Financial Audit:

The Tennessee Valley Authority's Fiscal Year 2004 Management Representation Letter on Its Financial Statements

GAO-05-589R: Published: Jun 23, 2005. Publicly Released: Jun 23, 2005.

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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 Tennessee Valley Authority's (TVA) fiscal year 2004 management representation letter. Our objective is to help ensure that future management representation letters submitted by TVA 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."

TVA'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, TVA 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. In addition, the letter included 21 of the 26 representations from the FAM that were applicable to TVA. For the other 5 representations, 1 was not fully included and 4 were not provided at all. We believe that these matters can be easily addressed. We are making two recommendations to TVA's Chief Financial Officer targeted to specific changes needed. Also, we are recommending that the TVA Inspector General, with the contracted independent public accountant, work with the agency to help ensure that future management representation letters meet the key conditions noted as needing improvements in this report.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: TVA'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: Tennessee Valley Authority

    Status: Closed - Implemented

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

    Recommendation: TVA'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 TVA.

    Agency Affected: Tennessee Valley Authority

    Status: Closed - Implemented

    Comments: As part of our fiscal year 2008 audit of the consolidated financial statements (CFS) of the U.S government, we evaluated significant federal agencies' management representation letters to determine whether all applicable representations from the FAM were fully provided. TVA's fiscal year 2008 management representation letter provided all applicable representations from the FAM.

    Recommendation: The TVA Inspector General, with the contracted independent public accountant, should work with the agency to help ensure that future management representation letters meet the key conditions noted as needing improvements in this report.

    Agency Affected: Tennessee Valley Authority

    Status: Closed - Implemented

    Comments: As part of our audits of the consolidated financial statements (CFS) of the U.S government, 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. TVA's Office of Inspector General has worked with the agency to help ensure that TVA's management representation letter was sufficient.

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