CPA Audit Quality:

Improved Controls Are Needed To Ensure Quality Audits of Federal Loan Programs

AFMD-88-3: Published: May 2, 1988. Publicly Released: May 2, 1988.

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GAO reviewed the Department of Agriculture's (USDA), the Department of Housing and Urban Development's (HUD), and the Small Business Administration's (SBA) controls for ensuring that certified public accountants (CPA) conduct high-quality audits of their loan programs.

GAO found that: (1) 25 percent of loan program audits did not comply with auditing standards; (2) noncompliance with auditing standards included a lack of documentation regarding CPA financial transactions, tests, internal control evaluations, and compliance; and (3) a national professional CPA association made 25 recommendations in the areas of education, engagement, evaluation, enforcement, and information exchange to improve the quality of government audits. GAO also found that USDA, HUD, and SBA: (1) lacked effective controls for receiving and reviewing CPA audits of their loan program participants; and (2) did not fully address problems involving untimely receipt of audit reports, insufficient audit reviews, and inadequate written guidance for CPA in their internal control improvements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Farmers Home Administration (FmHA) has issued written procedures to address all the provisions of this recommendation.

    Recommendation: The Secretaries of Agriculture and Housing and Urban Development and the Administrator, SBA, should issue written procedures requiring loan program officials to follow up on late audit reports, specify action to be taken when the reports are late, and improve controls to ensure that those procedures and actions are taken.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: The recommendation applied to three HUD programs. The recommendation was implemented for one of the programs, but will not be implemented for the other two programs. The HUD Office of the Inspector General has closed the recommendation because it is no longer significant enough to remain open.

    Recommendation: The Secretaries of Agriculture and Housing and Urban Development and the Administrator, SBA, should issue written procedures requiring loan program officials to follow up on late audit reports, specify action to be taken when the reports are late, and improve controls to ensure that those procedures and actions are taken.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Not Implemented

    Comments: SBA believes that existing regulations are adequate.

    Recommendation: The Secretaries of Agriculture and Housing and Urban Development and the Administrator, SBA, should issue written procedures requiring loan program officials to follow up on late audit reports, specify action to be taken when the reports are late, and improve controls to ensure that those procedures and actions are taken.

    Agency Affected: Small Business Administration

  4. Status: Closed - Implemented

    Comments: FmHA published an audit guide in December 1989.

    Recommendation: The Secretaries of Agriculture and Housing and Urban Development and the Administrator, SBA, should provide CPA with complete and current written audit guidance to use in the conduct of loan audits.

    Agency Affected: Department of Agriculture

  5. Status: Closed - Implemented

    Comments: The recommendation applied to two HUD programs. The recommendation was implemented for one program, but will not be implemented for the other program. The HUD Office of the Inspector General has closed the recommendation because it is no longer significant enough to remain open.

    Recommendation: The Secretaries of Agriculture and Housing and Urban Development and the Administrator, SBA, should provide CPA with complete and current written audit guidance to use in the conduct of loan audits.

    Agency Affected: Department of Housing and Urban Development

  6. Status: Closed - Not Implemented

    Comments: The SBA OIG has been unsuccessful in getting approval from SBA management to issue written guidance.

    Recommendation: The Secretaries of Agriculture and Housing and Urban Development and the Administrator, SBA, should provide CPA with complete and current written audit guidance to use in the conduct of loan audits.

    Agency Affected: Small Business Administration

  7. Status: Closed - Implemented

    Comments: The Agriculture Inspector General has instituted a quality review program.

    Recommendation: The Secretary of Agriculture and the Administrator, SBA, should implement procedures to review the quality of CPA audits of loan programs.

    Agency Affected: Department of Agriculture

  8. Status: Closed - Implemented

    Comments: The SBA Inspector General has instituted a quality review program.

    Recommendation: The Secretary of Agriculture and the Administrator, SBA, should implement procedures to review the quality of CPA audits of loan programs.

    Agency Affected: Small Business Administration

  9. Status: Closed - Implemented

    Comments: REA began requiring GAGAS audits in December 1991. FmHA requires GAGAS audits.

    Recommendation: The Secretary of Agriculture and the Administrator, SBA, should require that audits of participants in loan programs be performed in accordance with generally accepted government auditing standards (GAGAS).

    Agency Affected: Department of Agriculture

  10. Status: Closed - Not Implemented

    Comments: The SBA OIG has been unsuccessful in getting approval from SBA management to require that audits of participants in loan programs be performed in accordance with GAGAS.

    Recommendation: The Secretary of Agriculture and the Administrator, SBA, should require that audits of participants in loan programs be performed in accordance with generally accepted government auditing standards (GAGAS).

    Agency Affected: Small Business Administration

 

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