Financial Audit:

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

GAO-05-597R: Published: Jul 14, 2005. Publicly Released: Jul 14, 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 Energy's (DOE) fiscal year 2004 management representation letter. Our objective is to help ensure that future management representation letters submitted by DOD 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."

DOE'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 from the FAM that were applicable to DOE. The other representation was not fully included. In addition, DOE did not provide a summary of unadjusted misstatements that distinguishes between misstatements affecting intragovernmental accounts and misstatements affecting accounts with the public. We believe that these matters can be easily addressed. We are making two recommendations to DOE's Chief Financial Officer targeted to specific changes needed. Also, we are recommending that the DOE 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.

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

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: As part of our FY 2005 audit of the consolidated financial statements of the U.S government, we evaluated the agencies' management representation letters to determine whether all applicable representations from the FAM were fully provided. DOE's FY 2005 management representation letter fully provided all applicable representations from the FAM.

    Recommendation: DOE's Chief Financial Officer should ensure that in the future the management representation letter include a complete summary of unadjusted misstatements, if there are any uncorrected misstatements, that distinguishes between misstatements affecting intragovernmental accounts and misstatements affecting accounts with the public.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: As part of our audit of the fiscal year 2004 consolidated financial statements (CFS) of the U.S. government, we found that the Department of Energy's (DOE) Summary of Unadjusted Misstatements (SUM) was not sufficient to help support Treasury and GAO's preparation of the CFS SUM. Specifically, DOE did not include a summary of unadjusted misstatements that provided all of the necessary information. We recommended to DOE's Chief Financial Officer that in the future the management representation letter include 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. DOE's fiscal year 2005 SUM addressed our concerns by including all the necessary information. Therefore, DOE's fiscal year 2005 SUM was sufficient to help support Treasury and GAO's preparation of the CFS SUM.

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

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: As part of our FY 2005 audit of the consolidated financial statements of the U.S government, we evaluated the agencies' management representation letters to determine whether they were sufficient to help support Treasury and OMB's preparation of the CFS management representation letter. DOE's FY 2005 management representation letter met the key conditions noted as needing improvements.

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