[Independent Auditorsâ Report on the Office of Surface Mining Reclamation and Enforcementâs Financial Statements for Fiscal Years 2002 and 2001]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 2003-I- 0022

Title: Independent Auditorsï¿½ Report on the Office of Surface Mining
       Reclamation and Enforcementï¿½s Financial Statements for
       Fiscal Years 2002 and 200

  

Dated:  February 28, 2003

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Memorandum

To:  Director, Office of Surface Mining Reclamation and Enforcement

From:  Roger La Rouche, Assistant Inspector General for Audits

Subject:  Independent Auditorsï¿½ Report on the Office of Surface Mining Reclamation and Enforcementï¿½s Financial Statements for Fiscal Years 2002 and 2001(No.  2003-I- 0022)

We contracted with KPMG LLP (KPMG), an independent certified public accounting firm, to audit the Office of Surface Mining Reclamation and Enforcementï¿½s (OSM) financial statements as of September 30, 2002 and for the year then ended.  The contract required that KPMG conduct its audit in accordance with the Comptroller General of the United States of Americaï¿½s Government Auditing Standards, the Office of Management and Budgetï¿½s Bulletin 01-02 Audit Requirements for Federal Financial Statements, and the General Accounting Office/Presidentï¿½s Council on Integrity and Efficiencyï¿½s Financial Audit Manual.

In its Independent Auditorï¿½s Report dated November 15, 2002 (Attachment 1), KPMG issued an unqualified opinion on OSMï¿½s financial statements.  KPMG did not note any reportable conditions related to internal controls over financial reporting.  With regard to compliance with laws and regulations, KPMG disclosed no instances of noncompliant that are required to be reported or instances where OSMï¿½s financial management system did not substantially comply with the requirements of the Federal Financial Management Improvement Act (FFMIA).

In connection with the contract, we monitored the progress of the audit at key points, reviewed KPMGï¿½s report and selected related working papers, and inquired of its representatives.  Our review, as differentiated from an audit in accordance with the Government Audit Standards, was not intended to enable us to express, and we do not express, an opinion on the OSMï¿½s financial statements, conclusions about the effectiveness of internal controls, conclusions on whether OSMï¿½s financial management systems substantially complied with the three requirements of FFMIA, or conclusions on compliance with laws and regulations.  KPMG is responsible for the auditorsï¿½ report and for the conclusions expressed in the report.  Our review disclosed no instances where KPMG did not comply in all material respects with the Government Auditing Standards.

Section 5(a) of the Inspector General Act (5 U.S.C. App. 3) requires the Office of Inspector General to list this report in its semiannual report to the Congress.

Attachment

INDEPENDENT AUDITORSï¿½ REPORT

The Director of the Office of Surface Mining Reclamation and Enforcement
and the Inspector General of the Department of the Interior:

We have audited the accompanying consolidated balance sheets of the Office of Surface Mining Reclamation and Enforcement (OSM) as of September 30, 2002 and 2001, and the related consolidated statements of net cost for the years then ended, and the related consolidated statement of changes in net position, combined statement of budgetary resources, and consolidated statement of financing for the year ended September 30, 2002 (hereinafter referred to as the financial statements). The objective of our audit was to express an opinion on the fair presentation of these financial statements. In connection with our audit, we also considered the OSMï¿½s internal control over financial reporting and tested the OSMï¿½s compliance with certain provisions of applicable laws and regulations that could have a direct and material effect on its financial statements.

SUMMARY

As stated in our opinion on the financial statements, we concluded that the OSMï¿½s financial statements are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America.

Our consideration of internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses under standards issued by the American Institute of Certified Public Accountants. However, we noted no matters involving the internal control and its operation that we considered to be material weaknesses as defined below in the Internal Control Over Financial Reporting section of this report.

The results of our tests of compliance with certain provisions of laws and regulations disclosed no instances of noncompliance with laws and regulations that are required to be reported under Government Auditing Standards, issued by the Comptroller General of the United States, or Office of Management and Budget (OMB) Bulletin No. 01-02, Audit Requirements for Federal Financial Statements.

The following sections discuss our opinion on the OSMï¿½s financial statements, our consideration of the OSMï¿½s internal control over financial reporting, our tests of the OSMï¿½s compliance with certain provisions of applicable laws and regulations, and managementï¿½s and our responsibilities.

OPINION ON THE FINANCIAL STATEMENTS

We have audited the accompanying consolidated balance sheets of the OSM as of September 30, 2002 and 2001, and the related consolidated statements of net cost for the years then ended, and the related consolidated statement of changes in net position, combined statement of budgetary resources, and consolidated statement of financing for the year ended September 30, 2002.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the OSM as of September 30, 2002 and 2001, and its net costs for the years then ended, and its changes in net position, budgetary resources, and reconciliation of net cost to budgetary obligations for the year ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America.

The information in the Management Discussion and Analysis and Required Supplementary Information sections is not a required part of the financial statements, but is supplementary information required by accounting principles generally accepted in the United States of Americ a and OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of this information. However, we did not audit this information and, accordingly, we express no opinion on it. 

INTERNAL CONTROL OVER FINANCIAL REPORTING

Our consideration of internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses under standards issued by the American Institute of Certified Public Accountants. Material weaknesses are conditions in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements, in amounts that would be material in relation to the financial statements being audited, may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Because of inherent limitations in any internal control, misstatements due to error or fraud may occur and not be detected. We noted no matters involving the internal control and its operation that we consider to be material weaknesses as defined above. However, we noted other matters involving internal control over financial reporting and its operation that that we have reported to the management of the OSM in a separate letter dated November 15, 2002.

COMPLIANCE WITH LAWS AND REGULATIONS

The results of our tests of compliance with certain provisions of laws and regulations described in the Responsibilities section of this report, exclusive of the FFMIA, disclosed no instances of noncompliance that are required to be reported herein under Government Auditing Standards or OMB Bulletin No. 01-02. 

The results of our tests of FFMIA disclosed no instances in which the OSMï¿½s financial management systems did not substantially comply with the three requirements discussed in the Responsibilities section of this report.

RESPONSIBILITIES

Managementï¿½s Responsibilities

The Government Management Reform Act of 1994 (GMRA) requires each federal agency to report annually to Congress on its financial status and any other information needed to fairly present its financial position and results of operations. To assist the Department of the Interior in meeting the GMRA reporting requirements, the OSM prepares annual financial statements.

Management is responsible for the financial statements, which includes:
*??Preparing the financial statements in conformity with accounting principles generally accepted in the United States of America;
*??Establishing and maintaining internal control over financial reporting, and preparation of the Managementï¿½s Discussion and Analysis (including the performance measures) and required supplementary information; and
*??Complying with laws and regulations, including FFMIA.

In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control policies. Because of inherent limitations in internal control, misstatements, due to error or fraud, may nevertheless occur and not be detected.

Auditorsï¿½ Responsibilities

Our responsibility is to express an opinion on the financial statements of the OSM based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards and OMB Bulletin No. 01-02. Those standards and OMB Bulletin No. 01-02 require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes:
*??Examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; 
*??Assessing the accounting principles used and significant estimates made by management; and
*??Evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In planning and performing our fiscal year 2002 audit, we considered the OSMï¿½s internal control over financial reporting by obtaining an understanding of the OSMï¿½s internal control, determining whether internal control had been placed in operation, assessing control risk, and performing tests of controls in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements. We limited our internal control testing to those controls necessary to achieve the objectives described in OMB Bulletin No. 01-02 and Government Auditing Standards. We did not test all internal control relevant to operating objectives as broadly defined by the Federal Managersï¿½ Financial Integrity Act of 1982. The objective of our audit was not to provide assurance on internal control over financial reporting. Consequently, we do not provide an opinion thereon.

As required by OMB Bulletin No. 01-02, with respect to internal control related to performance measures determined by management to be key and reported in the Managementï¿½s Discussion and Analysis, we obtained an understanding of the design of significant internal control relating to the existence and completeness assertions. Our procedures were not designed to provide assurance on internal control over performance measures and, accordingly, we do not provide an opinion thereon.

As part of obtaining reasonable assurance about whether the OSMï¿½s fiscal year 2002 financial statements are free of material misstatement, we performed tests of the OSMï¿½s compliance with certain provisions of laws and regulations, noncompliance with which could have a direct and material effect on the determination of financial statement amounts, and certain provisions of other laws and regulations specified in OMB Bulletin No. 01-02, including certain provisions referred to in FFMIA. We limited our tests of compliance to the provisions described in the preceding sentence, and we did not test compliance with all laws and regulations applicable to the OSM. Providing an opinion on compliance with laws and regulations was not an objective of our audit and, accordingly, we do not express such an opinion. 

Under OMB Bulletin No. 01-02 and FFMIA, we are required to report whether the OSMï¿½s financial management systems substantially comply with (1) federal financial management systems requirements, (2) applicable federal accounting standards, and (3) the United States Government Standard General Ledger at the transaction level. To meet this requirement, we performed tests of compliance with FFMIA Section 803(a) requirements.

DISTRIBUTION

This report is intended for the information and use of the OSM and Department of the Interiorï¿½s management, Department of the Interiorï¿½s Office of the Inspector General, OMB, and the U.S. Congress, and is not intended to be and should not be used by anyone other than these specified parties.

November 15, 2002