Financial Audit: The Department of Defense's Fiscal Year 2004 Management Representation Letter on Its Financial Statements

GAO-05-587R Published: Jun 23, 2005. Publicly Released: Jun 23, 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 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 Defense's (DOD) 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."

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense DOD's Chief Financial Officer should ensure that in the future the management representation letter is signed by the appropriate level of management.
Closed – Implemented
As part of our fiscal year (FY) 2005 audit of the consolidated financial statements (CFS) of the U.S government, we evaluated significant federal agencies' management representation letters for signatures by the appropriate level of management. We found that DOD's fiscal year 2014 management representation letter included the appropriate signatures of the Deputy Secretary of Defense and the Chief Financial Officer.
Department of Defense DOD'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.
Closed – Implemented
As part of our fiscal year 2005 audit of the consolidated financial statements (CFS) of the U.S government, we evaluated significant federal agencies' management representation letters for the inclusion of a materiality threshold used for certain representations in the letter. DOD's fiscal year 2005 management representation letter included the materiality threshold used.
Department of Defense DOD'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 DOD.
Closed – Implemented
As part of our FY 2011 audit of the consolidated financial statements (CFS) of the U.S government, we evaluated significant federal agencies' management representation letters to determine whether all applicable representations from the FAM were fully provided. DOD's management representation letter for FY 2011 fully included all applicable representations from the FAM.
Department of Defense The DOD Inspector General should work with the department to help ensure that future management representation letters meet the key conditions noted as needing improvements in this report.
Closed – Implemented
As part of our audits of the consolidated financial statements (CFS) of the U.S government, we evaluated significant federal agencies' management representation letters to determine whether they were sufficient to help support Treasury and OMB's preparation of the CFS management representation letter. DOD's Office of Inspector General has worked with the agency to help ensure that DOD's management representation letter was sufficient.

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