposes of
    compliance testing. If the auditor considers this provision to be
    significant for compliance testing, this form should be tailored to
    include the appropriate testing procedures.

    Note 3: The entity has the authority to waive the collection of
    interest, penalties, and administrative charges. The entity should
    follow its own regulations when determining whether a waiver is
    appropriate. Such regulations should be in conformity with the
    standards set jointly by the Comptroller General, the Attorney General,
    and the Secretary of the Treasury described in 31 C.F.R. 901.9. (31
    U.S.C. 3717(h)) The entity may increase an administrative claim (debt
    not based on an extension of government credit through direct loans,
    guarantees, or insurance, including fines, penalties, and overpayments)
    annually by the cost of living adjustment in lieu of charging interest
    and penalties. (31 U.S.C. 3717(i));

    Note 4: Compromise is the term used when an amount less than the total
    amount of the claim is accepted by the entity as payment in full.
    Suspension refers to the temporary deferral of collection activities
    until collection activity is expected to be more successful.
    Termination refers to stopping of collection activities. Only the
    Justice Department has the authority to compromise, terminate, or
    suspend collection on claims that are greater than $100,000 (excluding
    interest, penalties, and administrative charges). Pursuant to 31 C.F.R.
    Parts 902.1 and 903.1, entities generally should use a Claims
    Collection Litigation Report (CCLR) to refer such matters to the
    Justice Department.

    Note 5: Exceptions to the requirement to transfer nontax debt
    delinquent for a period of 180 days to Treasury for collection are (a)
    a debt or claim that: (1) is in litigation or foreclosure; (2) will be
    disposed of under an asset sales program within 1 year after becoming
    eligible for sale, or later than 1 year if consistent with an asset
    sales program and a schedule established by the entity and approved by
    OMB; (3) has been referred to a private collection contractor for
    collection for a period determined by Treasury; (4) has been referred
    by, or with the consent of, Treasury to a debt collection center for a
    period determined by Treasury; or: (5) will be collected under internal
    offset, if such offset is sufficient to collect the claim within 3
    years after the date the debt or claim is first delinquent; and: (b) to
    any other specific class of debt or claim, as determined by Treasury at
    the request of an entity. (31 U.S.C. 3711(g)(2)) Examples include (1)
    debts in bankruptcy meeting the criteria for an automatic stay (11
    U.S.C. 362), (2) foreign debt considered uncollectable by Treasury due
    to foreign diplomacy considerations and affairs of state, (3) debts in
    forbearance or appeals.

    Note 6: Exceptions to the requirement to notify Treasury of nontax debt
    delinquent over 180 days for administrative offset are a claim that has
    been outstanding for more than 10 years or when a statute explicitly
    prohibits using administrative offset or setoff to collect the type of
    claim involved. (31 U.S.C. 3716(e)) Also, this section does not
    prohibit the use of any other administrative offset authority existing.
    (31 U.S.C. 3716(d)) Prior to referring debts to Treasury, an agency
    shall inform the debtor of the amount and nature of the debt (such as
    overpayment, etc.), and actions which may be taken to enforce recovery
    of a delinquent debt. These include (a) offset of any payments which
    the debtor is due, including tax refunds, and salary; (b) referral of
    the debt to a private collection agency; (c) referral of the debt to
    the Department of Justice or agency counsel for litigation; (d)
    reporting of the debt to a credit bureau; (e) reporting of the debt, if
    discharged, to IRS as a potential taxable income. In the future, the
    agency also will need to inform the debtor that the debt may be subject
    to administrative wage garnishment, his/her identity may be published
    or publicly disseminated, and/or the debt may be sold. The notice must
    tell the debtor that he/she has the opportunity (a) to inspect and copy
    records relating to the debt, (b) for a review by the agency; and: (c)
    to enter into a written repayment agreement.

    Note 7: Before an entity refers past-due debt to Treasury for reduction
    of tax refund, it must: (a) notify the person incurring such debt that
    the entity proposes to refer to Treasury for tax refund offset, (b)
    give such person at least 60 days to present evidence that all or part
    of the debt is not past due or not legally enforceable, (c) consider
    any evidence presented by such person and determine that an amount of
    such debt is past due and legally enforceable, (d) satisfy such other
    conditions Treasury may prescribe to ensure the above determination is
    valid and that the entity has made reasonable efforts to obtain
    payment, and: (e) certify that reasonable efforts have been made by the
    entity to obtain payment. (31 U.S.C. 3720A(b)) Treasury issues
    regulations prescribing the times at which entities shall submit
    notices of past-due legally enforceable debts, the manner of submitting
    them, and the information to be contained in them. The regulations also
    specify the minimum amount of debt that may be referred for tax refund
    offset and the fee the entity shall pay to reimburse Treasury for its
    costs.

    Note 8: If the auditor uses multipurpose testing for the compliance
    test and/or compliance control test and/or a substantive test of
    accounts or loans receivable details, the sample items for the
    compliance test and/or compliance control test should be selected using
    the sampling method used for the substantive test as described in FAM
    430. Otherwise, the auditor should select items using attribute
    sampling as discussed in FAM 460.02. As with all sampling applications,
    the auditor should determine the completeness of the test population.
    For efficiency, the auditor should use records that were tested for
    validity, accuracy, and completeness (as well as the other financial
    statement assertions) in conjunction with substantive tests of the
    population.

    810 - Prompt Payment Act:

    Note: The auditor may complete this compliance summary or prepare
    equivalent documentation only if provisions of the Prompt Payment Act
    are significant as indicated on Form 802 - General Compliance Checklist
    at FAM 802-7. OMB guidance on the Prompt Payment Act is included in 5
    C.F.R. Part 1315.

    Table:

    [See PDF for image]

    [End of figure]

    Note: The auditor may complete this program or prepare equivalent
    documentation only if provisions of the Prompt Payment Act are
    significant as indicated on Form 802 - General Compliance Checklist at
    FAM 802-7. These procedures test compliance with the provisions listed
    on the Compliance Summary. OMB Guidance on the Prompt Payment Act is
    included in 5 C.F.R. Part 1315.

    Name of entity:
    Audit period:
    Reviewed by:

    Audit Procedures: 1) Based on the preliminary assessment of compliance
    control effectiveness (as documented on Form 810 - Compliance Summary),
    select a sample of payments from throughout the audit period. (The
    sample size will vary based on the expected effectiveness of compliance
    controls as discussed in FAM 460.02.) Document the sampling approach
    using the documentation in FAM 495 E. See note 6 regarding sampling
    efficiencies and completeness of the population. Sample size: Sample
    selection method;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 2) For each item selected in step 1, obtain the
    supporting documentation for the payment such as the invoice voucher
    package. a) Document the following items in the documentation:
    * invoice number;
    * payee;
    * invoice amount;
    * invoice date;
    * invoice receipt date (or other date used for determining compliance
    with this law - see step 2(b));
    * payment date;
    * amount of interest penalty paid, if any;
    * amount of discount taken, if any; and
    * appropriation account(s) charged for the expenditure and interest
    penalty, if any. b) For each item selected, note whether the payment
    was made by the required due date. The required due date may be the
    date specified in the contract or, if a date is not specified, 30 days
    after receipt of the invoice (31 U.S.C. 3903(a)(1)(A) and (B)). If
    payment is for meat or meat food products, perishable agricultural
    products, dairy products or construction contracts, consult with OGC to
    determine payment due date. Specific payment due dates to avoid
    interest penalties are established by law for these items. (31 U.S.C.
    3903(a)(2), (3), (4), and (6)) The invoice receipt date is the later of
    (1) the date the entity’s designated representative or office actually
    receives a proper invoice or (2) the 7th day after the date on which,
    in accordance with the terms and conditions of the contract, the
    property is actually delivered or performance of the services is
    actually completed (unless the entity accepted the property or services
    before the 7th day or a longer acceptance period is specified in the
    contract). If the date of actual invoice receipt is not indicated, the
    entity must use the invoice date. (31 U.S.C. 3901(a)(4)(A) and (B)) If
    the payment was made on or prior to the payment due date, perform step
    3. If the payment was made after the payment due date, perform step 4.
    If a discount was taken, perform step 5; Done by/date: [Empty]; Doc
    Ref: [Empty].

    Audit Procedures: 3) If the payment was made on or prior to the payment
    due date, and no discount was taken, determine that no interest penalty
    was paid. (Note: If the entity did not take advantage of a discount for
    which it was eligible or if an interest penalty was paid when it was
    not owed, the auditor generally should determine the cause of these
    items for purposes of reporting findings.); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 4) If the payment was made after the payment due
    date, determine whether a) an interest penalty was paid; b) the amount
    of the interest penalty was properly calculated; and c) the interest
    penalty was paid out of the appropriation used to pay the related
    expenditures. Review the accounting codes indicated on the expense
    voucher. Determine whether the accounting codes used to record the
    interest penalty are the same as those used for the related expenditure
    and whether the codes and amounts agree with those recorded in the
    budgetary accounting records. (See step 6 regarding proper
    summarization of amounts.) (31 U.S.C. 3902 (a), (b), and (f).)
    Investigate any differences between the amount of interest penalty
    calculated by the auditor and the amount paid by the entity, including
    any instances when an interest penalty was owed but not paid. See note
    5. Investigate any instances when the proper appropriation account was
    not charged. See note 2 regarding the interest rate to be used. See
    notes 3 and 4 regarding the period the penalty should cover; Done
    by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 4) If the payment was made after the payment due
    date, determine whether a) an interest penalty was paid; b) the amount
    of the interest penalty was properly calculated; and c) the interest
    penalty was paid out of the appropriation used to pay the related
    expenditures. Review the accounting codes indicated on the expense
    voucher. Determine whether the accounting codes used to record the
    interest penalty are the same as those used for the related expenditure
    and whether the codes and amounts agree with those recorded in the
    budgetary accounting records. (See step 6 regarding proper
    summarization of amounts.) (31 U.S.C. 3902 (a), (b), and (f).)
    Investigate any differences between the amount of interest penalty
    calculated by the auditor and the amount paid by the entity, including
    any instances when an interest penalty was owed but not paid. See note
    5. Investigate any instances when the proper appropriation account was
    not charged. See note 2 regarding the interest rate to be used. See
    notes 3 and 4 regarding the period the penalty should cover; Done
    by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 6) Consider the procedures performed on the entity’s
    budget controls over summarization of expenditure balances as discussed
    in FAM 395 F. If the auditor has assessed the entity’s controls as
    effective in achieving the control objective of summarization of
    expenditure balances, further procedures are not necessary to obtain
    assurance as to whether interest penalties are paid out of the proper
    appropriation account. If the auditor has assessed the controls as
    ineffective, the auditor should perform procedures to determine if the
    entity has properly summarized the expenditure balances as described in
    FAM 495 B; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 7) If the entity does not appear to be in compliance
    based on the results of tests performed, the auditor should discuss
    these matters with OGC and, when appropriate, the Special Investigator
    Unit to conclude if noncompliance actually has occurred and the
    implications of such noncompliance. For any noncompliance noted, the
    auditor should:
    * identify the weakness in compliance controls that allowed the
    noncompliance to occur, if not previously identified during compliance
    control testing;
    * report the nature of any weakness in compliance controls and consider
    modification of the opinion on internal control as appropriate (see FAM
    580.32-.61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 8) Document conclusions on compliance with each
    provision on Form 810 - Compliance Summary; Done by/date: [Empty]; Doc
    Ref: [Empty].
    Audit Procedures: 8) Document conclusions on compliance with each
    provision on Form 810 - Compliance Summary; Done by/date: [Empty]; Doc
    Ref: [Empty].

    Note 1: The required due date is generally the date specified in the
    contract or, if a date is not specified, 30 days after receipt of the
    invoice (31 U.S.C. 3903(a) (1) (A) and (B)) If payment is for meat or
    meat food products, perishable agricultural products, dairy products or
    construction contracts, consult with OGC to determine payment due date.
    Specific payment due dates to avoid interest penalties are established
    by law for these items. (31 U.S.C. 3903(a) (2), (3), (4), and (6)) The
    invoice receipt date is established as the later of (1) the date the
    entity’s designated representative or office actually receives a proper
    invoice or (2) the 7th day after the date on which, in accordance with
    the terms and conditions of the contract, the property is actually
    delivered or performance of the services is actually completed, unless
    the entity accepted the property or services before the 7th day or a
    longer acceptance date is specified in the contract. If the date of
    actual invoice receipt is not indicated, the entity must use the
    invoice date. (31 U.S.C. 3901(a) (4) (A) and (B))

    Note 2: Interest shall be calculated at the rate set by the Secretary
    of the Treasury under section 12 of the Contract Disputes Act of 1978
    (41 U.S.C. 611) that is in effect at the time the entity accrues the
    obligation to pay a late payment interest penalty. The rates are
    published in the Federal Register. (31 U.S.C. 3902(a))

    Note 3: The interest penalty shall be paid for the period beginning on
    the day after the required payment date and ending on the date on which
    payment is made. (31 U.S.C. 3902(b)) An interest penalty not paid after
    any 30-day period shall be added to the principal amount of the debt,
    and a penalty accrues thereafter on the combined amount of principal
    and interest. (31 U.S.C. 3902(e))

    Note 4: A payment is deemed to be made on the date a check for payment
    is dated or an electronic transfer is made.(31 U.S.C. 3901(a) (5))

    Note 5: The temporary unavailability of funds to make a timely payment
    due for property or services does not relieve the entity head of the
    obligation to pay interest penalties under this law. (31 U.S.C.
    3902(d))

    Note 6: If the auditor uses multipurpose testing for the complianceest
    and/or compliance control test and/or a substantive test of payments
    details, the sample items for the compliance test and/or compliance
    control test should be selected using the sampling method used for the
    substantive test as described in FAM 430. Otherwise, the auditor should
    select items using attribute sampling as discussed in FAM 460.02.

    As with all sampling applications, the auditor should consider the
    completeness of the test population. For efficiency, the auditor should
    consider using records that were tested for validity, accuracy, and
    completeness (as well as the other financial statement assertions) in
    conjunction with substantive tests of the population.

    Note: The auditor may complete these procedures or prepare equivalent
    documentation only if provisions of the Pay and Allowance System for
    Civilian Employees, as provided primarily in Chapters 51-59 of Title 5,
    U.S. Code, are significant as indicated on Form 802 - General
    Compliance Checklist at FAM 802-8. These procedures test compliance
    with the provisions listed on the Compliance Summary.

    Name of entity:
    Audit period:
    Reviewed by:

    Note: These tests are closely related to procedures performed for
    substantive tests of payroll expense details and multipurpose testing
    in this situation is strongly encouraged.

    Audit Procedures: 1) Based on the preliminary assessment of compliance
    control effectiveness (as documented on Form 812 -Compliance Summary),
    select an appropriate sample of disbursements from the payroll records
    throughout the audit period. (The sample size will vary based on the
    expected effectiveness of compliance controls as discussed in FAM
    460.02). Document the sampling approach using the documentation in FAM
    495 E. See note 2 regarding sampling efficiencies and completeness of
    the population. Sample size: Sample selection method;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 2) For each item selected in 1, note the following
    information:
    * employee name;
    * pay period (number and dates);
    * amount of gross pay for the period;
    * pay rate;
    * total hours worked; and
    * number of hours worked at regular pay and other pay (i.e., overtime,
    premium pay, etc.); Done by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 3) For each item selected in 1, obtain the employee’s
    personnel file and note the following in effect for the pay period
    selected:
    * the employee’s grade and step and
    * the employee’s pay rate;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 4) For each item selected in 1 a) Calculate the
    amount of gross pay using the hours worked and the employee’s pay rate
    indicated on the payroll records. Compare the amount of gross pay
    calculated by the auditor to the amount shown on the payroll records
    for the selected pay period and obtain explanation and examine support
    for any differences. Note: To convert basic annual amount to a daily,
    weekly or biweekly amount, divide the annual rate by 2,087 for an
    hourly rate. Multiply the hourly rate by number of either daily hours,
    40 for weekly, or 80 for biweekly amounts. (5 U.S.C. 5504) b) Compare
    the employee’s pay rate in the payroll records to the appropriate pay
    rate for the employee’s approved grade and step on the pay schedules
    established by executive order. (Use the approved grade and step
    indicated in the employee’s personnel records for this test.) Obtain
    explanation and examine support for any differences between the actual
    pay rate for the period selected and the authorized amounts. (5 U.S.C.
    5332, 5343, and 5383) If the employee’s pay is not set by these pay
    schedules, determine whether the amount paid is properly authorized;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 5) If the entity does not appear to be in compliance
    based on the results of tests performed, the auditor should discuss
    these matters with OGC and, when appropriate, the Special Investigator
    Unit to conclude if noncompliance actually has occurred and the
    implications of such noncompliance. For any noncompliance noted, the
    auditor should:
    * identify the weakness in compliance controls that allowed the
    noncompliance to occur, if not previously identified during compliance
    control testing;
    * report the nature of any weakness in compliance controls and consider
    modification of the opinion on internal control as appropriate (see FAM
    580.32-.61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and:
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75); Done by/date: [Empty]; Doc Ref: [Empty].

    Audit Procedures: 6) Document conclusions on compliance with each
    provision on Form 812 - Compliance Summary; Done by/date: [Empty]; Doc
    Ref: [Empty].

    Audit Procedures: 6) Document conclusions on compliance with each
    provision on Form 812 - Compliance Summary; Done by/date: [Empty]; Doc
    Ref: [Empty].

    Note 1: To convert basic annual amount to a daily, weekly, or biweekly
    amount, divide the annual rate by 2,087 for an hourly rate. Multiply
    the hourly rate by number of either daily hours, or 40 hours for
    weekly, or 80 hours for biweekly amounts. (5 U.S.C. 5504);

    Note 2: If the auditor uses multipurpose testing for the compliance
    test and/or compliance control test and a substantive test of payroll
    expense details, the sample items for the compliance test and/or
    compliance control test should be selected using the sampling method
    used for the substantive test. Otherwise, the auditor should select
    items using attribute sampling, as discussed in FAM 460.02. As with all
    sampling applications, the auditor should consider the completeness of
    the population. For efficiency, the auditor should consider using
    records that were tested for validity and completeness (as well as the
    other financial statement assertions) in conjunction with substantive
    tests of payroll or other payroll related compliance tests.

    Note 3: If the entity outsources payroll processing, the entity remains
    responsible for compliance. Dividing responsibility for payroll
    processing activities between the entity and the service organization
    could make payroll testing more complicated, although the auditor
    should perform the same testing. The auditor may accomplish this
    testing with the assistance of the service organization’s auditor, who
    may issue an internal control report on the service organization under
    AU 324 (SAS 70). Another approach may be for the service organization’s
    auditor to assist the entity’s auditor by performing agreed-upon
    procedures at the service organization (e.g., substantive testing)
    under AT 201 (see FAM 660).

    813 - Civil Service Retirement Act, 5 U.S.C. Chapter 83 Note: The
    auditor may complete this compliance summary or prepare equivalent
    documentation only if provisions of the Civil Service Retirement Act
    are significant as indicated on Form 802 - General Compliance Checklist
    at FAM 802-9.

    Table:

    [See PDF for image]

    [End of table]

    Name of entity:
    Audit period:
    Reviewed by:

    Audit Procedures: 1. Based on the preliminary assessment of compliance
    control effectiveness (as documented on Form 813 - Compliance Summary),
    select a sample of expense amounts for individuals’ gross pay from the
    payroll disbursement records for the audit period for employees covered
    by the Civil Service Retirement Act system (CSRS). (See note 1.) (The
    sample size will vary based on the expected effectiveness of compliance
    controls, as discussed in FAM 460.02). Document the sampling approach
    using the documentation in FAM 495 E. See note 3 regarding sampling
    efficiencies and completeness of the population. These tests should be
    coordinated with other tests of payroll-related expenses and with the
    agreed-upon procedures agency auditors perform for the Office of
    Personnel Management (OPM), per OMB audit guidance, if performed.
    Sample size
    Sample selection method;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 2. For each selection made in 1, document the
    following for the pay period selected:
    * the amount withheld for the cost of retirement benefits;
    * the amount of basic pay; and
    * if indicated in the payroll disbursement records, document the
    retirement plan under which the withholdings were made (CSRS or FERS).
    (Only employees covered by CSRS should be included in this compliance
    test. See FAM 817 for the FERS compliance test.); Done by/date:
    [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 3. For each item selected in 1, obtain the employee’s
    personnel file and note the following:
    * employee hire date,
    * amount of basic pay, and
    * the retirement plan under which the employee is covered; Done
    by/date: [Empty];
    Doc Ref: [Empty].

    4. For each selection made in 1
    (a) Compare the amount of basic pay indicated in the employee’s
    personnel file with the amount indicated in the payroll records and
    obtain an explanation and examine support for any differences. (This
    procedure would be performed only if not already performed with other
    testing.) (b) Calculate the amount of the withholdings for retirement
    costs based on 7 percent of basic pay for most executive branch
    employees (see note 2 for percentages for other employees) for the
    selected pay period and document the amount in the documentation.
    Compare to the actual amount withheld for the selected pay period and
    obtain an explanation and examine support for any differences. (5
    U.S.C. 8334(a)(1)) (c) Determine whether the entity contributed an
    equal amount for the employee’s retirement for the selected pay period.
    Obtain explanation and examine support for any differences between the
    employee and entity contributions. (5 U.S.C. 8334(a)(1)); Done by/date:
    [Empty];
    Doc Ref: [Empty].

    5. Determine whether amounts contributed by the entity are charged to
    the appropriation or fund used to pay the employee for the selected pay
    period by performing the following procedures: (a) Review the
    accounting codes indicated on the supporting documentation. (b)
    Determine whether the accounting codes used to record the entity
    contribution are the same as those used for the related payroll
    expenditure and whether the codes and amounts agree with those recorded
    in the budgetary accounting records. (This step assumes other payroll
    testing would have included checking that the codes represent the
    proper appropriation.) (c) Consider the procedures performed on the
    entity’s budget controls over summarization of expenditure balances as
    discussed in FAM 395 F. If the auditor has assessed the entity’s
    controls as effective in achieving the control objective of
    summarization of expenditure balances, further procedures are not
    necessary to obtain assurance as to whether the entity’s contributions
    are paid out of the proper appropriation account. If the auditor has
    assessed the controls as ineffective, the auditor should perform
    procedures to determine whether the entity has properly summarized the
    expenditure balances as described in FAM 495 B. (5 U.S.C. 8334 (a)(1));
    Done by/date: [Empty]; Doc Ref: [Empty].

    6. Determine whether the entity has effective internal controls over
    the proper summarization of (a) the amounts withheld from employees for
    retirement costs under the law, and (b) the entity contributions for
    remittance to Treasury. If the entity does not have effective controls
    for summarization, test the summarization of the totals that include
    the items selected for testing in step 1; Done by/date: [Empty]; Doc
    Ref: [Empty].

    7. Compare the combined totals of employee withholdings and entity
    contributions that include each selection made in step 1 to the deposit
    made to Treasury and the remittance sent to OPM and obtain an
    explanation and examine support for any differences. The funds should
    be deposited in the Treasury to the credit of the Civil Service
    Retirement and Disability Fund. (5 U.S.C. 8334(a)(2)); Done by/date:
    [Empty];
    Doc Ref: [Empty].

    8. If the entity does not appear to be in compliance based on the
    results of tests performed, the auditor should discuss these matters
    with OGC and, when appropriate, the Special Investigator Unit to
    conclude if noncompliance actually has occurred and the implications of
    such noncompliance. For any noncompliance noted, the auditor should
    * identify the weakness in compliance controls that allowed the
    noncompliance to occur, if not previously identified during compliance
    control testing;
    * report the nature of any weakness in compliance controls and consider
    modification of the opinion on internal control as appropriate (see FAM
    580.32- .61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75); Done by/date: [Empty];
    Doc Ref: [Empty].

    9. Document conclusions on compliance with each provision on Form 813 -
    Compliance Summary; Done by/date: [Empty]; Doc Ref: [Empty].

    Note 1: Employees employed before January 1, 1984, are generally
    covered by the Civil Service Retirement Act (CSRS) and on and after
    that date by the Federal Employees’ Retirement System Act (FERS) ,
    although some CSRS employees may have opted for coverage under FERS.
    Note 2: The percentage to be withheld for the service period after
    December 31, 2000, for (1) most executive branch employees is 7
    percent; (2) Congressional employees, firefighters, and law enforcement
    personnel is 7.5 percent; and (3) Members of Congress is 8 percent. (5
    U.S.C. 8334(a)(1)) Note 3: If the auditor uses multipurpose testing for
    the compliance test and/or compliance control test and a substantive
    test of payroll expense details, the sample items for the compliance
    test and/or compliance control test should be selected by the auditor
    using the sampling method used for the substantive test. Otherwise, the
    auditor should select items using attribute sampling, as discussed in
    FAM 460.02.

    As with all sampling applications, the auditor should consider the
    completeness of the population. For efficiency, the auditor should
    consider using records that were tested for validity and completeness
    (as well as the other financial statement assertions) in conjunction
    with substantive tests of payroll or other payroll related compliance
    tests.

    Note 4: If the entity outsources payroll processing, the entity remains
    responsible for compliance. Dividing responsibility for payroll
    processing activities between the entity and the service organization
    could make payroll testing more complicated, although the auditor
    should perform the same testing. The auditor may accomplish this
    testing with the assistance of the service organization’s auditor, who
    may issue an internal control report on the service organization under
    AU 324 (SAS 70). Another approach may be for the service organization’s
    auditor to assist the entity’s auditor by performing agreed-upon
    procedures at the service organization (e.g., substantive testing)
    under AT 201 (see FAM 660).

    Table:

    [See PDF for image]

    [End of figure]

    Name of entity:
    Audit period:
    Reviewed by:

    Audit Procedures: 1. Based on the preliminary assessment of compliance
    control effectiveness (as documented on Form 814 - Compliance Summary),
    select a sample of expense amounts for individuals’ gross pay from the
    payroll disbursement records for the audit period. (The sample size
    will vary based on the expected effectiveness of compliance controls,
    as discussed in FAM 460.02). Document the sampling approach using the
    documentation in FAM 495 E. See note 2 regarding sampling efficiencies
    and completeness of the population.
    The auditor should coordinate these tests with other tests of payroll-
    related expenses and with the agreedupon procedures agency auditors
    perform for OPM, per OMB audit guidance, if performed. Sample size
    Sample selection method;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 2. For each selection made in step 1, document the
    employee, the pay period selected, and the amount withheld for the pay
    period selected, if any, for the cost of health insurance. If
    available, document the health plan enrollment code;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 3. For each selection made in step 1, obtain the
    employee’s personnel file and note whether the employee elected health
    insurance coverage for the period to which payroll disbursement
    relates. Such coverage should be indicated on OPM form SF 2809. If the
    employee did not elect health insurance coverage, ask why amounts are
    being withheld for the cost of insurance and determine whether any
    entity contributions are being made inappropriately as well; Done
    by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 4. If the employee identified in step 3 elected
    coverage,perform the following steps: (a) Obtain the schedule of health
    insurance costs for all plans published by OPM. Using the enrollment
    code for the plan selected by the employee on OPM form SF 2809,
    calculate the employee’s portion of the health insurance cost and
    record it in the documentation. Compare it to the amount actually
    withheld for the selected pay period and obtain an explanation and
    examine support for any differences. (5 U.S.C. 8906(d));
    (b) For each employee in (a), determine the appropriate amount of the
    entity’s contribution for its share of health insurance costs by using
    the OPM schedule of costs. Compare it to the amount actually
    contributed by the entity for the employee’s health insurance for the
    selected pay period and obtain an explanation and examine support for
    any differences. (See note 1 for part-time career employees.) (5 U.S.C.
    8906(b)(1));
    (c) For each employee in (b), determine if amounts contributed by the
    entity are charged to the appropriation or fund that is used to pay the
    employee for the selected pay period by performing the following
    procedures: (1) Review the accounting codes indicated on the supporting
    documentation. (2) Determine whether the accounting codes used to
    record the entity contribution are the same as those used for the
    related payroll expenditure and whether the codes and amounts agree
    with those recorded in the budgetary accounting records. (This step
    assumes other payroll testing would have included checking that the
    codes represent the proper appropriation.);
    3. For each selection made in step 1, obtain the employee’s personnel
    file and note whether the employee elected health insurance coverage
    for the period to which payroll disbursement relates. Such coverage
    should be indicated on OPM form SF 2809. If the employee did not elect
    health insurance coverage, ask why amounts are being withheld for the
    cost of insurance and determine whether any entity contributions are
    being made inappropriately as well; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 5. Determine whether the entity has effective
    controls over the proper summarization of the amounts withheld from
    employees for health insurance costs under this law and the entity
    contributions for remittance to Treasury. If the entity does not have
    effective controls for summarization, test the summarization of the
    totals that include the items selected for testing in step 1; Done
    by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 6. Compare the total cost of health insurance on the
    entity’s records (employee and employer portions) for the selected pay
    period to the deposit made to Treasury and the documentation sent to
    OPM and obtain an explanation and examine support for any differences.
    The funds should be deposited in the Treasury to the credit of the
    Employees Health Benefits Fund. (5 U.S.C. 8909); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 7. If the entity does not appear to be in compliance
    based on the results of tests performed, the auditor should discuss
    these matters with OGC and, when appropriate, the Special Investigator
    Unit to conclude if noncompliance actually has occurred and the
    implications of such noncompliance. For any noncompliance noted, the
    auditor should:
    * identify the weakness in compliance controls that allowed the
    noncompliance to occur, if not previously identified during compliance
    control testing;
    * report the nature of any weakness in compliance controls and consider
    modification of the opinion on internal control as appropriate (see FAM
    580.32-.61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 8. Document conclusions on compliance with each
    provision on Form 814 - Compliance Summary; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 8. Document conclusions on compliance with each
    provision on Form 814 - Compliance Summary; Done by/date: [Empty];
    Doc Ref: [Empty].

    Note 1: For part-time career employees, the biweekly entity
    contribution shall be calculated on a prorata basis based on the ratio
    of number of scheduled parttime hours to the number of scheduled
    regular hours for an employee serving in a comparable position on a
    full-time basis. (5 U.S.C. 8906(b) (3))

    Note 2: If the auditor uses multipurpose testing for the compliance
    test and/or compliance control test and a substantive test of payroll
    expense details, the sample items for the compliance test and/or
    compliance control test should be selected using the sampling method
    used for the substantive test. Otherwise, the auditor should select
    items using attribute sampling, as discussed in FAM 460.02. As with all
    sampling applications, the auditor should consider the completeness of
    the test population. For efficiency, the auditor should consider using
    records that were tested for validity and completeness (as well as the
    other financial statement assertions) in conjunction with substantive
    tests of payroll or other payroll related compliance tests.

    Note 3: If the entity outsources payroll processing, the entity remains
    responsible for compliance. Dividing responsibility for payroll
    processing activities between the entity and the service organization
    could make payroll testing more complicated, although the auditor
    should perform the same testing. The auditor may accomplish this
    testing with the assistance of the service organization’s auditor, who
    may issue an internal control report on the service organization under
    AU 324 (SAS 70). Another approach may be for the service organization’s
    auditor to assist the entity’s auditor by performing agreed-upon
    procedures at the service organization (e.g., substantive testing)
    under AT 201 (see FAM 660).

    816 - Federal Employees' Compensation Act (FECA), 5 U.S.C. Chapter 81:

    Note: The auditor may complete this compliance summary or prepare
    equivalent documentation only if provisions of the Federal Employees’
    Compensation Act are significant as indicated on Form 802 - General
    Compliance Checklist at FAM 802-10.

    Table:

    [See PDF for image]

    [End of figure]

    Note: The auditor may complete these procedures or prepare equivalent
    documentation only if provisions of the Federal Employees’ Compensation
    Act are significant as indicated on Form 802 - General Compliance
    Checklist at FAM 802-10. These procedures test compliance with the
    provisions listed on the Compliance Summary for this law.

    Audit Procedures: Note: The provisions identified for testing are
    proceduralbased provisions. As discussed in FAM 460.06, sufficient
    procedures usually are performed by the auditor in conjunction with
    tests of compliance controls for these procedural-based provisions to
    conclude on the entity's compliance without performing additional
    procedures. The auditor should not perform additional procedures to
    obtain evidence regarding compliance with the provisions related to the
    following objectives unless sufficient evidence regarding compliance
    was not obtained during compliance control tests documented on Form
    816 - Compliance Summary;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 1. Reference to conclusions on compliance controls on
    Form 816 - Compliance Summary and indicate whether any additional
    procedures are necessary; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 2. If the entity does not appear to be in compliance
    based on the results of tests performed, the auditor should discuss
    these matters with OGC and, when appropriate, the Special Investigator
    Unit to conclude if noncompliance actually has occurred and the
    implications of such noncompliance. For any noncompliance noted, the
    auditor should
    * identify the weakness in compliance controls that allowed the
    noncompliance to occur, if not previously identified during compliance
    control testing;
    * report the nature of any weakness in compliance controls and consider
    modification of the opinion on internal control as appropriate (see FAM
    580.32- .61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 3. Document conclusions on compliance with each
    provision on Form 816 - Compliance Summary; Done by/date: [Empty];
    Doc Ref: [Empty].

    Note 1: A statement showing the total cost of benefits and other
    payments made from the Employees’ Compensation Fund during the
    preceding July 1 through June 30 expense period on account of the
    injury or death of employees or individuals under the jurisdiction of
    the entity is required to be provided by the Secretary of Labor to the
    entity by August 15 of each year. (5 U.S.C. 8147);

    Note 2: Entities not dependent on an annual appropriation shall make
    the required deposit to Treasury from funds under its control during
    the first 15 days of October after receipt of the statement showing the
    costs paid on the entity's behalf. (5 U.S.C. 8147)

    817 – Federal Employees’ Retirement System Act of 1986 (FERS), 5 U.S.C.
    Chapter 84:

    Note: The auditor may complete this compliance summary or prepare
    equivalent documentation only if provisions of the Federal Employees’
    Retirement System Act of 1986 are significant as indicated on Form
    802 - General Compliance Checklist at FAM 802- 10.

    Table:

    [See PDF for image]

    [End of table]

    Note: The auditor may complete these procedures or prepare equivalent
    documentation only if provisions of the Federal Employees’ Retirement
    System Act of 1986 are significant as indicated on Form 802 - General
    Compliance Checklist at FAM 802-10.

    These procedures are designed to test compliance with the provisions
    listed on the Compliance Summary.

    Name of entity:
    Audit period:
    Reviewed by:

    Audit Procedures: 1. Based on the preliminary assessment of compliance
    control effectiveness (as documented on Form 817 - Compliance Summary),
    select a sample of expense amounts for individuals’ gross pay from the
    payroll disbursement records for the audit period for employees covered
    by the Federal Employees’ Retirement System (FERS). (See note 1.) (The
    sample size will vary based on the expected effectiveness of compliance
    controls as discussed in FAM 460.02). Document the sampling approach
    using the documentation in FAM 495 E. See note 4 regarding sampling
    efficiencies and completeness of the sample population.
    The auditor should coordinate these tests with other tests of payroll-
    related expenses and with the agreedupon procedures agency auditors
    perform for OPM, per OMB audit guidance, if performed. Sample size
    Sample selection method;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 2. For each selection made in 1, document the
    following for the pay period selected:
    * the amount withheld for the cost of retirement benefits,
    * the amount of basic pay, and
    * if indicated in the payroll disbursement records, document the
    retirement plan under which the withholdings were made (CSRS or FERS).
    (Only employees covered by FERS should be included in this compliance
    test. See FAM 813 for the CSRS compliance test.);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 3. For each item selected in 1, obtain the employee's
    personnel file and note the
    * employee hire date,
    * amount of basic pay, and
    * the retirement plan under which the employee is covered;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 4. For each selection made in 1 (a) Compare the
    amount of basic pay indicated in the employee’s personnel file with the
    amount indicated in the payroll records and obtain an explanation and
    examine support for any differences. (This procedure would be performed
    only if not already performed as part of other testing.)
    (b) Calculate the amount of the withholdings for retirement costs based
    on 0.8% of basic pay for most employees (see note 2 for percentages for
    certain employees) for the selected pay period and record the amount in
    the documentation. Compare to the actual amount withheld for the
    selected pay period and obtain an explanation and examine support for
    any differences. (5 U.S.C. 8422(a)(1))
    (c) Determine whether the entity contributed the correct amount for the
    employee’s retirement for the selected pay period. Obtain an
    explanation and examine support for any differences between the entity
    contributions and the amount calculated using OPM’s normal cost
    percentage. (5 U.S.C. 8423(a)(1) and 5 U.S.C. 8401(23)); Done by/date:
    [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 5. To determine if amounts contributed by the entity
    are charged to the appropriation or fund used to pay the employee for
    the selected pay period: (a) Review the accounting codes indicated on
    the supporting documentation.
    (b) Determine whether the accounting codes used to record the entity
    contribution are the same as those used for the related payroll
    expenditure and whether the codes and amounts agree to those recorded
    in the budgetary accounting records. (This step assumes other payroll
    testing would have included checking that the codes represent the
    proper appropriation.)
    (c) Consider the procedures performed on the entity’s budget controls
    over summarization of expenditure balances as discussed in FAM 395 F.
    If the auditor has assessed the entity’s controls as effective in
    achieving the control objective of summarization of expenditure
    balances, further procedures are not necessary to obtain assurance as
    to whether the entity’s contributions are paid out of the proper
    appropriation account. If the auditor has assessed the controls as
    ineffective, the auditor should perform procedures to determine whether
    the entity has properly summarized the expenditure balances as
    described in FAM 495 B. (5 U.S.C. 8423(a)(1)); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 6 . Determine whether the entity has effective
    controls over the proper summarization of the amounts withheld from
    employees for retirement costs under this law and the entity
    contributions for remittance to Treasury. If the entity does not have
    effective controls for summarization, test the summarization of the
    totals that include the items selected for testing in step 1; Done
    by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 7. Compare the combined totals of employee
    withholdings and entity contributions that include each selection made
    in step 1 to the deposit made to Treasury and the remittance sent to
    OPM and obtain explanation and examine support for any differences. The
    funds should be deposited in the Treasury to the credit of the Civil
    Service Retirement and Disability Fund. (5 U.S.C. 8422(c) and 5 U.S.C.
    8401(6));
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 8. If the entity does not appear to be in compliance
    based on the results of tests performed, the auditor should discuss
    these matters with OGC and, when appropriate, the Special Investigator
    Unit to conclude if noncompliance actually has occurred and the
    implications of such noncompliance. For any noncompliance noted, the
    auditor should
    * identify the weakness in compliance controls that allowed the
    noncompliance to occur, if not previously identified during compliance
    control testing;
    * report the nature of any weakness in compliance controls and consider
    modification of the conclusion on internal control as appropriate (see
    FAM 580.32- .61);
    * consider the implications of any instances of noncompliance on the
    financial statements; and
    * report instances of noncompliance, as appropriate (see FAM 580.67-
    .75);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 9. Document conclusions on compliance with each
    provision on Form 813 - Compliance Summary; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures: 9. Document conclusions on compliance with each
    provision on Form 813 - Compliance Summary; Done by/date: [Empty];
    Doc Ref: [Empty].

    Note 1: Employees may be covered by the Civil Service Retirement Act
    (CSRS) or the Federal Employees’ Retirement System Act (FERS),
    generally depending on their employment dates. Generally, employees
    hired after January 1, 1984 are in FERS.
    Note 2: For most employees, the percentage to be withheld is 0.8
    percent (7 percent less the Social Security tax rate). For
    congressional employees, Members of Congress, and law enforcement
    officers, firefighters, air traffic controllers, and nuclear materials
    couriers, the withholding rates are higher. (See 5 U.S.C. 8422(a)(1).)
    Note 3: The Office of Personnel Management (OPM) computes the normal
    cost percentage. For example: for FY 2008 it is 11.2 percent for
    regular employees. OPM lists the percentages in its Benefits
    Administration Letters, accessible on its Internet site,
    http://www.opm.gov/asd/htm/bal06.htm (where the 2 digits after "bal"
    represent the calendar year of the letters). (5 U.S.C. 8401(23)) Note
    4: If the auditor uses multipurpose testing for the compliance test
    and/or compliance control test and a substantive test of payroll
    expense details, the sample items for the compliance test and/or
    compliance control test should be selected using the sampling method
    used for the substantive test. Otherwise, the auditor should select
    items using attribute sampling, as discussed in FAM 460.02.
    As with all sampling applications, the auditor should consider the
    completeness of the test population. For efficiency, the auditor should
    consider using records that were tested for validity and completeness
    (as well as the other financial statement assertions) in conjunction
    with substantive tests of payroll or other payroll related compliance
    tests. Note 5: If the entity outsources payroll processing, the entity
    remains responsible for compliance. Dividing responsibility for payroll
    processing activities between the entity and the service organization
    could make payroll testing more complicated, although the same testing
    should be performed. The auditor may accomplish that testing with the
    assistance of the service organization's auditor, who may issue an
    internal control report on the service organization under AU 324 (SAS
    70). Another approach may be for the service organization's auditor to
    assist the entity’s auditor by performing agreed-upon procedures at the
    service organization (e.g., substantive testing) under AT 201 (see FAM
    660).

    [End of section]

    Section 900:
    Substantive Testing:

    902 - Related Parties, Including Intragovernmental Activity and
    Balances:

    .01: This section provides guidance on the procedures that the auditor
    should perform with respect to related parties, as described in FAM 280
    and FAM 550. Additionally, in determining whether related party
    activities are properly accounted for and disclosed in the financial
    statements, the auditor should consult AU 334, which provides general
    guidance on related parties relationships and transactions. Further,
    the American Institute of Certified Public Accountants (AICPA) has
    issued a toolkit for accountants and auditors titled Accounting and
    Auditing for Related Parties and Related Party Transactions.[Footnote
    31] This toolkit includes selected authoritative accounting and
    auditing literature, an illustrative audit program, disclosure
    checklist, confirmation letter, and letter to other auditors and is
    available at the AICPA’s website at [hyperlink, http://www.aicpa.org].

    .02: The U.S. government in its entirety is an economic entity and
    federal entities are components of the U.S. government. Therefore,
    transactions between federal entities are considered intragovernmental
    (Note: Federal Accounting Standards Board’s (FASAB) Statements of
    Financial Accounting Standards (SFFAS) refers broadly to the cost of
    goods and services between federal entities as “inter-entity” costs).
    Within the U.S. government, many reporting entities rely on other
    federal entities to help them achieve their missions and fulfill their
    operating objectives. These arrangements may be voluntary, stipulated
    by law, or established by mutual agreement of the entities involved and
    may not be carried out on an arm’s-length basis. In many cases, the
    entity receiving goods or services reimburses the providing entity in
    accordance with an agreed-upon price, which may or may not represent
    fair value. However, frequently one entity provides goods or services
    to another entity free of charge (without reimbursement) and the cost
    of such activity is paid by appropriated funds of the providing entity.
    For example, the General Services Administration (GSA) routinely
    provides property management services and contract award and
    administration to other entities without charge.

    .03: In addition, certain federal entities can significantly influence
    the operating policies of the transacting entities. For example, the
    Office of Management and Budget (OMB) provides budget, policy and/or
    general management guidance to other federal entities. The Office of
    Personnel Management (OPM) helps federal civilian entities recruit
    nationwide; sets human resources management rules with the federal
    entities’ involvement; administers systems for setting federal
    compensation and benefits; manages federal employee health and life
    insurance programs; and operates retirement programs for federal
    employees.

    .04: In the U.S. government, the most significant related parties are
    other governmental entities. Other possible related parties outside of
    the federal government include states, members of entity’s management,
    and individuals and companies with which members of management may be
    related. State and local governments are technically not related
    parties, since under the constitution they have powers independent of
    the federal government. However, the procedures for related parties may
    also be useful for state and local governments.

    .05: The auditor should make inquiries about the possible existence of
    related parties with material activity and balances that could affect
    the financial statements, including intragovernmental activity and
    balances. The auditor should also inquire about the possible existence
    of related parties involving members of management that may be a
    sensitive conflict-of-interest issue involving potential misuse of
    government assets. The identification of related parties and activity
    and balances is important because (1) U.S. GAAP requires disclosure of
    material related-party transactions and certain control relationships,
    (2) fraudulent financial reporting and misappropriation of assets have
    been facilitated by the use of undisclosed related parties, and (3)
    distorted or misleading financial statements may result in the absence
    of adequate disclosure.

    .06: Financial statement users need related party information to make
    informed judgments. If parties are related, the transactions between
    them may not be based on an arm’s-length relationship. For example,
    certain goods or services may be donated or be at an amount that does
    not represent fair value, thus affecting the cost of the receiving
    entity’s operations. In addition, an entity may have transactions with
    another entity based on a common control situation, such as when the
    entity controls or can significantly influence the management or
    operating policies of the transacting entity. In these cases, the
    financial statements need to disclose the nature of the relationship
    since this control relationship could result in operating results or
    financial positions significantly different from those that would have
    been achieved in the absence of such relationship.

    .07: Disclosures include the nature of the relationship between the
    entity and its related parties, a description of the transactions,
    including donations, dollar amounts of transactions that occurred
    during the period, and amounts due to or from related parties as of the
    end of the period. Disclosures may aggregate similar transactions by
    type. In cases of common control relationships, the nature of the
    control relationship is disclosed even if there are no transactions
    between the entities. Related party transactions between components of
    the audited entity that are eliminated in consolidation are not
    disclosed in the consolidated financial statements. However, if
    separate statements of the components are issued, the disclosures are
    presented in the separate component statements.

    .08: The following sections discuss intragovernmental activity and
    balances, and other related parties.

    Intragovernmental Activity and Balances:

    .09: Intragovernmental amounts represent activity and balances within
    or between federal entities. Intradepartmental amounts are activity and
    balances within the same department (a department here means any
    department, agency, administration or other entity designated by OMB as
    a financial reporting entity that is not part of a larger financial
    reporting entity other than the government as a whole).
    Interdepartmental amounts are activity and balances between two
    different departments. The intradepartmental and interdepartmental
    amounts are subsets of intragovernmental activity and balances. FASAB
    uses various terms to define intragovernmental activities. As discussed
    in FAM 902.02, SFFAS No. 4 refers to these activities broadly as inter-
    entity costs. SFFAS No. 30 refers to intra-departmental inter-entity
    costs to describe activities within the same department, while
    activities between two different departments are inter-departmental
    inter-entity costs. FASAB Interpretation No. 6 uses “department” to
    refer to any department, agency or other financial reporting entity
    that is not part of a larger reporting entity other than the government
    as a whole. The terminology used in FAM 902 is consistent with FASAB
    usage of the terms intra-departmental and inter-departmental
    activities.

    .10: Common examples of intragovernmental activities include:
    * Goods and services provided from one federal entity to another (trade
    transactions), costs incurred, and reimbursable costs (including both
    interdepartmental and intradepartmental activity).
    * Transfers between entities based on agreements or legislative
    authority, expended appropriations, taxes and fees collected,
    collections for others, accounts receivable from appropriations,
    transfers payable, and custodial revenue (including both
    interdepartmental and intradepartmental activity).
    * Investments in federal securities issued by Treasury’s Bureau of the
    Public Debt, including interest accruals, interest income and expense,
    and amortization of premiums and discounts.
    * Borrowings from the Treasury and the Federal Financing Bank,
    including interest accruals, interest income, and expenses.
    * Costs of litigation paid by the Treasury Judgment Fund[Footnote 32]
    (including both interdepartmental and intradepartmental activity).
    * Transactions with OPM relating to employee benefit programs such as
    Federal Employees’ Retirement System, Civil Service Retirement System,
    and federal employees’ life insurance and health benefits programs,
    that include routine payments, imputed financing, and accruals.
    * Transactions with the Department of Labor (Labor) relating to the
    Federal Employee’s Compensation Act (FECA) that include routine
    payments to Labor.

    .11: Intradepartmental activities and balances (within the same
    department) are eliminated at the department’s consolidated financial
    statements level. Interdepartmental activities and balances (between
    federal entities) are eliminated at the U.S. government’s consolidated
    financial statements level. Accounting and Reporting Guidance

    .12: In accounting for and reporting of related parties, including
    intragovernmental activity and balances, see FASAB accounting
    standards, the Financial Standards Accounting Board (FASB) financial
    accounting standards (FAS), OMB reporting guidance contained in OMB
    Circular No. A-136, and Treasury accounting and reporting guidance
    contained in the Treasury Financial Manual (TFM). FAM 902.14-.20
    illustrate these relevant documents in more detail.

    .13: SFFAS No. 4, Managerial Cost Accounting Concepts and Standards,
    and related interpretations, address the accounting standards for inter-
    entity cost activities. SFFAS No. 5, Accounting for Liabilities of the
    Federal Government, addresses inter-entity liabilities, including
    federal debt, pensions and retirement benefits. Also, SFFAS No. 7,
    Accounting for Revenue and Other Financing Sources and Concepts for
    Reconciling Budgetary and Financial Accounting, as amended, addresses
    inter-entity revenue and requires disclosure of the nature of
    intragovernmental exchange transactions in which an entity provides
    goods or services at a price less than full cost or does not charge a
    price at all. In accordance with SFFAS No. 4, as amended by SFFAS No.
    30, effective for periods beginning after September 30, 2008, the costs
    of program outputs include the costs of services provided by other
    entities whether or not the providing entity is fully reimbursed.
    Additionally, each entity’s full cost is to incorporate the full cost
    of goods and services that it receives from other entities. The entity
    providing the goods or services has the responsibility to provide the
    receiving entity with information on the full cost of services either
    through billing or other advice. The reporting entities are also to
    consult with the funding and administering agencies, such as OPM, for
    information needed to properly record inter-entity costs. SFFAS No. 4
    directs OMB to designate the costs of goods and services

    received from other entities that are to be recognized and to issue
    guidance identifying these costs.[Footnote 33]

    .14: FASB FAS No. 57, Related Party Disclosures, defines related
    parties and provides examples of related party transactions and general
    guidance on disclosures of transactions between related parties in the
    private sector. Footnote disclosures include disclosure of the nature
    of the relationship between the entity and its related parties, a
    description of the transactions, including donations, dollar amounts of
    transactions that occurred during the period, and amounts due to or
    from related parties as of the end of the period.

    .15: OMB Circular No. A-136, Financial Reporting Requirements, states
    that federal entities are to
    * report intragovernmental assets separately from transactions with
    non- Federal entities (entities outside the federal government) on the
    balance sheet; disclose intragovernmental assets separately from other
    non-entity assets; identify intragovernmental liabilities covered by
    budgetary resources and those not covered by budgetary resources (such
    as accrued annual leave); and separately report intragovernmental
    liabilities,
    * disclose intragovernmental costs and revenue transactions separately
    from those made with the public and describe the criteria used for the
    cost/revenue classification. Disclosure is to include an explanation
    that makes it clear to the reader that the intragovernmental expenses
    relate to the source of goods and services purchased by the reporting
    entity and not to the classification of related revenue, and
    * reconcile intragovernmental balances and transactions at least
    quarterly and submit intragovernmental balance information as a note
    disclosure in the special purpose financial statements. OMB also has
    issued a memorandum titled Business Rules for Intragovernmental
    Transactions that requires agencies to use this A-136 methodology in
    accounting for certain intragovernmental transactions, which should
    help in reconciliation.

    .16: To emphasize entity management’s responsibility for identifying
    intragovernmental transactions and balances and reconciling data with
    other entities, specific representations are included in the management
    representation letter for intragovernmental activity. These
    representationsof transactions, and reconciliation (or inability to
    reconcile) with entities providing the goods or services (see FAM
    1001). If such disclosure is included in the financial statements and
    the auditor believes that the disclosure is either not supported by
    management, or if management refuses to disclose related party
    transactions, the auditor generally should express a qualified or
    adverse opinion because of the inadequate disclosure, depending on
    materiality, and include the necessary disclosures in a separate
    paragraph of the audit report.

    .17: TFM section “Federal Intragovernmental Transactions Process” and
    Treasury’s Federal Intragovernmental Transactions Accounting Policies
    Guide (Treasury Guide) provides governmentwide procedures for federal
    entities to account for and reconcile transactions occurring within and
    between each other. The procedures in this guidance does not apply to
    transactions between federal entities and nonfederal entities. Further
    information is available at the Treasury/Financial Management Service’s
    (FMS) web site at [hyperlink, http://www.fms.treas.gov].

    .18: The TFM also includes procedures for CFO Act departments to
    reconcile and confirm intragovernmental activity and balances as of and
    for the fiscal year ended September 30. Each department’s CFO is to
    provide the department’s Inspector General (IG) with representations
    indicating whether the department completed the reconciliation. In
    addition, the department is to describe noncompliance with the
    reconciliation requirements. The auditor should include this
    representation in the management representation letter (see FAM 1001).

    .19: The Treasury Guide provides detailed information on accounting and
    reconciling intragovernmental balances. According to the guide,
    entities are to identify trading partners[Footnote 35] for all
    intragovernmental transactions and accumulate detail and summary
    information for each activity by trading partner from their accounting
    records. The trading partner code may be incorporated (1) as part of
    account coding classification, or (2) in the customer/vendor
    identification code in accounts receivable and payable systems. These
    codes are the same as the Treasury index agency code used by the
    Treasury to prepare the governmentwide consolidated financial
    statements. If the two-digit Treasury index agency code is not adequate
    to identify the trading partner, entities may expand the partner code
    to components below the department level and communicate these codes to
    their trading partners.

    .20: The Treasury Guide also indicates that federal entities are to use
    the Standard General Ledger (SGL) account attributes to indicate the
    nature of account balances and to identify intragovernmental
    transactions. For example, the federal “F” and nonfederal “N”
    attributes used in conjunction with an SGL account in the Federal
    Agencies’ Centralized Trial Balance System (FACTS) I submissions enable
    Treasury/FMS to prepare elimination entries for the governmentwide
    financial statements. When the federal attribute “F” is used with an
    SGL account, a trading partner is to be designated for each transaction
    posted to the account.

    Continuing Issues from Prior Year Audits:

    .21: Prior year audits of federal entity financial statements have
    identified numerous instances where entities did not identify,
    summarize, or reconcile intragovernmental activity and balances by
    trading partner. Controls over the intragovernmental transactions were
    not adequate. For example, one department instructed its components to
    make buyer’s intragovernmental transaction amounts agree with seller’s
    information without requiring an adequate reconciliation or
    verification if goods or services were provided. Similar issues were
    also identified concerning activity and balances within the same entity
    (intradepartmental). Accordingly, there was no assurance that the
    entity records contained balances that are fairly presented. This has
    been a material weakness at the U.S. government consolidated financial
    statement level in that entity intragovernmental accounts do not
    completely eliminate in consolidation.

    Intragovernmental Payment and Collection (IPAC) System:

    .22 IPAC is the primary method used by most federal entities to
    electronically bill and/or pay for services and supplies within the
    U.S. government. IPAC is used to communicate to Treasury and the
    trading partner agency that the online billing and/or payment for
    services and supplies has occurred. IPAC, however, is not intended to
    be a control over the intragovernmental transactions (reciprocal
    accounts). IPAC was not designed as an accounting system and does not
    require trading partners to record transactions at the same time or in
    the same amounts. In addition, unreconciled IPAC differences could
    affect the existence and completeness of intragovernmental activity and
    balances.

    .23: The IPAC billing entity initiates an IPAC transaction either as a
    collection or a payment. The IPAC customer entity receives an IPAC
    transaction either as a payment or a collection. Monthly, the Treasury
    compares the customer and billing amounts from Statement of
    Transactions (FMS 224) reported by the entity with the IPAC data. If
    there is a difference, a Statement of Differences (SOD),[Footnote 36]
    including a detailed list of all transactions charged or credited to a
    particular agency location code, is generated monthly. The SOD is an
    Internet application of the Government On-Line Accounting Link
    Information Access System II (GOALS II/IAS).

    Entities are to investigate the differences and make any necessary
    corrections on their next Statement of Transactions.

    .24: The auditor generally should test the entity’s IPAC reconciliation
    procedures to determine if the entity performs the reconciliation and
    researches and resolves differences reflected on the Statement of
    Differences properly and timely. The auditor may coordinate the
    procedures with Fund Balance with Treasury (FBWT) audit procedures to
    assess the effectiveness of the entity’s IPAC reconciliation (see FAM
    921). .25 The auditor generally should also design audit procedures to
    understand whether the entity uses other systems (EFT, check, standard
    forms used to transfer funds between appropriations, credit cards,
    etc.) in addition to the IPAC system to process intragovernmental
    activity and balances. The auditor generally should determine whether
    these systems affect the accuracy of intragovernmental activity and
    balances. (See audit procedures below and FAM 902 C.)
    Audit Procedures
    .26 The auditor should identify the risk of material misstatement in
    determining the nature, extent, and timing of procedures for auditing
    intragovernmental activity and balances and in evaluating the results
    of these procedures. Throughout the audit, the auditor evaluates the
    possible existence of material intragovernmental activity and balances
    that could affect the financial statements. The auditor also evaluates
    information concerning material intragovernmental activity and balances
    to determine the adequacy and appropriateness of financial statement
    disclosures. .27 During the planning phase, the auditor should assess
    inherent, fraud, and control risk. The auditor evaluates several
    conditions to assess inherent risk related to intragovernmental
    activity and balances. For example, inherent risk may exist because of
    the nature of the intragovernmental activity, such as a significant
    volume or dollar amount of transactions, number of trading partners, or
    complexity of transactions. The auditor should also assess the impact
    of the risk of material misstatement on control testing and substantive
    procedures. The auditor should determine whether similar conditions
    continue to exist and should understand management’s response to such
    conditions. .28 In understanding the entity, including its internal
    control, the auditor should obtain an understanding of management
    responsibilities and the relationship of each component to the total
    department and of each department to other departments. The auditor
    should also obtain an understanding of the entity’s operations to
    identify, respond to, and resolve accounting and auditing problems
    early in the audit. This includes:
    * knowledge of the entity’s trading partners,
    * the nature of intragovernmental transactions that occur,
    * the volume and dollar amount of transactions, and
    * management’s attitude and awareness with respect to reconciliations
    of intragovernmental activity and balances.

    .29: The auditor should evaluate the design of the entity’s internal
    control over intragovernmental activity and balances and whether the
    design was implemented. This begins with the auditor identification of
    policies and procedures that pertain to the entity’s ability to record,
    process, summarize, and report intragovernmental activity and balances
    by trading partner. A good design emphasizes the importance of
    identifying and classifying intragovernmental transactions by trading
    partner when they are initiated and on all documentation thereafter.
    Without this initial identification, the entity’s accounting system may
    not be able to adequately track intragovernmental activity and
    balances.

    .30: Without proper and timely reconciliation of intragovernmental
    activity and balances, misstatements in these account balances at the
    component and/or department level could materially affect the balances
    at the governmentwide level (as well as at the department or component
    level). In addition, when preparing consolidated financial statements,
    the preparer eliminates intragovernmental activity and balances within
    and between departments or components. Because the amounts reported for
    entity trading partners for certain intragovernmental accounts could be
    significantly out of balance, the preparer would not be able to
    eliminate these accounts in the consolidated financial statements. The
    auditor may advise the entity about the need for monthly confirmation
    and reconciliation of these transactions with trading partners, as
    annual or quarterly reconciliations may not be sufficient to detect and
    resolve misstatements promptly.

    .31: If the auditor determines that the entity’s reconciliation control
    for intragovernmental transactions is not effectively designed and
    implemented, the auditor should consider the effect on the risk of
    material misstatement. Where intragovernmental transactions are or
    could be material, significant additional work is usually necessary to
    express an unqualified opinion. In those cases where the auditor finds
    significant deficiencies or material weaknesses in the
    intragovernmental reconciliation control and no other mitigating
    controls exist, the auditor must disclose this in the report or opinion
    on internal controls (FAM 580).

    .32: OMB audit guidance requires that agreed-upon procedures be
    performed by entities where there is evidence and a history of systemic
    or recurring problems in accounting, reporting, or reconciling
    intragovernmental balances, beginning with the third quarter of fiscal
    year 2007. These procedures are intended to assist with accounting for
    and eliminating intragovernmental activity and balances in the
    preparation of department and governmentwide financial statements and
    reports.

    .33: To avoid duplicate procedures, the auditor should consider the
    agreedupon procedures performed by the entity in the above paragraph
    when designing the tests for intragovernmental activity and balances.
    Examples of the account risk analysis (ARA), specific control
    evaluation (SCE), and audit procedures for the audit of
    intragovernmental activity and balances are in FAM 902 A, FAM 902 B,
    and FAM 902 C, respectively. The ARA, SCE(s), and audit procedures
    generally are customized by the auditor for the particular entity. For
    example, if the auditor determines that the intragovernmental accounts
    receivable line item is significant, the auditor generally should
    prepare a separate ARA, SCE(s), and audit procedures forthe
    intragovernmental accounts receivable account and its related
    accounting applications. (Note that a single SCE for a line-
    item/accountrelated accounting application is presented. There are
    likely transactionrelated accounting applications listed on the ARA
    that also would have SCEs.) In addition, for efficiency, the auditor
    may coordinate tests of intragovernmental activity and balances with
    tests of nonfederal activity and balances.
    Other Related Parties

    .34: To effectively plan and perform an audit, the auditor generally
    should understand the entity’s organization and its characteristics.
    The auditor generally should identify the possible existence of other
    related parties and other related party transactions throughout the
    audit and determine whether they are properly accounted for and
    disclosed (see FAM 902.07). As indicted at FAM 902.04-.05, other
    related party transactions may involve members of entity’s management,
    and individuals and companies with which members of management may be
    related. While these transactions are usually not material to the
    entity’s financial statements, there may be a sensitive conflict-of-
    interest issue involving the potential misuse of government assets.

    .35: The auditor may inquire of management, review major contracts or
    agreements, and read financial disclosure statements. The auditor
    should document the names of related parties so audit staff members are
    aware of them as they conduct the audit. Tests of transactions with
    such parties may be coordinated with sensitive payments work, as
    discussed in FAM 280.05.

    .36: In addition to the procedures on related parties, the auditor also
    may inquire about other parties that may not be related parties, but
    that the entity may wish to disclose because of a public perception
    that they might be related, although professional standards do not
    require disclosure if the parties are not related (as defined in AU
    334). FAM 902 C provides examples of audit procedures for other related
    parties as well as for intragovernmental activity and balances. The
    auditor may customize the steps for the particular audited entity.

    Practice Aids:

    .37: The following practice aids are presented as appendixes:
    * FAM 902 A – Example Account Risk Analysis (ARA),
    * FAM 902 B – Example Specific Control Evaluation (SCE), and
    * FAM 902 C – Example Audit Procedures;

    902 A - Example Account Risk Analysis for Intragovernmental Activity
    and Balances:

    Table:

    [See PDF for image]

    [End of table]

    902 C – Example Audit Procedures for Intragovernmental and Other
    Related Parties’ Activity and Balances:

    Entity:
    Period of financial statements: Job code:

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: I. Planning Phase Obtain an understanding of the
    entity and its operations, including its internal controls that are
    significant to the audit of intragovernmental and other related party
    activity and balances (see FAM 220) by
    1) Obtaining an understanding of significant accounting and auditing
    issues by reading the entity’s prior year’s accountability and
    auditors’ reports; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 2) Identifying the entity’s accounting and
    reporting requirements and applicable auditing standards for
    intragovernmental and other related party activity and balances by
    reading
    a) SFFAS No. 4, Managerial Cost Accounting Concepts and Standards;
    SFFAS No. 5, Accounting for Liabilities of the Federal Government;
    SFFAS No. 7, Accounting for Revenue and Other Financing Sources and
    Concepts for Reconciling Budgetary and Financial Accounting; Statement
    of Financial Accounting Standards No. 57, Related Party Disclosures; AU
    Section 334, Related Parties; AU Section 558, Required Supplementary
    Information; OMB bulletin on Form and Content of Agency Financial
    Statements; Treasury/ Financial Management Service’s (FMS) Federal
    Intragovernmental Transactions Accounting Policies Guide; and Treasury
    Financial Manual section “Federal Intragovernmental Transactions
    Process.”;
    b) The entity’s internal procedures for identifying, accounting,
    reconciling and reporting intragovernmental and other related party
    activity and balances;
    c) The entity’s process for identifying, classifying, and reporting
    intragovernmental activity and balances requiring elimination at the
    consolidated departmentwide or governmentwide level; Done by/date:
    [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) To identify the impact of systems/methods for
    processing, accounting, and financial reporting of intragovernmental
    and other related party activity and balances, perform the following
    procedures a) Interview the entity’s key management about processes,
    for example, the systems/methods that are used to process
    intragovernmental and other related party activity and balances (e.g.,
    IPAC, credit cards, standard forms used to transfer funds between
    appropriations, and others). b) Obtain estimates of the approximate
    number and dollar amount of intragovernmental and other related party
    activity and balances (this could be based on the prior year) that are
    processed by each significant system/method (see FAM 270). c) Consider
    coordinating this work with the audit of like nonfederal activity and
    balances (i.e., similar transactions by the entity with parties other
    than other federal entities);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) To identify the intragovernmental and other
    related party activity and balances, perform the following procedures
    a) Ask entity management to identify i) The names of all related
    parties (intragovernmental and others) and whether there were
    transactions with them during the period. Other possible related
    parties outside of government might be individuals and companies with
    which members of
    management may be related or otherwise be able to significantly
    influence the management or operating policies; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) To identify the intragovernmental and other
    related party activity and balances, perform the following procedures
    a) Ask entity management to identify i) The names of all related
    parties (intragovernmental and others) and whether there were
    transactions with them during the period. Other possible related
    parties outside of government might be individuals and companies with
    which members of
    management may be related or otherwise be able to significantly
    influence the management or operating policies. ii) The nature and
    terms of all significant activities and balances. For example, (1) for
    a seller entity,
    (a) Obtain information on the types of significant revenues, any markup
    percentage(s) over full cost, and the settlement/payment due date. (b)
    Inquire as to how the full cost of products and services sold is
    determined.
    (2) for a buyer entity,
    (a) Inquire about the minimum
    requirements (business rules) that must be met before an
    intragovernmental trading partner may provide goods or services.
    (3) Inquire as to any amounts that are in dispute at year-end;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) To identify the intragovernmental and other
    related party activity and balances, perform the following procedures
    a) Ask entity management to identify i) The names of all related
    parties (intragovernmental and others) and whether there were
    transactions with them during the period. Other possible related
    parties outside of government might be individuals and companies with
    which members of
    management may be related or otherwise be able to significantly
    influence the management or operating policies; iii) Determine whether
    the audited entity receives services without reimbursement or for less
    than full reimbursement. For example, donated services, such as space
    or detailed employees. If so, ask if the entity is complying with U.S.
    GAAP and/or OMB requirements with respect to accounting and reporting
    treatment of these transactions. Also, if applicable, ask about the
    approximate fair value and/or financial statement disclosure for such
    goods and/or services.
    iv) Determine whether the entity centrally maintains contracts,
    agreements, and other documentation for the terms of all significant
    transactions with related parties. Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) To identify the intragovernmental and other
    related party activity and balances, perform the following procedures
    a) Ask entity management to identify i) The names of all related
    parties (intragovernmental and others) and whether there were
    transactions with them during the period. Other possible related
    parties outside of government might be individuals and companies with
    which members of
    management may be related or otherwise be able to significantly
    influence the management or operating policies; iii) Determine whether
    the audited entity receives services without reimbursement or for less
    than full reimbursement. For example, donated services, such as space
    or detailed employees. If so, ask if the entity is complying with U.S.
    GAAP and/or OMB requirements with respect to accounting and reporting
    treatment of these transactions. Also, if applicable, ask about the
    approximate fair value and/or financial statement disclosure for such
    goods and/or services.
    iv) Determine whether the entity centrally maintains contracts,
    agreements, and other documentation for the terms of all significant
    transactions with related parties; b) Review, if any
    i) Entity policy for advance approval of related party transactions by
    senior management. ii) Entity policy for requiring disclosure by
    employees to appropriate officials of potential conflicts of interest,
    such as related party transactions by employees of the entity. Also
    determine if summaries of such transactions are communicated to
    financial management for its consideration. iii) Vendor and customer
    master file listings, major contracts, and IPAC activity for
    intragovernmental or other related parties. Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 5) Provide audit staff with the names of known
    intragovernmental and other related party trading partners, a
    description of the nature of significant transactions with each, and
    such other information as considered necessary to assist them in
    planning and performing other sections of the audit; Done by/date:
    [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 6) Summarize results of the Planning Phase; Done
    by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 7) Document the auditor’s preliminary assessment
    of risk of material misstatement related to intragovernmental and other
    related party activities and balances in the ARA form (FAM 902 A) or
    equivalent; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 7II. Internal Control Phase Understand and
    document the design of the internal control for identifying, accounting
    for, eliminating, and reporting intragovernmental and other related
    party activity and balances (existence, completeness, valuation, rights
    and obligations, presentation and disclosure) (see FAM 320). Also
    determine if the design has been implemented. 1) Determine through
    inquiry of management, walkthroughs, review of prior years’
    documentation and other means, how and when the entity identifies
    intragovernmental and other related party transactions. a) Determine
    whether the entity identifies transactions by trading partner when they
    are initiated and on all documentation thereafter. b) If the entity
    uses trading partner codes, determine the relationship of such codes to
    other document identifiers such as vendor codes. For example, trading
    partner codes may be integral to each vendor code, or it may be
    necessary to crosswalk vendor codes to a file of trading partner codes.
    c) If the entity does not use trading partner codes, determine how the
    entity identifies, analyzes, and accumulates intragovernmental activity
    and balances. For example, the entity may derive such amounts through
    off-line manual processes after the fact.
    d) Determine when the entity recognizes each significant category of
    intragovernmental and other related party transactions. For example,
    when an invoice is received, when processed through IPAC, when goods or
    services are received, when notified by the seller that an agreed-upon
    stage of completion has been achieved. Determine whether the entity’s
    policy in recording intragovernmental and other related party
    transactions is appropriate. e) Determine whether the entity and its
    trading partners use consistent reciprocal ledger accounts[Footnote 37]
    and categories of activity and balances for recording and reconciling
    such amounts. If so, ask what processes are in place to provide
    management with reasonable assurance that trading partners are
    recognizing reciprocal transactions in the same period, for the same
    amount, and by consistent or compatible accounting methods.
    f) Determine if the entity complies substantially with the SGL at the
    transaction level as it applies to intragovernmental activity and
    balances. (Note: The SGL accounts used should include attributes for
    intragovernmental activity and balances that identify (a) that these
    accounts contain intragovernmental transactions (e.g., attribute “F”),
    and (b) the trading partner (e.g., Treasury trading partner code “20”).)
    g) Identify policies and procedures for confirming intragovernmental
    and other related party activity and balances with trading partners. h)
    Determine how often the entity reconciles its related party activity
    and balances with its trading partners. Also inquire as to whether
    adjustments identified as necessary through the reconciliation process
    have been properly recognized in the financial records. If not, ask
    why. If the entity did not perform reconciliations, ask why not; Done
    by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 7II. Internal Control Phase Understand and
    document the design of the internal control for identifying, accounting
    for, eliminating, and reporting intragovernmental and other related
    party activity and balances (existence, completeness, valuation, rights
    and obligations, presentation and disclosure) (see FAM 320). Also
    determine if the design has been implemented. 1) Determine through
    inquiry of management, walkthroughs, review of prior years’
    documentation and other means, how and when the entity identifies
    intragovernmental and other related party transactions. a) Determine
    whether the entity identifies transactions by trading partner when they
    are initiated and on all documentation thereafter. b) If the entity
    uses trading partner codes, determine the relationship of such codes to
    other document identifiers such as vendor codes. For example, trading
    partner codes may be integral to each vendor code, or it may be
    necessary to crosswalk vendor codes to a file of trading partner codes.
    c) If the entity does not use trading partner codes, determine how the
    entity identifies, analyzes, and accumulates intragovernmental activity
    and balances. For example, the entity may derive such amounts through
    off-line manual processes after the fact.
    d) Determine when the entity recognizes each significant category of
    intragovernmental and other related party transactions. For example,
    when an invoice is received, when processed through IPAC, when goods or
    services are received, when notified by the seller that an agreed-upon
    stage of completion has been achieved. Determine whether the entity’s
    policy in recording intragovernmental and other related; e) Determine
    whether the entity and its trading partners use consistent reciprocal
    ledger accounts1 and categories of activity and balances for recording
    and reconciling such amounts. If so, ask what processes are in place to
    provide management with reasonable assurance that trading partners are
    recognizing reciprocal transactions in the same period, for the same
    amount, and by consistent or compatible accounting methods.
    f) Determine if the entity complies substantially with the SGL at the
    transaction level as it applies to intragovernmental activity and
    balances. (Note: The SGL accounts used should include attributes for
    intragovernmental activity and balances that identify (a) that these
    accounts contain intragovernmental transactions (e.g., attribute “F”),
    and (b) the trading partner (e.g., Treasury trading partner code “20”).)
    g) Identify policies and procedures for confirming intragovernmental
    and other related party activity and balances with trading partners. h)
    Determine how often the entity reconciles its related party activity
    and balances with its trading partners. Also inquire as to whether
    adjustments identified as necessary through the reconciliation process
    have been properly recognized in the financial records. If not, ask
    why. If the entity did not perform reconciliations, ask why not; i)
    Determine whether selling and buying entities have established
    processes to facilitate the timely reconciliation of activity and
    balances. (Note: The selling entity is typically responsible for
    furnishing detailed transaction information to facilitate
    reconciliation.)
    j) Inquire as to the entity’s year-end cut-off procedures related to
    intragovernmental and other related party activity. Determine if
    procedures are designed to provide assurance that intragovernmental
    activities occurring in the current period are recorded in the current
    period. (Use the above trading partner procedures to detect cutoff
    errors in the reconciliation process.) k) Identify the entity’s
    policies and procedures for intra-entity elimination.
    l) Determine whether the entity maintains transaction logs or detailed
    records of transactions to identify the postings to SGL accounts and to
    facilitate the reconciliation process. Determine if the logs include
    sufficient information to enable identification and location of
    supporting documents.
    m) Determine whether the entity reviews and approves monthly account
    analyses of intragovernmental accounts, examines budget-toactual, and
    performs trend analyses.
    2) Coordinate with the results of audit procedures for other cycles to
    determine if the entity has internal control deficiencies related to
    intragovernmental and other related party activity and balances. For
    example, to determine if the entity has control issues related to
    intragovernmental activity and balances, coordinate with the results of
    FBWT audit procedures to determine if the entity has issues on its
    FBWT/IPAC reconciliation such as material unreconciled amounts and aged
    unreconciled IPAC differences.
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) Perform walkthroughs of processes for
    identifying, accounting, reconciling, confirming, eliminating, and
    reporting intragovernmental and other related party activity and
    balances to obtain or update the auditor’s understanding of these
    procedures and preliminarily assess the effectiveness of the design of
    these controls. a) Walkthrough the process from initiation to recording
    in the general ledger and inclusion in the financial statements or
    elimination for each significant type of intragovernmental and other
    related party activity and balances. b) Walk through the
    management/entity approval process of payments to trading partners.
    (Note: Prior audits have identified instances where payment controls
    for intragovernmental transactions were not sufficient. For example,
    the seller entity made payments to trading partners without verifying
    whether goods or services were provided.)
    c) Identify and document any differences in processing nonfederal and
    intragovernmental and other related party activities and balances. d)
    If the entity performs reconciliations of intragovernmental activity
    and balances with trading partners during the year, walk through both
    interim and year-end reconciliation processes.
    4) Prepare or update the cycle memorandum (FAM 390), flowcharts (FAM
    395 H and I), ARA form (FAM 902 A) and SCE form (FAM 902 B), or
    equivalents.) Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: III. Testing Phase: A. Intragovernmental
    accounts:
    For intragovernmental accounts, if the auditor preliminarily determines
    that the entity’s reconciliation and confirmation controls with trading
    partners are effectively designed and placed in operation, the auditor
    generally should test the entity’s policies and procedures to determine
    if the reconciliation and confirmation controls are effective and if
    intragovernmental balances appear reasonable. 1) If material
    differences exist in intragovernmental activity and balances, prepare
    an agreed-upon procedures report beginning with third quarter 2007.
    (See Treasury TFM; OMB audit guidance on Intragovernmental Balances:
    Supplementary and Agreed-Upon Procedures (AUP), sections 13.32 and
    13.33; and FAM 660.)
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 2) Compare the amounts in the reconciliations to
    supporting documentation.
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) Trace the adjustments, if any, identified in
    the reconciliation process to the entity’s financial records. Done
    by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) Compare the amounts, excluding intra-
    departmental activity and balances, in the audited department
    consolidated financial statements to such amounts in the department’s
    final FACTS I or FACTS Notes reports to FMS.
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 5) If necessary, the auditor may design
    additional procedures to achieve financial audit objectives. For
    example: Reconciliation/confirmation (existence, completeness,
    valuations, rights and obligations, and classification);
    * According to OMB’s Circular A-136, Financial Reporting Requirements,
    entities are required to reconcile intragovernmental balances and
    transactions at least quarterly. Test reconciliations to determine if
    the entity’s reconciliation control is effective throughout the year
    and each trading partner has a separate reconciliation.
    * This reconciliation/confirmation also may be used for within entity
    reconciliation/confirmation (intraentity). a) Determine the
    completeness of the population by comparing the trading partners on the
    reconciliations and confirmation forms to subsidiary records or the
    entity’s trading partner list obtained during the planning phase. b)
    For each reconciliation/confirmation: i) Determine if the
    reconciliation/confirmation was reviewed and approved by appropriate
    personnel.
    ii) Compare total amounts and SGL accounts of the activity and balances
    reported on the reconciliation/confirmation form with the general and
    subsidiary ledger accounts, and the total amounts to audited financial
    statements and footnote disclosures. If differences are found, document
    each such difference. Determine the potential impact on the financial
    statements and post the differences identified to the Schedule of
    Uncorrected Misstatements (FAM 595 C-4); iii) Test whether the entity
    used appropriate SGL accounts and whether these SGL accounts include
    the proper attribute(s) to indicate that they result from
    intragovernmental transactions. For example, when the federal attribute
    “F” is used with an SGL account, a trading partner should be designated
    for each transaction posted to the account. Entities can modify SGL
    accounts listed on the form to be more specific.
    iv) Determine whether the entity is using the reciprocal accounts
    delineated in the FMS Guide. Entities should use these accounts to
    account for intragovernmental activity and balances in the specified
    categories. Use of these reciprocal accounts will facilitate the
    reconciliation and confirmation process. v) For fiduciary activity and
    balances, compare amounts on the reconciliation forms to amounts on the
    Intragovernmental Fiduciary Confirmation System. (Note: Fiduciary
    activity and balances include loans from the Federal Financing Bank and
    Bureau of Public Debt, investments with Bureau of Public Debt, Federal
    Employees’ Compensation Act transactions with DOL, and employee benefit
    transactions with OPM. The seller entity— Bureau of Public Debt,
    Treasury, Federal Financing Bank, DOL, and OPM—should make balances
    information and other details available through the Intragovernmental
    Fiduciary Confirmation System for the buyer entities’ use in
    reconciling amounts to their records. The Intragovernmental Fiduciary
    Confirmation System is the official confirmation system for federal
    entities that engage in fiduciary intragovernmental transactions with
    Bureau of Public Debt, Federal Financing Bank, OPM, and DOL.); vi) For
    transfers, test whether
    (1) the classification of transfers as expenditure or nonexpenditure is
    proper, and
    (2) the accounting and reporting are appropriate.
    vii) For trust fund transfers such as highway and airport trust funds,
    also test whether the trust fund amounts are properly accounted for and
    maintained in accordance with laws that established these funds. (Note:
    Test either by the trust fund auditor or as agreed-upon procedures by
    the auditor who audits the entity that collects the revenue for it.)
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: Reconciliation adjustments and differences (all
    intragovernmental categories)
    Exhibit I to FAM 902 C provides an illustration of a reconciliation
    tool that may be used to summarize reconciling items and prove amounts
    between a buyer and a seller entity.
    b) Determine whether adjustments, if any, are supported and timely by
    i) Tracing adjustments and reconciling items identified in the
    reconciliation process to the entity general and subsidiary ledgers.
    ii) Examining adjustments and supporting documents to determine if
    (1) The entity timely and properly performed the research and
    identified causes for differences.
    (2) The adjustments are agreed upon by both entities and made to proper
    SGL accounts. Examples of adjustments and reconciling items are:
    (a) Adjustments in estimated
    accruals: For example, the seller entity has recorded unbilled
    revenue and the buyer entity was not timely advised of the
    estimated accrual.
    (b) Adjustments due to timing
    differences: For example, timing differences caused by a buyer
    entity’s delay in recording IPAC transactions into proper SGL
    accounts.
    (c) Reconciling item for capitalization of assets: For example, the
    buyer entity purchased property and
    equipment or inventory and
    recorded them as assets.
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 5) If necessary, the auditor may design
    additional procedures to achieve financial audit objectives. For
    example: Reconciliation/confirmation (existence, completeness,
    valuations, rights and obligations, and classification); iii) Obtain or
    prepare aging of outstanding unadjusted reconciling amounts for all
    significant intragovernmental balance sheet accounts. Identify old
    and/or unusual reconciling items and obtain explanations from the
    entity; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: iv) Review final yearend reconciliation for any
    accounting policy differences and determine if the entity explains the
    causes of these differences on the final reconciliation. The causes of
    these differences might be differences in accounting standard
    requirements such as different amortization methods for discounts and
    premiums. For example, one trading partner may use the interest method
    and the other trading partner may use the straight-line method to
    amortize discounts/premiums. However, there should be no material
    unresolved differences on the final year-end reconciliation forms and
    entities should resolve all differences with their trading partners;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: v) Determine the extent of unadjusted
    differences at year-end and assess their materiality on the financial
    statement line item and the overall financial statements;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: vi) If adjustments are made subsequent to the
    completion of the confirmations (during the audit period), determine if
    the entity revised the reconciliation and confirmation and submitted
    the updated data to FMS;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 6) Summarize the results of testing by
    concluding on the effectiveness of the entity’s reconciliation and
    confirmation controls. Propose any adjustments on the Schedule of
    Uncorrected Misstatements (FAM 595 C); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 7) Determine whether to change the risk of
    material misstatement and revise audit procedures based on the results
    of testing;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: B. Intragovernmental activity and balances: For
    intragovernmental activity and balances, if the auditor preliminarily
    determines that the entity’s reconciliation/ confirmation control with
    trading partners is not appropriately designed, or if the
    reconciliations and/or confirmations are not performed by the entity,
    determine the effect on substantive procedures and on the audit report.
    Determine whether to modify the audit opinion when no reconciliation
    and other mitigating controls exist, and to disclose a significant
    deficiency or material weakness in internal controls. When
    intragovernmental activity and balances are material, significant
    additional work may also be necessary to express an unqualified opinion
    on the financial statements, such as:
    1) Coordinating work with auditor testing other related line items and
    test existence, completeness, valuation, rights and obligations, and
    classification of intragovernmental activity and balances by a)
    Determining in conjunction with cash receipts, revenues, and accounts
    receivable testing, if intragovernmental accounts receivable were
    collected subsequent to test date. Examine supporting documentation for
    the posting of collections to the cash records and determine if
    intragovernmental revenues and receivables were included in nonfederal
    balances. b) Testing completeness of intragovernmental activity and
    balances by reviewing vendor and customer master files to determine if
    intragovernmental vendors and customers are properly included in
    intragovernmental accounts. c) Sending confirmation requests to trading
    partners for both balance sheet and net cost activity and balances. If
    the risk of material misstatement is assessed as high, apply similar
    confirmation procedures to nonfederal accounts. Cut off test (existence
    and completeness) d) Determine if there are unrecorded transactions and
    if the transactions are recorded in the correct period by
    i) Coordinating with the FBWT audit team to review results of the FBWT
    reconciliation tests. For example, review IPAC transactions
    reconciliations and the recording of IPAC transactions in accounting
    systems; consider how timely and whether appropriate; review IPAC
    transactions after 9/30–subsequent billing and collecting
    transactions–to determine unrecorded transactions at 9/30. ii)
    Searching for unrecorded revenue, accounts receivable, purchases, and
    accounts payable (completeness). For example
    (1) To search for unrecorded revenue and accounts receivable, select
    invoices for trading partners recorded in the xx-day period subsequent
    to year-end. Trace the selected invoices to shipping records or
    evidence of service performance. Determine whether the revenue and
    accounts receivable were recorded in the correct period. Alternatively,
    select from shipping records to trading partners prior to year-end and
    trace to invoices.
    (2) To test the completeness of amounts recorded as accounts payable at
    the balance-sheet date, select disbursements after the end of the audit
    period and test if the amounts were recorded in payables; Done by/date:
    [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 2) Review the test results of other related line
    items to determine if there are issues related to existence,
    completeness, valuation, rights and obligations, and classification in
    the tested accounts and transactions and the impact on the
    intragovernmental activity and balances. In testing these other
    accounts, consider whether items tested were from trading partners;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) Summarize results of testing and propose any
    adjustments on the Schedule of Uncorrected Adjustments (FAM 595 C-4);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) Determine whether to change the risk of
    material misstatement and revise audit procedures based on the results
    of testing;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: C. Control and substantive tests of details—
    other related parties
    Determine the purpose, nature, and extent of material other related
    party transactions and their effect on the financial statements.
    Coordinate with sensitive payments work, including executive
    compensation, travel, official entertainment funds, unvouchered
    expenses, and consulting services (see FAM 280.05).
    1) Based on the work performed during the planning and internal control
    phases, determine and document the methodology used to select the
    transactions for testing by either
    a) examining all transactions, or b) performing a Monetary Unit
    Sampling (MUS), or c) performing a Classical Variables Estimation
    Sampling, or
    d) another method (describe);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 2) For the selected transactions, a) examine
    documentation such as invoices, contracts, agreements, and receiving
    and shipping reports;
    b) determine whether the transactions have been properly approved;
    c) confirm transaction terms and amounts with the other party to the
    transaction; and d) test the compilation of amounts that may be
    disclosed in the financial statements for reasonableness;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) Summarize results of testing and propose any
    adjustments on the Schedule of Uncorrected Adjustments (FAM 595 C-4);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) Determine whether to change the risk of
    material misstatement and revise audit procedures based on the results
    of testing;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: C. Control and substantive tests of details—
    other related parties
    Determine the purpose, nature, and extent of material other related
    party transactions and their effect on the financial statements.
    Coordinate with sensitive payments work, including executive
    compensation, travel, official entertainment funds, unvouchered
    expenses, and consulting services (see FAM 280.05).
    1) Based on the work performed during the planning and internal control
    phases, determine and document the methodology used to select the
    transactions for testing by either
    a) examining all transactions, or b) performing a Monetary Unit
    Sampling (MUS), or c) performing a Classical Variables Estimation
    Sampling, or
    d) another method (describe);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 2) For the selected transactions, a) examine
    documentation such as invoices, contracts, agreements, and receiving
    and shipping reports;
    b) determine whether the transactions have been properly approved;
    c) confirm transaction terms and amounts with the other party to the
    transaction; and d) test the compilation of amounts that may be
    disclosed in the financial statements for reasonableness;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) Summarize results of testing and propose any
    adjustments on the Schedule of Uncorrected Adjustments (FAM 595 C-4);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) Determine whether to change the risk of
    material misstatement and revise audit procedures based on the results
    of testing;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: D. Substantive analytical procedures (FAM 475)
    Perform analytical procedures to assess whether balances are reasonable
    and reflect appropriate activities (existence and completeness). If the
    entity performs reconciliation and confirmation of intragovernmental
    activity and balances and the auditor places reliance on those tests of
    details, less rigorous, supplemental analytical procedures may be used
    to increase the auditor’s understanding of intragovernmental activity
    and balances after performing tests of details in Testing, step III.A,
    above. However, in the absence of adequate reconciliation and
    confirmation controls, some or all of these procedures may be necessary
    to obtain sufficient evidence, if possible. For example, 1) Develop
    expectations of the accounts payable and receivable balances overall or
    for all significant trading partners in light of the payment cycle
    during the year. Then, compare the recorded balance overall or by
    trading partner to the expected amount and investigate differences in
    the recorded balance if differences exceed an amount such that the
    total uninvestigated difference for all trading partners, including
    those not selected, does not exceed the limit; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 2) Develop expectations of recorded
    intragovernmental revenue overall or for all significant trading
    partners based on independent data; for example, consider using trading
    partners’ orders. Then compare the expectations to the recorded revenue
    amounts and investigate differences in the recorded balance if
    differences exceed an amount such that the total uninvestigated
    difference for all trading partners, including those not selected, does
    not exceed the limit; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) Examine accounting records, for example,
    accounts receivable and payable, for large, unusual, or nonrecurring
    activity or balances. For example, consider expectations as to the
    types of intragovernmental activity and balances and trading partners
    based on the planning work. Then, examine significant
    unexpected/unusual intragovernmental activity and balances and
    intragovernmental activity or balances with unexpected trading
    partners. Document the definition of significant; Done by/date:
    [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) Summarize the results of testing and
    determine if adjustments are necessary;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: E. Elimination (existence, completeness, and
    valuation)
    Test consolidation/elimination for transactions occurring within the
    entity (intra-entity) to determine whether the elimination is
    appropriate and supportable. 1) Obtain a list of each component
    entity’s intra-entity transactions identified for elimination and each
    component entity’s reconciliation of its intra-entity activity and
    balances with its respective trading partners. This step may be done in
    conjunction with the test of reconciliation (see step III.A above);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 2) Review the entity’s eliminating journal
    entries and supporting documentation for elimination entries of the
    entitywide consolidated financial statements. Determine whether
    elimination journal entries are a) approved by management, and
    b) supported by schedules summarizing the SGL accounts that are
    combined to total the amounts eliminated;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) Summarize results of testing; Done by/date:
    [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) Determine whether to change the risk of
    material misstatement and revise audit procedures based on the results
    of testing; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: IV. Reporting Phase To determine if the
    presentation and disclosures of intragovernmental and other related
    party balances comply with U.S. GAAP and OMB requirements: 1) Determine
    whether financial reports are prepared in accordance with the OMB
    Circular No. A-136, Financial Reporting Requirements. For example, a)
    Review the balance sheet and determine whether it is properly
    classified and line items are correctly reported as intragovernmental
    or nonfederal. b) Read the notes to the financial statements to
    determine if intragovernmental amounts and the related federal trading
    partners for assets, liabilities, earned revenue from trade (buy/sell)
    transactions and nonexchange revenue are disclosed.
    c) Read disclosures for the Statement of Net Cost in the notes to the
    departmentwide financial statements and determine if the department
    includes a separate disclosure of intragovernmental gross cost and
    earned revenue by budget functional classification. Determine whether
    gross cost and earned revenue are net of intradepartment transactions
    (consolidated); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 2) Read the entitywide financial statements and
    notes and compare the reported intragovernmental and other related
    party (if any) activity and balances with the test results;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 3) Request that the entity’s management include,
    in the representation letter, representations related to
    intragovernmental and other related party activity and balances. (See
    FAM 1001 for guidance.); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 4) Communicate with trading partner entities’
    auditors (with entity permission) to determine whether issues
    identified by the other auditors affect the auditor’ s conclusions on
    intragovernmental transactions; Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 5) Read the various current period Agreed-Upon
    Procedures (AUP) reports to consider whether the findings will affect
    the auditor’s conclusion and/or if additional procedures need to be
    performed. For example,
    * The AUP report on employee withholdings and employer contributions
    that are reported on the Report of Withholdings and Contributions for
    Heath Benefits, Life Insurance and Retirements. This AUP report is to
    assist OPM in assessing the reasonableness of the Retirement, Health
    Benefits, and Life Insurance Withholdings/Contributions and
    Supplemental Semiannual Headcount report submitted to OPM (see OMB
    audit guidance); Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 6) Summarize the results and propose any
    adjustments on the Schedule of Uncorrected Adjustments (FAM 595 C- 4);
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Audit Procedures for Intragovernmental and Other Related Parties’
    Activity and Balances: 7) Conclude whether intragovernmental and other
    related party activity and balances have been adequately accounted for
    and properly disclosed in the financial statements;
    Done by/date: [Empty];
    Doc Ref: [Empty].

    Figure:

    [See PDF for image]

    [End of figure]

    903 - Auditing Cost Information:

    .01: FAM 903 provides general guidance for auditors in identifying cost
    information and planning audit procedures. The auditor should
    coordinate these procedures with procedures on auditing various line
    items and accounts. The auditor is generally concerned about cost
    information because:

    * The auditor should obtain sufficient evidence to determine whether
    costs are presented fairly in entity financial statements and are
    appropriately classified. Proper classifications of costs at the entity
    level also contribute to proper classification of costs in the
    consolidated financial statements of the U.S. government.

    * For CFO Act agencies and components designated by OMB, the auditor
    must evaluate whether agency financial management systems substantially
    comply with the three requirements of FFMIA.

    * Although the auditor does not opine on the MD&A, cost information is
    important to the MD&A, particularly as it relates to developing
    performance measures.[Footnote 38] The relevant accounting standard for
    cost information is SFFAS No. 4, Managerial Cost Accounting, as amended
    by SFFAS No. #30, Inter-Entity Cost Implementation. These standards
    have relevance both to external financial reporting and to cost
    information for internal management reporting.

    The Impact of SFFAS No. 4 and SFFAS No. 30:

    .02: SFFAS No. 4 establishes the concepts and standards for providing
    reliable and timely information on the full cost of federal programs,
    their activities, and outputs. The objectives of managerial cost
    information specified in SFFAS No. 4 are:

    * To provide program managers with relevant and reliable information
    relating costs to outputs and activities. With this information,
    program managers should understand the costs of the activities they
    manage. The cost information should assist them in improving
    operational efficiency.

    * To provide relevant and reliable cost information to assist Congress
    and executives in making decisions about allocating federal resources,
    authorizing and modifying programs, and evaluating program performance.

    * To provide consistency between costs reported in general purpose
    financial reports and costs reported to program managers. This includes
    standardizing terminology to improve communication among federal
    organizations and users of cost information.

    .03: The first two objectives primarily address the managerial use of
    cost information in improving operating efficiency and cost
    effectiveness, making planning and budgeting decisions, and measuring
    performance. The third objective primarily addresses external financial
    reporting, which can be achieved by reporting cost information in
    financial statements that is consistent with costs generated by the
    cost accounting process. Because of the differences in the three
    objectives, some requirements in SFFAS No. 4 are relevant to managerial
    decision making and operations improvement, while some requirements are
    relevant to external financial reporting.

    .04: The cost accounting concepts section of SFFAS No. 4 (paragraphs 41-
    66) establishes the overall goals of cost accounting for federal
    agencies. Managerial cost accounting should be a fundamental part of
    the financial management system and, to the extent practicable, be
    integrated with the other parts of the system. Managerial costing
    should use a basis of accounting, recognition, and measurement that is
    appropriate for the intended purpose. Cost information developed for
    various purposes should be drawn from a common data source, and output
    reports should be reconcilable to each other.

    .05: The five fundamental standards for managerial cost accounting set
    forth in SFFAS No. 4 (paragraphs 67-162) are important for the auditor.
    These standards will lead to the development of accurate and consistent
    cost information for internal and external reporting by federal
    agencies. The five standards are:

    * Requirement for cost accounting: Each reporting entity is to
    accumulate and regularly report the cost of its activities for
    management information.

    * Responsibility segments: Management of each reporting entity is to
    define and establish responsibility segments and report the costs of
    each segment’s outputs.

    * Full costs: Reporting entities are to report the full costs of
    outputs, which is the total amount of resources used to produce the
    output, including direct and indirect costs.

    * Inter-entity costs: Each entity’s costs are to incorporate the full
    cost of goods and services received from other entities. As directed by
    SFFAS No. 4, paragraph 110, OMB has designated, in its Circular No. A-
    136, Financial Reporting Requirements, the costs of goods and services
    received from other entities to be recognized. SFFAS No. 30, effective
    for reporting periods beginning after September 30, 2008, requires full
    implementation of this inter-entity cost provision.

    * Costing methodology: The costs of resources that directly or
    indirectly contribute to the production of outputs are to be
    accumulated and assigned to outputs using appropriate methodologies.
    (FAM 903.07.)

    Audit Procedures for Financial Statement Opinion:

    .06 As part of understanding the entity’s operations, the auditor
    generally should obtain an overview of how the entity applies FASAB
    cost standards. This may be done by inquiry, observation, and
    walkthrough procedures. The auditor generally should determine what
    substantive testing procedures of the cost accounting system are
    appropriate and may coordinate testing with other control and
    substantive procedures. Based on the understanding of entity
    operations, the auditor should determine whether the statement of net
    costs is designed to include all costs of entity programs. Also, in
    testing the statement of net costs, the auditor generally should test
    the financial statement assertions related to costs, including whether
    expenses are properly classified in the statement of net costs.
    Consistent with FAM 395 B, examples of subassertions related to costing
    are:

    Existence Or Occurrence:

    * Occurrence/Validity—(1) Recorded costs, underlying goods and services
    received, and related processing procedures are authorized by federal
    laws, regulations, and management policy. (2) Recorded costs are
    approved by appropriate individuals in accordance with management’s
    general or specific criteria. (3) Recorded costs exist for goods and
    services received and are properly classified.

    * Cutoff—Costs recorded in the current period represent goods and
    services received during the current period.

    * Summarization—(1) The summarization of recorded costs is not
    overstated. (2) Costs are assigned to appropriate classifications in
    the financial statements.

    Completeness:

    * Transaction completeness—All valid costs are recorded and properly
    classified.

    * Cutoff—All goods and services received in the current period are
    recorded in the current period.

    * Summarization—The summarization of recorded costs is not understated.

    Accuracy/valuation:

    * Accuracy—Costs are recorded at correct amounts.

    * Valuation—Costs are valued in the financial statements using an
    appropriate valuation basis.

    * Measurement—Costs included in the financial statements are properly
    measured.

    * Presentation And Disclosure:

    - Account classification—Cost accounts are properly classified and
    described in the financial statements.

    - Consistency—Costs in financial statements are based on accounting
    principles that are applied consistently from period to period.

    - Disclosure—Financial statements and footnotes contain all information
    required to be disclosed.

    .07: SFFAS No. 4 discusses three methods of assigning costs: directly
    tracing costs, assigning costs on a cause-and-effect basis, and
    allocating costs on a reasonable and consistent basis. Although the
    standard discusses these three methods in relation to assigning costs
    to responsibility segments and outputs, the methods are also applicable
    to assigning costs to financial statement line items in the statement
    of net costs, generally by program, and in the notes by budget
    functional classification. The different methods of assigning costs may
    require different auditing procedures for determining whether costs are
    properly classified in the statement of net costs by program.

    .08: For directly traced costs (such as materials used in production or
    employees who worked on an output), the auditor generally should test
    whether costs were assigned to the appropriate program and/or budget
    functional classification.

    .09: In some cases, costs may be assigned on a cause-and-effect basis,
    by grouping costs into cost pools where an intermediate activity may be
    a link between the cause and the effect. For example, an information
    technology department may provide support to other departments. The
    information technology department may assign costs to other departments
    on a causeand- effect basis by first assigning costs to an intermediate
    activity, such as hardware installation or software design. The costs
    in these pools may then be further assigned to other departments based
    on their use of these technical services.
    In auditing these types of costs, the auditor generally should test
    whether costs are assigned to the appropriate cost pool (hardware
    installation, software design), and also whether costs are
    appropriately summarized in the pool. When costs are assigned to other
    departments, the auditor generally should test whether costs assigned
    are based on appropriate usage information, whether cost assignments
    are reasonable and consistent, and whether they are mathematically
    accurate.

    .10: If it is not economically feasible to either directly trace or
    assign costs on a cause-and-effect basis, the entity may allocate
    costs. This is commonly done with costs such as general management,
    depreciation, rent, maintenance, security, and utilities used in common
    by various segments.

    These costs are generally accumulated in cost pools and allocated to
    segments or outputs (or programs or budget functional classifications)
    using a cost driver such as number of employees, square footage of
    office space, or amount of direct costs incurred in segments. In
    auditing these allocated costs, the auditor generally should test
    whether the costs are assigned to the appropriate cost pool and
    summarized appropriately. The auditor also generally should determine
    whether the allocation basis is reasonable and consistent, whether the
    mathematical allocation is correct, and whether an allocation is
    appropriate in the circumstances.

    .11: The entity exercises professional judgment in determining the line
    item and programs to include in its statement of net costs. The auditor
    generally should consider whether such classifications are reasonable
    in the circumstances.
    Federal Financial Management Improvement Act of 1996 (FFMIA)

    .12: For audits of the CFO Act agencies and components identified by
    OMB audit guidance, the auditor must evaluate whether agency financial
    management systems substantial comply with the three requirements of
    FFMIA (see FAM 100.02 and FAM 701). To determine compliance with SFFAS
    No. 4 and SFFAS No. 30 for the purposes of FFMIA, the auditor generally
    should ask the following questions (which relate to the standards
    discussed in FAM 903.05)

    * Does the agency regularly accumulate and report the full cost of its
    activities to management?

    * Has the agency defined its major programs and responsibility segments
    for the purpose of delineating costs?

    * Does the agency properly accumulate full costs by those programs and
    segments?

    * Has the agency accounted for the full costs (including inter-entity
    costs) of products, services, or outputs to be externally reported at
    the entitywide level?

    * Has the agency accounted for the full cost of resources that
    contribute to the production of outputs by individual responsibility
    segment using appropriate costing methodologies? (See FAM 903.07)

    * Has the agency reported full costs in the year-end financial
    statements on the accrual basis of accounting?

    * Are costs reported for external financial reporting and those
    reported for internal management reporting consistent and reconcilable?

    * Is the reported management cost information consistent, timely, and
    comprehensive?

    * Is the cost information reported in such a manner that management can
    determine answers to appropriate questions about costs of outputs or
    outcomes?

    * How does management determine whether costs are appropriate?

    * How does management determine compliance with FFMIA? The auditor
    generally should combine this inquiry with the procedures in FAM
    903.06, and consider the outcome in concluding about compliance with
    the cost accounting requirements under FFMIA. Also, the auditor
    generally should review evidence supporting management’s assertions in
    response to these questions, as further discussed in FAM 701, Assessing
    Compliance of Agency Systems with FFMIA. Management’s Discussion and
    Analysis (MD&A)

    .13: The auditor does not provide an opinion on the MD&A and this
    information is unaudited. Thus, the auditor’s main concern is
    consistency of this information, rather than testing the reliability of
    the cost data in the MD&A. The auditor generally should read the MD&A
    for consistency with the financial statements and with the auditor’s
    knowledge of the entity. The auditor generally limits testing to data
    in the financial statements, as discussed in FAM 903.06, not the MD&A.
    The auditor may use analytical procedures to determine the
    reasonableness of cost data in the MD&A. Based on this comparison, the
    auditor should determine whether additional testing is needed.

    Cost Reports:

    .14: Costs reported in internal and external entity reports are
    expected to be consistent, but may differ in the degree of detail and
    reporting frequency. Cost information for management generally requires
    more frequent and timely reporting. It also may require more specific
    and detailed information regarding the costs of individual activities
    or outputs. By comparison, external reports are generally less
    frequent, and the cost information more aggregated, such as on a
    suborganization or program basis.

    .15: Entity level information, including cost data, generally becomes
    more summarized at the U.S. government consolidated financial statement
    level, or does not apply to the consolidation. In some cases, the
    consolidation refers readers to individual agency financial statement
    reports for further details in specific areas.

    921- Auditing Fund Balance with Treasury (FBWT):

    .01: FAM 921 provides guidance to the auditor when auditing FBWT
    accounts. However, significant changes are anticipated in this area
    over the next several years as Treasury is developing and implementing
    the Government Wide Accounting (GWA) system, which is discussed further
    in FAM 921.11. Implementation of the GWA system by federal entities is
    expected to vary considerably and auditors should determine the effects
    of this early in the audit as discussed in FAM 921.12.

    .02: The FBWT account (SGL account 1010) is an asset account, unique to
    the U.S. government, representing unexpended spending authority.
    Entities record their budget spending authority in FBWT accounts with
    an offsetting amount to unexpended appropriations – SGL account series
    3100. Similar to cash in commercial bank accounts, FBWT amounts
    increase as funds are collected and decrease as amounts are paid,
    although noncash transactions adjust the balances, primarily as a
    result of budgetary activity. Most entities have several FBWT accounts
    funded by different types of appropriations[Footnote 39] that are
    included in the financial statement FBWT line item.

    .03: Federal agencies may also maintain other types of FBWT accounts,
    such as for collections pending litigation, amounts awaiting
    determination of the proper accounting disposition, or monies being
    held by the entity in the capacity of a banker or agent for others,
    such as non-entity, trust, or escrow accounts. Certain funds may also
    be earmarked for specific purposes or restricted as to use. Entities
    may also have FBWT balances in clearing or suspense accounts as a
    result of unidentified and unclassified transactions.

    .04: In the federal government, Treasury serves as the central banker.
    Most entities use the banking services provided by Treasury’s Financial
    Management Service (FMS), and therefore do not keep cash in commercial
    bank accounts. Some entities have authority to disburse funds on their
    own behalf and maintain separate commercial bank accounts in U.S. or
    foreign currency. However, these agencies still maintain FBWT accounts
    to track the status of their spending authority.

    .05: Regular reconciliation of entity FBWT records with Treasury
    records is a key control in maintaining the accuracy and reliability of
    entity fund balance records. Effective reconciliations serve as a
    detection control for identifying unauthorized and unrecorded
    transactions at the entities and at Treasury. Effective reconciliations
    are also important in preventing entity disbursements from exceeding
    appropriated amounts and providing an accurate measurement of the
    status of available resources.

    .06: Treasury maintains and provides appropriation, fund, and receipt
    account ledgers to entities. This includes a roll forward of the
    previous month’s balance, the current month’s cash activity reported by
    the entity, and other account activity such as supplemental
    appropriations, rescissions, nonexpenditure transfers, and activity
    reported by other entities. These Treasury account ledgers can be used
    by entities for comparison to their records to account for all
    transactions.

    .07: Treasury also provides entities with detailed reports of cash
    receipt and disbursement transactions reported by the Federal Reserve,
    commercial banks, other federal entities, and the FMS regional
    financial centers. These reports can be used by entities to reconcile
    FBWT and most likely will be affected by implementation of the GWA
    system discussed in FAM 921.11- .12.

    FBWT Accounting and Reporting Information:

    .08: To obtain a further understanding of entity’s accounting and
    reporting for FBWT, the auditor may refer to:

    * Treasury Financial Manual, Volume 1, part 2, chapter 5100 –
    Reconciling Fund Balance with Treasury accounts, (see link at
    [hyperlink, http://fms.treas.gov/fundbalance)].

    * OMB Circular No. A-136, Financial Reporting Requirements.

    * SFFAS No. 1, Accounting for Selected Assets and Liabilities.

    * Entity accounting policies and procedures for FBWT accounts.

    FBWT Audit Issues:

    .09: Since most assets, liabilities, revenues, and expenses stem from
    or result in cash transactions, misstatements in the receipt or
    disbursement activity recorded in the FBWT account affects the accuracy
    of year-end FBWT balances. It also affects the accuracy of several
    entity financial statements, including the Balance Sheet, the Statement
    of Net Cost, and the Statement of Budgetary Resources. Further, it
    affects the integrity of entity budget execution reports and various
    U.S. government accounts and reports.

    .10: It is important for entities to establish processes to properly
    record and reconcile transaction activity in their FBWT accounts
    because without effective reconciliations of FBWT receipt and
    disbursement activity, the amount of funds available for expenditure by
    each appropriation may contain material misstatements. Entities should
    avoid arbitrarily adjusting accounts to the amounts reported by
    Treasury and/or recorded differences in suspense accounts without
    adequately researching the causes of the differences. Unreconciled
    differences recorded in suspense accounts could represent transactions
    that have not been properly recorded by the entity to the appropriate
    accounts.

    Additionally, it is important for entities to reconcile their FBWT
    account balances timely because this task becomes more difficult as
    time passes and erroneous or fraudulent transactions may not be
    identified to take appropriate actions. TFM Volume 1, part 2, chapter
    5100 states that entities should perform monthly reconciliations of
    their FBWT accounts.

    .11 Treasury is developing the Government Wide Accounting (GWA) system,
    to be implemented over the next several years. The GWA system will
    eliminate the two-step reporting processes used by federal entities and
    Treasury by transitioning from a monthly to a daily process of
    reporting receipt and disbursement transactions to Treasury. This daily
    classification of activity will eliminate the need for federal entities
    to submit a monthly Statement of Transactions. The monthly Statement of
    Differences reports that formerly resulted from this two-step
    classification process will also be eliminated. Additionally, similar
    to commercial on-line banking, the GWA system can provide federal
    entities with a daily account statement of their FBWT accounts via the
    Internet. Treasury continues to use “independent” sources of entity
    FBWT activity, such as commercial banks, other federal entities, and
    Treasury’s FMS regional financial centers, to calculate federal entity
    FBWT balances.

    .12 Implementation of the GWA system by federal entities is expected to
    vary and auditors should determine the effects of this early in the
    audit. The changing environment during this transition period increases
    the audit risk associated with FBWT. To design effective and efficient
    audit procedures during this transition period, auditors should fully
    understand the status of GWA system implementation at their respective
    federal entity and the processes and procedures used by their
    particular entity during the year of audit.

    .13 Treasury also plans to discontinue the use of certain suspense
    (“F”) accounts used by entities to record unreconciled receipt and
    disbursement transactions. Auditors will need to design procedures to
    test whether entities have properly reconciled and classified the
    suspense items that were recorded in these discontinued accounts. Some
    entities will be granted waivers to continue using the suspense
    accounts and auditors will need to ensure that all of the
    reconciliations, aging, and CFO confirmation of balance requirements
    for these suspense accounts are accurately performed by the entity.
    Auditors will also need to fully understand their entity’s procedures
    for tracking and recording suspense type items going forward and design
    audit procedures to adequately test and assess the impact of the
    suspense items on the FBWT at year-end.

    FBWT Audit Approach:

    .14: Auditors should obtain and fully document their understanding of
    entity FBWT accounts, accounting systems, procedures, and the FBWT
    control environment, including the information technology processing
    and security controls over systems that report or transact FBWT
    activities or balances, to determine the level of audit procedures
    required.

    .15: Auditors should design FBWT audit procedures that include tests of
    the receipt and disbursement activity that flows through the accounts
    and the FBWT balances. These procedures should include steps to
    determine whether the entity:

    * properly and timely records receipt and disbursement activity in
    their FBWT accounts;

    * researches and resolves the underlying causes of differences between
    amounts reported by Treasury and entity records, including the receipt
    and disbursement activity flowing through the FBWT accounts, as well as
    the monthly account balances, and makes the proper adjustments; and:

    * timely and properly clears suspense account balances.

    .16: Auditors should determine the magnitude of the entity’s gross
    unreconciled differences at year-end by analyzing their aggregate
    absolute values and resulting impact on the financial statements. Since
    each difference represents a potential misstatement, the roll-up and
    netting of charges and credits can significantly understate the total
    outstanding differences.

    Audit Procedures:

    .17: Audit procedures for the FBWT will vary by entity and auditors
    should use their professional judgment to design audit programs for
    their particular entity after considering the type of FBWT accounts,
    materiality, audit risks, and the internal control environment. Over
    the next several years as entities implement the GWA system, auditors
    may consider the example audit procedures provided below to audit FBWT,
    as well as developing new procedures to audit the GWA system.

    Planning and Internal Control Phase:

    .18: To obtain an understanding of the entity’s environment, internal
    control over FBWT accounts and reconciliation process in the planning
    and internal control phase of the audit, the auditor may perform steps
    to:

    * Review accounting and reporting information on FBWT at FAM 921.08.

    * Read prior year audit documentation, financial statements, and
    related audit reports to determine if there were any audit issues,
    significant deficiencies, or material weaknesses related to FBWT.

    * Interview entity key staff about its FBWT procedures and controls in
    place.

    * Determine how the entity disburses funds for both payroll and
    nonpayroll transactions, either through FMS regional finance centers,
    other entity disbursing centers, on its own behalf, or a combination of
    ways.

    * Obtain an understanding of the significant accounting systems and
    controls used in reporting and accounting for FBWT transactions.

    * Identify FBWT line item general ledger accounts.

    * Obtain an understanding and walkthrough entity internal controls over
    its FBWT reconciliation process and determine whether reconciliation
    controls have been placed in operation.

    * Inquire how the entity tracks and reports differences between its
    FBWT records and Treasury’s FBWT records.

    * Identify suspense and clearing accounts used by the entity containing
    unreconciled differences and determine if transactions are identified
    and removed from these accounts to the proper accounts in a timely
    manner.

    * Determine if the entity has a process or system for aging
    unreconciled differences.

    * Determine whether the entity is properly accounting for the FBWT line
    item in accordance with U.S. GAAP by having the entity complete FAM
    2010, Checklist for Federal Accounting.

    Testing Phase:

    .19: In the testing phase of the audit, the auditor may design an audit
    program that includes steps to determine whether the entity:

    * Properly and timely records receipt and disbursement activity in its
    FBWT accounts.

    * Researches and resolves the underlying causes of differences between
    amounts reported by Treasury and entity records, (including the receipt
    and disbursement activity flowing through the FBWT accounts and the
    account balances each month) and makes the proper adjustments.

    * Timely and properly investigates clearing and suspense account
    balances.

    * Reconciles its FBWT accounts and performs procedures to determine the
    materiality of gross unreconciled differences at year-end by analyzing
    the aggregate absolute values and resulting impact on the financial
    statements. (Since each difference represents a potential misstatement,
    the roll-up and netting of charges and credits can significantly
    understate the total outstanding differences).

    * Includes and presents nonexpenditure transactions such as
    appropriation warrants, transfers, and rescissions.

    * Discloses the status of accounts, such as open, expired, or canceled
    and whether the account is appropriately included in the FBWT line
    item.

    Reporting Phase:

    .20: To assess whether the presentation of the financial statements and
    footnote disclosures for the FBWT line item are in accordance with U.S.
    GAAP, the auditor may determine whether the entity has:

    * Disclosed and explained material unreconciled differences in the
    notes to the financial statements.

    * Disclosed material unreconciled differences that were written off by
    the entity during the fiscal year in the notes to the financial
    statements.

    * Disclosed material restrictions.

    * Concluded that proposed audit adjustments are either booked or were
    determined to be immaterial and were attached to the management
    representation letter (see FAM 1001).

    * Determined that the entity is properly reporting and disclosing the
    FBWT line item in accordance with U.S. GAAP by having the entity
    complete FAM 2020, Checklist for Federal Reporting and Disclosure. .21
    Other audit procedures for FBWT may include tests of entity:

    * fund controls,

    * reconciliations of proprietary and budgetary amounts,

    * compliance with applicable laws and regulations, and

    * year-end reporting to Treasury and OMB.

    .22: These audit procedures are not intended to be all inclusive. They
    do not include all audit work over FBWT accounts, such as:

    * cash on deposit bank accounts and petty cash (imprest) funds,

    * tests of controls over check stock for entities that still write
    checks instead of EFT, and:

    * steps to test the specific requirements and/or compliance with
    regulations and laws related to certain types of FBWT accounts, such as
    those mentioned above in FAM 921.03.

    Practice Aids:

    .23: The following practice aids are presented as appendixes to FAM 921
    to assist the auditor in auditing FBWT as follows:

    * FAM 921 A – Treasury Processes and Reports Related to FBWT
    Reconciliation.

    * FAM 921 B – Example Account Risk Analysis (ARA) for FBWT.

    * FAM 921 C - Example Specific Control Evaluation (SCE) for FBWT. A
    single SCE of the line item/account-related accounting application for
    FBWT is presented. There are transaction-related accounting
    applications listed on the ARA that affect FBWT, such as cash receipts
    and cash disbursements, which would require transaction related SCEs.

    921 A - Treasury Processes and Reports Related to FBWT Reconciliation:

    A. Verification of Collections and EFT Disbursements These FBWT
    processes and reports are subject to change by the implementation of
    the GWA system discussed in FAM 921.11-.12.

    Table:

    [See PDF for image]

    *CASHLINK II processes will be migrating to successor systems such as
    Transaction Reporting System (TRS) and Treasury General Account Deposit
    Reporting Network (TGAnet) system.
    **STAR performs core central accounting functions as the system of
    record and the GWA system serves as a conduit to feed information in
    and out. The two systems work in tandem to perform all of the central
    accounting functions, although the GWA system is expected to replace
    the STAR functionality.

    [End of figure]

    Table: B. Verification of Disbursement Data:

    [See PDF for image]

    [End of table]

    Table: 921 B - Example Account Risk Analysis for Fund Balance with
    Treasury

    [See PDF for image]

    [End of table]

    Entity:

    Date of Financial Statements:

    Accounting application:

    Fund Balance with Treasury:

    Specific Control Evaluation:

    Preparer:

    Date:

    (Line Item/Account-Related):

    Reviewer:

    Date:

    Table 921 C - Example Specific Control Evaluation for Fund Balance with
    Treasury:

    [See PDF for image]

    [End of figure]

    931 – Auditing Heritage Assets and Stewardship Land:

    .01: Heritage assets are real and personal tangible federal property,
    plant, and equipment (PP&E) that is unique for one or more of the
    following reasons:

    * Historical or natural significance.

    * Cultural, educational, artistic (or aesthetic) importance.

    * Significant architectural characteristics. Heritage assets consist of
    two types. Collection type heritage assets involve objects gathered and
    maintained for exhibition and would include such examples as museum
    collections, art collections, and library collections.

    Non-collection type heritage assets would include such examples as
    parks, memorials, monuments, and buildings.

    .02: Stewardship land is public land and land rights owned by the
    federal government, much of it acquired when the nation was formed. It
    does not include land acquired for or used in connection with general
    PP&E. Examples of stewardship land include land used as national
    forests and parks, and land used for wildlife and grazing. It excludes
    natural resources (for example, minerals, timber, and petroleum)
    related to the land.

    .03: Heritage assets may in some cases be used to serve two purposes—a
    heritage function and general government operations. In cases where a
    heritage asset serves two purposes, the heritage asset should be
    considered a multi-use heritage asset if the predominant use of the
    asset is in general government operations. For example, the main
    Treasury building in Washington, DC is used primarily as an office
    building. This multi-use asset would be considered general property,
    capitalized on the balance sheet, and depreciated. Heritage assets
    having an incidental use in government operations are not multi-use
    heritage assets; they are simply heritage assets.

    .04: SFFAS No. 29, Heritage Assets and Stewardship Land, issued on July
    7, 2005, changed the classification of information reported for
    heritage assets and stewardship land provided by SFFAS No. 6 and SFFAS
    No. 8. Previously, reporting components of this federal property (e.g.,
    unit balances, additions, withdrawals, methods of acquisition and
    withdrawal) was presented as unaudited RSSI. However, under SFFAS No.
    29, most information about heritage assets and stewardship land is
    reclassified to the audited basic financial statements, except for
    condition information that is presented as unaudited RSI. SFFAS No. 29
    also requires additional audited disclosures about the federal entity’s
    stewardship policies and an explanation of how heritage assets and
    stewardship land relate to the entity’s mission.

    .05: Per SFFAS No. 29, entities must reference a note on the balance
    sheet that discloses information about heritage assets and stewardship
    land but no dollar amount is shown. At a minimum, entities are to
    present in note disclosure a description of major categories of assets,
    physical unit information for the end of the reporting period, physical
    units added and withdrawn during the reporting period, and a
    description of the methods of acquisition and withdrawal.

    Entities are also required to disclose information about stewardship
    policies and an explanation of how heritage assets and stewardship land
    relate to the mission of the entity. The standard also includes
    disclosure requirements applicable to the U.S. government-wide
    financial statements which must provide a general discussion of
    heritage assets and stewardship land and direct users to the applicable
    entities’ financial statements for more detailed information on these
    assets.

    .06: SFFAS No. 29 will be phased-in for reporting periods after
    September 30,
    2005, (FY 2006 through 2008). Full implementation of SFFAS No. 29 is
    effective for periods after September 30, 2008, (FY 2009) although
    early adoption is encouraged.
    Accounting and Reporting Information

    .07: To obtain a further understanding of entity accounting and
    reporting for Heritage Assets and Stewardship Land, the auditor may
    refer to:

    * SFFAS No. 6, Accounting for Property, Plant and Equipment,

    * SFFAS No. 8, Supplementary Stewardship Reporting (SFFAS 29 rescinds
    Chapter 2 and Chapter 4),

    * SFFAS No. 14, Amendments to Deferred Maintenance Reporting,

    * SFFAS No. 29, Heritage Assets and Stewardship Land,

    * FASAB Technical Release 9, Implementation Guide for SFFAS No. 29:
    Heritage Assets and Stewardship Land (Feb 20, 2008),

    * OMB Circular No. A-136, Financial Reporting Requirements, and

    * entity accounting policies and procedures. Audit Issues.

    .08: Entity financial statements, particularly DOD, have disclosed
    material weaknesses in accounting for federal PP&E. This includes
    identification of physical quantities by type of asset, cost/valuation,
    depreciation (if general property, except land), condition, and
    recording transactions in the proper period.

    Audit Approach/Strategy

    .09: The auditor should develop their audit approach/strategy by
    identifying the extent of heritage assets and stewardship land at the
    entity they are auditing. The auditor should then obtain and fully
    document their understanding of this property in the entity’s accounts,
    accounting systems, and related policies and procedures. The auditor
    should also understand the control environment for this property,
    including the information technology processing and security controls
    over systems that report or transact activities or balances, to
    determine the level of audit procedures required.

    Audit Plan/Procedures:

    .10: Heritage assets and stewardship land will vary by entity and
    auditors should use their professional judgment to design the audit
    plan/procedures for their particular entity after considering the type
    of accounts, materiality, audit risks, and the internal control
    environment. From fiscal years 2006 through 2008, as entities implement
    SFFAS No. 29, auditors may consider the example audit procedures
    provided below to audit this property, as well as a basis to develop
    new procedures.

    Planning Phase:

    .11: To obtain an understanding of entity heritage assets and
    stewardship land in the planning phase of the audit, the auditor may:

    * Obtain an understanding of significant accounting and auditing
    issues, read the entity’s prior year’s accountability and auditors’
    reports.

    * Read applicable SFFAS and OMB Circular No. A-136 guidance for
    accounting, reporting, and disclosing heritage assets and stewardship
    land.

    * Understand and document the entity’s stewardship policies for
    identifying heritage assets and stewardship land separate from multiuse
    heritage assets and other general PP&E, and indicate how the
    designation of heritage assets and stewardship land relate to the
    entity’s mission.

    * Understand and document the entity’s procedures for identifying,
    categorizing, accounting, reconciling and reporting heritage assets and
    stewardship land. Note that SFFAS No. 29 allows the entity flexibility
    in designating categories by determining a meaningful level of
    aggregation for reporting and selecting physical units aligned with
    those categories based on the entity’s mission, types of heritage
    assets, and how it manages those assets.

    * Understand and document the entity’s methodology for acquisition and
    withdrawal of heritage assets and stewardship land during the reporting
    period.

    * Understand and document the methodology used to account for deferred
    maintenance (although unaudited RSI) on heritage assets and stewardship
    land during the reporting period.

    * Identify and understand the impact of systems/methods for
    classifying, accounting, and processing of transactions related to
    heritage assets and stewardship land by interviewing the entity’s key
    personnel and its systems and methods for processing transactions.

    * Provide sufficient time for the entity to respond to documentation
    requests, as some records may be housed in field offices or other
    locations.

    * Coordinate, through the audit liaison, with non-financial staff, such
    as cultural resource personnel, as heritage assets are non-financial
    assets.
    * Acquire expertise related to the assets they are auditing.

    Internal Control Phase:

    .12: To understand the internal controls the entity has in place for
    identifying, accounting, and reporting heritage assets and stewardship
    land, the auditor may:

    * Determine through inquiry of management, walk-throughs, inspection of
    documents, review of prior year’s documentation and other means
    applicable to the entity, the entity’s process for identifying,
    classifying and reporting heritage assets and stewardship land.
    Specifically:

    a) Whether the entity has an authorization process and the related
    control procedures for acquisition, withdrawal, and deferred
    maintenance transactions related to heritage assets and stewardship
    land.

    b) How the entity has instituted a consistent methodology for
    categorization of heritage assets and stewardship land based on the
    entity’s mission and in accordance with SFFAS No. 29.

    c) How the entity records acquisitions, withdrawals, and deferred
    maintenance entries in the accounting system and performs
    reconciliations between the accounting system and the asset
    accountability system. In accordance with SFFAS No. 29, costs related
    to the acquisition, improvement, reconstruction and renovation of
    heritage assets/stewardship land are recognized in the Statement of net
    cost for the period in which the costs are incurred. These include all
    costs incurred to prepare the item for its intended use.

    d) Whether the entity maintains transaction logs or detailed records of
    transactions to identify the postings to SGL accounts and to facilitate
    the reconciliation process and whether the logs include sufficient
    information to enable identification and location of supporting
    documentation.

    e) How the entity classifies and records transfers to/from other
    federal entities of heritage assets and stewardship land.

    f) How the entity classifies and records donation or devise of heritage
    assets and stewardship land.

    g) Whether the entity separates and capitalized multi-use heritage
    assets. The cost of acquisition, improvement, reconstruction, or
    renovation of multi-use heritage assets should be capitalized as
    general PP&E and depreciated over its useful life.

    h) Whether and how the entity conducts periodic physical inventories
    designed to verify the existence, location, and condition of all
    property listed in the accounts, and to verify the completeness of
    recorded units.

    * Prepare or update the cycle memorandum, flowchart, ARA, and SCE forms
    (see FAM 390, FAM 395 H, and FAM 395 I).

    Testing Phase:

    .13: For heritage assets and stewardship land, if the auditor
    preliminarily determines that the entity’s internal control procedures
    are effectively designed and placed in operation, the auditor may test
    the entity’s policies and procedures to determine if the controls are
    effective and the balances appear reasonable. The audit objectives for
    substantive procedures are to:

    * Determine the existence of recorded heritage assets and stewardship
    land.

    * Determine the completeness of recorded heritage assets and
    stewardship land.

    * Determine the entity’s ownership rights to record these assets as
    heritage assets and stewardship land in accordance with SFFAS No. 29.

    * Determine the clerical accuracy of unit schedules for additions and
    deletions.

    * Determine the aggregation and categorizations of physical units are
    in accordance with guidelines established in SFFAS No. 29. For example,
    DOI has reported the number of federal parks, instead of the number of
    acres comprising those parks, as physical units.

    * Determine the presentation and disclosure of heritage assets and
    stewardship land and note disclosures are in accordance SFFAS No. 29.

    .14: Existence: To determine the existence of heritage assets and
    stewardship land, the auditor may:

    * Determine the propriety of beginning balance of physical units. As
    heritage assets and stewardship land are being reclassified as basic
    information, auditors may require supporting documentation to fulfill
    audit assertions. However, due to the age of when these assets were
    acquired, documentation may no longer exist. The entity and the auditor
    are encouraged to develop other reasonable approaches and methods to
    satisfy audit assertions that would rely on historical documents as
    evidence and support. Further guidance is provided in the AAPC
    implementation guide, paragraphs .80-.85.

    * Obtain a summary analysis of changes in property in the current
    fiscal year and reconcile to the general ledger.

    * Agree changes in units from the subsidiary ledger to the general
    ledger.

    * Vouch additions during the year by analyzing on a sample basis
    (depending on the auditor’s assessment of control risk) entries from
    the general ledger to the original documentation such as contracts,
    deeds, work orders, and invoices.

    * On a sample basis, make physical inspections of acquisitions and
    examine supporting documents on disposals. The auditor should
    coordinate inspections with the appropriate entity staff, particularly
    when visiting non-federal repositories which hold federal museum
    collections. This will ensure that visits are efficient and productive,
    and relationships between repositories and the entity are maintained.

    .15: Completeness: The auditor may determine the completeness of
    recorded heritage assets and stewardship land by tracing transactions
    recorded in the asset accountability system to general ledger accounts.
    Usually, few changes occur in heritage assets and stewardship land
    during the year and the auditor should investigate significant changes
    in balances. Since cutoff errors are not a major risk in establishing
    the completeness of recorded assets, if the auditor is satisfied with
    the beginning balances and verifies the acquisition and withdrawals of
    the current period, the auditor has also substantiated the ending
    balance.

    .16: Rights and Obligations: To determine the entity’s ownership rights
    to record the property as heritage assets and stewardship land, the
    auditor may:

    * Examine FASAB definitions of heritage assets and stewardship land,
    historical documents, and compliance procedures to determine the
    entity’s ownership rights to record the property as heritage assets and
    stewardship land (as opposed to another federal entity).

    * Examine documents to determine legal ownership such as public
    records, property deeds, property tax bills (or exceptions), and other
    documents specific to the entity’s documentation of legal ownership.
    Documentation of ownership may be in a variety of formats including
    permits, reports, and associated records which indicated where natural
    resources were recovered from public lands.

    * Examine the entity’s statements showing the assets’ direct link to
    the entity’s mission. Auditors may perform this procedure to gain more
    information about the entity’s assets, rather than to determine which
    assets are properly included in the heritage assets and stewardship
    land category.

    .17: Accuracy: To determine the accuracy of unit schedules for heritage
    assets and stewardship land additions and deletions, the auditor may:

    * Agree subsidiary ledger for additions and deletions to controlling
    accounts and examine detailed supporting documentation.

    * Determine the propriety and accuracy of recorded transfers and
    donations, examine subsidiary ledgers, and agree to detailed supporting
    documentation.
    * Recompute footings and extensions in detailed documentation and
    summary analysis.
    .18 Classification: To determine the aggregation, unitization and
    categorization of physical units for heritage assets and stewardship
    land, the auditor may:
    * Examine entity documentation and methodology for categorization of
    units to determine whether the entity’s aggregation/categorization and
    physical unit of measure are appropriate, based on the entity’s
    mission, how the entity views the asset for management purposes, types
    of heritage assets, and materiality considerations. The entity should
    designate asset categories that are meaningful and reflect how it views
    the asset for management purposes. It would also be helpful if entities
    documented the reasoning for categorization.
    * Determine whether the results of testing and the nature of
    misstatements indicate that the auditor should re-assess the risk of
    material misstatement and revise procedures.

    Reporting Phase:

    .19: To determine the proper reporting, presentation, and disclosure of
    heritage assets and stewardship land, the auditor may review the
    balance sheet and determine whether these items are properly reported
    and correctly classified as heritage assets and stewardship land. The
    auditor should also read the note disclosures and determine whether the
    entity reported:

    For periods beginning after September 30, 2005 (FY 2006 and FY 2007):

    * Disclosure of how the heritage assets and stewardship land relate to
    the entity’s mission.

    * Description of stewardship policies.

    * Discussion of multi-use heritage assets.

    * Disclosure of asset condition and deferred maintenance as RSI.

    For periods beginning after September 30, 2007 (FY 2008):

    * Inclusion of all the requirements noted above plus a description of
    the major categories of heritage assets and the number of physical
    units as collection or non-collection type for which the entity is the
    steward at the end of the reporting period.

    For periods beginning after September 30, 2008 (FY 2009):

    * Inclusion of all requirements noted above with the number of physical
    units by major category added and withdrawn and a description of the
    major methods of acquisition and withdrawal.

    * Full compliance with all SFFAS No. 29 requirements for reporting
    periods beginning with FY 2009 is expected for all entities. To be in
    accordance with SFFAS No. 29, information that is not required to be
    reported as basic information during the phase-in period is still
    required, but should be reported as RSI until the exceptions expire. It
    may be appropriate for entities to include a reference to the
    information reported as RSI during the phase-in period.

    The auditor should also summarize the results and determine if
    adjustments are necessary, and conclude whether heritage assets and
    stewardship land have been adequately accounted for and properly
    disclosed in the financial statements.

    If the entity has early implemented SFFAS No. 29, the auditor should
    confirm that the required information is presented.

    941 – Auditing the Statement of Social Insurance:

    .01: The Statement of Social Insurance (SOSI) has grown in prominence
    as it presents trillions of dollars of future federal expenditures over
    future federal revenues. Beginning with fiscal year 2006, the SOSI is
    required to be audited, along with certain social insurance disclosure
    information, while other social insurance information is to be
    presented as unaudited required supplemental information (RSI). Because
    most of the information is based on actuarial projections up to 75
    years into the future, it presents a challenge to the federal entity
    responsible for its preparation, as well as to the auditor. FAM 941
    provides auditors with some guidance in auditing the SOSI in accordance
    with U.S. GAGAS.

    .02: FASAB has established accounting requirements for the SOSI through
    various SFFAS. The financial statements affected are those of federal
    entities responsible for Social Security, Medicare, Railroad
    Retirement, and Black Lung programs, as well as the consolidated
    financial statements of the federal government. For periods beginning
    after September 30, 2005, the SOSI is to be presented as a basic
    financial statement with the underlying significant assumptions
    included in notes that are presented as an integral part of the
    financial statements.

    .03: FASAB standards for social insurance programs require entities and
    the consolidated federal financial statements to report:

    a. The estimated present value of the income to be received from or on
    behalf of the following groups during a projection period sufficient to
    illustrate the long-term sustainability of the social insurance
    programs for:

    * current participants who have not yet attained retirement age,

    * current participants who have attained retirement age, and

    * individuals expected to become participants.

    b. The estimated present value of the benefit payments to be made
    during that same period to or on behalf of the groups listed in item
    (a) above.

    c. The estimated net present value of the cash flows during the
    projection period [the income described in item (a) above over the
    expenditures described in item (b) above, or the expenditures described
    in item (b) above over the income described in item (a) above].

    d. In notes to the SOSI:

    1. The accumulated excess of all past cash receipts, including interest
    on investments, over all past cash disbursements within the social
    insurance program, represented by the fund balance at the valuation
    date.

    2. An explanation of how the net present value referred to in item (c)
    above is calculated for the closed group.[Footnote 40]

    3. Comparative financial information for items (a), (b), (c), and d (1)
    above for the current year and for each of the four preceding years.

    4. The significant assumptions used in preparing the estimates.
    Accounting and Reporting Information

    .04: FASAB has issued standards for reporting on social insurance
    programs of federal entities as follows:

    * SFFAS No. 17 – Accounting for Social Insurance, effective for periods
    beginning after September 30, 1999, presents accounting standards for
    federal social insurance programs covering Social Security (Old-Age,
    Survivors, and Disability Insurance), Medicare (Hospital Insurance
    [Part A] and Supplementary Medical Insurance [Part B]),[Footnote 42]
    Railroad Retirement, and Black Lung benefits, and Unemployment
    Insurance. Social insurance programs covered by SFFAS No. 17 have five
    common characteristics:

    1. financing from participants or their employers;

    2. eligibility from taxes or fees paid and time worked in covered
    employment;

    3. benefits not directly related to taxes or fees paid;

    4. benefits prescribed in law; and

    5. programs intended for the general public.

    * SFFAS No. 25 – Reclassification of Stewardship Responsibilities and
    Eliminating the Current Services Assessment requires the Statement of
    Social Insurance to become a basic audited financial statement. It also
    provides that certain information about social insurance programs
    required by SFFAS No. 17 be reported in audited notes or as unaudited
    RSI, rather than as unaudited RSSI. In accordance with SFFAS No. 28,
    the effective period was deferred one year from fiscal year 2005 to
    fiscal year 2006.

    * SFFAS No. 26 – Presentation of Significant Assumptions for the
    Statement of Social Insurance: Amending SFFAS No. 25 requires that the
    underlying significant assumptions relating to the Statement of Social
    Insurance shall be included in audited notes with other information
    required by SFFAS No. 17 – including the sensitivity analysis – to be
    presented as RSI, except to the extent that the preparer elects to
    include some or all of that information in audited notes. In accordance
    with SFFAS No. 28, the effective period was deferred one year from
    fiscal year 2005 to fiscal year 2006.

    * SFFAS No. 28 – Deferral of the Effective Date of Reclassification of
    the Statement of Social Insurance: Amending SFFAS Nos. 25 and 26
    deferred the effective dates of SFFAS No. 25 and SFFAS No. 26 for one
    year to the fiscal year ended September 30, 2006.

    .05: Auditors generally should follow the FAM methodology contained in
    the planning, internal control, testing, and reporting phases in FAM
    200-500 and the audit guidance included in the AICPA’s Statement of
    Position (SOP) 04-1, Auditing the Statement of Social Insurance. SOP 04-
    1 provides guidance to auditors in auditing the Statement of Social
    Insurance.

    .06: As permitted by AU 543, a principal auditor may fulfill the
    requirements of SOP 04-1 by using work that other independent auditors
    have performed in conformity with the provisions of SOP 04-1. For
    example, for the OASDI program, the auditor of the consolidated
    financial statements of the U. S. government may use the work and
    report of the auditor of the Social Security Administration’s Statement
    of Social Insurance.

    .07: According to AU 342.10, the auditor should obtain an understanding
    of how management develops estimates. Based on that understanding, the
    auditor should evaluate the reasonableness of management’s estimates by
    using one or a combination of approaches as follows:

    * reviewing and testing the process used by management to develop the
    estimate;

    * developing an independent expectation of the estimate to corroborate
    the reasonableness of management’s estimate; and

    * reviewing subsequent events or transactions occurring prior to audit
    completion.

    .08: In auditing the Statement of Social Insurance, if the auditor has
    assessed management’s controls over the estimation process to be
    effective, the auditor may determine that the most practicable and
    efficient approach is to test management’s process. However, if the
    auditor finds that controls over the estimation process are
    ineffective, the auditor should consider whether it is practicable to:

    * develop an independent expectation of the estimate, or portions of
    the estimate, to corroborate management’s estimate, or

    * obtain competent evidence from outside the audited entity’s process
    that would be sufficient to support the assertions in the Statement of
    Social Insurance. If it is not practicable to mitigate the effects of
    the ineffective controls through substantive procedures such as these,
    the auditor’s report on the Statement of Social Insurance should be
    modified (SOP 04-1, paragraph 9).

    .09: The auditor’s objective when auditing the Statement of Social
    Insurance is to obtain sufficient, competent, evidential matter to
    provide reasonable assurance that:

    * the estimates presented in the Statement of Social Insurance are
    reasonable in the circumstances, and:

    * the Statement of Social Insurance is presented fairly, in all
    material respects, in conformity with U.S. GAAP, including adequate
    disclosure.

    .10: If the auditor does not possess the level of competence in
    actuarial science to qualify as an actuary, the auditor generally
    should obtain the services of an independent actuary[Footnote 43] to
    assist the auditor in planning and performing auditing procedures.
    Generally, the auditor will need the assistance of an independent
    actuary in performing various procedures during all phases of the audit
    and related to all elements of the estimates (SOP 04-1, paragraph 10).

    Key Implementation Issues:

    Determining Materiality:

    .11: In FAM 230, materiality is one of several tools the auditor uses
    to determine that the planned nature, extent, and timing of procedures
    are appropriate. Materiality represents the magnitude of an omission or
    misstatement of an item in a financial report that, in light of
    surrounding circumstances, makes it probable that the judgment of a
    reasonable person relying on the information would have been changed or
    influenced by the inclusion or correction of the item. Materiality has
    both quantitative and qualitative aspects. Even though quantitatively
    immaterial, certain types of misstatements could have a material impact
    on or warrant disclosure in the financial statements for qualitative
    reasons.

    .12: Auditors should use professional judgment in determining the
    appropriate element of the financial statements to use as a materiality
    base. Auditors generally consider materiality in the context of the
    financial statements taken as a whole, taking into account both
    quantitative as well as qualitative attributes of the financial
    statements. Auditors should exercise due professional care when setting
    the materiality base, carefully assessing the information gained during
    the planning phase of the audit and the needs of a reasonable person
    relying on the financial statements (SOP 04-1, paragraph 21).

    .13: For certain federal entities, amounts reported in the Statement of
    Social Insurance may vary significantly from the amounts reported in
    the other basic financial statements, or may differ significantly on a
    qualitative basis. In such cases, it may not be appropriate to
    establish a single materiality threshold for the entire set of
    financial statements. Instead, the auditor should use a separate
    materiality level(s) when planning and performing the audit of the
    Statement of Social Insurance and related disclosures (SOP 04-1,
    paragraph 22).

    .14: The auditor generally should establish planning materiality in
    relation to the element of the financial statements that is most
    significant to the primary users of the statements (the materiality
    base - see FAM 230.08). The auditor uses professional judgment in
    determining the appropriate element of the financial statements to use
    as the materiality base. Also, since the materiality base may be based
    on unaudited preliminary information determined in the planning phase,
    the auditor may estimate the year-end balance(s) of the materiality
    base(s). To provide reasonable assurance that sufficient audit
    procedures are performed, any estimate of the materiality base(s)
    should use the low end of the range of estimated materiality so that
    sufficient testing is performed.

    .15: SFFAS No. 17 includes a discussion of SFFAC No. 1, Objectives of
    Federal Financial Reporting, which established four major reporting
    objectives in applying accounting standards:
    1. budgetary integrity,
    2. operating performance,
    3. stewardship, and
    4. systems and controls.
    SFFAC No. 1 provides useful information to assist the auditor in
    determining an appropriate materiality base. For example, while all
    four of the objectives are important, SFFAS No. 17 states that
    objectives No. 2 and No. 3 directly impact the social insurance
    standards.

    .16: Objective No. 2 of SFFAC No. 1 states that federal financial
    reporting should assist report users to evaluate:

    * service efforts, costs, and accomplishments of the reporting entity,

    * the manner in which these efforts and accomplishments have been
    financed, and

    * the management of the entity’s assets and liabilities. SFFAS No. 17
    indicates that information about social insurance that is relevant to
    this objective includes the cost of the program as well as longrange
    estimates (and ranges of estimates) of future costs and other
    obligations. Estimates of future costs highlight the cost impact of
    changes in benefit levels as well as changes in economic and
    demographic conditions, such as the cost of health care and life
    expectancies.

    .17: Objective No. 3 of SFFAC No. 1 states that federal financial
    reporting should assist report users in assessing the impact on the
    country of the government’s operations and investments for the period
    and how, as a result, the government’s and the nation’s financial
    condition has changed and may change in the future. Thus, federal
    financial reporting should provide information that helps the reader to
    determine whether:

    * the government’s financial position has improved or deteriorated over
    the period,

    * future budgetary resources will likely to be sufficient to sustain
    public services and to meet obligations as they come due, and

    * government operations have contributed to the nation’s current and
    future well being.

    .18: Fundamental questions about social insurance programs that can be
    addressed by accounting standards include whether:

    * programs are sustainable as currently constructed,

    * the government’s financial condition has improved or deteriorated as
    a result of its efforts to provide for these and other programs, and

    * the likelihood that these programs will be able to provide benefits
    at current levels to those who are planning on receiving them. The
    information required by this standard, taken as a whole, will help
    users make this assessment while acknowledging the complexity of the
    programs and the uncertainty of long-term projections.

    .19: In determining the materiality base for planning and performing
    audits of an entity’s Statement of Social Insurance, the auditor should
    evaluate the actuarial present value of the estimated future: a.
    revenue (excluding interest[Footnote 44]) received from or on behalf of
    all current and future participants (estimated future revenue), b.
    expenditures for or on behalf of all current and future participants
    (estimated future expenditures), and c. balance of estimated future
    revenue (excluding interest) over/(under) estimated future expenditures
    (actuarial balance).

    .20: The auditor may determine that the actuarial balances are the most
    significant element of the Statement of Social Insurance to users of
    the financial statements. If so, the materiality base would be the
    actuarial balance. However, the auditor has the option of selecting a
    materiality base of either the estimated future revenues, or the
    estimated future expenditures. Regardless of which materiality base is
    selected, the auditor generally should select the materiality base that
    provides reasonable assurance that sufficient audit procedures are
    performed.

    The auditor’s basis for the selection of the materiality base(s)
    generally should be documented, including consideration given to other
    possible measures or separate bases for estimated future revenue and
    estimated future expenditures. Auditors generally should follow the
    guidance in FAM 230.11-.13 in determining materiality for planning and
    performing audits of entity Statements of Social Insurance. Obtaining
    Management’s Representations

    .21: Entity management is responsible for preparing the Statement of
    Social Insurance and underlying estimates in conformity with U.S. GAAP.
    Management is also responsible for the accuracy and completeness of the
    Statement of Social Insurance (SOP 04-1, paragraph 5). Therefore,
    management should determine its best estimate[Footnote 45] of the
    economic and demographic conditions that will exist in the future.
    Because estimates in the Statement of Social Insurance are based on
    subjective as well as objective factors, management should use judgment
    to estimate amounts included in the Statement of Social Insurance.
    Management’s judgment may be based on its knowledge and experience
    about past and current events and its assumptions about conditions it
    expects to exist.

    .22: Consistent with FAM 1001, the auditor should obtain specific
    representations relating to the Statement of Social Insurance. For an
    audit of an entity’s Statement of Social Insurance, the representation
    letter should include, as applicable, representations included in FAM
    1001 A, example management representation letter. Planning
    Considerations for the Consolidated Government-wide Report

    .23: Pursuant to statutory requirements of the Government Management
    Reform Act (GMRA) of 1994, GAO serves as the principal auditor of the
    consolidated financial statements (CFS) of the U. S. government. GMRA
    also requires the Secretary of the Treasury to annually prepare and
    submit to the President and the Congress an audited financial
    statement, or Financial Report (FR) of the United States Government,
    for the preceding fiscal year. The Chief Financial Officer (CFO) of
    each of the verifying agencies[Footnote 46] submits their financial
    data using the closing package[Footnote 47] process via the
    Governmentwide Financial Report System (GFRS) and the Federal Agencies’
    Centralized Trial-Balance System (FACTS I).

    All nonverifying agencies must submit FACTS I adjusted trial-balance
    (ATB) data and must complete GFRS Notes and Other FR Data. The
    Inspector General (IG) of each verifying agency, except those agencies
    with a fiscal year-end other than September 30, opines on the closing
    package data, (also referred to as the “special purpose financial
    statements, or “special purpose closing package”) entered by the CFO
    into GFRS, as to its consistency with the comparative, audited
    consolidated, department-level financial statements.

    .24: According to OMB audit guidance, the auditor should determine
    whether the special purpose financial statements and accompanying notes
    are fairly presented, in all material respects, in conformity with U.S.
    GAAP and the presentation requirements set forth in the Treasury
    Financial Manual (TFM), Volume I, Part 2-Chapter 4700 (TFM 2-4700),
    Agency Reporting Requirements for the Financial Report of the United
    States Government. Beginning with fiscal year 2006, the Statement of
    Social Insurance is to be presented as a basic financial statement in
    accordance with SFFAS Nos. 25, 26, and 28.

    .25: TFM 2-4700 requires entities to provide the Statement of Social
    Insurance data and the underlying key assumptions in the FR Notes
    module in GFRS. All remaining social insurance information is to be
    submitted through the Other FR Data (Stewardship and Supplemental
    Information) module in GFRS[Footnote 48]. The auditor generally should:

    * perform the procedures described in AU 551 as indicated in OMB audit
    guidance for the Other FR Data information as required and defined in
    TFM 2-4700, and:

    * assess whether the Other FR Data is materially consistent with the
    information in the special purpose financial statements. In accordance
    with AU551.06 (d) the auditor report should include either an opinion
    on whether the accompanying information is fairly stated in all
    material respects in relation to the basic financial statements taken
    as a whole, or a disclaimer of opinion, depending on whether the
    information has been subjected to the auditing procedures applied in
    the audit of the basic financial statements. The auditor may express an
    opinion on a portion of the accompanying information and disclaim an
    opinion on the remainder.

    .26: Actuarial projections of the annual cash inflow from all sources
    exclude net interest on intragovernmental borrowing/lending for both
    the component entity’s Statement of Social Insurance[Footnote 49] and
    the U.S. government’s consolidated Statement of Social Insurance.10 In
    addition, because paragraph 32 (1)(a) of SFFAS No. 17 only permits cash
    inflow from the public to be included in the long-range actuarial
    projection of cash inflow presented in the U.S. government’s
    consolidated Statements of Social Insurance, TFM 2-4700 requires the
    (1) General Fund transfers for the Federal Supplementary Medical
    Insurance (SMI – Medicare Part B) program, (2) General Fund transfers
    for the Federal Supplementary Medical Insurance (SMI – Medicare Part D)
    program, and (3) financial interchange[Footnote 51] income for the
    Railroad Retirement benefits program to be excluded from the present
    value of the long-range actuarial projections. SFFAS No. 17 states that
    expense and liability recognition for the consolidated governmentwide
    entity are the same as for the component entities.[Footnote 52]

    Consequently, auditors responsible for these programs generally should
    determine the impact of the TFM requirement, which excludes the General
    Fund transfers and the financial interchange income from the present
    value of the long range actuarial projections on their auditing
    procedures. Auditors should plan and perform their department-level
    social insurance related audit procedures to obtain a reasonable basis
    for expressing an opinion on the special purpose financial statements
    included in the Closing Package, which include the Statement of Social
    Insurance.

    [End of section]

    Section 1000:
    Reporting:

    1001 – Management Representations:

    .01: This section deals with the management representations that the
    auditor must obtain from current management as part of the audit, as
    described in AU 333, AT 501, AU 801, OMB audit guidance, FAM 280 and
    FAM 550. It covers representations about:

    * financial statements,
    * internal control,
    * fraud,
    * financial management systems’ substantial compliance with the Federal
    Financial Management Improvement Act of 1996 (FFMIA) by CFO Act
    agencies,
    * compliance with laws and regulations,
    * social insurance,
    * budgetary, and fund restrictions.

    .02: Written representations from management ordinarily confirm oral
    representations given to the auditor, indicate and document the
    continuing appropriateness of those representations, and reduce the
    possibility of misunderstanding. Management representations are not a
    substitute for obtaining other audit evidence. If other audit evidence
    contradicts a representation, the auditor should investigate the
    circumstances and evaluate the reliability of the representation. The
    auditor should also determine whether it is appropriate to rely on
    other management representations. Management’s refusal to furnish
    written representations is a scope limitation sufficient to preclude an
    unqualified opinion.

    .03: The specific representations obtained will depend on the
    circumstances of the engagement and the nature and basis of
    presentation of the financial statements. These representations apply
    to all the financial statements and all periods covered by the audit
    report. In addition to the representations in the AICPA standards, the
    auditor generally should determine the need to obtain representations
    on other matters based on the circumstances of the audited entity.
    Also, the auditor should delete inapplicable representations in the
    example representation letter in FAM 1001 A and should customize the
    letter to the situation of the entity being audited.

    .04: The auditor should obtain the management representation letter
    from the highest level of the audited entity. The auditor should decide
    who to ask to sign the management representation letter. Signers should
    be officials who, in the auditor’s view, are responsible for and
    knowledgeable, directly or through others, about the matters in the
    representation letter. These officials generally should be the head of
    the federal entity and the CFO, or equivalent. The auditor should
    obtain separate management representation letters from any component
    units for which the auditor will issue separate reports.

    .05: The auditor should ask management to prepare the representation
    letter on the audited federal entity’s letterhead. The auditor should
    ask management to sign and date the representations as of the date of
    the auditor’s report—the completion of the audit and not later. The
    audit is complete when the auditor has enough evidence and has applied
    enough quality controls (including supervisory, first partner, and
    second partner review) to be ready to sign the audit report. To be sure
    that the letter is ready in time, the auditor generally should provide
    a draft letter to management early in the audit and update it for
    circumstances found throughout the audit. If management signs the
    letter before the completion of the audit, the auditor should obtain an
    update of the representations to the completion of the audit date.
    While a written update is preferred, where the time difference is
    short, the auditor may update the representations orally and document
    the update. The auditor should obtain the management representation
    letter after receiving the final legal representation letter discussed
    at FAM 1002.15.

    In some cases a legal letter(s) may be obtained before the completion
    date of the audit so auditors will have time to review/test the
    information.

    In these cases, the auditor should perform and document inquiries to be
    satisfied that nothing has significantly changed between the date of
    the legal letter(s) and the audit completion date.

    .06: The audited entity generally should address the management
    representation letter to the Comptroller General of the United States
    for GAO audits. For other audits, the audited entity generally should
    address the management representation letter to the auditor opining on
    the financial statements which may be a CPA firm or the entity’s
    Inspector General (or it may be dual addressed). However, to avoid any
    delays in timely receipt of the letter, the audit team may have the
    audited entity deliver it directly to a member of the team such as the
    audit director.

    .07: Especially for large audited entities, management, in agreement
    with its auditor, generally should specify a materiality threshold for
    the management representation letter, below which items would not be
    reported. OMB audit guidance states that the management representation
    letter shall specify management’s materiality threshold used for
    reporting items in the management representation letter. It also
    footnotes that management and the auditor should reach an understanding
    on a materiality level. If no threshold is stated, management should
    note all exceptions in the representation letter. The auditor should be
    satisfied that such a materiality threshold is so far below design
    materiality that even many items below this level would not, in the
    aggregate, approach design materiality. For example, a threshold that
    is 5 percent (or less) of design materiality may be sufficiently low.
    The materiality level may be different for different representations
    and would not apply to those representations not directly related to
    amounts in the financial statements (such as responsibility for the
    statements). Representations Relating to the Financial Statements

    .08: AU 333.06 lists management representations that the auditor
    generally should obtain in a U.S. GAAS audit if applicable. These
    generally relate to management acknowledging its responsibility for the
    financial statements and its belief that the financial statements are
    fairly presented in conformity with U.S. GAAP and financial information
    is complete with appropriate recognition, measurement, and disclosure.
    Included in this representation is the effect of any uncorrected
    financial statement misstatements, a schedule of which is attached to
    the representation letter. (For this the auditor may tailor the example
    schedule in FAM 595 C by removing the auditor’s conclusions.) Examples
    of additional representations that may be appropriate depending on an
    entity’s business or industry are given in appendix B to AU 333. The
    auditor may review AU 333 to identify items to add to the
    representations, many of which would be modified in the federal
    government environment. In the example representation letter at FAM
    1001 A, common presentation and disclosure representations are items #1
    through #10. Representation #5 addresses uncorrected misstatements for
    which the auditor should attach a summary to the management
    representation letter. An example Summary of Uncorrected Misstatements
    is provided at FAM 595 C. Additionally, OMB audit guidance has
    emphasized the importance of identifying intragovernmental transactions
    and their reconciliations for federal entities and their components. In
    the example representation letter at FAM 1001 A, this item is #11.

    .09: Appendix B of AU 333 provides further example language that the
    auditor generally should modify as appropriate for the circumstances
    applicable to the federal entity being audited in the following
    situations: General
    * Unaudited interim information accompanies the financial statements.
    * The impact of a new accounting principle is not known.
    * There is justification for a change in accounting principles.
    * Financial circumstances are strained, with disclosure of management’s
    intentions and the entity’s ability to continue as a going concern.
    * The possibility exists that the value of specific significant long-
    lived assets or certain identifiable intangibles may be impaired.
    * The entity engages in transactions with special purpose entities.
    * The entity used the work of a specialist

    Cash:

    * Cash is restricted by nonentity ownership; escrow, trust, or other
    fiduciary activity; and seizures awaiting legal resolution. Financial
    instruments
    * The value of debt or equity securities has declined.
    * Management has determined the fair value of significant financial
    instruments that do not have readily determinable market values.
    * There are financial instruments with off-balance-sheet risk and
    financial instruments with concentrations of credit risk.

    Receivables:

    * Receivables have been properly stated in the financial statements
    (for example, at estimated net realizable value). Collectability of
    federal receivables requires considerable management judgment.

    Inventories:

    * Excess, obsolete, or unserviceable inventories exist. Items held for
    repair are properly valued. Valuation allowances for federal
    inventories require considerable management judgment.

    Deferred charges and unearned revenues:

    * Material expenditures have been deferred and unearned revenue has
    been properly accrued.

    Debt:

    * Short-term debt could be refinanced on a long-term basis, and
    management intends to do so.

    Contingencies[Footnote 53]:

    * Estimates and disclosures have been made of environmental remediation
    liabilities and related loss contingencies.

    * Agreements may exist to repurchase assets previously sold.

    Pension and postretirement benefits:

    * An actuary has been used to measure pension liabilities and costs.

    * There is involvement with a multiemployer plan.

    * Postretirement benefits have been eliminated.

    * Employee layoffs that would otherwise lead to a curtailment of a
    benefit plan are intended to be temporary.

    * Management intends to either continue to make or not make frequent
    amendments to its pension or other postretirement benefit plans, which
    may affect the amortization period of prior service cost, or management
    has expressed a substantive commitment to increase benefit obligations.

    Sales:

    * There may be losses from sales commitments.

    * There may be losses from purchase commitments.

    * There are no undisclosed sales terms.

    .10: The auditor should determine the need for additional customizing
    of the example representation letter in FAM 1001 A and for the
    additional representations in FAM 1001.09. Many of the representations
    may have to be qualified, especially in an initial audit or in later
    audits where significant problems remain. For instance, where the
    example representation letter states that there are no violations of
    laws or regulations, the entity may need to add at the end of the
    statement,“except as follows:” and describe the violations.

    .11: In addition, the auditor should determine whether circumstances
    may require that additional descriptive items be included in the
    representation letter, especially as support for conclusions the
    auditor makes in the report. This is important where the corroborating
    information that can be obtained by procedures other than inquiry is
    limited. For example, the auditor should ask that the letter include
    descriptions of (1) the reasons for scope limitations imposed by the
    audited entity, such as the lack of availability of certain records,
    (2) the basis for material liability estimates, key asset valuations,
    or the probability of contingencies, and (3) significant plans or
    intentions for the entity. For example, if the entity has a pension
    plan outside of the Civil Service Retirement System or the Federal
    Employees’ Retirement System, an item may state that the entity does
    not plan to terminate the plan and that management believes the
    actuarial assumptions and methods used to measure pension liabilities
    and costs for financial reporting purposes are appropriate in the
    circumstances.

    Representations Relating to Internal Control:

    .12: Internal control representations, when the auditor expresses an
    opinion on internal control, are found in AT 501.44. These
    representations, examples for which are provide in FAM 1001 A, relate
    to management’s

    * acknowledging its responsibility for internal control (item #12);

    * stating that management has assessed the effectiveness of its
    internal control and specifying the control criteria used (item #13);

    * stating management’s assertion about the effectiveness of its
    internal control based on the control criteria (item #14);

    * stating that management has disclosed to the auditor 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 pointing out those that are material weaknesses using
    the definition in the representation letter, which is the definition in
    AU 325 (item #15); and

    * stating whether there were any changes to internal control subsequent
    to the end of the reporting period (item #16).

    .13: For bullets 2 and 3 in FAM 1001.12, entities may use criteria
    established under FMFIA and OMB Circular No. A-123 in their FMFIA
    internal control assessment. Standards in GAO’s green book Standards
    for Internal Control in the Federal Government, (GAO/AIMD-00-21.3.1)
    were established as standards for federal entities to follow. These
    standards incorporate concepts from the private sector guidance
    Internal Control—Integrated Framework issued by the Committee of
    Sponsoring Organizations (COSO) of the Treadway Commission. Federal
    entities should summarize in the representation letter any material
    weaknesses relating to financial reporting (including safeguarding),
    and compliance (including budget).
    Example wording for the representations, where management asserts that
    its internal control in place as of the date of the financial
    statements and during the years ended provided reasonable assurance
    that misstatements, losses, or noncompliance material in relation to
    the financial statements would be prevented or detected on a timely
    basis is provided in FAM 1001 A (item #14). If there are material
    weaknesses, management should include a brief description of them in
    its representation letter and modify its assertion accordingly.
    Representations Relating to Fraud

    .14: Internal control representations related to fraud can be found in
    AU 316.

    These representations, examples for which are provide in FAM 1001 A,
    relate to management’s:

    * acknowledging its responsibility for the design and implementation of
    programs and controls to prevent and detect fraud (item #17);

    * disclosing knowledge of any fraud or suspected fraud affecting the
    agency involving management, employees who have significant roles in
    internal control, or others where the fraud could have a material
    effect on the financial statements (item #18); and

    * disclosing knowledge of any allegations of fraud or suspected fraud
    affecting the entity received in communications from employees, former
    employees, analysts, regulators, or others (item #19). Representations
    Relating to Financial Management Systems’ Substantial Compliance with
    FFMIA Requirements

    .15: FFMIA requires the auditor who audits the financial statements of
    a CFO Act agency to report whether the agency’s financial management
    systems substantially comply with (1) federal financial management
    systems requirements, (2) applicable federal accounting standards (U.S.
    generally accepted accounting principles), and (3) the SGL at the
    transaction level.

    To report in accordance with FFMIA, the auditor should obtain
    representations from management as to the agency’s systems’ substantial
    compliance with these requirements.

    .16: The auditor should obtain representations that management is
    responsible for having its systems substantially comply with the FFMIA
    requirements, stating that it has assessed the systems’ compliance,
    stating the criteria used, and asserting the systems’ substantial
    compliance (or lack thereof). The criteria are the requirements in OMB
    Circular No. A- 127, Financial Management Systems, which incorporates
    the SGL, the JFMIP/OFFM Federal Financial Management Systems
    Requirements documents, and other OMB circulars. These requirements are
    further described, including indicators of substantial compliance, in
    OMB’s FFMIA implementation guidance for CFOs and IGs, referenced in
    OMB’s audit guidance. Example FFMIA representations are in FAM 1001 A,
    items #20 through #22.
    Representations Relating to Compliance with Laws and Regulations

    .17: AU 801.07 provides that representations relating to compliance
    with laws and regulations state that management has identified and
    disclosed to the auditor all laws and regulations that have a direct
    and material effect on the financial statements. Example compliance
    representations are in FAM 1001 A, items #23 through #27.

    .18: In addition, AT 601 deals with compliance attestation. The auditor
    need not follow AT 601 because the auditor is not giving an opinion on
    compliance. However, when the auditor determines additional
    representations regarding compliance are needed, examples are given in
    AT 601.68.

    Other Representations:

    .19: FASAB standards require a Statement of Social Insurance for
    certain entities. See AICPA publication SOP 04-1, Auditing the
    Statement of Social Insurance, (AU 333; SOP 04-1 §36). Example social
    insurance representations are in FAM 1001 A, items #28 through #36. OMB
    audit guidance includes a representation by management on the
    consistency of budgetary data. Example budget data representation is in
    FAM 1001 A, item #37.

    Further, FASAB SFFAS No. 27, Identifying and Reporting Earmarked Funds,
    requires financial statement disclosure for earmarked funds.[Footnote
    54] An example for earmarked and restricted funds representation is in
    FAM 1001 A, item #38.

    Effect of Change in Management on Representation Letter:

    .20: Sometimes management is reluctant to sign representations for
    periods when it did not manage the entity. The auditor may explain to
    management that by issuing the financial statements, it is making the
    assertions implicit in the financial statements. Management may wish to
    understand the transactions and controls supporting the financial
    statements, and the auditor may help it do so. Where a change in
    management is expected, the auditor may advise the new management to
    obtain representations from the old management about the period prior
    to the change. Additionally, the auditor may discuss with management
    the following to obtain representations when a change in management
    occurs:

    * Auditing standards require management representations covering all
    financial statements presented.

    * In the engagement letter (FAM 215) entity management indicated that
    it would provide certain representations covering all financial
    statements presented.

    * New executives may consult with appropriate staff that was present
    for the year to determine whether the representations officials will
    sign are complete and accurate.

    * Representations are made to the best of the signer’s knowledge and
    belief.

    * Not signing will result in a scope limitation and disclaimer of the
    auditor’s opinion.

    1001 A – Example Management Representation Letter:

    [Entity Letterhead]:

    [Date of auditor’s report and completion of the audit]:

    The Honorable [name of Inspector General or Comptroller General]:

    [Title as Inspector General or Comptroller General of the United
    States]:

    [Name of IG entity or U.S. Government Accountability Office]:

    [Also, include the independent external auditor as an addressee, if
    appropriate.]:

    Address:

    Dear [name(s)]:

    We are providing this letter in connection with your audit of the
    [entity’s] balance sheet as of September 30, 20X8 and 20X7, [or dates
    of audited financial statements] and the related statements of net
    costs, changes in net position, budgetary resources, social insurance
    [if applicable] and custodial activity [if applicable], for the years
    then ended (hereinafter referred to as the “financial statements”).

    You conducted your audit to (1) express an opinion as to whether the
    financial statements are presented fairly, in all material respects, in
    conformity with U.S. generally accepted accounting principles, (2)
    report [or express an opinion] on the entity’s internal control over
    financial reporting and compliance with laws and regulations as of
    September 30, 20X8 [or date of latest audited financial statements],
    (3) (For CFO Act agencies) report whether the [entity’s] financial
    management systems substantially comply with federal financial
    management systems requirements, applicable federal accounting
    standards (U.S. generally accepted accounting principles), and the U.S.
    Government Standard General Ledger at the transaction level as of
    September 30, 20X8, and (4) test for compliance with applicable laws
    and regulations. In addition, you have performed certain audit
    procedures with respect to the [entity’s] 20X8 Management’s Discussion
    and Analysis (MD&A) and other supplementary information, which is
    included as part of the 20X8 financial statements of the [entity].

    (Recommended paragraph) Certain representations in this letter are
    described as being limited to matters that are material. For purposes
    of this letter, matters are considered material if they involve $XX or
    more. Items also are considered material, regardless of size, if they
    involve an omission or misstatement of accounting information that, in
    the light of surrounding circumstances, makes it probable that the
    judgment of a reasonable person relying on the information would be
    changed or influenced by the omission or misstatement. (OMB audit
    guidance states that the management representation letter shall specify
    management’s materiality threshold used for reporting items in the
    management representation letter.)

    We confirm, to the best of our knowledge and belief, the following
    representations made to you during the audits. These representations
    pertain to both years’ financial statements, and update the
    representations we provided in the prior year:

    Presentation and Disclosure:

    1. We are responsible for the fair presentation of the financial
    statements in conformity with U.S. generally accepted accounting
    principles. We are also responsible for the preparation of the MD&A,
    and (if any): required supplementary information (RSI), required
    supplementary stewardship information (RSSI), and other supplementary
    information.

    2. The financial statements are fairly presented in conformity with
    U.S. generally accepted accounting principles. The MD&A, and (if any)
    RSI, RSSI, and other supplementary information are fairly presented and
    are consistent with the financial statements.

    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 of those charged with governance] or
    summaries of actions of recent meetings for which minutes have not been
    prepared; and c. any communications from the Office of Management and
    Budget (OMB) concerning noncompliance with or deficiencies in financial
    reporting practices.

    4. There are no material transactions that have not been properly
    recorded in the accounting records underlying the financial statements
    or disclosed in the notes to the financial statements.

    5. There are no uncorrected financial statement misstatements as we
    have adjusted the financial statements for all known and likely
    misstatements you have informed us of. (or) We believe that the effects
    of uncorrected financial statement misstatements summarized in the
    attached summary are immaterial, both individually and in the
    aggregate, to the financial statements taken as a whole. (An example
    summary is provided in FAM 595 C.) [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. There are no liens or
    encumbrances on these assets 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 or that we
    are required to disclose in the financial statements.

    8. There are no guarantees under which the [entity] is contingently
    liable that require reporting or disclosure in the financial
    statements.

    9. Related party transactions including related accounts receivable or
    payable, revenues, expenditures, loans, transfers, leasing
    arrangements, assessments, and guarantees have been properly recorded
    and disclosed in the financial statements.

    10. No material events or transactions have occurred subsequent to
    September 30, 20X8 [or date of latest audited financial statements],
    that have not been properly recorded in the financial statements or
    disclosed in the notes.

    Intra-governmental Activities:

    11. All intra-entity transactions and balances have been appropriately
    identified and eliminated for financial reporting purposes. All intra-
    governmental transactions and activities have been appropriately
    identified, recorded, and disclosed in the financial statements. We
    have reconciled [or have been unable to reconcile] material
    intragovernmental transactions and balances with the federal entity
    providing the goods or services.

    Internal Control:

    12. We are responsible for establishing and maintaining a system of
    internal control.

    13. 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 the
    financial statements 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 laws governing the use of budget authority;
    other laws and regulations that could have a direct and material effect
    on the financial statements, and any other laws and regulations
    identified in OMB audit guidance.

    [This item is optional if the auditor is not opining on internal
    control. Also, if the agency bases its internal control assessment on
    suitable criteria other than 31 U.S.C. 3512(c), (d), cite the criteria
    used (for example, Internal Control—Integrated Framework issued by the
    Committee of Sponsoring Organizations (COSO) of the Treadway
    Commission).]

    14. Those controls in place on September 30, 20X8 [or date of latest
    audited financial statements], and during the years ended 20X8 and
    20X7, provided reasonable assurance that the foregoing objectives are
    met. [Delete this item if the auditor is not opining on internal
    control.]
    [If there are material weaknesses: Those controls in place on September
    30, 20X8, and during the years ended 20X8 and 20X7, were not effective
    to provide reasonable assurance that the foregoing objectives were met
    because of the effects of the material weaknesses discussed below or in
    an attachment.]

    15. 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 (or determined
    that none is a material weakness). [This item is optional if the
    auditor is not opining on internal control.]

    16. There have been no changes to internal control subsequent to
    September 30, 20X8 [or date of latest audited financial statements], or
    other factors that might significantly affect the effectiveness of
    internal control. [If there were changes, describe them, including any
    corrective actions taken with regard to any significant deficiencies or
    material weaknesses.]

    Fraud:

    17. 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).

    18. 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 instances, describe them.]

    19. 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.]

    Compliance of Systems with FFMIA: [For CFO Act agencies subject to the
    Federal Financial Management Improvement Act of 1996 (FFMIA)]

    20. 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.

    21. We have assessed the financial management systems to determine
    whether they substantially comply with those federal financial
    management systems requirements. Our assessment was based on guidance
    issued by OMB.

    22. 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, modify as follows:

    As of [date of financial statements], the [agency’s] financial
    management systems substantially comply with [specify which of the
    three elements for which there is substantial compliance (e.g., federal
    accounting standards and the SGL at the transaction level)], but did
    not substantially comply with [specify which of the elements for which
    there was a lack of substantial compliance (e.g., federal financial
    management systems requirements)], as described below (or in an
    attachment).]

    [If the financial management systems do not substantially comply with
    any of these three elements, use the following paragraph:

    As of [date of financial statements], the [agency’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 all the facts pertaining to the
    noncompliance, including the nature and extent of the noncompliance and
    the primary reason or cause of the noncompliance.]

    Laws and Regulations:

    23. We are responsible for the [entity’s] compliance with applicable
    laws and regulations.

    24. 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 [may list laws and regulations].

    25. There are no
    a. violations or possible violations of laws or regulations whose
    effects we should evaluate 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. [When there is no
    general counsel and management has not consulted legal counsel
    regarding contingencies, the auditor should obtain a written
    representation from management that legal counsel has not been
    consulted. Example wording is: “We are not aware of any pending or
    threatened litigation, claims, or assessments or unasserted claims or
    assessments that are required to be accrued or disclosed in the
    financial statements in accordance with SFFAS No. 5. We have not
    consulted legal counsel concerning litigation, claims, or assessments.”
    (See FAM 1002.24)

    26. We have complied with all aspects of contractual agreements that
    would have a material effect on the financial statements in the event
    of noncompliance.

    27. We are not aware of any violations of the Antideficiency Act that
    we must report to the Congress and the President (and provide a copy of
    the report to the Comptroller General) for the year ended September 30,
    20x8, (or, we have reported all known violations of the Antideficiency
    Act) and through the date of this letter.

    Statement of Social Insurance:

    [For entities presenting a Statement of Social Insurance (SOSI) see
    AICPA publication SOP 04-1, Auditing the Statement of Social Insurance,
    (SOP 04-1 §36) which suggests the following management
    representations.]

    28. Management is responsible for the assumptions and methods used in
    the preparation of the SOSI. Management agrees with the actuarial
    methods and assumptions used by the entity’s actuary and have no
    knowledge or belief that would make such methods or assumptions
    inappropriate in the circumstances. Management did not give any
    instructions, nor cause any instructions to be given to the entity’s
    actuary with respect to values or amounts derived, and is not aware of
    any matters that have affected the objectivity of the entity’s actuary.
    Management believes that the actuarial assumptions and methods used to
    measure the amounts in the SOSI for financial accounting purposes are
    appropriate in the circumstances.

    29. Actuarial assumptions and methods used to measure the amounts in
    the SOSI for financial accounting and disclosure purposes represent
    management’s best estimates regarding future events based on
    demographic and economic assumptions and future changes mandated by
    law.

    30. There were no material omissions from the data provided to the
    entity’s actuary for the purpose of determining the actuarial present
    value of the estimated future income to be received and estimated
    future expenditures to be paid during the projection period sufficient
    to illustrate the long-term sustainability of (name of the social
    insurance program) as of (dates of SOSI presented).

    31. The SOSI covers a projection period sufficient to illustrate the
    long-term sustainability of the social insurance program.

    32. Management provided the auditor with all the reports developed by
    external review
    groups appointed by the entity or the program’s trustees related to
    estimates in the SOSI.

    33. The following matters relating to the SOSI have been disclosed
    properly in the notes to the financial statements:

    a. The accumulated excess of all past cash receipts, including interest
    on investments, over all past cash disbursements within the social
    insurance program represented by the fund balance at the valuation
    date.

    b. An explanation of how the net present value is calculated for the
    closed group.

    c. Comparative financial information for items in paragraphs 2a, 2b 2c
    and 2d (1) of SOP 04-1, for the current year and for each of the
    preceding four years. (Note any preceding years that are unaudited).

    d. Significant assumptions used in preparing estimates

    34. There have been no changes in (or, changes in the following have
    been properly reported or disclosed in) the actuarial methods or
    assumptions used to calculate amounts recorded or disclosed in the
    financial statements between

    a. the valuation dates (for example: of January 1, 20x8 and January 1,
    20x7) or changes in the method of collecting data, and:

    b. the valuation date (for example: of January 1, 20x8), and the
    financial reporting date (of September 30, 20x8) or changes in the
    method of collecting data.

    35. There have been no changes in (or, changes in the following have
    been properly reported or disclosed in) laws and regulations affecting
    social insurance program income and benefits between

    a. the valuation dates (for example: January 1, 20x8 and January 1,
    20x7)

    b. the valuation date (for example: January 1, 20x8) and the financial
    reporting date (of September 30, 20x8).

    36. Accounting estimates applicable to the financial information of the
    entity included in the SOSI are based on management’s best estimate,
    after considering past and current events and assumptions about future
    events. Budgetary and Restricted Funds
    [OMB audit guidance includes a representation by management on the
    consistency of budgetary data in the following paragraph.]

    37. The information presented in the (entity’s) Statement of Budgetary
    Resources (materially - defined in paragraph 2 on page 1001 A-1) agrees
    with information submitted in its year-end Reports on Budget Execution
    and Budgetary Resources (SF-133s). The information will be used as
    input for fiscal year 20x8 actual column of the Program and Financing
    Schedules reported in the fiscal year 20x0 Budget of the U.S
    Government. This information is supported by the related financial
    records and data.

    38. We have disclosed in the financial statements all material
    earmarked funds[Footnote 55] as defined by FASAB SFFAS No. #27 and all
    material restricted funds.

    [Name of Head of Entity]:

    [Title]:

    [Name of Chief Financial Officer]

    [Title]

    Attachment:

    1002 - Inquiries of Legal Counsel

    .01: FAM 1002 provides guidance on procedures to obtain evidence that
    the financial accounting and reporting of contingencies[Footnote 56]
    regarding litigation, claims, and assessments conform with U.S.
    generally accepted accounting principles (U.S. GAAP). FAM 1002
    discusses the accounting and reporting guidance and audit procedures
    for inquiries of legal counsel concerning litigation, claims, and
    assessments, and includes an example audit program at FAM 1002 A; an
    example legal representation letter request at FAM 1002 B; and a legal
    representation letter response at FAM 1002 C.

    Accounting and Reporting Guidance:

    .02: Entity management is responsible for implementing policies and
    procedures to identify, evaluate, account for, and disclose litigation,
    claims, and assessments as a basis for the preparation of financial
    statements in conformity with U.S. GAAP.

    .03: Statement of Federal Financial Accounting Standards (SFFAS) No. 5,
    Accounting for Liabilities of the Federal Government, as amended by
    SFFAS No. 12, Recognition of Contingent Liabilities Arising from
    Litigation, contains accounting and reporting standards for loss
    contingencies, including those arising from litigation, claims, and
    assessments.[Footnote 57] The Federal Accounting Standards Advisory
    Board (FASAB) Interpretation No. 2, Accounting for Treasury Judgment
    Fund Transactions, provides additional guidance related to claims to be
    paid through the Treasury Judgment Fund.[Footnote 58] Statement of
    Financial Accounting Standards (FAS) No. 5, Accounting for
    Contingencies, also provides guidance for financial accounting and
    reporting for loss and gain contingencies for government corporations
    and entities following U.S. GAAP for the private-sector promulgated by
    the Financial Accounting Standards Board (FASB). The definition of
    probable for legal contingencies is essentially the same in FAS No. 5
    and SFFAS No. 5.

    .04: A contingency is an existing condition, situation, or set of
    circumstances involving uncertainty as to possible gain or loss to an
    entity. The uncertainty will ultimately be resolved when one or more
    future events occur or fail to occur. When a loss contingency exists,
    the likelihood that the future event or events will confirm the loss or
    impairment of an asset or the incurrence of a liability can range from
    remote to probable. SFFAS Nos. 5 and 12 use the terms remote,
    reasonably possible, and probable to identify three areas within the
    range of probability, as follows:

    * Remote—The chance of the future event or events occurring is slight.

    * Reasonably possible—The chance of the future event or events
    occurring is more than remote but less than probable.

    * Probable—For pending or threatened litigation and unasserted claims,
    the future confirming event or events are likely to occur. (For other
    contingencies, the future event or events are more likely than not to
    occur.)

    .05: The entity should recognize a liability and a related charge to
    expense for an estimated loss from a loss contingency only
    when[Footnote 59]: a. a past event or exchange transaction has
    occurred, b. a future outflow or other sacrifice of resources is
    probable, and c. the future outflow or sacrifice of resources is
    measurable.

    .06: Disclosure of the nature of an accrued liability for loss
    contingencies, including the amount accrued, may be necessary for the
    financial statements not to be misleading. For example, if the amount
    recognized is large or unusual, the entity should determine whether to
    disclose the contingency. However, if no accrual is made for a loss
    contingency because one or more of the conditions in FAM 1002.05 are
    not met, the federal government and its entities should report
    contingent losses that involve situations where there is at least a
    reasonable possibility that a loss has been incurred.
    The entity should disclose the nature of the contingency, and an
    estimate of the possible liability or range of possible liability, if
    estimable, or a statement that such an estimate cannot be made. The
    reporting of contingent losses depends on the likelihood that a future
    event or events will confirm the loss or impairment of an asset or the
    incurrence of a liability. Terms used to assess the likelihood of loss
    are remote, reasonably possible, and probable as discussed in FAM
    1002.04. Contingent losses that are assessed as probable and measurable
    are accrued in the financial statements. Losses that are assessed to be
    at least reasonably possible are disclosed in the notes. For an
    overview of the standards that provide criteria for how federal
    agencies are to account for contingent losses based on the likelihood
    of the loss and the measurability, see table 1 below:

    Table 1: Accounting for Contingent Losses:

    [See PDF for image]

    [End of table]

    Management decides what to report. The auditor evaluates whether
    management’s reporting is in accordance with U.S. GAAP. In addition, if
    the Judgment Fund might be involved in the payment of the possible
    loss, the federal entity involved in the litigation should discuss the
    Judgment Fund’s role in a note to the financial statements.

    .07: Although management often relies on advice of legal counsel about
    the (a) likelihood of an unfavorable outcome and (b) estimates of the
    amount or range of potential loss for litigation, claims, and
    assessments, management is ultimately responsible for determining
    whether these contingencies are probable, reasonably possible, or
    remote. Management does this to decide whether they should be
    recognized as liabilities and/or disclosed in the notes to the
    financial statements. Thus, the Office of Management and Budget’s (OMB)
    audit guidance requires CFO Act entity management to prepare a schedule
    summarizing legal contingencies including whether they are probable,
    reasonably possible, or remote, and whether (and in what amounts) they
    have been accrued or disclosed in the financial statements. An Example
    Management Summary Schedule is provided at FAM 1002 D.

    Audit Procedures:

    .08: The auditor should design procedures to test the entity’s
    accounting for and disclosure of litigation, claims, and assessments.
    AU 337 (SAS #12) provides guidance on the procedures to identify
    litigation, claims, and assessments to evidence that they are
    appropriately accounted for and disclosed. AU 9337 provides auditing
    interpretations of AU 337. OMB audit guidance also contains procedures
    for inquiries of legal counsel. (See FAM 1002 A for example audit
    procedures.)

    .09: The auditor should obtain evidence relevant to the following
    factors with respect to litigation, claims, and assessments: a. The
    existence of a condition, situation, or set of circumstances indicating
    uncertainty as to the possible loss to an entity arising from
    litigation, claims, and assessments. b. The period in which the
    underlying causes for legal action occurred. c. The likelihood of an
    unfavorable outcome (probable, reasonably possible, or remote).
    d. The amount or range of potential loss, if estimable.

    .10: The auditor may discuss with management the events or conditions
    in accounting for and reporting of litigation, claims, and assessments.
    The auditor should perform audit procedures to corroborate the
    information provided by management, including requesting that
    management send a legal letter request to the entity’s legal counsel.

    .11: A letter from legal counsel to the auditor, in response to a legal
    letter request from management to legal counsel, is the auditor’s
    primary means of corroborating the information furnished by management
    concerning the accuracy and completeness of litigation, claims, and
    assessments. The auditor should ask management to have the legal letter
    request include either (1) a list of pending or threatened litigation,
    claims, and assessments, or (2) a request by management that legal
    counsel prepare the list. The auditor should also ask management to
    have the legal letter request include a list of unasserted claims and
    assessments the lawyer determined probable of assertion, and that, if
    asserted, would have at least a reasonable possibility of an
    unfavorable outcome, to which legal counsel has devoted substantive
    attention on the entity’s behalf in the form of legal consultation or
    representation (or a statement that management is not aware of any
    matters meeting the criteria). The auditor should obtain assurance from
    management, ordinarily in writing, that it has disclosed all unasserted
    claims when it is considered probable that a claim will be asserted and
    there is a reasonable possibility that the outcome will be unfavorable.
    Legal counsel then would supplement management’s information about
    those unasserted claims and assessments, including an explanation of
    any matters where their views differ from those expressed by management
    in the legal letter request. In the federal government, where the
    general counsel may be part of management, the general counsel may
    instead provide the list of unasserted claims or assessments meeting
    the above criteria.

    The auditor should ask management to have the legal letter request
    include a request for legal counsel to make a statement that they will
    advise management about unasserted claims and assessments that
    management should evaluate for disclosure. See the example request at
    FAM 1002 B and example response at FAM 1002 C.

    .12: The auditor should also perform procedures to learn about certain
    legal claims against the government involving interaction between the
    government and its environment. This could include events where federal
    operations caused (1) hazardous waste for cleanup, (2) accidental
    damage to nonfederal property, or (3) other damage to federal property.
    In these cases, no monetary damages are being sought, but rather
    plaintiffs generally seek that the government either take or cease a
    particular action, which if successful, could cost the government
    significant amounts of money to comply. An example is a claim that was
    brought against the Department of Energy over its classification of
    certain radioactive waste for disposal. Because the classification
    affected how the waste could be disposed of and thus the cost of
    disposal, a successful claim could have resulted in a material increase
    in the agency’s environmental liabilities. Auditors should make
    inquiries of management and legal counsel to determine whether the
    entity has such cases that could create a loss contingency, and whether
    the entity considered those cases in determining the amount of
    liability to be disclosed per FAM 1002.05-1002.06. If such cases exist,
    the auditor should apply the procedures in FAM 1002.08- 1002.11 to
    these cases as well.

    Timing of Legal Letter Request and Responses:

    .13: The auditor generally should perform procedures for inquiries of
    legal counsel concerning litigation, claims, and assessments on a
    timely basis to give priority to the resolution of potential problem
    areas and to complete other procedures. To meet deadlines, the auditor,
    entity management, and legal counsel generally should coordinate the
    timing of legal letter requests, responses (including interim
    responses), and related management schedules. The auditor and the
    entity management should determine the due dates for obtaining
    responses from component units to provide legal letter responses for
    the entity’s financial statements as well as for the U. S. Government’s
    Consolidated Financial Statements. In setting the due dates, the
    auditor and entity management generally should allow management to
    inquire of Department of Justice legal counsel on a case-specific
    basis.

    .14: In addition, when an entitywide audit team uses the work of entity
    component audit teams, the entitywide and component audit teams
    generally should coordinate the timing of legal letter requests,
    responses, and management schedules and determine the due dates for the
    component financial statements as well as the entitywide financial
    statements. The entitywide team generally should receive copies of the
    component letters from the component audit teams by the due dates.

    .15: The legal counsel’s response should include matters that existed
    at the balance sheet date and through a date near the completion of the
    audit. If the effective date is substantially in advance of the
    completion of the audit (for example, earlier than 2 weeks before the
    completion of the audit), the auditor should contact the legal counsel
    for an updated response. To avoid this situation, the legal letter
    request may specify the period the legal counsel’s response is to cover
    and the date the auditor expects to receive the response.

    .16: To assist the auditor in completing the review of legal matters in
    a timely manner (and to assist management in preparing the financial
    statements), the auditor may ask management to request legal counsel to
    submit a preliminary or interim response covering matters that existed
    at the current date and through a point in time reasonably before the
    completion of the audit so that a preliminary evaluation of the
    significance of material legal matters can be made. This is
    particularly applicable to large federal agencies with numerous and
    complex cases.[Footnote 60]

    If an interim letter is used, the auditor should ask the entity to
    request that legal counsel submit a final or updated response covering
    matters from the interim date through the date of audit completion. The
    entity should request that the updated response contain only changes or
    a statement indicating there are no changes from the interim response
    and any new matters from the interim date through the completion of the
    audit. The auditor should ask the entity to request that legal counsel
    date and submit the final legal representation letter to coordinate
    with the management representation letter in FAM 1001. However, in some
    cases, the legal representation letters are ready first so entity
    management may rely upon them before signing the management
    representation letters. In theses cases, the auditor should make oral
    inquiries of legal counsel and document whether material changes had
    occurred from the date of the legal representation letter to the date
    of audit completion. The auditor should plan to receive letters to meet
    the reporting deadline in accordance with OMB Circular No. A-136,
    Financial Reporting Requirements. See FAM 1002 B for an example legal
    letter request that includes requests for interim and updated responses
    from legal counsel. Determining a Materiality Level

    .17: The auditor and the entity may agree to limit the legal inquiry to
    matters that are considered individually or collectively material to
    the financial statements, provided that the entity and the auditor have
    agreed on the materiality level. The auditor should ask the entity to
    indicate the materiality level, if used, in the legal letter request
    and the entity should ask the lawyer to include the materiality in the
    response.

    .18: In determining a materiality level for the legal letter, the
    auditor and the entity should set the level sufficiently low that the
    cases not included in the legal letter would not be material to the
    financial statements taken as a whole when aggregated with
    (1) other cases not included in the letter, (2) all other types of
    contingencies, (3) all other items that would not be adjusted because
    they are judged immaterial (unadjusted misstatements), (4) all other
    amounts in the financial statements that would not be tested directly
    because they were judged to be immaterial, and (5) all other items
    resolved on the basis of materiality considerations.

    .19: In aggregating cases, the auditor and the entity may use two
    levels of aggregation. First, similar cases are aggregated (such as
    employment discrimination cases, harbor maintenance fee cases, spent
    nuclear fuel cases, or military promotion board challenges), treated as
    a group and the auditor should compare the total with the individual
    materiality level. The aggregation generally includes a list of the
    individual cases and a discussion of the items of information included
    in the legal letter for the aggregated cases (see FAM 1002 B and FAM
    1002 C). Second, cases not included in the legal letter individually or
    as part of a group of similar cases are aggregated. The auditor may use
    a higher materiality level for such an aggregation. However, the
    auditor may set this higher materiality level sufficiently low that the
    cases not included in the legal letter would not be material to the
    financial statements taken as a whole when aggregated with the other
    items listed in the previous paragraph.

    .20: Where the entity engages more than one legal counsel, the entity
    and the auditor should determine whether matters considered not

    material individually would exceed the materiality limit when
    aggregated. In addition, when separate legal representation letters are
    requested on individual components (such as bureaus or offices) of a
    consolidated entity because of individual component audits, the auditor
    may determine materiality levels for each component.

    Legal Counsels from Whom Information Should be Requested:

    .21: Most federal entities have a general counsel who has primary
    responsibility for and knowledge about the entity’s litigation, claims,
    and assessments. The auditor should request entity management to send a
    legal letter request to the general counsel. In addition, the auditor
    should ask the management and/or general counsel whether the entity
    used outside legal counsel whose engagement may be limited to
    particular matters (e.g., specific litigation).

    .22: In the federal government, the main legal counsel outside of the
    entity is the Department of Justice.[Footnote 61] The entity’s
    management, its legal counsel, or the auditor may consult with Justice
    as well as other outside legal counsel to assure completeness and
    accuracy of the presentation of matters related to litigation, claims,
    and assessments. Such consultation may include requesting a list of
    pending litigation, claims, and assessments from Justice or other
    outside legal counsel, or discussion of specific cases.

    .23: The auditor should ask the entity to request that legal counsel
    cover all litigation, claims, and assessments pertaining to the federal
    reporting entity, including matters handled by Justice and other
    outside legal counsel on behalf of the entity. If the general counsel
    has overall responsibility for handling and evaluating litigation,
    claims, and assessments, the evaluation and responses by general
    counsel ordinarily are adequate evidence. However, evidential matter
    obtained from general counsel is not a substitute for information that
    outside legal counsel refuses to furnish to the auditor.

    .24: Where there is no general counsel and management has not consulted
    legal counsel, the auditor should obtain a written representation from
    management that legal counsel has not been consulted. Such
    representation may be incorporated as an item in the management
    representation letter. (See FAM 550 and 1001.) An example item is: “We
    are not aware of any pending or threatened litigation, claims, or
    assessments or unasserted claims or assessments that are required to be
    accrued or disclosed in the financial statements in accordance with
    SFFAS No. 5. We have not consulted legal counsel concerning litigation,
    claims, or assessments.”

    Evaluation of Responses:

    .25: Written responses from legal counsel will vary considerably in the
    scope of information provided and in the opinion expressed. In
    preparing the responses, legal counsel uses the guidance contained in
    the American Bar Association’s Statement of Policy Regarding Lawyers’
    Responses to Auditors’ Requests for Information (ABA Policy Statement)
    (included in its entirety in AU 337 C).

    .26: The auditor should ask the entity to request that legal counsel
    cover all entity components included in the financial statements being
    audited. Additionally, legal counsel generally should indicate the
    disposition of cases included in the prior year’s letter that are no
    longer contingencies.

    .27: The auditor should evaluate each response in terms of sufficiency
    as evidence and consider (a) the possible limitations on the scope of
    legal counsel’s responses and (b) the lack of sufficient opinion on the
    resolution of a case. AU 9337 provides guidance in evaluating legal
    counsel’s responses. The auditor should evaluate any “unable to
    determine” and vague and unclear responses. The auditor also should
    evaluate the legal counsel’s response in light of any other information
    that comes to the auditor’s attention.
    Possible Limitations on the Scope of Legal Counsel’s Responses

    .28: When legal counsel limits the response, the auditor should
    determine whether the limitation affects the auditor’s report. Legal
    counsel may appropriately limit their response to certain matters. For
    example, to matters that (a) legal counsel has given substantive
    attention to in the form of legal consultation or representation, and
    (b) are determined to be individually or collectively material to the
    financial statements, provided the entity and the auditor have reached
    an understanding on materiality levels. These limitations are
    acceptable and do not limit the audit scope.

    .29: The following are examples of limitations on legal counsel’s
    responses that the auditor should not accept and that would ordinarily
    result in a scope limitation:

    a. Legal counsel refuses to furnish the requested information. When
    legal counsel refuses to furnish the information requested in the legal
    letter request, the auditor should evaluate this matter as a scope
    limitation sufficient to preclude an unqualified opinion.

    b. Legal counsel excludes matters requested. The legal counsel’s
    responses may not address all information requested. The auditor should
    compare legal counsel’s response with the legal letter request and
    determine whether legal counsel has addressed all the information
    requested. If legal counsel has excluded any of the requested matters,
    the auditor should obtain responses for those matters from legal
    counsel. If the auditor is unable to obtain all the information needed,
    the auditor should evaluate this as a scope limitation that could be
    sufficient to preclude an unqualified opinion.

    c. Legal counsel indicates that certain information is being withheld
    due to attorney-client privilege. Under the American Bar Association
    (ABA) Code of Professional Responsibility, legal counsel is required to
    preserve the confidences and secrets of the client. Legal counsel may
    disclose confidences to the auditor only with the consent of the
    client. If the legal letter request is prepared in accordance with AU
    337, the auditor should expect that legal counsel would be responsive;
    otherwise the scope of the audit would be restricted. On the other
    hand, explanatory language in the legal letter request or in legal
    counsel’s response emphasizing that management or legal counsel does
    not intend to waive attorney-client privilege or attorney work-product
    privilege does not result in a scope limitation.

    Lack of Sufficient Opinion on the Resolution of a Case:

    .30: The following are examples of legal counsel responses that lack
    sufficient opinion on the resolution of a case:

    a. Uncertainties. Legal counsel may be unable to respond concerning the
    likelihood of an unfavorable outcome of litigation, claims, and
    assessments or the amount or range of potential loss, because of
    inherent uncertainties. In these circumstances, the auditor generally
    should conclude that the financial statements are affected by an
    uncertainty concerning the outcome of a future event, which is not
    susceptible to reasonable estimation. See FAM 580 for reporting on
    uncertainties.

    b. Unclear responses. Legal counsel sometimes use general terms to
    indicate their evaluation of the outcome of a case. The ABA Policy
    Statement states that legal counsel may, in the appropriate
    circumstances, communicate to the auditor their view that an
    unfavorable outcome is “probable” or “remote.” The legal letter
    responses may include phrases that mean remote or probable. The phrases
    below are examples of opinions that provide sufficient clarity that the
    likelihood of an unfavorable outcome is remote:

    * “We are of the opinion that this action will not result in any
    liability to the entity.”

    * “We believe that the plaintiff’s case against the entity is without
    merit.”
    The following are examples of opinions that indicate significant
    uncertainty as to whether the entity will prevail:

    * “In our opinion, the entity has a substantial chance of prevailing in
    this action.” (A “substantial chance,” a “reasonable opportunity,” and
    similar terms indicate more uncertainty than an opinion that the entity
    will prevail.)

    * “It is our opinion that the entity will be able to assert meritorious
    defenses to this action.” (The term “meritorious defenses” indicates
    that the court will not summarily dismiss the entity’s defenses; it
    does not indicate legal counsel’s opinion that the entity will
    prevail.)

    .31: To avoid unclear and incomplete responses, the auditor generally
    should ask management to request legal counsel to use Justice’s
    standard forms to describe legal contingencies (see FAM 1002 C-4 to C-6
    for examples of these forms). When legal counsel does not indicate
    whether the unfavorable outcome is probable or remote, management and
    the auditor should conclude that the outcome is reasonably possible,
    and management should determine the disclosure. Management, with legal
    counsel’s advice, determines whether cases are probable, reasonably
    possible, or remote, to decide whether to recognize them as liabilities
    and/or disclosed them in the notes to the financial statements.

    .32: If the auditor is not certain about legal counsel’s evaluation,
    the auditor should discuss the matters with legal counsel and entity
    management (and document the oral discussion) and/or obtain written
    clarification in a follow-up letter. Sometimes legal counsel may give a
    clearer indication of likelihood orally. If legal counsel is unable to
    give a clear evaluation of the likelihood of an unfavorable outcome,
    management should disclose the uncertainty and the auditor should
    evaluate the uncertainty’s effect on the audit report.

    Example Legal Letter Request:

    .33: The legal letter request, which the auditor may assist management
    to draft, should be on the audited entity’s letterhead, signed by the
    Chief Financial Officer (CFO), or equivalent, and ask that the reply be
    sent directly to the auditor with a copy to management by specified due
    dates. FAM 1002 B provides an example legal letter request that
    includes requests for interim and updated responses from legal counsel
    and matters that should be covered in the letter.

    Example Legal Counsel’s Responses and Management’s Schedule:

    .34: The General Counsel’s response on General Counsel letterhead is
    sent to the auditor with a copy to management by the agreed-upon due
    dates. The counsel may indicate that the response is provided for the
    auditor’s use in connection with the audit.

    .35: FAM 1002 C shows an example of a legal counsel response, including
    the legal representation letter that should include Justice’s legal
    contingency standard forms for each case or group of cases. Forms can
    be obtained on Justice’s website at [hyperlink,
    http://www.usdoj.gov/civil/forms/forms.htm] and auditors should check
    that current forms were used.

    .36: FAM 1002 D shows an example of management’s schedule that
    documents how the information contained in the legal counsel’s
    responses was used in preparing the financial statements. Management
    should include each case discussed in the legal letter and indicate (1)
    the amount accrued for probable cases and (2) note disclosure for
    reasonably possible cases, probable cases where the amount cannot be
    estimated, and probable cases where a range of amounts above the
    accrued amount is estimated.

    Practice Aids:

    .37: The following practice aids are provided at:

    FAM 1002 A – Example Audit Procedures for Inquiries of Legal Counsel;
    FAM 1002 B – Example Legal Letter Request; FAM 1002 C – Example Legal
    Representation Letter, and: FAM 1002 D – Example Management Summary
    Schedule.

    1002 A – Example Audit Procedures for Inquiries of Legal Counsel
    Entity:
    Period of financial statements:
    Job code:

    Example Audit Procedures: I. Testing Procedures: 1) Ask management
    about the entity’s policies and procedures for identifying, evaluating,
    and accounting for litigation, claims, and assessment; Done by/date:
    [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 2) Obtain from management (or the entity’s
    legal counsel) a description and evaluation of litigation, claims, and
    assessments existing as of the balance sheet date and through the date
    of management’s response (see timing of the audit at FAM 1002.13 to
    1002.16); Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 3) To determine whether an outside legal
    counsel is performing services for the entity, inquire of management
    whether outside legal counsel has been used by the entity and the
    matters handled. Ask management for a list of pending litigation,
    claims, and assessments from the Department of Justice and/or examine
    correspondence and invoices from other outside legal counsel (e.g., for
    legal fees), if any;
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 4) Ask whether there have been changes in the
    status of general counsel or outside legal counsel such as any
    resignations, or intentions to resign. If so, determine if there are
    matters that may affect the financial statements. For example, in
    appropriate circumstances, a legal counsel may be required by the ABA
    Code of Professional Responsibility to resign the engagement if the
    legal counsel’s advice concerning disclosures is disregarded by the
    entity;
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 5) To identify litigation, claims, and
    assessments read minutes of management meetings, contracts, loan
    agreements, leases, and correspondence from other government entities
    and discuss pertinent items with management;
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 6) If information comes to the auditor’ s
    attention that may indicate a potential contingency with respect to
    litigation, claims, or assessments that may require adjustment to or
    disclosure in the financial statements, discuss with the entity its
    possible need to consult legal counsel. Depending on the severity of
    the matter, refusal by the entity to consult legal counsel in those
    circumstances may result in a scope limitation. Determine the effect of
    such a limitation on the auditor’s report; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 7) Request entity management to send a legal
    letter request to the general counsel asking counsel to respond
    directly to the auditor. (Obtain a copy of the legal letter request.)
    Determine whether there is a need to request legal letters from any
    outside legal counsel. The legal letter should cover litigation,
    claims, and assessments pertaining to the reporting entity, including
    matters handled by the Department of Justice or other outside legal
    counsel. (See FAM 1002 B for an example legal letter request.)
    Coordinate with management and legal counsel to determine
    * the timing of legal letter requests and responses and related
    management’s summary/schedules of information contained in legal
    responses and
    * a materiality level to be included in the legal representation
    letter. (FAM 1002.17-.20); Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 8) Read the legal letter responses and
    management’s schedules to identify litigation, claims, and assessments;
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 9) Compare the description and evaluation of
    the current year’s legal letter responses to the prior year’s audit
    documentation. If this comparison indicates that certain legal matters
    in the prior year are no longer included, discuss these matters with
    management or legal counsel to obtain an understanding of the reasons
    for the changes; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 10) Determine whether the information in the
    legal representation letter is consistent with management’s schedule
    summarizing the information in the letter and related supporting
    documentation; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 11) Document and discuss with legal counsel
    if the information obtained is not complete, clear, or consistent;
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 12) Evaluate legal counsel’s responses and
    determine the effects of the responses on liabilities and related note
    disclosures in the financial statements and on the auditor’s report;
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 13) If a response date is substantially in
    advance of the audit report date, for example, earlier than 2 weeks
    prior to date of auditors’ report, obtain a written or oral update
    response. (The longer the period between the legal letter and the audit
    report date, the more important a written update becomes.);
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: II. Reporting Procedures: Obtain a
    representation from management in the management representation letter
    (see FAM 550 and 1001) that the entity has disclosed all unasserted
    claims that legal counsel has advised are probable of assertion that,
    if asserted, would have at least a reasonable possibility of an
    unfavorable outcome and must be disclosed.
    1) Discuss the description and evaluation of litigation, claims, and
    assessments obtained with management to determine if, subsequent to the
    date of legal counsel’s response, there have been any changes in status
    of the matters, changes in management’s evaluation of the outcome, or
    additional matters to be evaluated; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: If there are significant changes in the
    status of the matters or new matters, obtain a written confirmation or
    updated response from legal counsel; Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 3) Have management include in the management
    representation letter representations related to contingencies and
    determine if they are appropriately accrued and disclosed as required
    by SFFAS No. 5, as amended. If management has not consulted legal
    counsel, obtain a written representation from management that legal
    counsel has not been consulted. This representation may be incorporated
    in the management representation letter (see FAM 550 and 1001);
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 4) Read the entity’s financial statements and
    notes and: a) evaluate the adequacy of financial statement disclosure
    for contingencies with respect to litigation, claims, and assessments;
    b) determine if the financial statement disclosures for contingencies
    with respect to litigation, claims, and assessments are prepared in
    accordance with OMB guidance; and
    c) for federal entities involved in litigation for which the Judgment
    Fund is a likely source of judgment or settlement, determine if a note
    to the financial statements discusses the Judgment Fund’s role in the
    payment of a possible loss, as required by FASAB Interpretation No. 2,
    Accounting for Treasury Judgment Fund Transactions; Done by/date:
    [Empty];
    Doc Ref.: [Empty].

    Example Audit Procedures: 5) Document conclusions reached concerning
    the accounting for and disclosure of litigation, claims, and
    assessments, determine if adjustments are necessary, and whether
    modification of the auditor’s report is necessary (see FAM 580);
    Done by/date: [Empty];
    Doc Ref.: [Empty].

    1002 B – Example Legal Letter Request:

    [Audited Entity Letterhead]:

    Date: [date]:

    To: General Counsel:
    From: Chief Financial Officer [signed]: Subject: [Auditor’s] Audits of
    20X8 and 20X7:

    Financial Statements:

    Pursuant to [cite applicable legal authority to conduct the audit, such
    as 31 U.S.C. 3521], [auditor’s name] is auditing the financial
    statements of [entity] as of and for the years ended September 30,
    20X8, and 20X7.

    In performing audits of government entities, auditors comply with
    Government Auditing Standards, issued by the Comptroller General of the
    United States (the “yellow book”). For financial statement audits,
    Government Auditing Standards incorporate the fieldwork and reporting
    standards of the American Institute of Certified Public Accountants
    (AICPA) and the Statements on Auditing Standards that interpret them.

    Consistent with AU 337 of the AICPA’s Codification of Statements on
    Auditing Standards, [auditor] has inquired about litigation, claims,
    and assessments to obtain evidence as to the financial accounting and
    reporting of such matters in the financial statements. The purpose of
    this letter is to request your assistance in responding to that
    inquiry. The American Bar Association Statement of Policy Regarding
    Lawyers’ Responses to Auditors’ Request for Information (December 1975)
    provides guidance for the lawyer’s response to the auditor’s request.

    In accordance with Statement of Federal Financial Accounting Standards
    (SFFAS) No. 5, Accounting for Liabilities of the Federal Government, as
    amended by SFFAS No. 12, and Interpretation No. 2 of SFFAS No. 4 and 5,
    [entity] may need to report certain information in its financial
    statements and notes concerning contingent liabilities for litigation,
    claims, and assessments. We request that you provide [auditor] (with a
    copy to me) information on matters with respect to which you have been
    engaged and to which you have devoted substantive attention on behalf
    of [entity] in the form of legal consultation or representation.

    Please furnish an interim response by [agreed-upon date], but no later
    than (insert date such as August 29, 20x8), including matters that
    existed as of July 31, 20X8. Please furnish an updated response by
    [agreed-upon date] but no later than (insert date such as October 31,
    20x8) that includes any new legal matters from August 1 through October
    31, 20x8, and any significant changes from your interim response or
    furnish a statement that there are no new changes. (For CFO Act Audits
    only; the auditor and entity should determine appropriate timing for
    other audits.)

    Please include any cases[Footnote 62] with respect to which you have
    been engaged and to which you have devoted substantive attention on
    behalf of the [entity] in the form of legal consultation or
    representation, even those cases for which you believe the Judgment
    Fund or some financing source other than [entity]’s budgetary resources
    will pay any potential loss. Under U.S. generally accepted accounting
    principles, these amounts will be included as liabilities or disclosure
    items in the [entity]’s financial statements. Please aggregate cases
    similar in nature where appropriate. Please list the matters in order
    of the amount of potential loss, starting with the largest.

    Pending or Threatened Litigation (excluding unasserted claims):

    We and [auditor] have determined that any matters (1) for which the
    amount of potential loss exceeds $XX, individually or in the aggregate
    for similar cases, or (2) for which the amount of potential loss
    exceeds $XXX in the aggregate for cases not listed individually or as
    part of similar cases, could be material to the financial statements.
    We request that you provide to [auditor] the information described
    below about pending or threatened litigation where the amount of
    potential loss exceeds $XX:

    1. The nature of the matter. Include a description of the case or cases
    and amount claimed, if specified.

    2. The progress of the case to date.

    3. The government’s response or planned response (for example, to
    contest the case vigorously or to seek an out-of-court settlement). 4.
    An evaluation of the likelihood of unfavorable outcome. Please
    categorize likelihood as probable (an unfavorable outcome is likely to
    occur), reasonably possible (the chance of an unfavorable outcome is
    less than probable but more than remote), or remote (the chance of an
    unfavorable outcome is slight).

    5. An estimate of the amount or range of potential loss, if one can be
    made, for losses considered to be probable or reasonably possible.

    6. The name of the [entity]’s legal counsel handling the case and names
    of any outside legal counsel/other lawyers representing or advising the
    government in the matter (Department of Justice or outside law firms).

    We also request that you identify litigation reported in your prior
    year legal representation letter as pending or threatened that is no
    longer pending or threatened and a short description of the
    disposition.

    Unasserted Claims and Assessments:

    [If legal counsel is a part of management use this paragraph.] Please
    provide the following information for all unasserted claims and
    assessments that you consider to be probable of assertion and which, if
    asserted, would have at least a reasonable possibility (more that
    remote) of an unfavorable outcome (1) for which the amount of potential
    loss exceeds over $XX, individually or in the aggregate for similar
    cases, or (2) for which the amount of the potential loss exceeds $XXX
    in the aggregate for cases not listed individually or as part of
    similar cases, involving matters to which you have devoted substantive
    attention.

    [If legal counsel is not part of management, such as an outside legal
    counsel, use this paragraph.] We have provided an attachment to this
    request that lists the unasserted claims and assessments that we
    believe are probable of assertion and which, if asserted, would have at
    least a reasonable possibility (more than remote) of an unfavorable
    outcome (1) for which the amount of potential loss exceeds $XX,
    individually or in the aggregate, for similar cases, or (2) for which
    the amount of potential loss exceeds $XXX in the aggregate for cases
    not listed individually or as part of similar cases, involving matters
    to which you have devoted substantive attention. Please provide the
    following information for each matter and for any additional matters
    that you believe meet these criteria.

    1. A description of the nature of the matter.

    2. The government’s planned response if the claim is asserted.

    3. An evaluation of the likelihood of an unfavorable outcome.
    (Categorize likelihood as probable (likely to occur) or reasonably
    possible (less than probable but more than remote).)

    4. An estimate of the amount or range of potential loss, if one can be
    made.

    Please specifically confirm to [auditor] that our understanding of the
    following is correct: Whenever, in the course of performing legal
    services for us, with respect to a matter recognized to involve an
    unasserted possible claim or assessment that may call for financial
    statement disclosure, if you have formed a professional conclusion that
    we should disclose or consider disclosure concerning such possible
    claim or assessment, as a matter of professional responsibility to us,
    you will (1) advise us of your conclusion and (2) consult with us
    concerning the question of such disclosure and the applicable
    requirements of SFFAS No. 5, as amended.

    We request that you describe the cases using the Department of Justice
    forms (one for pending or threatened litigation, another for unasserted
    claims). To obtain the current forms, go to the Department of Justice
    website at [hyperlink, http://www.usdoj.gov/civil/forms/forms.htm].

    Please separately identify any pending or threatened litigation and
    unasserted claims with respect to which you have been engaged and to
    which you have devoted substantive attention on behalf of the [entity]
    in the form of legal consultation or representation for which you
    believe another government entity will be responsible for any potential
    liability.

    Please specifically identify the nature of and reasons for any
    limitations on your response to this request.

    Please address your reply to [auditor], and contact them at (phone
    number), when your reply is available for pick up, and send a copy of
    your reply to me. Do not hesitate to contact me or [auditor] if you
    have any questions about this request.

    1002 C – Example Legal Representation Letter: [General Counsel
    Letterhead]:
    [Date]:
    [Auditor]:
    [Title]:
    [Agency or Firm Name]:
    [City]:

    Subject: Legal Response in Connection with the 20X8 and 20X7 Financial
    Statement: Audits of [entity name]:

    Dear [Auditor]:

    As General Counsel of [entity], I am writing in response to the legal
    letter request from the [entity]’s Chief Financial Officer (CFO) dated
    [date], in connection with the audit of [entity]’s financial statements
    as of and for the years ended September 30, 20X8 and 20X7 [see FAM 1002
    B]. [In an interim response, add “I will, as further requested by the
    CFO, provide an updated response by [date].”]

    I call your attention to the fact that as General Counsel for [entity],
    I have general supervision of [entity]’s legal affairs. [If the general
    legal supervisory responsibilities of the person signing the letter are
    limited, set forth a clear description of those legal matters over
    which the signer exercises general supervision, indicating exceptions
    to such supervision and situations where the auditor may primary rely
    on other sources.] In such capacity, I have reviewed litigation and
    claims threatened or asserted involving [entity] and have consulted
    with outside legal counsel about them when I have deemed appropriate.

    Subject to the foregoing and to the last paragraph of this letter, I
    advise you that since [insert date of beginning of period under audit]
    neither I, nor any of the lawyers over whom I exercise general legal
    supervision, have given substantive attention to, or represented
    [entity] in connection with (1) loss contingencies [over the amount of
    (state materiality level agreed to with auditor and stated in request
    letter, for example $1 million)], or (2) loss contingencies that are
    less than or equal to [for example, $1 million] but in the aggregate
    exceed, [for example, $5 million] coming within the scope of clause (a)
    of Paragraph 5 of the Statement of Policy referred to in the last
    paragraph of this letter, except as follows:

    [Describe litigation and claims that fit the foregoing criteria as
    follows. General Counsel may use current Department of Justice forms to
    describe the cases (one for pending or threatened litigation, another
    for unasserted claims); see the DOJ website at [hyperlink,
    http://www.usdoj.gov/civil/forms/forms.htm.][Footnote 63]

    Pending or Threatened Litigation: (Excluding unasserted claims and
    assessments, which are discussed below)

    1. Nature of the matter (include a description of the case or cases and
    amount claimed, if specified).

    2. Progress of the case to date.

    3. Current or intended response.

    4. Evaluation of the likelihood of an unfavorable outcome (categorize
    likelihood as probable, reasonably possible, or remote).

    5. Estimated amount or range of potential loss, if determinable, for
    losses considered to be probable or reasonably possible.

    6. Name of [entity]’s legal counsel handling the case and names of any
    outside legal counsel representing or advising the government in the
    matter.

    Pending or threatened litigation that was reported in the prior year’s
    legal representation letter, which is no longer pending or threatened
    is as follows [Identification of litigation with a short description of
    its disposition.]

    With respect to matters that have been specifically identified as
    contemplated by clauses (b) or (c) of paragraph 5 of the ABA Statement
    of Policy, I advise you, subject to the last paragraph of this letter,
    as follows:

    Unasserted Claims and Assessments (considered to be probable of
    assertion and which, if asserted, would have at least a reasonable
    possibility of an unfavorable outcome)

    1. Nature of the matter.

    2. Intended response if claim would be asserted.

    3. Evaluation of the likelihood of an unfavorable outcome. (Categorize
    likelihood as probable or reasonably possible.)

    4. Estimated amount or range of potential loss, if determinable.

    The information set forth herein is [(as of the date of this letter) or
    (as of (insert date), the date on which we commenced our internal
    review procedures for purposes of preparing this response)], except as
    otherwise noted. [If an interim response, add “Upon receipt of a
    request to update the response, I will provide an updated response,
    which is due on [date],”] {If a final response: I disclaim any
    undertaking to advise you of changes that, after the date of this
    letter, may be brought to my attention or the attention of our lawyers
    over whom I exercise general legal supervision.}

    [The following language is generally consistent with AU 337C)

    This response is limited by, and in accordance with, the ABA Statement
    of Policy Regarding Lawyers’ Responses to Auditors’ Requests for
    Information (December 1975); without limiting the generality of the
    foregoing, the limitations set forth in such statement on the scope and
    use of this response (Paragraphs 2 and 7) are specifically incorporated
    herein by reference, and any description herein of any “loss
    contingencies” is qualified in its entirety by Paragraph 5 of the
    statement and the accompanying commentary (which is an integral part of
    the statement).

    Consistent with the last sentence of Paragraph 6 of the ABA Statement
    of Policy, this will confirm as correct the [entity]’s understanding
    that whenever, in the course of performing legal services for the
    [entity] with respect to a matter recognized to involve an unasserted
    possible claim or assessment that may call for financial statement
    disclosure, I have formed a professional conclusion that the [entity]
    must disclose or consider disclosure concerning such possible claim or
    assessment, I, as a matter of professional responsibility to [entity],
    will so advise the [entity] and will consult with the [entity]
    concerning the question of such disclosure and the applicable
    requirements of Statement of Federal Financial Accounting Standards
    (SFFAS) No. 5, Accounting for Liabilities of the Federal Government, as
    amended by SFFAS No. 12, and Interpretation Number 2 of SFFAS No. 4 and
    5.

    [Describe any other or additional limitation as indicated by Paragraph
    4 of the statement.]

    Sincerely yours,

    [Name of General Counsel]:
    [Title]:
    cc: Chief Financial Officer:
    Attachments (DOJ forms or other case information):

    The auditor should see that management prepare this schedule (or
    equivalent) summarizing the information contained in the legal letters.
    In particular, the auditor should determine that management has
    concluded as to the likelihood of loss about each case to determine
    whether an amount should be recorded in the financial statements and/or
    if note disclosure is necessary for the financial statements to conform
    with U.S. GAAP. Although most information comes directly from the legal
    letter, the auditor should determine that financial staff have
    accurately added the information in the last two columns to indicate
    the disposition of each case in the financial statements.

    Management's Schedule of Information Contained in Legal Letter
    Responses for Financial Reporting Purposes:

    Amounts in thousands:

    Table:

    [See PDF for image]

    [End of figure]

    Guidance for Preparation:

    1. Matters should be listed on this schedule in order of the amount or
    range of potential loss, starting with the largest.

    2. The level of aggregation should generally be at the same level as in
    the general counsel's letter. However, there may be instances where the
    level of aggregation is too high to be able to prepare this schedule in
    a way that is meaningful. In such cases, the auditor should request
    that the CFO work with legal counsel to provide further disaggregation
    of dissimilar cases. There may also be other instances in which a
    higher level of aggregation is desirable. The auditor should request
    that CFOs use professional judgment, considering the purpose of this
    schedule when determining the level of aggregation.

    Column:

    1: Reference key: Page number of legal representation letter obtained
    from General Counsel discussing the case, or other reference
    information.

    2: Amount claimed: Amount claimed in the litigation, claim, or
    assessment (if specified)

    3: Name of case or related cases: Where appropriate, provide name of
    case or aggregated cases which meet materiality threshold.

    4: Likelihood of loss: Indicate management's evaluation of the
    likelihood of loss on individual or aggregated cases. Options: P:
    probable (loss likely to occur); R/P: reasonably possible (the chance
    of loss is less than probable, but more than remote); or R: remote (the
    chance of loss is slight).

    5: Amount or range of potential loss: Options: 5a: Probable (P) --
    Provide single estimate or lower end of range, if known. Enter "U" if
    unknown. (Also provide column totals.)

    5b: Reasonably possible (R/P) -- Provide single estimate or lower end
    of range, if provided. Enter "U" if unknown. Also provide column
    totals.

    5c: If amounts in P or R/P are ranges, provide upper end of range;
    otherwise, enter "n/a."

    6: Disposition in financial statements - amount recorded: If
    applicable, provide corresponding dollar amount recorded as a liability
    in the financial statements. (Also provide column totals.)

    7: Disposition in financial statements - note disclosure: If
    applicable, indicate by note reference number where case information is
    separately disclosed or included in amounts disclosed in notes to the
    financial statements. (Also provide column totals.)

    1003 - Financial Statement Audit Completion Checklist Entity:

    Job Code:

    Principal Report:

    Other Reports (including management reports and testimonies):

    Instructions:

    .01: This checklist is a tool to help auditors of financial statements
    determine whether they have complied with GAGAS, OMB audit guidance,
    and the FAM. The auditor-in-charge (AIC), audit senior, or audit
    manager should prepare this checklist before the audit completion date
    and sign in section VIII. The assistant director and first partner
    (audit director) should review this checklist before the audit
    completion date and also sign in section VIII. For GAO audits, the
    chief accountant or second partner should review the checklist and sign
    in section IX when engagement quality control review (previously called
    a second partner review) is completed before the audit completion date.
    If the audit is conducted at multiple sites, the site supervisor may
    complete parts of the checklist for each site (with the AIC, audit
    senior, or audit manager completing the overall checklist). While parts
    of the checklist are useful in audit planning, no signatures are
    required on the checklist in the planning phase.

    .02: The detailed questions in this checklist are to be answered “Yes”,
    “No”, or “N/A (not applicable)”. For most questions, “No” answers
    indicate departures from professional standards or from auditor
    policies. The auditor should explain all “No” answers in section VII of
    this checklist and determine the effects and significance of “No”
    answers, including any effects on the auditor’s report. Auditors should
    check “N/A” when the item does not exist or when the item exists but is
    judged to be not material. Because the checklist is designed for a wide
    range of financial statement audits, there may be many “N/A” answers.
    If the reason why a question is not applicable is not obvious, the
    auditor should document the reason on the checklist or in an
    attachment. It is not necessary to create additional documentation to
    support the “Yes” answers, but a column is provided to insert a
    reference to related audit documentation (“Ref.”). The questions are
    summarized. For most questions, there is a reference to professional
    literature that provides more detail.

    .03: Section V has questions on GAO’s report considerations and section
    VI has questions on GAO’s quality control. GAO auditors should complete
    these sections. IG auditors and other auditors may use these sections
    or may substitute forms that conform to their reporting style and
    quality controls.

    .04: See FAM 650 related to reviewing this checklist (or equivalent)
    when using the work of others.

    .05: FAM Volume 3 has two checklists, Checklist for Federal Accounting
    (FAM 2010), and Checklist for Federal Reporting and Disclosures, (FAM
    2020), which superseded the July 2004 FAM 1050 checklist. The two
    checklists cover accounting, financial reporting, and disclosure
    requirements related to federal financial statements prepared using
    U.S. GAAP promulgated by FASAB and includes form and content
    presentation contained in OMB Circular No. A-136 (June 29, 2007). The
    AICPA publishes a disclosure checklist for financial statements
    prepared using U.S. GAAP promulgated by FASB. Preparers of entity
    financial statements may document their conformity with U.S. GAAP by
    either:

    * completing the FAM 2010 and FAM 2020 checklists, or

    * completing the AICPA disclosure checklist, as applicable, and a
    supplemental checklist for FASAB requirements, or

    * completing an equivalent checklist that addresses applicable
    accounting, financial reporting, and disclosure requirements.

    Preparers should tailor checklists to the needs of their individual
    entity financial statements and auditors should review finished
    checklists for completeness and accuracy. If the preparer does not
    complete the checklists, the auditor should complete FAM 2010 and FAM
    2020 or equivalent to document the conformity of the entity’s financial
    statements with U. S. GAAP as discussed in FAM 560.

    .06: For GAO’s financial audits, this checklist incorporates, by
    reference, additional job-related documentation requirements.

    .07: For GAO’s financial audits, the chief accountant or second partner
    should perform an engagement quality control review. This review should
    be documented on FAM 1003-29. IG auditors and other auditors should
    determine the need for a similar review as part of their system of
    quality control under GAGAS.

    Contents:

    Section Topic Page:
    I. Planning and Concluding the Audit: II. Key Audit Areas:
    III. Consultation:
    IV. Report:
    V. GAO’s Report Considerations: VI. GAO’s Quality Control:
    VII. Explanation of “No” Answers and Other Comments: VIII. Conclusions:
    IX. Engagement Quality Control Review (Second Partner Review):
    References:
    AICPA Professional Standards (vol. 1, Auditing): GAO/PCIE Financial
    Audit Manual: Government Auditing Standards (2007 edition):

    Section I: Planning and Concluding the Audit: 1. Has the audit team
    documented that it has a. established an understanding with those
    contracting for the audit, officials of the entity, or others defined
    as the client and those charged with governance as to the objectives of
    the work; management’s responsibilities; auditors’ responsibilities; an
    overview of the nature, extent, and timing of planned audit procedures,
    the form, general content, and timing of communications; planned
    reporting on the financial statements, internal control, and
    compliance; the planned level of assurance; any limitations of the work
    and any potential restrictions on the auditor’s reports; and
    b. issued an engagement letter, contract, or other written
    communication to describe the terms of the engagement?
    (FAM 215 and GAGAS, par. 4.06); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 2. Was an entrance
    conference held? (FAM 215 A); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 3. Does audit
    documentation contain an understanding of the entity, its operations,
    and its internal controls sufficient to assess risk and plan the audit?
    (FAM 290.03-.04);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 4. Does the audit
    documentation contain an adequate audit strategy and audit plan? (FAM
    290.05 and FAM 290.09);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 5. Did the audit team
    adequately perform and document planning steps (FAM 290.05) to include
    a. Perform preliminary analytical procedures? (FAM 225)
    b. Determine planning and design materiality and tolerable
    misstatement? (FAM 230) c. Identify the methodology used to assess
    computer-related controls and document the basis for believing that the
    methodology used is appropriate? (GAO auditors should use FISCAM.) (FAM
    240)
    d. Identify significant laws & regulations? (FAM 245) e. Identify
    relevant budget restrictions? (FAM 250) f. Design the audit to achieve
    an acceptable level of audit assurance that the financial statements
    are not materially misstated? (GAO uses 95 percent.) (FAM 260)
    g. Discuss the susceptibility of the entity’s financial statements to
    material misstatement? (FAM 260) h. Assess inherent risk and the
    overall effectiveness of the control environment, risk assessment,
    communication, and monitoring, including whether weaknesses in the
    control environment, risk assessment, communication, and monitoring
    preclude the effectiveness of specific control activities? (FAM 260)
    i. Assess fraud risks, including any related to revenue and to
    management override of controls, and exercise professional skepticism
    throughout the audit? (FAM 260 and FAM 290.08) j. Brainstorm risk of
    material misstatement including fraud risk and error risk? (FAM 260) k.
    Consider the effects of information technology, including service
    centers? (FAM 270) l. Consider operations controls to test? (FAM 275)
    m. Plan other procedures (representation letters, related party
    transactions, sensitive payments)? (FAM 280)
    n. Determine locations to be visited? (FAM 285) o. Determine staffing
    requirements? (FAM 290.05) p. Determine timing of procedures and
    milestones? (FAM 290.05)
    q. Determine extent of assistance from entity personnel? (FAM 290.05);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 6. Does the audit
    strategy consider findings and recommendations from previous audits
    that could affect the current audit objectives? (GAGAS, par. 4.09);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 7. Did the audit team
    identify budget controls for each relevant budget restriction and
    perform sufficient work to support the conclusions on internal control?
    (FAM 250, 310.06, 330.09);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 8. Did the audit team
    identify compliance controls and perform sufficient work to support the
    conclusions on internal control? (FAM 245, 310.05, 330.10); N/A:
    [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 9. Did the audit team use
    the work of others (CPA firms, IGs, internal auditors, or specialists)?
    (FAM 650); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 10. Did the audit team
    perform overall analytical procedures, including documentation of a.
    expectations,
    b. data/sources,
    c. parameters,
    d. explanations/corroboration, and e. conclusions?
    (FAM 590.04);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 11. Does the
    documentation indicate that the audit team properly performed
    procedures in the reporting phase of the audit (FAM 590) as follows: a.
    Evaluate misstatements, including considering whether any misstatements
    are indicative of fraud? (FAM 540)
    b. Bring all uncorrected known and likely misstatements to the
    attention of entity management and those charged with governance? (FAM
    540.07)
    c Obtain attorneys’ representations? (FAM 550.02 and FAM 1002)
    d. Review subsequent events? (FAM 550.04 and FAM 1005)
    e. Obtain management representations? (FAM 550.07 and FAM 1001)
    f. Identify and evaluate related party transactions? (FAM 550.12 and
    FAM 1006)
    g. Communicate with those charged with governance? (FAM 550.13)
    h. Review the consistency of other information in the Annual Financial
    Report? (FAM 580.77); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 12. Does the audit
    summary memorandum or equivalent properly summarize or refer to
    documentation (FAM 590.02-.03) addressing the following? a. Any changes
    from original assessments of the risk of material misstatement,
    materiality, or tolerable misstatement?
    b. Additional fraud risks or other conditions identified during the
    audit calling for an additional response and the related response? c.
    The basis for conclusions on significant auditing, accounting, and
    reporting issues? d. Conclusions on adequacy of procedures and
    sufficiency of evidence?
    e. The effects of uncorrected misstatements (known and likely) on the
    financial statements? f. Conclusions on financial statements? g.
    Conclusions on internal control? h. Conclusions on whether the entity’s
    financial management systems meet the requirements of FFMIA?
    i. Conclusions on compliance with laws and regulations?
    j. Conclusions on the consistency of accompanying information with the
    financial statements?; N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 13. Has the audit
    director determined that communications have occurred among the audit
    team members regarding fraud risks and error risks? (FAM 540.19); N/A:
    [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section I: Planning and Concluding the Audit: 14. Is there
    documentation that a. The director approved deviations from the
    “should” procedures in the FAM and the basis for the deviations? (FAM
    110.28)
    b. The auditor complied with “must” procedures of professional auditing
    standards as noted in the FAM? (FAM 110.28 and Appendix B); N/A:
    [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: Planning and Concluding the Audit: Answer
    the questions below for each key audit area or cycle. The key audit
    areas and cycles to which these questions apply are:
    1. Did the audit team prepare the documentation summarizing
    considerations in planning and performing the work in the key audit
    areas and cycles for
    a. Cycle Matrix or an equivalent (or documentation in Account Risk
    Analysis or an equivalent) showing links between accounts, cycles,
    applications and line items? (FAM 290.06) b. Account Risk Analysis or
    an equivalent? (FAM 290.07)
    c. Cycle Memorandum and/or flowchart or equivalents? (FAM 390.05)
    d. Specific Control Evaluation or an equivalent? (FAM 390.07)
    e. Written audit plan and procedures? (FAM 390.01) 1. Did the audit
    team prepare the documentation summarizing considerations in planning
    and performing the work in the key audit areas and cycles for
    a. Cycle Matrix or an equivalent (or documentation in Account Risk
    Analysis or an equivalent) showing links between accounts, cycles,
    applications and line items? (FAM 290.06) b. Account Risk Analysis or
    an equivalent? (FAM 290.07)
    c. Cycle Memorandum and/or flowchart or equivalents? (FAM 390.05)
    d. Specific Control Evaluation or an equivalent? (FAM 390.07)
    e. Written audit plan and procedures? (FAM 390.01); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: 2. If conditions changed during the course
    of the audit, were the audit strategy, audit plans, and procedures
    modified as appropriate in the circumstances, including evidence of
    first partner/director approval? (AU 311.05);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: 3. When the audit team performed sampling,
    did it properly determine and document the a. method used in relation
    to test objectives, b. sample size and the method of determining the
    sample size,
    c. tests performed,
    d. results (misstatements and deviations found), e. evaluation
    (including projection to the population), and
    f. conclusions? (FAM 490.05a);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: 4. When the audit team performed
    substantive analytical procedures, did it properly document a.
    expectations and the method used to develop them,
    b. data sources/reliability,
    c. limit/criteria,
    d. client explanations and corroborating evidence, e. additional
    procedures, if any and f. conclusions? (FAM 490.05b);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: 5. When the audit team performed interim
    testing, did it a. test the rollforward period,
    b. properly document the
    i. basis for using interim testing and the line items/ accounts and
    assertions tested, ii. procedures performed, and
    iii. effects of any misstatements found? (FAM 495 C.06);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: 6. Did the audit team evaluate the
    reasonableness of significant accounting estimates made by management?
    (AU 342);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: 7. Were known and likely misstatements
    identified in the testing of the key area carried forward to the
    Schedule of Uncorrected Misstatements? (FAM 540.04 and FAM 595 C);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: 8. Did an IS specialist review the
    specific control evaluation to evaluate the audit team’s decision on
    which controls are computer-related (including controls relating to
    service-center-produced records)? (FAM 350.10);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Based on the risk of material misstatement, did the audit team perform
    adequate substantive audit procedures for line items/accounts on the
    following pages? (If not a key area, check the N/A box.)

    Section II: Key Audit Areas: Fund Balance with Treasury (FBWT) Consider
    these issues:

    * Did the audit team test the entity’s year-end reconciliation of Fund
    Balances with Treasury to Treasury accounts?

    * Did the audit team determine if the entity

    a. researched and resolved differences before making adjustments,

    b. recorded any necessary adjustments in the entity’s FBWT accounts,

    c. reported the adjustments to Treasury, if applicable, and:

    d. disclosed in the notes to the financial statements material
    unreconciled differences and budget clearing account differences at
    year-end, and material unreconciled differences written off by the
    entity during the year?

    * Did the audit team assess (at absolute value) the materiality of
    unreconciled differences, including those in budget clearing accounts?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: Receivables: Consider these issues:

    * If substantive audit procedures were performed prior to year-end, was
    there an adequate review of transactions from the interim date to the
    balance sheet date? (AU 313.08-.09)

    * Were receivables confirmed and appropriate follow-up steps taken,
    including second requests and subsequent collections? (AU 330.30-.32)

    * Are receivables stated at net realizable value after allowance for
    uncollectible accounts? (AU 342.02); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: Inventories: Consider these issues:

    * Were physical inventories observed at locations where material
    amounts were located? (AU 331)

    * If perpetual inventory records are maintained, does the documentation
    indicate that differences disclosed by the physical inventory (or cycle
    counts) are properly reflected in the financial statements? (AU 331)

    * When the physical inventory is taken at a date other than the balance
    sheet date (or where rotating procedures are used), did the auditor
    consider inventory transactions between the inventory date(s) and the
    balance sheet date? (AU 313.08-.09)

    * Does the documentation contain evidence that counts were correctly
    made and recorded (was control over inventory tags or count sheets
    maintained) and test count quantities were reconciled with the counts
    reflected in the final inventory? (AU 331)

    * Were there adequate tests of

    a. clerical accuracy of the inventory,

    b. costing methods and substantiation of costs used in pricing all
    elements of the inventory, and:

    c. cutoff?

    * Were analytical procedures used to test the overall valuation of
    inventories?; N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: Investments Consider these issues:

    * Was a summary schedule prepared (or obtained) and details tested with
    respect to the description, purchase price and date, changes during the
    period, income, market value, etc. of investments?

    * Were securities either examined or confirmed? (AU 332);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: Property, Plant, and Equipment Consider
    these issues:
    * Was a summary schedule prepared (or obtained) to show beginning
    balances, changes during the period, and ending balances for
    a. property, plant, and equipment, and b. accumulated depreciation
    and were significant activity and balances tested, particularly for
    existence and other significant assertions?
    * Were property items capitalized or expensed in accordance with
    consistent capitalization limits?
    * Did the audit team perform tests of completeness, such as testing
    from disbursements to property records?
    * Do the tests appear adequate and were proper conclusions drawn?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: Liabilities Consider these issues:
    * Did the audit team perform an adequate search for unrecorded
    liabilities?
    * Did the audit team consider expenses that might require accrual
    (e.g., pensions, compensated absences, other postretirement benefits,
    or postemployment benefits provided to former or inactive employees
    prior to retirement), and whether accrued expenses were reasonably
    stated?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Key Audit Areas: Liabilities: Consider these issues:
    * Did the audit team perform an adequate search for unrecorded
    liabilities?
    * Did the audit team consider expenses that might require accrual
    (e.g., pensions, compensated absences, other postretirement benefits,
    or postemployment benefits provided to former or inactive employees
    prior to retirement), and whether accrued expenses were reasonably
    stated?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Revenue and Expenses: Consider these issues:
    * Did the audit team compare revenue and expenses for the period to
    expectations, based on the budget and the results of the preceding
    period? (AU 329)
    * For significant variances and fluctuations from expectations, were
    management’s explanations corroborated with other audit evidence or if
    explanations could not be obtained, were other audit procedures
    performed to determine whether the variance is a misstatement? (AU 329)
    * Did the audit team consider
    a. the entity’s revenue recognition policy, b. unusual transactions, and
    c. fraud risks?
    * Do tests appear adequate, and were proper conclusions drawn?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section II: Statement of Budgetary Resources: Consider these issues:
    * Were appropriate procedures applied, such as a. understanding and
    testing the budget execution controls,
    b. tests of the process of preparing the statement,
    c. tests of undelivered orders, and d. review of reconciliation to the
    President’s Budget?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section III: Consultation:
    1. Where warranted by the complexity or unusual nature of an issue (for
    example, issues where the FAM requires consultation, issues not
    discussed in the FAM or professional standards, going concern issues,
    economic dependency issues, issues arising after report issuance), was
    there appropriate consultation with specialists, including the:
    * Reviewer,
    * Statistician,
    * Office of General Counsel, and
    * Technical Accounting and Auditing Expert? (FAM 100.26 and FAM
    Appendix A); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section III: Consultation:
    2. Were significant consultations appropriately documented? (FAM
    100.26);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section III: Consultation:
    3. Were the persons consulted made aware of all relevant facts and
    circumstances?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    1. Does the auditor’s report or document containing the auditor’s
    report (FAM 580.04, 580.77) include a. highlights page or executive
    summary (for GAO reports);
    b. transmittal letter (if appropriate); c. conclusions on:
    i. financial statements,
    ii. internal control,
    iii. whether the entity’s financial management systems substantially
    complied with the requirements of the Federal Financial Management
    Improvement Act of 1996 (FFMIA) for CFO act agencies,
    iv. compliance with laws and regulations, and v. consistency of other
    information with financial statements?
    d. objectives, scope, and methodology, including description of
    instances where GAGAS and OMB audit guidance were not followed; and e.
    entity comments and auditor evaluation?; N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    2. Is the auditor’s report (FAM 580) appropriate as to a. wording,
    b. scope of work,
    c. U.S. GAAP,
    d. explanatory paragraphs,
    e. opinion/disclaimer on financial statements, f. opinion/conclusions
    on internal control, g. conclusions on whether the entity’s financial
    management systems substantially comply with the requirements of FFMIA
    (for CFO Act agencies), and
    h. reporting on compliance with laws and regulations?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    3. Is background material (purpose, authority, and functions of
    programs/activities) limited to what is necessary?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    4. Is the auditor’s report dated when all appropriate, sufficient audit
    evidence is obtained to support the opinion and all significant issues
    are resolved? (AU 530, FAM 580);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    5. Does the auditor’s report cover all periods for which financial
    statements are presented? (AU 508.65); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    6. If the financial statements of a prior period are presented and have
    been audited by a predecessor auditor whose report is not presented,
    does the auditor’s report refer to the predecessor auditor’s report?
    (AU 508.74);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    7. Does the auditor’s report describe the responsibility the auditor is
    taking for supplementary information, including stewardship
    information? (AU 551; FAM 580.78-.81);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    8. When illegal acts involve funds received from other governmental
    entities, did the audit team a. satisfy itself that the audited entity
    notified the proper officials of those entities within a reasonable
    time?
    b. report these acts to the officials of those other governmental
    entities if the entity did not, or was unable to do so because the top
    official was involved? (GAGAS, par. 5.15-.18); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    9. Does the auditor’s report include a. identification of which matters
    are significant deficiencies and which are material weaknesses (GAGAS,
    par. 5.11), and
    b. presentation of all identified (1) instances of fraud and illegal
    acts that are more than inconsequential, (2) material violations of
    provisions of contracts or grant agreements, and (3) material abuse?
    (GAGAS, par. 5.15); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    10. When appropriate, did the audit team report directly to outside
    parties on fraud; illegal acts; violations of provisions of contracts
    or grant agreements; or abuse? (GAGAS, par. 5.18);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    11. Did the auditor consider the status of all known significant
    findings and recommendations from prior audits that affect the current
    year report, including whether any failure to correct previously
    identified deficiencies in internal control is a significant deficiency
    or material weakness? (GAGAS pars. 5.11- .14.);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    12. Did the auditor document the basis to support (FAM 580.01) the
    a. opinion about whether the financial statements and disclosures
    comply in all material respects with U.S. GAAP (FAM 560),
    b. opinion/conclusion on internal control, c. conclusion on whether the
    entity’s financial management systems substantially comply with the
    requirements of FFMIA, (for CFO act agencies), and
    d. conclusion on compliance with laws and regulations?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    13. Did the auditor document the basis for reported findings on
    a. internal control deficiencies, including classification of control
    deficiencies as material weaknesses, other significant deficiencies, or
    other control deficiencies (FAM 590.05), b. entity’s financial
    management systems lack of substantial compliance with the requirements
    of FFMIA for CFO act agencies (FAM 590.06), and c. noncompliance with
    laws and regulations (FAM 590.07), if any?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    14. Did the auditor develop the elements of audit findings to include
    (where appropriate and known) the a. condition (describe the existing
    situation), b. criteria (state what we are comparing to), c. cause
    (reflect reason or reasons why the condition and criteria differ), and
    d. effect (describe the result of the difference between the condition
    and criteria)? (GAGAS paragraphs 4.14-.18);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    15. Are recommendations and suggestions reasonable, doable, and cost-
    effective?;
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    16. Does the report obtain the views of responsible officials in agency
    comments to include: a. either oral or written comments, b. titles of
    senior official(s) involved, c. accurate characterization of general
    agreement or disagreement with the report, d. description of the
    substance of the comments, and
    e. auditor evaluation of the comments, particularly if they disagree,
    are inconsistent, or conflict with the report findings, conclusions, or
    recommendations.
    (GAGAS paragraphs 5.32-.37);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section IV: Report:
    17. Are there control deficiencies that do not meet the criteria for
    significant deficiencies and do not affect the auditor’s conclusions as
    to the effectiveness of internal controls that the auditor may
    communicate orally or in a separate management report? If so, did the
    auditor document any oral communications? (FAM 580.49, FAM 590.05, and
    GAGAS par. 5.14); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section V: GAO’s Report Considerations: 1. Overall, does the GAO report
    have the following characteristics a. Professional: The work reflects
    an understanding of the issues, an awareness of the external
    environment, including sensitivity to relevant trends, and a practical
    approach to what can be done to deal with the problems noted. b.
    Accurate: Information and findings are presented accurately with no
    notable errors in logic or reasoning. c. Objective: The presentation is
    fair and impartial and the tone is constructive and objective.
    d. Fact-based: Information and findings are stated completely, which
    includes all necessary facts and/or explanations without unproven or
    uncorroborated material, and any conflicting evidence is resolved.
    e. Balanced: Sound and logical evidence is presented to support
    conclusions, adjectives or adverbs are not used to characterize
    evidence in a way that implies criticism or conclusions by innuendo,
    and positive aspects of programs or issues reviewed are appropriately
    recognized.
    f. Timely and Useful: Relevant and timely information is presented.
    g. Clear and Concise: The presentation is clear, concise, and well
    organized with the message presented logically in a writing style
    adapted to the audience; Yes: [Empty].

    Section VI: GAO’s Quality Control: 1. Was the GAO report reviewed by
    the a. audit director (first partner), b. engagement quality control
    reviewer (second partner),
    c. Office of the General Counsel (form 124A), d. Applied Research &
    Methods (form 124C), and e. other stakeholders (form124C); N/A:
    [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 3. Did the assistant director review
    the a. entity profile or equivalent (FAM 290.04), b. audit strategy (AU
    311.13-.14) or equivalent, including sampling approach (FAM 290.05), c.
    account risk analyses or equivalent (FAM 290.07), d. initial audit plan
    with procedures (FAM 290.09), e. line item/account lead schedules, f.
    completed audit plan with procedures (FAM 290.09),
    g. specific control evaluations (FAM 330.07), h. audit summary
    memorandum (FAM 590.02-.03), i. Checklist for Federal Accounting (FAM
    2010) and Checklist for Federal Reporting and Disclosures (FAM 2020)
    for statements using U.S. GAAP promulgated by FASAB,
    j. financial reporting and disclosure checklist for statements using
    GAAP promulgated by FASB, k. management representation letter (FAM
    1001), l. legal representation letter (FAM 1002), m. schedule of
    uncorrected misstatements (FAM 595 C),
    n. exit conference memorandum (FAM 590.10), o. GAO report with entity
    financial statements and related disclosures,
    p. referencing review sheet (GAO form 92), q. GAO abbreviated audit
    documentation set, and r. this audit completion checklist (FAM 1003)?
    (FAM 1301.17);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 4. Did the assistant director
    determine that all significant review notes were resolved
    appropriately? (FAM 1301.27-.28);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 5. Did the assistant director
    indicate that all documentation was sufficiently reviewed? (FAM
    1301.05); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 6. Were review notes, superseded
    versions of documentation, and draft reports (except the referenced
    draft and the draft sent to the entity for comment), including review
    notes and superseded versions in electronic form, placed in a separate
    folder to be retained until the report is released, after which they
    may be destroyed or deleted electronically up to 60 days after the
    report release date? (FAM 1301.28); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 7. Were review responsibilities
    documented and communicated to all individuals on the assignment? (FAM
    1301.23);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 8. Was documentation prepared by an
    IS specialist reviewed by an IS manager or IS assistant director for
    technical content and by a member of the audit team to determine that
    related audit objectives were achieved? (FAM 1301.24);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 9. For areas that are both material
    and have high risk of material misstatement, did the audit director or
    assistant director perform secondary reviews of the documentation? (FAM
    1301.12);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 10. Was all documentation prepared
    by the audit director or assistant directors read by the auditor-in-
    charge to determine its consistency with any related documentation?
    (FAM 1301.15);
    N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VI: GAO’s Quality Control: 11. If the documentation indicated a
    difference of opinion between engagement personnel or between
    engagement personnel and a specialist or other person consulted, was
    the difference resolved appropriately and was the basis of the
    resolution documented? (FAM 1302); N/A: [Empty];
    Yes: [Empty];
    No*: [Empty];
    Ref.: [Empty].

    Section VII: Explanation of “No*” Answers and Other Comments:

    The page below is provided for comments on all “No*” answers or to
    expand upon any of the “Yes” and “N/A” answers as needed, and may be
    modified as necessary.
    * For some questions, “No” answers may indicate departures from
    professional standards or from auditor policies. The auditor should
    explain all “No” answers below and determine the effects and
    significance of “No” answers, including any effect on the auditor’s
    report.

    Section VIII: Conclusions: Based on your review and knowledge, do you
    believe: 1. The audit team performed the engagement, in all material
    respects, in accordance with GAGAS (which include U.S. GAAS) and
    applicable OMB guidance, or the auditor’s report was appropriately
    modified?;
    Yes: [Empty];
    No**: [Empty].

    Section VIII: Conclusions: 2. The financial statements conformed, in
    all material respects, with U.S. GAAP, or the auditor’s report was
    appropriately modified?; Yes: [Empty];
    No**: [Empty].

    Section VIII: Conclusions: 3. The auditor’s report was appropriate in
    the circumstances?; Yes: [Empty];
    No**: [Empty].

    Section VIII: Conclusions: 4. The documentation on this engagement
    supports the auditor’s • opinion on the financial statements, •
    opinion/conclusions on internal control, • conclusions on whether the
    entity’s financial management systems substantially comply with the
    requirements of FFMIA (for CFO act agencies), and
    • conclusions on compliance with laws and regulations; Yes: [Empty];
    No**: [Empty].

    Section VIII: Conclusions: 5. The audit team complied, in all material
    respects, with the audit organization’s policies and procedures; Yes:
    [Empty];
    No**: [Empty].

    ** If any of the above 5 statements have “No” responses, please
    describe the response in a memorandum to the reviewer.

    Date of audit completion:
    Auditor-In-Charge:
    Date:
    Audit Manager:
    Date:
    Assistant Director:
    Date:
    Audit Director:
    Date:

    Section IX: Engagement Quality Control Review (Second Partner[Footnote
    64] Review):

    Objective of second partner review: To objectively review significant
    auditing, accounting, and reporting matters and to conclude, based on
    all facts the reviewer has knowledge of, that, except as discussed in
    the report, no matters were found that caused the second partner to
    believe that (1) the audit was not performed in accordance with GAGAS
    and OMB audit guidance (if applicable), (2) the financial statements
    are not, in all material respects, in conformity with U.S. GAAP, and
    (3) the report does not meet professional standards and the auditor’s
    policies and core values. Procedures: Before the report was issued, I
    performed the following procedures:

    * Discussed significant auditing, accounting, and reporting issues with
    the audit director (first partner);

    * Discussed the audit team’s identification of high-risk balances and
    transactions and the audit of those balances and transactions;

    * Reviewed documentation on the resolution of significant auditing,
    accounting, and reporting issues, including documentation of
    consultation with statisticians, IS specialists, and others;

    * Reviewed the summary of uncorrected misstatements;

    * Read the audit summary memorandum;

    * Read the entity financial statements, audit report, and related
    disclosures; and

    * Confirmed with the audit director (first partner) that there are no
    unresolved issues.

    Conclusion:

    Based on all the relevant facts of which I have knowledge, I found no
    matters, except as discussed in the report, that cause me to believe
    that (1) the audit was not performed in accordance with GAGAS and OMB
    audit guidance (if applicable), (2) the financial statements are not,
    in all material respects, in conformity with U.S. GAAP, and (3) the
    report is not in accordance with professional standards and the
    auditor’s policies and core values.
    In signing this form, I acknowledge that there have been no personal or
    external impairments to independence regarding my work on this
    engagement.

    Engagement quality control reviewer name & title:

    Signature:

    Date:

    1005 - Subsequent Events Review:

    .01: This section deals with the subsequent events review that the
    auditor must perform as part of the audit, as described in FAM 550. AU
    560 describes and provides guidance on the types of subsequent events
    the auditor should evaluate as well as the procedures that the auditor
    generally should perform to discover whether such events have occurred.

    .02: Subsequent events are those events or transactions that may occur
    or become known subsequent to the date of the financial statements but
    before the audit report is issued and that have a material effect on
    the financial statements which the auditor should ask management to
    adjust the financial statements for the effect of the event or disclose
    the event.

    .03: Two types of subsequent events may occur:

    * Events occurring after the date of the financial statements that
    provide additional information about conditions existing at the date of
    the financial statements and that affect amounts recorded (or which
    management should record) in the financial statements. For example, a
    subsequent event may reveal that an accounting estimate is materially
    incorrect and that the auditor should ask management to adjust the
    financial statements for the effect of the event.

    * Events occurring after the date of the financial statements that
    provide information about conditions that did not exist at the date of
    the financial statements. The auditor should not ask management to
    adjust the financial statements for these events, but disclosure of
    them may be necessary to prevent the statements from being misleading.
    For example, a fire or flood after year-end may cause a significant
    loss.

    .04: The purpose of a subsequent events review is to determine whether
    all subsequent events that have a material effect on the financial
    statements have been considered and treated appropriately in the
    financial statements. The subsequent period covered is from the date of
    the financial statements to the date of the audit report, which is the
    date of the completion of thea audit.[Footnote 65]

    Audit Procedures:

    .05: At or near the completion of the audit, the auditor should perform
    procedures to be aware of any subsequent events that the auditor may
    ask management to adjust or disclose in the financial statements. These
    procedures are in addition to substantive tests that the auditor may
    apply to transactions occurring after the date of the financial
    statements, such as examining subsequent disbursements to test
    completeness of accounts payable.

    .06: The following program describes audit procedures that the auditor
    may perform as part of a subsequent events review. The auditor
    generally should customize the procedures for the particular entity.

    Entity:

    Period of financial statements:

    Job code:

    Subsequent Events Review Program -- Audit Procedures: I. Read Interim
    Financial Statements: 1) Compare the latest available interim financial
    statements, if any, with the financial statements under audit to
    identify any unusual adjustments and investigate any significant
    variations from expectations.
    2) Inquire as to whether the interim statements have been prepared on
    the same basis as the annual statements.
    3) For items in the statement of net costs, compare to similar interim
    financial statements of the prior year; determine expectations and
    investigate any significant variations from expectations.
    4) If interim financial statements are not available: a) Compare
    interim internal financial reports or analyses, budgets, or cash-flow
    forecasts, considering any adjustments to the internal reports that may
    be necessary to make meaningful comparisons.
    b) Review the accounting records prepared since the date of the
    financial statements for material transactions that may require
    adjustment to or disclosure in the financial statements. For example,
    scan the general ledger and/or journals for material, unusual entries;
    Done by/date: [Empty];
    Doc. Ref.: [Empty].

    Subsequent Events Review Program -- Audit Procedures: II. Make
    Inquiries of Management as to: 1) Whether any significant contingent
    liabilities or commitments existed at the date of the financial
    statements or at the date of the inquiry. 2) Whether any significant
    changes occurred in the financial condition of the entity or in net
    position or long-term debt.
    3) The current status of items in the financial statements that were
    accounted for on the basis of tentative, preliminary, or inconclusive
    data. 4) Whether any significant changes in estimates were made with
    respect to amounts included or disclosed in the financial statements,
    or any significant changes in assumptions or factors were considered in
    determining estimates.
    5) Whether any unusual adjustments were made during the period from the
    date of the financial statements to the date of inquiry.
    6) Whether any significant events occurred subsequent to the date of
    the financial statements, such as commitments or plans for major
    capital expenditures; lawsuits or claims filed or settled other than
    those disclosed in the lawyers’ letters; changes in accounting and
    financial policies; or losses as a result of fire, flood, or other
    disaster; Done by/date: [Empty];
    Doc. Ref.: [Empty].

    Subsequent Events Review Program -- Audit Procedures: III. Read
    Minutes: 1) Read the available minutes of meetings of those charged
    with governance such as entity management committees, audit committees,
    or other appropriate groups, including the period after the date of the
    financial statements, for information about events or transactions
    authorized or discussed which may require adjustment to or disclosure
    in the financial statements.
    2) With regard to meetings for which no minutes are available, inquire
    about matters dealt with at such meetings and conclusions reached; Done
    by/date: [Empty];
    Doc. Ref.: [Empty].

    Subsequent Events Review Program -- Audit Procedures: IV. Cover in
    Lawyers’ Letters: 1) Confirm litigation, claims, and assessments and
    unasserted claims and assessments with the entity’s legal counsel per
    AU 337. See FAM 550 and FAM 1002; Done by/date: [Empty];
    Doc. Ref.: [Empty].

    Subsequent Events Review Program -- Audit Procedures: IV. Cover in
    Lawyers’ Letters: 1) Confirm litigation, claims, and assessments and
    unasserted claims and assessments with the entity’s legal counsel per
    AU 337. See FAM 550 and FAM 1002; Done by/date: [Empty];
    Doc. Ref.: [Empty].

    Subsequent Events Review Program -- Audit Procedures: V. Cover in
    Management Representation Letter: 1) Have management include
    representations in its management representation letter as to whether
    any events occurred subsequent to the date of the financial statements
    that management should adjust or disclose in the financial statements.
    See FAM 1001; Done by/date: [Empty];
    Doc. Ref.: [Empty].

    Subsequent Events Review Program -- Audit Procedures: VI. Other: 1) Use
    other sources of information to learn of subsequent events, such as:
    a) Talk to inspector general or internal audit department.
    b) Talk to program divisions.
    c) Read newspapers.
    2) Make additional inquiries or perform additional procedures deemed
    necessary to resolve any questions raised in the foregoing audit steps.
    3) Prepare a summary memo documenting the results of the above and
    conclusions reached; Done by/date: [Empty];
    Doc. Ref.: [Empty].

    [End of section]

    Footnotes:

    [1] The term “auditor,” throughout the FAM includes individuals who may
    be titled auditor, analyst, evaluator, or have a similar position
    description.

    [2] IG audits are used by GAO as principal auditor of the U.S.
    government consolidated financial statements. For the GAO audit of the
    Bureau of Public Debt (BPD), GAO is the other auditor and the CPA firm
    under contract to the Treasury IG is the principal auditor when it
    reports on the Treasury Department consolidated financial statements.

    [3] The AICPA also issued Practice Alert 2002-02, Use of Specialists.

    [4] IGs are designated by the CFO Act to audit their agencies, but have
    the authority to contract with another auditor to perform the audits.
    GAO is mandated by 31 U.S.C. 331(e) to audit the U.S. government’s
    consolidated financial statements.

    [5] There may be situations where the auditor is asked to provide a
    separate opinion in addition to presenting the other auditors’ report,
    or serves as the contracting officer’s technical representative (COTR).
    In these situations, the auditor should follow the wording in FAM 595 A
    and/or FAM 595 B, and should add the following in lieu of the
    introduction to the first paragraph on FAM 595 A-5: “To help fulfill
    these responsibilities, we contracted with the independent certified
    public accounting firm of [insert firm name] to perform a financial
    statement audit in accordance with U.S. generally accepted government
    auditing standards, OMB's bulletin, Audit Requirements for Federal
    Financial Statements, and the GAO/PCIE Financial Audit Manual. The
    report of [name of CPA firm] dated [date] is attached. We evaluated the
    nature, extent, and timing of the work, monitored progress throughout
    the audit, reviewed the audit documentation of [name of CPA firm], met
    with partners and staff members of [name of firm], evaluated the key
    judgments, met with officials of [entity being audited], performed
    independent tests of the accounting records [if applicable], and
    performed other procedures we deemed appropriate in the circumstances.
    Our opinions expressed above are consistent with the opinions of [name
    of CPA firm].

    [6] Under the CFO Act, if an executive agency IG is not performing the
    audit of the agency’s financial statements, required under 31 U.S.C.
    3515, the IG is required to determine the independent external auditor
    (CPA firm) that will perform the work.

    [7] Obtaining a representation from an appropriate official of the
    audit organization is similar to the procedure for CPA firms under AU
    543.10b.

    [8] Some CPA firms consider internal inspection reports as proprietary
    documents not subject to auditor review. This issue can be resolved by
    either allowing the auditor access to inspection reports or providing
    the auditor with a summary or representation about inspection results
    as a condition of the contract.

    [9] Further information on the PCAOB inspection report process is
    available at [hyperlink, http://www.pcaobus.org].

    [10] The auditor may refer to the AICPA Practice Aid, Establishing and
    Maintaining a System of Quality Control for a CPA Firm’s Accounting and
    Auditing Practice (2007) and GAGAS 3.55-3.63.

    [11] Sufficiency is the measure of the quantity of evidence.
    Appropriateness is the measure of the quality of audit evidence, that
    is, its relevance and reliability in providing support for, or
    detecting misstatements in, the classes of transactions, account
    balances, and disclosures and related assertions. These measures
    originated in SAS No. 106, Audit Evidence, and are codified at AU
    326.08. They are effective for audits of financial statements for
    periods beginning on or after December 25, 2006.

    [12] This could be the PCAOB inspection report for a CPA firm.

    [13] If the other auditors did not provide an opinion (i.e., did not
    give positive assurance) on whether the entity’s systems complied with
    FFMIA, change this to “no instances in which entity’s financial
    management systems did not substantially comply” (negative assurance).

    [14] If the other auditors did not provide an opinion on internal
    control, change this to “there were no material weaknesses in internal
    control” (and include a definition of material weakness in a footnote).

    [15] If the other auditors did not provide an opinion (i.e., did not
    give positive assurance) on whether the entity’s systems complied with
    FFMIA, change this to “no instances in which entity’s financial
    management systems did not substantially comply” (negative assurance).

    [16] Non-GAO auditors may combine bullets 3 and 4.

    [17] If the other auditors did not provide an opinion on internal
    control, change this to read “conclusions about the effectiveness of
    internal control.”

    [18] If the other auditors did not provide an opinion on FFMIA change
    “opinion” to “conclusions.”

    [19] If the auditor found that the other auditors did not comply with
    GAGAS, or if the auditor disagrees with the other auditors’
    conclusions, see FAM 650.54-.56.

    [20] This example assumes the other auditors opined on internal control
    and on whether the financial management systems substantially complied
    with FFMIA. If the other auditors provided negative assurance,
    appropriate changes are needed.

    [21] If the auditor does not concur with the other auditors’ report,
    see FAM 650.54-.56.

    [22] The auditor may request the users to document their agreement with
    the procedures and their sufficiency for their purposes by signing the
    engagement letter and returning it to the auditor.

    [23] The FAM addresses FFMIA as part of internal control. OMB audit
    guidance dated September 4, 2007, no longer lists FFMIA in Appendix E
    as a general law for compliance with laws and regulations (FAM 800).

    [24] The Financial Systems Integration Office (FSIO) coordinates work
    related to federal financial management systems requirements and OMB’s
    Office of Federal Financial Management (OFFM) issues new or revised
    systems requirements. All documents and other guidance related to
    financial management system requirements initially issued by JFMIP were
    transferred to OFFM and remain in effect until modified.

    [25] JFMIP SR -01-04.

    [26] Shared systems are governmentwide systems used by agencies with
    information and data definitions common to all users.

    [27] As part of the realignment of JFMIP, in December 2004, the
    responsibility for certifying core financial management systems was
    transferred to FSIO.

    [28] GFRS is the Governmentwide Financial Reporting System used since
    FY 2004 to collect audited financial statements (closing package) from
    verifying (larger) federal agencies. FACTS is Treasury’s Federal
    Agencies’ Centralized Trial-Balance System for non-verifying (smaller)
    federal entities. FACTS I collects trial balance information at the
    fund group level using the SGL for inclusion in the Annual Financial
    Report of the U.S. Government. FACTS II collects mostly budgetary
    information for reporting in the Budget of the United States
    Government.

    [29] Plan of Action and Milestone (POAM) reports required by OMB under
    FISMA.

    [30] The Joint Financial Management Improvement Program (JFMIP),
    Financial Systems Integration Office (FSIO) provides core financial
    management systems requirements to be included in Commercial-Off-The-
    Shelf (COTS) applications.

    [31] These tools are based on the best practices guidance received from
    the participating accounting and auditing firms and the AICPA
    publication, Practice Alert No. 95-3, Auditing Related Parties and
    Related Party Transactions.

    [32] A permanent, indefinite appropriation, commonly known as the
    Judgment Fund, is available to pay final judgments, settlement
    agreements, and certain types of administrative awards against the
    United States when payment is not otherwise provided for. The Secretary
    of the Treasury certifies all payments from the fund. (See 31 U.S.C.
    1304, Judgments, awards, and compromise settlements.) FASAB
    Interpretation No. 2 clarifies how federal entities report the costs
    and liabilities arising from claims to be paid by the Judgment Fund and
    how the Judgment Fund accounts for the amounts that it is required to
    pay on behalf of federal entities.

    [33] In accordance with OMB Circular No. A-136, examples of
    unreimbursed costs that reporting entities are required to recognize
    include (but are not limited to): (1) employees’ pension, post-
    retirement health and life insurance benefits, (2) other post-
    employment benefits for retired, terminated, and inactive employees,
    which includes unemployment and workers compensation under the Federal
    Employees’ Compensation.

    [34] Act (5 U.S.C. Ch. 81), and (3) losses in litigation proceedings
    (see FASAB Interpretation No. 2, Accounting for Treasury Judgment Fund
    Transactions). In the case of employee benefits, the imputed amount is
    the difference between employer/employee contributions and the total
    cost of the benefit.

    [35] Trading partners are federal agencies, bureaus, programs or other
    entities (within or between entities) participating in transactions
    with each other as related parties.

    [36] The Government Wide Accounting (GWA) system is being implemented
    over the next several years and the SOD is scheduled to be eliminated
    (see FAM 921.11-.12).

    [37] Reciprocal accounts are corresponding SGL accounts seller and
    buyer entities use to record like intragovernmental transactions. For
    example, the seller entity’s accounts receivable would normally be
    reconciled to the reciprocal account, accounts payable, on the buyer
    entity’s records. Examples of these accounts are in FMS’ Federal
    Intragovernmental Transactions Accounting Policies Guide.

    [38] Reliability of performance reporting will be excluded from the
    internal control definition effective starting in fiscal year 2008.

    [39] Appropriations may be annual, multiyear, or no-year.

    [40] The closed group is defined as those persons who, as of a
    valuation date, are participants in a social insurance program as
    beneficiaries, covered workers, or payers of earmarked taxes or
    premiums.

    [41] The closed group is defined as those persons who, as of a
    valuation date, are participants in a social insurance program as
    beneficiaries, covered workers, or payers of earmarked taxes or
    premiums.

    [42] The Medicare Prescription Drug, Improvement, and Modernization Act
    of 2003, Public Law 108-173, created a new prescription drug benefit
    under Medicare Part D, which is also covered by SFFAS No. 17.

    [43] The actuary can either be under contract with the independent
    auditor or employed by the independent audit organization. In either
    case, the actuary performing services for the auditor would need to
    meet the independence standards of GAGAS, which are applicable to
    audits of Statements of Social Insurance.

    [44] Income (excluding interest) consists of payroll taxes from
    employers, employees, and self-employed persons, revenue from federal
    income taxation of scheduled OASDI benefits, and miscellaneous
    reimbursements from the General Fund of the Treasury.

    [45] Paragraph 25 of SFFAS No. 17, Accounting for Social Insurance,
    states, in part, “The projections and estimates used should be based on
    the entity’s best estimates of demographic and economic assumptions,
    taking each factor individually and incorporating future changes
    mandated by current law.” Certain entities prepare social insurance
    information using assumptions prepared by a board of trustees. Auditors
    should consider such assumptions to represent the entity’s “best
    estimates” if the trustees have characterized them as such, and entity
    management has determined them to be reasonable. With respect to these
    assumptions, the auditor should perform audit procedures that are
    consistent with the guidance in paragraphs 9 through 36 of SOP 04-1.

    [46] The verifying agencies are the 24 CFO Act agencies and 11 other
    federal agencies.

    [47] The closing package process is a methodology designed to link
    agencies’ comparative, audited consolidated, department-level financial
    statements to the FR. The closing package is the data submitted by each
    verifying agency for inclusion in the FR.

    [48] Beginning in fiscal year 2006, TFM 2-4700 included these
    requirements. The process and modules used by FMS to prepare the
    consolidated Statements of Social Insurance and accompanying notes, and
    supplemental information included in the FR may change in future years,
    based on changes that may be made by FMS to TFM 2-4700.

    [49] SFFAS No. 17, paragraph 27 (a)(1).

    [50] SFFAS No. 17, paragraph 32 (a)(1).

    [51] Financial interchange (FI) income consists of transfers from the
    social security trust funds under a financial interchange between the
    railroad retirement and the social security systems. While the railroad
    retirement system has remained separate from the social security
    system, the two systems were closely coordinated with regard to
    earnings credits, benefit payments, and taxes. The purpose of this
    financial coordination is to place the Social Security Old-Age
    Survivors and Disability Insurance (OASDI) and Hospital Insurance (HI)
    trust funds in the same position they would have been in if railroad
    services were covered by the Social Security and Federal Insurance
    Contribution acts.

    [52] SFFAS No. 17, paragraph 30.

    [53] When there is no general counsel and management has not consulted
    legal counsel with regard to contingencies, the auditor should obtain a
    written representation from management that legal counsel has not been
    consulted. Such representation may be incorporated as an item in the
    management representation letter. (See FAM 550 and FAM 1002.24.) An
    example item is: “We are not aware of any pending or threatened
    litigation, claims, or assessments or unasserted claims or assessments
    that are required to be accrued or disclosed in the financial
    statements in accordance with SFFAS No. 5. We have not consulted legal
    counsel concerning litigation, claims, or assessments.” (See FAM 1001
    A.)

    [54] SFFAS No. 27 does not use the term “earmarked” as it is sometimes
    used to refer to set-asides of appropriations for specific purposes.

    [55] SFFAS No. 27 does not use the term “earmarked” as it is sometimes
    used to refer to set-asides of appropriations for specific purposes.

    [56] Including environmental and disposal liabilities -- a contingency
    that is often a significant issue for the federal government.

    [57] SFFAS No. 7 has guidance for reporting claims for tax refunds.
    Rather than recognizing probable claims and disclosing other claims in
    the notes to the financial statements, SFFAS No. 7 indicates that other
    claims for refunds that are probable should be included as
    supplementary information.

    [58] A permanent, indefinite appropriation, commonly known as the
    Judgment Fund, is available to pay final judgments, settlement
    agreements, and certain types of administrative awards against the
    United States when payment is not otherwise provided for. The Secretary
    of the Treasury certifies all payments from the fund. (See 31 U.S.C.
    1304, Judgments, awards, and compromise settlements.) FASAB
    Interpretation No. 2 clarifies how federal entities report the costs
    and liabilities arising from claims to be paid by the Judgment Fund and
    how the Judgment Fund accounts for the amounts that it is required to
    pay on behalf of federal entities.

    [59] If the Judgment Fund will pay the claim, the entity still
    recognizes the liability and cost at this time. Once the claim is
    settled or a court judgment is assessed and the Judgment Fund is
    determined to be the appropriate source for payment, the entity reduces
    the liability by recognizing an (imputed) financing source. Note that
    for Judgment Fund payments made under the Contract Disputes Act and the
    Notification and Federal Employee Antidiscrimination and Retaliation
    Act, the entity establishes a payable to reimburse the Judgment Fund.

    [60] For example, for the fiscal year 2007 audit, OMB reporting
    guidance stated that agencies should submit interim legal
    representation letters to Department of Justice, Treasury’s Financial
    Management Service, and GAO no later than August 29, 2007. This would
    allow review of cases before external issuance. Final legal
    representation letters were due no later than November 15, 2007.

    [61] The Accounting and Auditing Policy Committee (AAPC) guidance
    (Technical Release No. 1) clarifies FASAB Interpretation No. 2, with
    respect to the Department of Justice’s role related to legal letters in
    cases in which Justice’s legal counsels are handling legal matters on
    behalf of other federal reporting entities. The letter from the
    entity’s general counsel may provide sufficient evidence for the
    auditor. If the auditor determines that additional evidence is needed
    about a specific case, the auditor may request entity management and
    legal counsel to send a legal letter request to Justice, directed to
    the lead Justice legal counsel handling the case, asking that person to
    provide a description and evaluation directly to the auditor.

    [62] This includes any cases that do not seek monetary damage awards,
    but would require the government to use financial resources to
    implement remedies or actions sought by litigation or unasserted claims
    (for example, to increase the scope of, or change to a more costly
    methodology of, environmental restoration and cleanup).

    [63] It is expected that cases or matters will be aggregated where
    appropriate.

    [64] For GAO financial audits this is the chief accountant or another
    director who is a CPA and an experienced financial statement auditor.

    [65] The auditor has two methods available for dating the report when a
    subsequent event disclosed in the financial statement occurs after the
    original date of the auditor’s report but before the issuance of the
    related financial statements. In these instances, the auditor may use
    either dual dating or may date the report as of a later date. When the
    auditor dual dates the report, the responsibility for events occurring
    subsequent to the original report date is limited to the specific event
    referred to in the note (or otherwise disclosed). For example, January
    31, 20x8 except for note X, as to which the date is February 16, 20x8.
    When the auditor dates the report as of a later date, the auditor’s
    responsibility for subsequent events extends to the date of the report
    and accordingly, the auditor should extend the subsequent events
    procedures to that date.

    GAO's Mission:

    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.

    Obtaining Copies of GAO Reports and Testimony:

    The fastest and easiest way to obtain copies of GAO documents at no
    cost is through GAO's Web site [hyperlink, http://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 [hyperlink, http://www.gao.gov]
    and select "E-mail 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, Waste, and Abuse in Federal Programs:

    Contact:

    Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
    E-mail: fraudnet@gao.gov:
    Automated answering system: (800) 424-5454 or (202) 512-7470:

    Congressional Relations:

    Ralph Dawn, Managing Director, dawnr@gao.gov:
    (202) 512-4400:
    U.S. Government Accountability Office:
    441 G Street NW, Room 7125:
    Washington, D.C. 20548:

    Public Affairs:

    Chuck Young, Managing Director, youngc1@gao.gov:
    (202) 512-4800:
    U.S. Government Accountability Office:
    441 G Street NW, Room 7149:
    Washington, D.C. 20548:

    *** End of document. ***