This is the accessible text file for GAO report number GAO-05-601R 
entitled 'Financial Audit: The United States Agency for International 
Development's Fiscal Year 2004 Management Representation Letter on Its 
Financial Statements' which was released on July 26, 2005. 

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July 22, 2005: 

Ms. Lisa Fiely: 
Chief Financial Officer: 
U.S. Agency for International Development: 

Mr. Bruce Crandlemire: 
Acting Inspector General: 
U.S. Agency for International Development: 

Subject: Financial Audit: The United States Agency for International 
Development's Fiscal Year 2004 Management Representation Letter on Its 
Financial Statements: 

As you know, 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.[Footnote 1] 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. 

In our report, which is included in the fiscal year 2004 Financial 
Report of the United States Government,[Footnote 2] we reported a 
limitation on the scope of our work due to identified concerns with the 
adequacy of certain federal agencies' management representations on 
which Treasury and OMB depend to provide their representations to us 
regarding the CFS. Specifically, Treasury and OMB stated that their 
representation letter to us on the CFS was based primarily on the 
individual federal agency representation letters. Consequently, our 
audit considered the content of the individual federal agency letters, 
and the incompleteness of certain of these letters impaired our ability 
to obtain sufficient evidence in support of our audit of the CFS. This 
limitation contributed to our disclaimer of opinion on the CFS. We 
performed sufficient audit work to provide the disclaimer of opinion 
and issued our audit report, dated December 6, 2004, in accordance with 
U.S. generally accepted government auditing standards. 

As part of our audit of the fiscal year 2004 CFS, we received and 
reviewed selected federal agencies' management representation letters 
to assess their adequacy in support of our audit of the CFS. As the 
federal government gets closer to an opinion on its financial 
statements, it becomes more important that the federal agencies' 
management representation letters be complete and reliably prepared. 

The purpose of this report is to communicate our observations on the 
United States Agency for International Development's (USAID) fiscal 
year 2004 management representation letter. Our objective is to help 
ensure that future management representation letters submitted by USAID 
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."[Footnote 3]

Results in Brief: 

USAID's fiscal year 2004 management representation letter, as well as 
several other federal agencies' management representation letters, 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 one of the five key areas we 
reviewed. Specifically, USAID did not provide a summary of unadjusted 
misstatements that (1) identifies the standard general ledger account 
number, standard general ledger account name, or financial statement 
line item for the misstatements and (2) includes a description of the 
misstatements. We believe that this matter can be easily addressed and 
are making a recommendation to USAID's Chief Financial Officer targeted 
to including a complete summary of unadjusted misstatements, if there 
are any uncorrected misstatements, that also provides a description of 
the misstatements. Also, we are recommending that the USAID Acting 
Inspector General work with the agency to help ensure that future 
management representation letters meet the key condition noted as 
needing improvements in this report. 

In commenting on a draft of this report, USAID's Chief Financial 
Officer and Acting Inspector General, in separate letters, disagreed 
with our conclusion that USAID's summary of unadjusted misstatements 
was incomplete. Specifically, the Chief Financial Officer said that 
USAID's summary of unadjusted misstatements identified the financial 
statement line item and included a description for the misstatements. 
In addition, the Acting Inspector General stated that the financial 
statement line items were included in the summary. We disagree with 
their conclusions. During our review, it was not clear that the 
information called for by the FAM and TFM was provided and, therefore, 
USAID's summary of unadjusted misstatements was incomplete. 
Specifically, we could not identify the line items referred to in the 
summary on USAID's fiscal year 2004 Statement of Net Cost and the 
description provided for the misstatements only indicated whether 
intragovernmental or public costs increased or decreased, not the 
circumstances that gave rise to the unadjusted misstatement. In 
addition, USAID's Acting Inspector General requested that the 
recommendation to him be deleted because USAID management is ultimately 
responsible for the summary of unadjusted misstatements and his office 
does not have line authority over them. We disagree with this 
statement. The summary of unadjusted misstatements is prepared by the 
auditor and given to management to attach to the management 
representation letter and management is then responsible for 
representing whether the effects of the uncorrected financial statement 
misstatements summarized in the attached schedule are immaterial, both 
individually and in the aggregate, to the financial statements taken as 
a whole. As the auditor of USAID's financial statements, USAID's Office 
of the Inspector General is responsible for preparing the summary of 
unadjusted misstatements and ensuring that it is complete. We continue 
to believe that the recommendation to the Acting Inspector General is 
appropriate. 

Background: 

In conducting agency financial statement audits, U.S. generally 
accepted government auditing standards incorporate financial auditing 
fieldwork and reporting standards issued by the AICPA. Such auditing 
standards (AU Section 333) require auditors to obtain certain 
representations from agency management. These representations are part 
of the evidential matter to be considered by the auditor in its audit 
of the agency's financial statements. The representations obtained will 
depend on the circumstances of the engagement and the nature and basis 
of presentation of the financial statements. AU Section 333 discusses 
specific representations that should be obtained from management, 
including a requirement to attach a schedule of unadjusted financial 
statement misstatements for entities with uncorrected misstatements. 

In addition, OMB Bulletin 01-02 and FAM section 1001 contain guidance 
on preparing federal agencies' management representation letters. 
According to the FAM, in addition to the representations included in AU 
Section 333, the auditor generally should consider the need to obtain 
representations on other matters based on the circumstances of the 
audited entity. FAM section 1001A lists 35 specific representations 
ordinarily included in the management representation letter and also 
includes a requirement to attach a schedule of unadjusted financial 
statement misstatements for entities with uncorrected misstatements. 
(See enc. I for these representations.) Representations listed in FAM 
section 1001A should be customized to the situation of the entity being 
audited or excluded if inapplicable. We perform our audit of the CFS in 
accordance with the FAM and related auditing standards. 

Treasury and OMB are to receive management representation letters from 
certain federal agencies. This is important because U.S. generally 
accepted government auditing standards require that Treasury and OMB 
provide us, as principal auditor of the CFS, a management 
representation letter, and their letter depends on the information in 
such agencies' management representation letters. In their 
representation letter to us for the audit of the fiscal year 2004 CFS, 
Treasury and OMB stated that their representations are based primarily 
on the representations of those agencies covered by the Chief Financial 
Officers (CFO) Act and other selected agencies that were made in 
connection with the preparation of these entities' respective financial 
statements and provided to OMB and Treasury. For this reason, it is 
important that all federal agency representation letters be complete 
and reliable. 

Objectives, Scope, and Methodology: 

In connection with our audit of the fiscal year 2004 CFS, we evaluated 
Treasury's financial reporting procedures and related internal control, 
including the CFS management representation letter. For the fiscal year 
2004 CFS, 33 of the 35 "verifying agencies" submitted audited financial 
statements along with their management representation letters to 
Treasury.[Footnote 4] In our review of these 33 management 
representation letters, our overall objective was to assess their 
adequacy as it relates to our audit of the CFS. Specifically, we 
reviewed each agency management representation letter to determine 
whether the following five key conditions were met: 

* the management representation letter was signed by appropriate agency 
officials;

* the management representation letter included designation as to the 
amounts above which matters were considered material (materiality 
thresholds);

* the management representation letter included applicable 
representations from the FAM;

* the management representation letter included a properly prepared 
summary of unadjusted misstatements for agencies with uncorrected 
misstatements; and: 

* the representations in the management representation letter were 
reliable based on a review of findings in the auditor's report. 

This report is based on the audit work we performed for the audit of 
the fiscal year 2004 CFS, which was performed in accordance with U.S. 
generally accepted government auditing standards. 

We requested comments on a draft of this report from USAID's Chief 
Financial Officer and Acting Inspector General or their designees. 
Written comments from USAID's Chief Financial Officer and Acting 
Inspector General are reprinted in enclosures II and III, respectively, 
and are also discussed in the Agency Comments and Our Evaluation 
section. 

USAID Did Not Provide a Complete Fiscal Year 2004 Summary of Unadjusted 
Misstatements: 

We identified that USAID's fiscal year 2004 summary of unadjusted 
misstatements was incomplete. U.S. generally accepted government 
auditing standards require that for each federal agency with 
uncorrected misstatements, a summary of unadjusted misstatements be 
attached to the agency's management representation letter. Treasury and 
OMB use the summaries of unadjusted misstatements to assess the impact 
of federal agencies' unadjusted misstatements on the CFS and make 
appropriate management representations to us at the governmentwide 
level. The summaries are also used by us, as principal auditor of the 
CFS, to develop an overall governmentwide summary of unadjusted 
misstatements, which is then attached to the CFS management 
representation letter prepared by Treasury and OMB. 

Also, in a matter related to the compilation process for the CFS, in 
fiscal year 2004, Treasury required agencies to submit a summary of 
unadjusted misstatements as part of the closing package using the 
standardized format provided for in the Treasury Financial Manual 
(TFM). The TFM, however, required additional details to be added to 
this summary of unadjusted misstatements than those called for by the 
FAM. Specifically, agencies were to also (1) include a description of 
the misstatements and (2) distinguish between misstatements affecting 
intragovernmental accounts and misstatements affecting accounts with 
the public. We need this additional information to develop the overall 
governmentwide summary of unadjusted misstatements. In order to avoid 
duplication of effort by the agencies in preparing two summaries of 
unadjusted misstatements, the additional information should also be 
included in the summary of unadjusted misstatements attached to the 
management representation letter. As such, we plan to work with PCIE to 
modify the FAM to call for these two additional disclosures to be 
included in the summary of unadjusted misstatements attached to the 
management representation letter. 

In its management representation letter, USAID said that "We believe 
that the effects of the uncorrected financial statement misstatements 
summarized in the accompanying schedule are immaterial, both 
individually and in the aggregate, to the financial statements taken as 
a whole." However, USAID did not include a summary of unadjusted 
misstatements with its fiscal year 2004 management representation 
letter. 

USAID did submit a summary of unadjusted misstatements as part of its 
closing package to Treasury as required by the TFM, but the summary was 
incomplete. Specifically, USAID did not (1) identify the standard 
general ledger account number, standard general ledger account name, or 
financial statement line item for the misstatements and (2) include a 
description of the misstatements. 

Without a complete summary of unadjusted misstatements from each of the 
verifying agencies with uncorrected misstatements, it is not possible 
for us, as principal auditor of the CFS, to reasonably determine the 
audit risk exposure for each of the line items in the CFS or to prepare 
an adequate summary of unadjusted misstatements at the governmentwide 
level. 

Conclusions: 

In one of the five key areas we reviewed, USAID'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 and our ability to rely on the 
representations in that letter in combination with individual federal 
agency representation letters, including that of USAID. The additional 
information needed from USAID is straightforward and should be easy to 
address. 

Recommendations for Executive Action: 

We recommend to USAID'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 provides a description of the misstatements. 

We recommend that the USAID Acting Inspector General work with the 
agency to help ensure that future management representation letters 
meet the key condition noted as needing improvements in this report. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, USAID's Chief Financial 
Officer and Acting Inspector General, in separate letters that are 
reprinted in enclosures II and III, disagreed with our conclusion that 
USAID's summary of unadjusted misstatements was incomplete. 
Specifically, the Chief Financial Officer said that USAID's summary of 
unadjusted misstatements identified the financial statement line item 
and included a description for the misstatements. In addition, the 
Acting Inspector General stated that the financial statement line items 
were included in the summary. We disagree with their conclusions. 
During our review, it was not clear that the information called for by 
the FAM and TFM was provided. Specifically, after reviewing USAID's 
fiscal year 2004 Statement of Net Cost, we could not identify any line 
items referred to as "Partnerships, Initiatives", "Institutions, Laws", 
or "Improved Capacity" as indicated in USAID's summary of unadjusted 
misstatements. In addition, the description provided for the 
misstatements only indicated whether intragovernmental or public costs 
increased or decreased, not the circumstances that gave rise to the 
unadjusted misstatement. As a result, the line item and description was 
not provided and, therefore, USAID's summary of unadjusted 
misstatements was incomplete. 

USAID's Chief Financial Officer stated that her office will ensure that 
if a summary of unadjusted misstatements is listed as attached, it is 
in fact attached. However, USAID's Acting Inspector General requested 
that the recommendation to him be deleted because he believes that 
USAID management is ultimately responsible for the summary of 
unadjusted misstatements and his office does not have line authority 
over them. We disagree with this statement. The summary of unadjusted 
misstatements is to be prepared by the auditor and given to management 
to attach to the management representation letter. Management is then 
responsible for representing whether the effects of the uncorrected 
financial statement misstatements summarized in the attached schedule 
are immaterial, both individually and in the aggregate, to the 
financial statements taken as a whole. As the auditor of USAID's 
financial statements, USAID's Office of the Inspector General is 
responsible for preparing the summary of unadjusted misstatements and 
ensuring that it is complete. We continue to believe that the 
recommendation to the Acting Inspector General is appropriate and that 
the report should continue to be co-addressed to the Chief Financial 
Officer and the Acting Inspector General. 

Within 60 days of the date of this report, we would appreciate 
receiving a written statement on actions taken to address these 
recommendations. 

We are sending copies of this report to the Chairmen and Ranking 
Minority Members of the Senate Committee on Homeland Security and 
Governmental Affairs; the Subcommittee on Federal Financial Management, 
Government Information, and International Security, Senate Committee on 
Homeland Security and Governmental Affairs; the House Committee on 
Government Reform; and the Subcommittee on Government Management, 
Finance, and Accountability, House Committee on Government Reform. In 
addition, we are sending copies to the Fiscal Assistant Secretary of 
the Treasury and the Controller of OMB. Copies will be made available 
to others upon request. This report is also available at no charge on 
GAO's Web site at [Hyperlink, http://www.gao.gov]. 

We appreciate the courtesy and cooperation extended to us by your staff 
throughout our work. We look forward to continuing to work with your 
offices to help improve financial management in the federal government. 
If you have any questions about the contents of this report, please 
contact me at (202) 512-3406. 

Signed by: 

Gary T. Engel: 
Director: 
Financial Management and Assurance: 

Enclosures - 3: 

[End of section]

Enclosure I: Representations in FAM 1001A: 

Guidance contained in FAM 1001 and FAM 1001A deals with the management 
representations that the auditor should obtain from current management 
as part of the audit. This guidance also acknowledges that judgment 
needs to be exercised to obtain representations that depend on the 
circumstances of the engagement and the nature and basis of 
presentation of the financial statements. Representations given in FAM 
section 1001A should be customized to the situation of the entity being 
audited, and additional representations may need to be obtained. 

FAM 1001A lists 27 representations that are ordinarily included, if 
applicable, in the management representation letter that an agency 
provides to the auditor. For representations 3, 11, 16, and 18, the 
agency should address three separate components. As such, each agency 
is ordinarily expected to make a total of 35 representations. 
Representations 18, 19, 20, and 21 are not applicable unless the agency 
received an opinion on its internal control. In addition, 
representations 22, 23, and 24 address the three requirements of the 
Federal Financial Management Improvement Act of 1996 and are only 
applicable to the 24 CFO Act agencies. The 35 representations in FAM 
1001A are as follows. 

1. We are responsible for the fair presentation of the financial 
statements and stewardship information in conformity with U.S. 
generally accepted accounting principles. 

2. The financial statements are fairly presented in conformity with 
U.S. generally accepted accounting principles. 

3. We have made available to you all: 

a. financial records and related data;

b. where applicable, minutes of meetings of the Board of Directors [or 
other similar bodies, such as congressional oversight committees] or 
summaries of actions of recent meetings for which minutes have not been 
prepared; and: 

c. communications from the Office of Management and Budget (OMB) 
concerning noncompliance with or deficiencies in financial reporting 
practices. 

4. There are no material transactions that have not been properly 
recorded in the accounting records underlying the financial statements 
or disclosed in the notes to the financial statements. 

5. We believe that the effects of the uncorrected financial statement 
misstatements summarized in the accompanying schedule are immaterial, 
both individually and in the aggregate, to the financial statements 
taken as a whole. [If management believes that certain of the 
identified items are not misstatements, management's belief may be 
acknowledged by adding to the representation, for example, "We believe 
that items XX and XX do not constitute misstatements because 
[description of reason]."]

6. The [entity] has satisfactory title to all owned assets, including 
stewardship property, plant, and equipment; such assets have no liens 
or encumbrances; and no assets have been pledged. 

7. We have no plans or intentions that may materially affect the 
carrying value or classification of assets and liabilities. 

8. Guarantees under which the [entity] is contingently liable have been 
properly reported or disclosed. 

9. Related party transactions and related accounts receivable or 
payable, including assessments, loans, and guarantees, have been 
properly recorded and disclosed. 

10. All intraentity transactions and balances have been appropriately 
identified and eliminated for financial reporting purposes, unless 
otherwise noted. All intragovernmental transactions and balances have 
been appropriately recorded, reported, and disclosed. We have 
reconciled intragovernmental transactions and balances with the 
appropriate trading partners for the four fiduciary transactions 
identified in Treasury's Intra-governmental Fiduciary Transactions 
Accounting Guide, and other intragovernmental asset, liability, and 
revenue amounts as required by the applicable OMB Bulletin. 

11. There are no: 

a. possible violations of laws or regulations whose effects should be 
considered for disclosure in the financial statements or as a basis for 
recording a loss contingency,

b. material liabilities or gain or loss contingencies that are required 
to be accrued or disclosed that have not been accrued or disclosed, or: 

c. unasserted claims or assessments that are probable of assertion and 
must be disclosed that have not been disclosed. 

12. We have complied with all aspects of contractual agreements that 
would have a material effect on the financial statements in the event 
of noncompliance. 

13. No material events or transactions have occurred subsequent to 
September 30, 20X2 [or date of latest audited financial statements], 
that have not been properly recorded in the financial statements and 
stewardship information or disclosed in the notes. 

14. We are responsible for establishing and maintaining internal 
control. 

15. We acknowledge our responsibility for the design and implementation 
of programs and controls to prevent and detect fraud (intentional 
misstatements or omissions of amounts or disclosures in financial 
statements and misappropriation of assets that could have a material 
effect on the financial statements). 

16. We have no knowledge of any fraud or suspected fraud affecting the 
[entity] involving: 

a. management,

b. employees who have significant roles in internal control, or: 

c. others where the fraud could have a material effect on the financial 
statements. 

[If there is knowledge of any such instances, they should be described.]

17. We have no knowledge of any allegations of fraud or suspected fraud 
affecting the [entity] received in communications from employees, 
former employees, or others. [If there is knowledge of any such 
allegations, they should be described.]

18. Pursuant to 31 U.S.C. 3512(c), (d) (commonly known as the Federal 
Managers' Financial Integrity Act), we have assessed the effectiveness 
of the [entity's] internal control in achieving the following 
objectives: 

a. reliability of financial reporting--transactions are properly 
recorded, processed, and summarized to permit the preparation of 
financial statements and stewardship information in accordance with 
U.S. generally accepted accounting principles, and assets are 
safeguarded against loss from unauthorized acquisition, use or 
disposition;

b. compliance with applicable laws and regulations--transactions are 
executed in accordance with (i) laws governing the use of budget 
authority and with other laws and regulations that could have a direct 
and material effect on the financial statements and (ii) any other 
laws, regulations, and governmentwide policies identified by OMB in its 
audit guidance; and: 

c. reliability of performance reporting--transactions and other data 
that support reported performance measures are properly recorded, 
processed, and summarized to permit the preparation of performance 
information in accordance with criteria stated by management. 

[If the entity bases its internal control assessment on suitable 
criteria other than 31 U.S.C. 3512(c), (d), this item should cite the 
criteria used (for example, Internal Control--Integrated Framework 
issued by the Committee of Sponsoring Organizations (COSO) of the 
Treadway Commission).]

19. Those controls in place on September 30, 20X2 [or date of latest 
audited financial statements], and during the years ended 20X2 and 
20X1, provided reasonable assurance that the foregoing objectives are 
met. [If there are material weaknesses, the foregoing representation 
should be modified to read: 

Those controls in place on September 30, 20X2, and during the years 
ended 20X2 and 20X1, provided reasonable assurance that the foregoing 
objectives are met except for the effects of the material weaknesses 
discussed below or in the attachment. 

or: Internal controls are not effective. 

or: Internal controls do not meet the foregoing objectives.]

20. We have disclosed to you all significant deficiencies in the design 
or operation of internal control that could adversely affect the 
entity's ability to meet the internal control objectives and identified 
those we believe to be material weaknesses. 

21. There have been no changes to internal control subsequent to 
September 30, 20X2 [or date of latest audited financial statements], or 
other factors that might significantly affect it. [If there were 
changes, describe them, including any corrective actions taken with 
regard to any significant deficiencies or material weaknesses.]

22. We are responsible for implementing and maintaining financial 
management systems that substantially comply with federal financial 
management systems requirements, federal accounting standards (U.S. 
generally accepted accounting principles), and the U.S. Government 
Standard General Ledger at the transaction level. 

23. We have assessed the financial management systems to determine 
whether they substantially comply with these federal financial 
management systems requirements. Our assessment was based on guidance 
issued by OMB. 

24. The financial management systems substantially complied with 
federal financial management systems requirements, federal accounting 
standards, and the U.S. Government Standard General Ledger at the 
transaction level as of [date of the latest financial statements]. 

[If the financial management systems substantially comply with only one 
or two of the above elements, this representation should be modified as 
follows: 

As of [date of financial statements], the [entity's] financial 
management systems substantially comply with [specify which of the 
three elements for which there is substantial compliance (e.g., federal 
accounting standards and the SGL at the transaction level)], but did 
not substantially comply with [specify which of the elements for which 
there was a lack of substantial compliance (e.g., federal financial 
management systems requirements)], as described below (or in an 
attachment).]

[If the financial management systems do not substantially comply with 
any of the three elements, the following paragraph should be used 
instead: 

As of [date of financial statements], the [entity's] financial 
management systems do not substantially comply with the federal 
financial management systems requirements.]

[If there is a lack of substantial compliance with one or more of the 
three requirements, identify herein or in an attachment all the facts 
pertaining to the noncompliance, including the nature and extent of the 
noncompliance and the primary reason or cause of the noncompliance.]

25. We are responsible for the [entity's] compliance with applicable 
laws and regulations. 

26. We have identified and disclosed to you all laws and regulations 
that have a direct and material effect on the determination of 
financial statement amounts. 

27. We have disclosed to you all known instances of noncompliance with 
laws and regulations. 

[End of section]

Enclosure II: Comments From the Office of the Chief Financial Officer 
at the U.S. Agency for International Development: 

USAID: 

FROM THE AMERICAN PEOPLE: 

Gary T. Engel, Director: 
Financial Management and Assurance: 
U.S. Government Accountability Office: 
Washington, D.C. 20548: 

June 10, 2005: 

Dear Mr. Engel: 

This letter is in response to GAO Draft Report entitled "Financial 
Audit: The Agency for International Development's Fiscal Year 2004 
Management Representation Letter on Its Financial Statements." We 
appreciate the opportunity to comment and request that our comments be 
included in the final report. 

We acknowledge that the Schedule summarizing the Agency's unadjusted 
misstatements was not completed and included as an attachment to the 
Management Representation Letter. This was an apparent oversight on our 
part as we did reference in item 5 of the Management letter that such a 
summary was attached. This information was compiled and subsequently 
submitted, as required, with our closing package. In response to your 
request for the Schedule, please see the Attachment to this letter. 

In the future we will ensure that schedules listed as attached are in 
fact attached; however, I would like to point out that the policies and 
procedures around this requirement are vague at best. The FAM which is 
the policy manual used by the audit community is not only not specific 
as to what is required it leaves much to the discretion of the auditor 
and auditee. I look forward to your making improvements to this 
guidance so that it is quite clear what is and is not required in the 
future. Ensuring that information required is consistent with the TFM 
requirements makes perfect sense. 

Also, for the record, I would like to point out that USAID did submit a 
summary of unadjusted misstatements as pal of its closing package to 
Treasury and while we did not identify the General Ledger (GL) Account 
number or name; contrary to your report, we did identify the financial 
statement line item for the misstatements and included a description of 
same. 

I trust that this omission was not a final causal factor in the 
consolidated financial statements not receiving an unqualified audit 
opinion. If USAID was ever in a position of being responsible for 
getting information to you in that regard I would hope that you would 
contact us immediately so that we could provide such information to you 
right away. 

Sincerely, 

Signed by: 

Lisa Fiely: 
Chief Financial Officer: 

U.S. Agency for International Development: 
1300 Pennsylvania Avenue, NW: 
Washington, DC 20523: 
www.usaid.gov: 

ATTACHMENT: 

SUMMARY OF UNADJUSTED MISSTATEMENTS: 
FY 2004: 

[See PDF for image]

[End of table] 

The following are our comments on the United States Agency for 
International Development's (USAID) Office of the Chief Financial 
Officer's letter dated June 10, 2005. 

GAO Comments: 

1. See the "Agency Comments and Our Evaluation" section of this report. 

2. USAID's Chief Financial Officer noted that the policies and 
procedures for attaching a summary of unadjusted misstatements to the 
management representation letter are vague. As discussed in our report, 
U.S. generally accepted auditing standards (AU Section 333) discusses 
specific representations that should be obtained from management, 
including a requirement to attach a schedule of unadjusted financial 
statement misstatements for entities with uncorrected misstatements. In 
addition, the GAO/President's Council on Integrity and Efficiency 
(PCIE) Financial Audit Manual (FAM) section 1001A lists 35 specific 
representations ordinarily included in the management representation 
letter and also includes a requirement to attach a schedule of 
unadjusted financial statement misstatements for entities with 
uncorrected misstatements. As noted in our report, we plan to work with 
PCIE to modify the FAM to call for the additional disclosures on the 
summary of unadjusted misstatements that were required by the TFM in 
fiscal year 2004. 

3. USAID's Chief Financial Officer noted that she believed that the 
incompleteness of USAID's summary of unadjusted misstatements was not a 
final causal factor in the U.S. government's consolidated financial 
statements (CFS) not receiving an unqualified audit opinion. As stated 
in our report, we reported a limitation on the scope of our work on the 
fiscal year 2004 CFS due to identified concerns with the adequacy of 
certain federal agencies' management representations on which Treasury 
and OMB depend to provide their representations to us regarding the 
CFS. Specifically, the incompleteness of certain of these federal 
agencies' letters, including USAID's letter, impaired our ability to 
obtain sufficient evidence in support of our audit of the CFS and 
contributed to our disclaimer of opinion on the CFS. 

[End of section]

Enclosure III: Comments From the Office of the Inspector General at the 
U.S. Agency for International Development: 

USAID: 

FROM THE AMERICAN PEOPLE: 

Office of Inspector General: 

June 13, 2005: 

Mr. Gary T. Engel: 
Director: 
Financial Management and Assurance: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Engel: 

Thank you for the May 31, 2005, draft report entitled "Financial Audit: 
The Agency for International Development's Fiscal Year 2004 Management 
Representation Letter on Its Financial Statements." We have the 
following comments. 

We suggest that your references to AID throughout the report be 
replaced with either the U.S. Agency for International Development or 
USAID. 

Page 4 of your draft report states that AID did not provide "..a 
summary of unadjusted misstatements that (1) identifies the standard 
general ledger account number, standard general ledger account name, or 
financial statement line item for the misstatements and (2) includes a 
description of the misstatements." The criterion for this statement 
cited in the draft report refers to Part 2 Appendix 4, Note 20 of the 
Treasury Financial Manual (TFM) 4700, which contains an illustrative 
Summary of Unadjusted Misstatements template. To collect this 
information from all federal agencies, the Department of Treasury 
developed a Summary of Unadjusted Misstatements template as part of the 
Government Financial Report System (GFRS). USAID submitted its 
information to Treasury in this format, which included an 
identification of the financial statement line item for the 
misstatements. Neither template developed by the Department of Treasury 
specifically requested either standard general ledger account numbers 
or standard general ledger account names. Therefore, since USAID 
provided the information required by Treasury through the GFRS and 
identified the financial statement line items, we believe the 
recommendation should be deleted or modified to reflect the specific 
criteria that USAID did not comply with. 

With respect to the conclusion on Page 9 of your draft report, we agree 
that complete information on USAID summary of unadjusted misstatements 
is important for the Treasury and OMB to be able to prepare the 
Consolidated Financial Statements. However, because the financial 
statement line items affected were provided in the submission, we do 
not agree USAID's failure to provide SGL account information or a 
description of misstatements in its summary of unadjusted misstatements 
contributed to the GAO's overall inability to rely on the CFS 
management representation letter. 

Regarding the recommendation to the Acting Inspector General on page 10 
of the draft report, we have and will continue to work closely with 
USAID's CFO Office and General Counsel in developing future management 
representation letters and summaries of unadjusted misstatements. 
However, USAID management is ultimately responsible for these products 
and we do not have line authority over USAID management to ensure GFRS 
or TFM compliance. Therefore, we suggest that the recommendation to the 
Acting Inspector General be deleted. Finally, we request the Acting 
Inspector General be copied on the final report rather than listed as 
an addressee. 

We appreciate the opportunity to comment on your draft report and 
appreciate your efforts on the USG Consolidated Financial Statements. 

Sincerely,

Signed by: 

Bruce N. Crandlemire: 
Acting Inspector General: 

The following are our comments on the United States Agency for 
International Development's (USAID) Office of the Inspector General's 
letter dated June 13, 2005. 

GAO Comments: 

1. See the "Agency Comments and Our Evaluation" section of this report. 

2. As requested in the letter, we have modified the report to refer to 
the United States Agency for International Development as USAID. 

3. USAID's Acting Inspector General stated that the summary of 
unadjusted misstatements template in the Treasury Financial Manual 
(TFM) for fiscal year 2004 did not specifically request standard 
general ledger account numbers or general ledger account names. The TFM 
template requests the financial statement line items for the unadjusted 
misstatements. Since the standard general ledger account number or name 
could be listed instead of the financial statement line item and still 
provide the necessary information, we reviewed the agencies' summaries 
of unadjusted misstatements to determine whether one of the three items 
was listed. However, as discussed in the report, USAID's summary of 
unadjusted misstatements did not include any of the three items, and 
was, therefore, incomplete. 

[End of section] 

(198381): 

FOOTNOTES

[1] The Government Management Reform Act of 1994 has required such 
reporting, covering the executive branch of government, beginning with 
financial statements prepared for fiscal year 1997. 31 U.S.C.  331 
(e). The federal government has elected to include certain financial 
information on the legislative and judicial branches in the CFS as 
well. 

[2] The fiscal year 2004 Financial Report of the United States 
Government was completed by the Department of the Treasury on December 
15, 2004, and is available through both GAO's Web site at www.gao.gov 
and Treasury's Web site at www.fms.treas.gov/fr/index.html. 

[3] GAO, GAO/PCIE: Financial Audit Manual: Update, GAO-04-1015G 
(Washington, D.C.: July 30, 2004), an update to Financial Audit Manual: 
Volumes 1 and 2, GAO-01-765G (Washington, D.C.: Aug. 1, 2001). 

[4] See Treasury Financial Manual, vol. I, part 2, ch. 4700, for a list 
of the 35 agencies. These agencies, for fiscal year 2004, consisted of 
23 CFO Act agencies and 12 material other agencies. The 33 agencies we 
reviewed did not include the U.S. Securities and Exchange Commission 
and the Smithsonian Institution because these audits were not complete 
before the fiscal year 2004 Financial Report of the United States 
Government was issued. The Department of Homeland Security (DHS) 
Financial Accountability Act, Pub. L. No. 108-330, 118 Stat. 1275 (Oct. 
16, 2004), added DHS to the list of CFO Act agencies, increasing the 
number of CFO Act agencies again to 24 for fiscal year 2005.