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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 Homeland Security's (DHS) fiscal year 2004 management representation letter. Our objective is to help ensure that future management representation letters submitted by DHS 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 Homeland Security DHS's Chief Financial Officer should ensure that in the future the management representation letter include materiality thresholds or such thresholds be provided separately to Treasury and OMB.
Closed - Implemented
As part of our FY 2005 audit of the consolidated financial statements of the U.S government, we evaluated the agencies' management representation letters for a materiality threshold used for certain representations in the letter. DHS's FY 2005 management representation letter included the materiality threshold used.
Department of Homeland Security DHS'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 also distinguishes between misstatements affecting intragovernmental accounts and misstatements affecting accounts with the public.
Closed - Implemented
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 Homeland Security's (DHS) Summary of Unadjusted Misstatements (SUM) was not sufficient to help support Treasury and GAO's preparation of the CFS SUM. Specifically, DHS did not include a summary of unadjusted misstatements that provided all of the necessary information. We recommended to DHS'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. DHS's fiscal year 2005 SUM addressed our concerns by including all the necessary information. Therefore, DHS's fiscal year 2005 SUM was sufficient to help support Treasury and GAO's preparation of the CFS SUM.
Department of Homeland Security The DHS Acting Inspector General, with the contracted independent public accountant, 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 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. DHS's FY 2005 management representation letter met the key conditions noted as needing improvements.

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