Financial Audit:

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

GAO-05-593R: 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 Department of Labor's (DOL) fiscal year 2004 management representation letter. Our objective is to help ensure that future management representation letters submitted by DOL 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."

DOL'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 three of the five key areas we reviewed. First, DOL 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 28 of the 29 representations from the FAM that were applicable to DOL. The other representation was not fully included. Finally, DOL did not include a complete summary of unadjusted misstatements with its management representation letter and also did not distinguish between misstatements affecting intragovernmental accounts and misstatements affecting accounts with the public. We believe that these matters can be easily addressed. We are making three recommendations to DOL's Chief Financial Officer targeted to specific changes needed. Also, we are recommending that the DOL Inspector General, with the contracted independent public accountant, 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 audit of the fiscal year 2005 consolidated financial statements (CFS) of the U.S. government, we evaluated each agency's Summary of Unadjusted Misstatements (SUM) to determine whether is was sufficient to help support Treasury's and GAO's preparation of the CFS SUM. DOL's fiscal year 2005 SUM included all of the necessary information. Therefore, DOL's fiscal year 2005 SUM was sufficient to help support Treasury's and GAO's preparation of the CFS SUM.

    Recommendation: DOL'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, that also distinguishes between misstatements affecting intragovernmental accounts and misstatements affecting accounts with the public.

    Agency Affected: Department of Labor

  2. 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 all applicable representations from the FAM were fully provided. DOL's FY 2005 management representation letter fully provided all applicable representations from the FAM.

    Recommendation: DOL'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 DOL.

    Agency Affected: Department of Labor

  3. Status: Closed - Implemented

    Comments: As part of our 2006 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. DOL's FY 2006 management representation letter included the materiality threshold used.

    Recommendation: DOL'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 Labor

  4. Status: Closed - Implemented

    Comments: As part of our FY 2005 and 2006 audits of the consolidated financial statements (CFS) of the U.S government, we evaluated the agencies' management representation letters to determine whether they were sufficient to help support Treasury's and OMB's preparation of the CFS management representation letter. DOL's FY 2005 management representation letter provided all applicable representations from the FAM and included a complete summary of unadjusted misstatements. DOL's FY 2006 management representation letter provided the materiality threshold used for certain representations. As a result, DOL's management representation letter has met all of the key conditions noted as needing improvements.

    Recommendation: The DOL Inspector General, with the contracted independent public accountant, 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 Labor

 

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