This is the accessible text file for GAO report number GAO-05-595R 
entitled 'Financial Audit: The Department of Agriculture's Fiscal Year 
2004 Management Representation Letter on Its Financial Statements' 
which was released on July 26, 2005. 

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July 22, 2005: 

Ms. Patricia E. Healy: 
Acting Chief Financial Officer: 
Department of Agriculture: 

The Honorable Phyllis K. Fong: 
Inspector General: 
Department of Agriculture: 

Subject: Financial Audit: The Department of Agriculture's Fiscal Year 
2004 Management Representation Letter on Its Financial Statements: 

As you know, the Secretary of the Treasury, in coordination with the 
Director of the Office of Management and Budget (OMB), is required to 
annually prepare and submit audited financial statements of the U.S. 
government to the President and the Congress. We are required to audit 
these consolidated financial statements (CFS) and report on the results 
of our work.[Footnote 1] In connection with fulfilling our requirement 
to audit the fiscal year 2004 CFS, we evaluated the Department of the 
Treasury's (Treasury) financial reporting procedures and related 
internal control over the process for compiling the CFS, including the 
management representation letter provided us by Treasury and OMB. 
Written representation letters from management, required by U.S. 
generally accepted government auditing standards, ordinarily confirm 
oral representations given to the auditor, indicate and document the 
continuing appropriateness of those representations, and reduce the 
possibility of a misunderstanding between management and the auditor. 

In our report, which is included in the fiscal year 2004 Financial 
Report of the United States Government,[Footnote 2] we reported a 
limitation on the scope of our work due to identified concerns with the 
adequacy of certain federal agencies' management representations on 
which Treasury and OMB depend to provide their representations to us 
regarding the CFS. Specifically, Treasury and OMB stated that their 
representation letter to us on the CFS was based primarily on the 
individual federal agency representation letters. Consequently, our 
audit considered the content of the individual federal agency letters, 
and the incompleteness of certain of these letters impaired our ability 
to obtain sufficient evidence in support of our audit of the CFS. This 
limitation contributed to our disclaimer of opinion on the CFS. We 
performed sufficient audit work to provide the disclaimer of opinion 
and issued our audit report, dated December 6, 2004, in accordance with 
U.S. generally accepted government auditing standards. 

As part of our audit of the fiscal year 2004 CFS, we received and 
reviewed selected federal agencies' management representation letters 
to assess their adequacy in support of our audit of the CFS. As the 
federal government gets closer to an opinion on its financial 
statements, it becomes more important that the federal agencies' 
management representation letters be complete and reliably prepared. 

The purpose of this report is to communicate our observations on the 
United States Department of Agriculture's (USDA) fiscal year 2004 
management representation letter. Our objective is to help ensure that 
future management representation letters submitted by USDA are 
sufficient to help support Treasury and OMB's preparation of the CFS 
management representation letter and our ability to rely on the 
representations in that letter in combination with individual federal 
agency representation letters. We reviewed five key areas in each 
management representation letter: (1) signatures, (2) materiality 
thresholds, (3) representations, (4) summary of unadjusted 
misstatements, and (5) reliability of representations. In reviewing the 
management representation letters, we applied the American Institute of 
Certified Public Accountants' (AICPA) Codification of Auditing 
Standards, AU Section 333, Management Representations; OMB Bulletin 01- 
02, Audit Requirements for Federal Financial Statements; and the GAO/ 
President's Council on Integrity and Efficiency (PCIE) Financial Audit 
Manual (FAM) section 1001, entitled "Management 
Representations."[Footnote 3]

Results in Brief: 

USDA's fiscal year 2004 management representation letter did not 
provide all the information necessary to support Treasury and OMB's 
preparation of the CFS management representation letter. This in turn 
impacted our ability to rely on the representations in the CFS 
management representation letter in combination with individual federal 
agency representation letters. 

We identified some needed improvements in two of the five key areas we 
reviewed. First, the letter included 28 of the 29 
representations[Footnote 4] from the FAM that were applicable to USDA. 
The other representation was not provided at all. Finally, USDA did not 
include a complete summary of unadjusted misstatements with its 
management representation letter and also did not provide a description 
of the misstatements. 

We believe that these matters can be easily addressed. We are making 
two recommendations to USDA's Acting Chief Financial Officer targeted 
to specific changes needed. Also, we are recommending that the USDA 
Inspector General work with the department to help ensure that future 
management representation letters meet the key conditions noted as 
needing improvements in this report. 

In commenting on a draft of this report, USDA's Acting Chief Financial 
Officer and Inspector General stated that they will work to address the 
conditions noted in our report. As it relates to the FAM representation 
that was not provided, the Acting Chief Financial Officer noted that 
her office believed that the disclosure was addressed in other parts of 
USDA's management representation letter and the Inspector General noted 
that the management representation letter did represent that all 
material instances of noncompliance were disclosed as well as all 
instances of known fraud. While USDA included representations that 
stated (1) there were no instances of noncompliance with applicable 
laws and regulations that could have a material effect on the financial 
statements and (2) all instances of known fraud were disclosed, it did 
not represent that all known instances of noncompliance were disclosed 
to the auditor as called for by the FAM. As such, we continue to 
believe that this FAM representation was not included in USDA's fiscal 
year 2004 management representation letter and should be provided in 
USDA's future management representation letters. We are pleased that 
USDA's Acting Chief Financial Officer and Inspector General stated that 
they will work to include the representation in future management 
representation letters. 

Background: 

In conducting agency financial statement audits, U.S. generally 
accepted government auditing standards incorporate financial auditing 
fieldwork and reporting standards issued by the AICPA. Such auditing 
standards (AU Section 333) require auditors to obtain certain 
representations from agency management. These representations are part 
of the evidential matter to be considered by the auditor in its audit 
of the agency's financial statements. The representations obtained will 
depend on the circumstances of the engagement and the nature and basis 
of presentation of the financial statements. AU Section 333 discusses 
specific representations that should be obtained from management, 
including a requirement to attach a schedule of unadjusted financial 
statement misstatements for entities with uncorrected misstatements. 

In addition, OMB Bulletin 01-02 and FAM section 1001 contain guidance 
on preparing federal agencies' management representation letters. 
According to the FAM, in addition to the representations included in AU 
Section 333, the auditor generally should consider the need to obtain 
representations on other matters based on the circumstances of the 
audited entity. FAM section 1001A lists 35 specific representations 
ordinarily included in the management representation letter and also 
includes a requirement to attach a schedule of unadjusted financial 
statement misstatements for entities with uncorrected misstatements. 
(See enc. I for these representations.) Representations listed in FAM 
section 1001A should be customized to the situation of the entity being 
audited or excluded if inapplicable. We perform our audit of the CFS in 
accordance with the FAM and related auditing standards. 

Treasury and OMB are to receive management representation letters from 
certain federal agencies. This is important because U.S. generally 
accepted government auditing standards require that Treasury and OMB 
provide us, as principal auditor of the CFS, a management 
representation letter, and their letter depends on the information in 
such agencies' management representation letters. In their 
representation letter to us for the audit of the fiscal year 2004 CFS, 
Treasury and OMB stated that their representations are based primarily 
on the representations of those agencies covered by the Chief Financial 
Officers (CFO) Act and other selected agencies that were made in 
connection with the preparation of these entities' respective financial 
statements and provided to OMB and Treasury. For this reason, it is 
important that all federal agency representation letters be complete 
and reliable. 

Objectives, Scope, and Methodology: 

In connection with our audit of the fiscal year 2004 CFS, we evaluated 
Treasury's financial reporting procedures and related internal control, 
including the CFS management representation letter. For the fiscal year 
2004 CFS, 33 of the 35 "verifying agencies" submitted audited financial 
statements along with their management representation letters to 
Treasury.[Footnote 5] In our review of these 33 management 
representation letters, our overall objective was to assess their 
adequacy as it relates to our audit of the CFS. Specifically, we 
reviewed each agency management representation letter to determine 
whether the following five key conditions were met: 

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

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

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

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

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

This report is based on the audit work we performed for the audit of 
the fiscal year 2004 CFS, which was performed in accordance with U.S. 
generally accepted government auditing standards. 

We requested comments on a draft of this report from USDA's Acting 
Chief Financial Officer and Inspector General or their designees. A 
joint letter containing written comments from USDA's Acting Chief 
Financial Officer and Inspector General is reprinted in enclosure II 
and discussed in the Agency Comments and Our Evaluation section. 

Identified Issues with USDA's Fiscal Year 2004 Management 
Representation Letter: 

With respect to USDA's fiscal year 2004 management representation 
letter, we identified the following two areas that need some 
improvement: (1) providing applicable representations from the FAM and 
(2) including a complete summary of unadjusted misstatements. Details 
regarding these issues are as follows. 

Providing Applicable Representations from the FAM: 

Written representations from management ordinarily confirm oral 
representations made to the auditor during the audit, document the 
continuing appropriateness of those representations, and reduce the 
possibility of a misunderstanding. To meet auditing standards and OMB 
requirements, federal agencies' management and auditors need to ensure 
that management representation letters are complete and accurate. 

We found that USDA's fiscal year 2004 management representation letter 
included 28 of the 29 representations from the FAM that were applicable 
to USDA. The other representation, which was not provided at all, is as 
follows. 

* FAM #27:We have disclosed to you all known instances of noncompliance 
with laws and regulations. 

When agencies do not provide all representations in their management 
representation letters, it impairs our ability to audit the CFS and 
Treasury and OMB's ability to make these types of representations in 
the CFS management representation letter. 

Including a Complete Summary of Unadjusted Misstatements: 

U.S. generally accepted government auditing standards require that for 
each federal agency with uncorrected misstatements, a summary of 
unadjusted misstatements be attached to the agency's management 
representation letter. Treasury and OMB use the summaries of unadjusted 
misstatements to assess the impact of federal agencies' unadjusted 
misstatements on the CFS and make appropriate management 
representations to us at the governmentwide level. The summaries are 
also used by us, as principal auditor of the CFS, to develop an overall 
governmentwide summary of unadjusted misstatements, which is then 
attached to the CFS management representation letter prepared by 
Treasury and OMB. 

Also, in a matter related to the compilation process for the CFS, in 
fiscal year 2004, Treasury required agencies to submit a summary of 
unadjusted misstatements as part of the closing package using the 
standardized format provided for in the Treasury Financial Manual 
(TFM). The TFM, however, required additional details to be added to the 
summary of unadjusted misstatements than those called for by the FAM. 
Specifically, agencies were to also (1) include a description of the 
misstatements and (2) distinguish between misstatements affecting 
intragovernmental accounts and misstatements affecting accounts with 
the public. We need this additional information to develop the overall 
governmentwide summary of unadjusted misstatements. In order to avoid 
duplication of effort by the agencies in preparing two summaries of 
unadjusted misstatements, the additional information should also be 
included in the summary of unadjusted misstatements attached to the 
management representation letter. As such, we plan to work with PCIE to 
modify the FAM to call for these two additional disclosures to be 
included in the summary of unadjusted misstatements attached to the 
management representation letter. 

USDA included a summary of unadjusted misstatements with its management 
representation letter, but the summary did not separate "known" and 
"likely" misstatements, as called for by the FAM. In addition, USDA 
submitted a summary of unadjusted misstatements as part of its closing 
package to Treasury as required by the TFM, but the summary did not 
include a description of the misstatements. 

Without a complete summary of unadjusted misstatements from each of the 
verifying agencies with uncorrected misstatements, it is not possible 
for us, as principal auditor of the CFS, to reasonably determine the 
audit risk exposure for each of the line items in the CFS or to prepare 
an adequate summary of unadjusted misstatements at the governmentwide 
level. 

Conclusions: 

In two of the five key areas we reviewed, USDA's fiscal year 2004 
management representation letter did not provide all the information 
necessary to support Treasury and OMB's preparation of the CFS 
management representation letter and our ability to rely on the 
representations in that letter in combination with individual federal 
agency representation letters, including that of USDA. The additional 
information needed from USDA is straightforward and should be easy to 
address. 

Recommendations for Executive Action: 

We recommend to USDA's Acting Chief Financial Officer that in the 
future the management representation letter: 

* fully include all representations from the FAM that are applicable to 
USDA and: 

* include a complete summary of unadjusted misstatements, if there are 
any uncorrected misstatements, that also provides a description of the 
misstatements. 

We recommend that the USDA Inspector General work with the department 
to help ensure that future management representation letters meet the 
key conditions noted as needing improvements in this report. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, which are reprinted in 
enclosure II, USDA's Acting Chief Financial Officer and Inspector 
General stated that they will work to address the conditions noted in 
our report. Specifically, USDA's Acting Chief Financial Officer stated 
her office (1) has already changed the format for USDA's fiscal year 
2005 management representation letter and all future management 
representation letters to include representation #27 and (2) will 
ensure that the summary of unadjusted misstatements includes component 
audit information on future submissions. In addition, USDA's Inspector 
General stated that her office will work with USDA management to help 
ensure that future management representation letters fully include all 
appropriate representations from the FAM as well as a complete summary 
of unadjusted misstatements. 

As it relates to FAM representation #27, the Acting Chief Financial 
Officer noted that her office believed that the disclosure was 
addressed in other parts of USDA's management representation letter and 
the Inspector General noted that the management representation letter 
did represent that all material instances of noncompliance were 
disclosed as well as all instances of known fraud. While USDA included 
representations that stated (1) there were no instances of 
noncompliance with applicable laws and regulations that could have a 
material effect on the financial statements and (2) all instances of 
known fraud were disclosed, it did not represent that all known 
instances of noncompliance were disclosed to the auditor as called for 
by representation #27. As such, we continue to believe that FAM 
representation #27 was not included in USDA's fiscal year 2004 
management representation letter and should be provided in USDA's 
future management representation letters. We are pleased that USDA's 
Acting Chief Financial Officer and Inspector General stated that they 
will work to include FAM representation #27 in future management 
representation letters. 

As it relates to the summary of unadjusted misstatements, both USDA's 
Acting Chief Financial Officer and Inspector General indicated that the 
adjustments included on the departmentwide summary of unadjusted 
misstatements is intended to include only those adjustments identified 
during the consolidated audit and not unadjusted misstatements 
identified during the individual USDA component audits. They stated 
that they were not aware that GAO was requesting component audit 
information. Our issue was not related to the component units of USDA, 
but to USDA's departmentwide summary of unadjusted misstatements. As 
stated in our engagement letter dated May 3, 2004, which was issued by 
us to Treasury and OMB and copied to the verifying agencies' Chief 
Financial Officer and Inspector General, we were to receive a summary 
of unadjusted misstatements from the applicable agencies with the 
management representation letter. As noted in our report, both the 
summary provided with USDA's management representation letter and the 
summary included with USDA's closing package lacked certain details 
needed for it to be properly used by GAO for preparing the 
governmentwide management representation letter. For example, USDA's 
summary did not include a description of the misstatements. USDA also 
noted that there were not any likely misstatements to include on the 
summary. However, FAM 540.03 states that the auditor should quantify 
the effects of any misstatements and classify them as either "known 
misstatements" or "likely misstatements". We are pleased that USDA's 
Acting Chief Financial Officer and Inspector General stated that in the 
future they will provide a complete summary of unadjusted 
misstatements. 

Within 60 days of the date of this report, we would appreciate 
receiving a written statement on actions taken to address these 
recommendations. 

We are sending copies of this report to the Chairmen and Ranking 
Minority Members of the Senate Committee on Homeland Security and 
Governmental Affairs; the Subcommittee on Federal Financial Management, 
Government Information, and International Security, Senate Committee on 
Homeland Security and Governmental Affairs; the House Committee on 
Government Reform; and the Subcommittee on Government Management, 
Finance, and Accountability, House Committee on Government Reform. In 
addition, we are sending copies to the Fiscal Assistant Secretary of 
the Treasury and the Controller of OMB. Copies will be made available 
to others upon request. This report is also available at no charge on 
GAO's Web site at [Hyperlink, http://www.gao.gov] 

We appreciate the courtesy and cooperation extended to us by your staff 
throughout our work. We look forward to continuing to work with your 
offices to help improve financial management in the federal government. 
If you have any questions about the contents of this report, please 
contact me at (202) 512-3406. 

Signed by: 

Gary T. Engel: 
Director: 
Financial Management and Assurance: 

Enclosures - 2: 

[End of section]

Enclosure I: Representations in FAM 1001A: 

Guidance contained in FAM 1001 and FAM 1001A deals with the management 
representations that the auditor should obtain from current management 
as part of the audit. This guidance also acknowledges that judgment 
needs to be exercised to obtain representations that depend on the 
circumstances of the engagement and the nature and basis of 
presentation of the financial statements. Representations given in FAM 
section 1001A should be customized to the situation of the entity being 
audited, and additional representations may need to be obtained. 

FAM 1001A lists 27 representations that are ordinarily included, if 
applicable, in the management representation letter that an agency 
provides to the auditor. For representations 3, 11, 16, and 18, the 
agency should address three separate components. As such, each agency 
is ordinarily expected to make a total of 35 representations. 
Representations 18, 19, 20, and 21 are not applicable unless the agency 
received an opinion on its internal control. In addition, 
representations 22, 23, and 24 address the three requirements of the 
Federal Financial Management Improvement Act of 1996 and are only 
applicable to the 24 CFO Act agencies. The 35 representations in FAM 
1001A are as follows. 

1. We are responsible for the fair presentation of the financial 
statements and stewardship information in conformity with U.S. 
generally accepted accounting principles. 

2. The financial statements are fairly presented in conformity with 
U.S. generally accepted accounting principles. 

3. We have made available to you all: 

a. financial records and related data;

b. where applicable, minutes of meetings of the Board of Directors [or 
other similar bodies, such as congressional oversight committees] or 
summaries of actions of recent meetings for which minutes have not been 
prepared; and: 

c. communications from the Office of Management and Budget (OMB) 
concerning noncompliance with or deficiencies in financial reporting 
practices. 

4. There are no material transactions that have not been properly 
recorded in the accounting records underlying the financial statements 
or disclosed in the notes to the financial statements. 

5. We believe that the effects of the uncorrected financial statement 
misstatements summarized in the accompanying schedule are immaterial, 
both individually and in the aggregate, to the financial statements 
taken as a whole. [If management believes that certain of the 
identified items are not misstatements, management's belief may be 
acknowledged by adding to the representation, for example, "We believe 
that items XX and XX do not constitute misstatements because 
[description of reason]."]

6. The [entity] has satisfactory title to all owned assets, including 
stewardship property, plant, and equipment; such assets have no liens 
or encumbrances; and no assets have been pledged. 

7. We have no plans or intentions that may materially affect the 
carrying value or classification of assets and liabilities. 

8. Guarantees under which the [entity] is contingently liable have been 
properly reported or disclosed. 

9. Related party transactions and related accounts receivable or 
payable, including assessments, loans, and guarantees, have been 
properly recorded and disclosed. 

10. All intraentity transactions and balances have been appropriately 
identified and eliminated for financial reporting purposes, unless 
otherwise noted. All intragovernmental transactions and balances have 
been appropriately recorded, reported, and disclosed. We have 
reconciled intragovernmental transactions and balances with the 
appropriate trading partners for the four fiduciary transactions 
identified in Treasury's Intra-governmental Fiduciary Transactions 
Accounting Guide, and other intragovernmental asset, liability, and 
revenue amounts as required by the applicable OMB Bulletin. 

11. There are no: 

a. possible violations of laws or regulations whose effects should be 
considered for disclosure in the financial statements or as a basis for 
recording a loss contingency,

b. material liabilities or gain or loss contingencies that are required 
to be accrued or disclosed that have not been accrued or disclosed, or: 

c. unasserted claims or assessments that are probable of assertion and 
must be disclosed that have not been disclosed. 

12. We have complied with all aspects of contractual agreements that 
would have a material effect on the financial statements in the event 
of noncompliance. 

13. No material events or transactions have occurred subsequent to 
September 30, 20X2 [or date of latest audited financial statements], 
that have not been properly recorded in the financial statements and 
stewardship information or disclosed in the notes. 

14. We are responsible for establishing and maintaining internal 
control. 

15. We acknowledge our responsibility for the design and implementation 
of programs and controls to prevent and detect fraud (intentional 
misstatements or omissions of amounts or disclosures in financial 
statements and misappropriation of assets that could have a material 
effect on the financial statements). 

16. We have no knowledge of any fraud or suspected fraud affecting the 
[entity] involving: 

a. management,

b. employees who have significant roles in internal control, or: 

c. others where the fraud could have a material effect on the financial 
statements. 

[If there is knowledge of any such instances, they should be 
described.] 

17. We have no knowledge of any allegations of fraud or suspected fraud 
affecting the [entity] received in communications from employees, 
former employees, or others. [If there is knowledge of any such 
allegations, they should be described.]

18. Pursuant to 31 U.S.C. 3512(c), (d) (commonly known as the Federal 
Managers' Financial Integrity Act), we have assessed the effectiveness 
of the [entity's] internal control in achieving the following 
objectives: 

a. reliability of financial reporting--transactions are properly 
recorded, processed, and summarized to permit the preparation of 
financial statements and stewardship information in accordance with 
U.S. generally accepted accounting principles, and assets are 
safeguarded against loss from unauthorized acquisition, use or 
disposition;

b. compliance with applicable laws and regulations--transactions are 
executed in accordance with (i) laws governing the use of budget 
authority and with other laws and regulations that could have a direct 
and material effect on the financial statements and (ii) any other 
laws, regulations, and governmentwide policies identified by OMB in its 
audit guidance; and: 

c. reliability of performance reporting--transactions and other data 
that support reported performance measures are properly recorded, 
processed, and summarized to permit the preparation of performance 
information in accordance with criteria stated by management. 

[If the entity bases its internal control assessment on suitable 
criteria other than 31 U.S.C. 3512(c), (d), this item should cite the 
criteria used (for example, Internal Control--Integrated Framework 
issued by the Committee of Sponsoring Organizations (COSO) of the 
Treadway Commission).]

19. Those controls in place on September 30, 20X2 [or date of latest 
audited financial statements], and during the years ended 20X2 and 
20X1, provided reasonable assurance that the foregoing objectives are 
met. [If there are material weaknesses, the foregoing representation 
should be modified to read: 

Those controls in place on September 30, 20X2, and during the years 
ended 20X2 and 20X1, provided reasonable assurance that the foregoing 
objectives are met except for the effects of the material weaknesses 
discussed below or in the attachment. 

or: Internal controls are not effective. 

or: Internal controls do not meet the foregoing objectives.]

20. We have disclosed to you all significant deficiencies in the design 
or operation of internal control that could adversely affect the 
entity's ability to meet the internal control objectives and identified 
those we believe to be material weaknesses. 

21. There have been no changes to internal control subsequent to 
September 30, 20X2 [or date of latest audited financial statements], or 
other factors that might significantly affect it. [If there were 
changes, describe them, including any corrective actions taken with 
regard to any significant deficiencies or material weaknesses.]

22. We are responsible for implementing and maintaining financial 
management systems that substantially comply with federal financial 
management systems requirements, federal accounting standards (U.S. 
generally accepted accounting principles), and the U.S. Government 
Standard General Ledger at the transaction level. 

23. We have assessed the financial management systems to determine 
whether they substantially comply with these federal financial 
management systems requirements. Our assessment was based on guidance 
issued by OMB. 

24. The financial management systems substantially complied with 
federal financial management systems requirements, federal accounting 
standards, and the U.S. Government Standard General Ledger at the 
transaction level as of [date of the latest financial statements]. 

[If the financial management systems substantially comply with only one 
or two of the above elements, this representation should be modified as 
follows: 

As of [date of financial statements], the [entity's] financial 
management systems substantially comply with [specify which of the 
three elements for which there is substantial compliance (e.g., federal 
accounting standards and the SGL at the transaction level)], but did 
not substantially comply with [specify which of the elements for which 
there was a lack of substantial compliance (e.g., federal financial 
management systems requirements)], as described below (or in an 
attachment).]

[If the financial management systems do not substantially comply with 
any of the three elements, the following paragraph should be used 
instead: 

As of [date of financial statements], the [entity's] financial 
management systems do not substantially comply with the federal 
financial management systems requirements.]

[If there is a lack of substantial compliance with one or more of the 
three requirements, identify herein or in an attachment all the facts 
pertaining to the noncompliance, including the nature and extent of the 
noncompliance and the primary reason or cause of the noncompliance.]

25. We are responsible for the [entity's] compliance with applicable 
laws and regulations. 

26. We have identified and disclosed to you all laws and regulations 
that have a direct and material effect on the determination of 
financial statement amounts. 

27. We have disclosed to you all known instances of noncompliance with 
laws and regulations. 

[End of section]

Enclosure II: Comments from the Department of Agriculture: 

USDA: 

United States Department of Agriculture: 
Office of the Chief Financial Officer: 
1400 Independence Avenue, SW: 
Washington, DC 20250: 

Mr. Gary T. Engel: 
Director: 

Financial Management and Assurance: 
Government Accountability Office: 
441 G Street, N. W. 

Washington, D.C. 20548: 

Dear Mr. Engel: 

The Department of Agriculture's (USDA) Office of the Chief Financial 
Officer (OCFO) and the Office of Inspector General (OIG) appreciate the 
opportunity to comment on the draft report dated May 25, 2005, relating 
to your review of the fiscal year (FY) 2004 management representation 
letter on its financial statements. 

OCFO: 

We accept your position that USDA should have included a statement that 
all known noncompliance with laws and regulations had been disclosed. 
We believe that disclosure was addressed in other parts of our 
management representation letter. However, we have already changed the 
format for FY 2005 and all future management representation letters to 
include this statement. 

Additionally, OCFO will ensure that the summary of adjustments passed 
includes component audit information on future submissions as you have 
recommended. 

OIG: 

We agree with the recommendation addressed to OIG and will work with 
USDA management in the future to help ensure that future management 
representation letters meet the conditions you cited relating to fully 
including all appropriate representations from the Financial Audit 
Manual (FAM) as well as a complete summary of unadjusted misstatements, 
including detailed descriptions. 

While in agreement with the recommendation, we would like to provide 
clarification to the Government Accountability Office's (GAO) comments 
so that users can place the report in the proper context. Specifically: 

* GAO stated the representations that all known noncompliance with laws 
and regulations had been disclosed was inadvertently omitted from the 
management representation letter. We will ensure that all required 
disclosures are included in the future. However, we feel it is 
important to note that the letter did represent that all material 
instances of noncompliance were disclosed as well as all instances of 
known fraud. 

* The summary of adjustments passed for the USDA Consolidated audit is 
intended to include only those adjustments identified during the 
Consolidated audit. The USDA component audits communicate the 
adjustments passed in their standalone management representation 
letters as part of the individual audits. We were not aware that GAO 
was requesting the component audit information. This information was 
available and subsequently provided; however, GAO indicated that it was 
not provided in time for them to rely on it if they had been able to 
issue an opinion. We will ensure that the detail is provided in the 
future. We request that in the future GAO communicate its requests in 
detail commensurate with its expectations. 

* The detail description of the two misstatements totaling $1 million 
and $3 million, respectively, for the USDA audit was not included. 
However, these are clearly inconsequential and, in retrospect, did not 
warrant being brought forward to the schedule of adjustments passed. 

* In addition, the schedule did not include "likely" adjustments; 
however, there weren't any. In the future we will so state, if 
applicable. 

Additionally, please note that OIG had become increasingly concerned 
that the overall process to support GAO's financial statement effort 
needed improvement. GAO responded to our request to discuss these 
concerns and met with us on May 25, 2005. GAO agreed to provide a 
single point of contact who will work with OIG and the USDA financial 
managers to develop a list of clearly defined deliverables and due 
dates. We believe this new process will eliminate misunderstandings 
(such as the one discussed in the second dot point above) and help 
ensure that we are able to fully meet GAO's needs. 

Sincerely,

Signed by: 

Patricia E. Healy: 
Acting Chief Financial Officer: 

Signed for: 

Phyllis K. Fong: 
Inspector General: 

The following are our comments on the Department of Agriculture's 
(USDA) letter dated June 9, 2005. 

GAO Comments: 

1. See the "Agency Comments and Our Evaluation" section of this report. 

2. Both GAO and USDA have expressed concerns related to the overall 
process of providing us the needed information for the audit of the 
consolidated financial statements of the U.S. government (CFS). In a 
meeting between USDA and GAO on May 25, 2005, both parties discussed 
how this process could be improved for future audits. At this meeting, 
we told USDA officials that we believe that we had clearly defined the 
deliverables and due dates for information requested that related to 
our audit of the CFS. We also noted that some of the information 
requested was called for in the engagement letter dated May 3, 2004, 
that was issued by us to Treasury and OMB and copied to the verifying 
agencies' Chief Financial Officer and Inspector General. Regardless, we 
will provide a single point of contact to work with USDA's Office of 
the Inspector General to facilitate meetings and data requests. Also, 
USDA agreed to appoint a single point of contact, the financial 
statement audit liaison, who will coordinate and obtain for us all 
necessary information to help ensure that USDA meets its deliverables 
and due dates. 

(198375): 

FOOTNOTES

[1] The Government Management Reform Act of 1994 has required such 
reporting, covering the executive branch of government, beginning with 
financial statements prepared for fiscal year 1997. 31 U.S.C.  331 
(e). The federal government has elected to include certain financial 
information on the legislative and judicial branches in the CFS as 
well. 

[2] The fiscal year 2004 Financial Report of the United States 
Government was completed by the Department of the Treasury on December 
15, 2004, and is available through both GAO's Web site at www.gao.gov 
and Treasury's Web site at www.fms.treas.gov/fr/index.html. 

[3] GAO, GAO/PCIE: Financial Audit Manual: Update, GAO-04-1015G 
(Washington, D.C.: July 30, 2004), an update to Financial Audit Manual: 
Volumes 1 and 2, GAO-01-765G (Washington, D.C.: Aug. 1, 2001). 

[4] The FAM lists 27 representations that are ordinarily included, if 
applicable, in the management representation letter that an agency 
provides to the auditor. For 4 of the representations, the agency is 
required to address three separate components. As such, each agency is 
ordinarily expected to make a total of 35 representations. Six of the 
35 representations are not applicable unless the agency received an 
opinion on its internal control. Since USDA did not receive an opinion 
on its internal control for fiscal year 2004, only 29 of the 35 
representations were applicable to USDA's fiscal year 2004 management 
representation letter. 

[5] See Treasury Financial Manual, vol. I, part 2, ch. 4700, for a list 
of the 35 agencies. These agencies, for fiscal year 2004, consisted of 
23 CFO Act agencies and 12 material other agencies. The 33 agencies we 
reviewed did not include the U.S. Securities and Exchange Commission 
and the Smithsonian Institution because these audits were not complete 
before the fiscal year 2004 Financial Report of the United States 
Government was issued. The Department of Homeland Security (DHS) 
Financial Accountability Act, Pub. L. No. 108-330, 118 Stat. 1275 (Oct. 
16, 2004), added DHS to the list of CFO Act agencies, increasing the 
number of CFO Act agencies again to 24 for fiscal year 2005.