Financial Audit:

The Department of Transportation's Fiscal Year 2004 Management Representation Letter on Its Financial Statements

GAO-05-396R: Published: Jun 9, 2005. Publicly Released: Jun 9, 2005.

Additional Materials:

Contact:

Gary T. Engel
(202) 512-8815
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

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

DOT'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 four of the five key areas we reviewed. First, DOT did not provide the materiality thresholds used to determine, for representation purposes, any matters that were individually or collectively material to its financial statements. Such individual federal agency thresholds are considered by Treasury and OMB in providing a materiality threshold for the CFS representation letter. Second, the letter included 24 of the 29 representations from the FAM that were applicable to DOT. For the other 5 representations, 3 were not fully included and 2 were not provided at all. Next, DOT did not provide a summary of unadjusted misstatements that distinguishes between known and likely misstatements. Finally, DOT's letter included a representation that was not consistent with an issue identified in the auditor's report involving the reconciliation of intragovernmental transactions. We believe that these matters can be easily addressed. We are making four recommendations to DOT's Chief Financial Officer targeted to specific changes needed. Also, we are recommending that the DOT 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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: As part of our FY 2005 audit of the consolidated financial statements (CFS) of the U.S government, we evaluated the agencies' management representation letters to determine whether the representations were reliable and do not contradict other audit evidence. DOT's FY 2005 management representation letter appeared to provide reliable representations.

    Recommendation: DOT's Chief Financial Officer should ensure that in the future the management representation letter includes representations that are reliable.

    Agency Affected: Department of Transportation

  2. Status: Closed - Implemented

    Comments: As part of our annual audit of the CFS, we reviewed the Department of Transportation's (DOT) Summary of Unadjusted Misstatements (SUM). We determined that DOT's FY's 2005, 2006, 2007, and 2008 SUMs did not provide the necessary information for us to prepare the governmentwide SUMs. As part of our FY 2009 audit, we found that DOT's independent public accountant (IPA) provided a template to help ensure the FY 2009 SUM is complete. The template is also designed to record all necessary information needed for GAO to prepare the governmentwide SUM. As a result, DOT has taken action to ensure that future management representation letters include a complete SUM.

    Recommendation: DOT's Chief Financial Officer should ensure that in the future the management representation letter includes a complete summary of unadjusted misstatements, if there are any uncorrected misstatements.

    Agency Affected: Department of Transportation

  3. Status: Closed - Implemented

    Comments: As part of our FY 2006 audit of the consolidated financial statements (CFS) of the U.S government, we evaluated the agencies' management representation letters to determine whether all applicable representations from the FAM were fully provided. DOT's FY 2006 management representation letter provided all applicable representations from the FAM.

    Recommendation: DOT's Chief Financial Officer should ensure that in the future the management representation letter fully includes all representations from the FAM that are applicable to DOT.

    Agency Affected: Department of Transportation

  4. Status: Closed - Implemented

    Comments: As part of our FY 2005 audit of the consolidated financial statements (CFS) of the U.S government, we evaluated the agencies' management representation letters for a materiality threshold used for certain representations in the letter. DOT's FY 2005 management representation letter included the materiality threshold used.

    Recommendation: DOT's Chief Financial Officer should ensure that in the future the management representation letter includes materiality thresholds or such thresholds be provided separately to Treasury and OMB.

    Agency Affected: Department of Transportation

  5. Status: Closed - Implemented

    Comments: As part of our audits of the CFS, we evaluated significant federal agencies' management representation letters to determine whether they were sufficient to help support Treasury and OMB's preparation of the CFS management representation letter. DOT's Office of Inspector General has worked with the agency to help ensure that DOT's management representation letter, including the summary of unadjusted misstatements, was sufficient.

    Recommendation: The DOT Inspector General should work with the department to help ensure that future management representation letters meet the key conditions noted as needing improvements in this report.

    Agency Affected: Department of Transportation

 

Explore the full database of GAO's Open Recommendations »

Sep 22, 2014

Jul 9, 2014

Jun 19, 2014

May 30, 2014

May 15, 2014

May 13, 2014

May 12, 2014

May 2, 2014

Mar 27, 2014

Looking for more? Browse all our products here