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Financial Audit: Restatement to the General Services Administration's Fiscal Year 2003 Financial Statements

GAO-06-70R Published: Dec 06, 2005. Publicly Released: Dec 06, 2005.
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Highlights

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 Congress. We are required to audit these consolidated financial statements (CFS) and report on the results of our work. An issue meriting concern and close scrutiny that emerged during our fiscal year 2004 CFS audit was the growing number of Chief Financial Officers (CFO) Act agencies that restated certain of their financial statements for fiscal year 2003 to correct errors. Errors in financial statements can result from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared. Frequent restatements to correct errors can undermine public trust and confidence in both the entity and all responsible parties. Further, when restatements do occur, it is important that financial statements clearly communicate, and readers of the restated financial statements understand, that the financial statements originally issued by management in the previous year and the opinion thereon should no longer be relied on and instead the restated financial statements and related auditor's opinion should be used. Because of the varying nature and circumstances surrounding the restatements, we are issuing a number of separate reports on the matter. This report communicates our observations regarding GSA's fiscal year 2003 restatement. Going forward, we hope that the lessons learned from the fiscal year 2003 restatement, together with our recommendations, will help GSA and its auditor avoid the need for restatements to GSA's future financial statements. We reviewed four key areas with respect to the restatement of GSA's fiscal year 2003 financial statements: (1) the nature and cause of the errors that necessitated the restatement, including planned corrective actions by the agency and its auditors; (2) the timing of communicating the material misstatement to users of the financial statements; (3) the extent of transparency exhibited in disclosing the nature and impact of the material misstatement in the financial statements and the reissued auditor's report; and (4) audit issues that contributed to the failure to detect the errors that necessitated the restatement during the audit of the agency's fiscal year 2003 financial statements.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
General Services Administration GSA's Chief Financial Officer should ensure that GSA fully and effectively implements control procedures to properly transfer costs from the CIP account to the Buildings account.
Closed – Implemented
In response to our recommendation, GSA's CFO implemented mitigating controls to ensure that GSA fully and effectively implements control procedures to properly transfer costs from the CIP account to the Buildings account. Specifically, during fiscal year 2005, GSA conducted a 100 percent review of all high dollar CIP projects comprised of 70 percent of the outstanding CIP balance. Also, GSA performed a statistical sample process of the remaining outstanding CIP projects to determine the amounts to be reported in the financial statements. By implementing sufficient controls over GSA's transfer cost from the CIP accounts to Buildings account, GSA has improved its controls over financial reporting.
General Services Administration GSA's Inspector General should work with GSA's IPA so that audit procedures to sufficiently test adjusting journal entries related to the transfer of amounts from the CIP account to the Buildings account are fully and effectively implemented.
Closed – Implemented
In response to our recommendation, GSA's IG stated that his office will continue to monitor the IPA's efforts to plan and perform its tests of the adjusting journal entries related to the transfer of amounts from the CIP account to the Buildings account. Further, the GSA Regional Inspector General for Auditing stated that her office reviews and focuses on, among other areas, the GSA IPA's audit procedures for testing adjusting journal entries. Specifically, GSA's OIG examines the IPA's audit planning and testing procedures of the adjusting journal entries related to the transfer of amounts from the CIP account to the Buildings account to determine whether the work is sufficient for detecting similar errors. GSA's OIG has not found discrepancies for the last 8 quarters. By taking these actions, GSA's OIG has improved its ability to detect the type of errors that caused the restatements and our ability to use the audit work in this area on future audits of the CFS.

Full Report

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Topics

Accounting errorsAccounting standardsAuditing proceduresAuditing standardsFinancial statement auditsFinancial statementsInternal controlsReporting requirementsTransparencyData errors