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August 24, 1998
OMB BULLETIN NO.
98-08
TO THE HEADS AND
INSPECTORS GENERAL OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Audit
Requirements for Federal Financial Statements
1. Purpose.
This Bulletin, which includes an Attachment and Appendices A through
H, establishes minimum requirements for audits of Federal financial
statements. The Bulletin is issued under the authority of the Budget
and Accounting Act of 1921, as amended, and the Budget and Accounting
Procedures Act of 1950, as amended. It implements the audit provisions
of the Chief Financial Officers (CFOs) Act of 1990 (P.L. 101-576),
as amended, the Government Management Reform Act (GMRA) of 1994
(P.L. 103-356), and the Federal Financial Management Improvement
Act of 1996 (P.L. 104-208). The requirements of this Bulletin are
set forth in the Attachment.
2. Applicability.
The provisions of the Bulletin apply to audits of financial statements
of executive departments and agencies and certain components of
these agencies, listed in Appendices A and B, respectively.
3. Effective
Date. The provisions of this Bulletin are effective for
audits of financial statements for fiscal years ending on or after
September 30, 1998. Audit reports shall be submitted to the agency
head in sufficient time to enable the agency head to meet the due
date for submitting the audited financial statement under GMRA,
no later than March 1 following the end of the fiscal year for which
the financial statements were prepared.
4. Inquiries.
Further information concerning this Bulletin may be obtained by
contacting the Office of Management and Budget (OMB), Office of
Federal Financial Management, Washington, DC 20503, telephone (202)
395-3993.
5. Copies.
Individual copies of this Bulletin may be obtained from the Executive
Office of the President, Publications Office at (202) 395-7332,
and from the OMB home page on the Internet at /OMB.
Jacob J. Lew
Director
Attachment
OMB Bulletin No. 98-08
ATTACHMENT
AUDITS OF FEDERAL FINANCIAL STATEMENTS
1.BACKGROUND. The Government
Management Reform Act (GMRA) of 1994 amended the requirements of
the Chief Financial Officers (CFOs) Act of 1990 by requiring, among
other things, the annual preparation and audit of organizationwide
financial statements of 24 executive departments and agencies (Appendix
A). The GMRA also requires audited financial statements of components
of executive departments and agencies designated by the Director
of the Office of Management and Budget (OMB), which are identified
in Appendix B. In addition, the Federal Financial Management Improvement
Act (FFMIA) of 1996 requires, among other things, that the report
on these audits state whether the agency financial management systems
comply substantially with Federal financial management systems requirements,
applicable Federal accounting standards, and the U.S. Government
Standard General Ledger at the transaction level.
2. DEFINITIONS. For
the purposes of this Bulletin, the following definitions apply:
a. "Annual Financial Statement" means the financial statement of
a reporting entity as described in Section 3515 of Title 31 of the
United States Code and OMB Bulletin 97-01, "Form and Content of
Agency Financial Statements" and subsequent issuances (OMB's Form
and Content Bulletin), and, shall be comprised of:
b. Codification of Statements
on Auditing Standards is a codification of Statements on Auditing
Standards issued by the American Institute of Certified Public Accountants
(AICPA). The AICPA's standards of field work and reporting are incorporated
in their entirety in Government Auditing Standards by reference.
c. "Federal accounting
standards" are those standards included in the hierarchy of Federal
accounting standards described in paragraph 5 of this Bulletin.
d. "Federal financial
management systems requirements" are those requirements described
in OMB Circular A-127, "Financial Management Systems."
e. Government Auditing
Standards are those standards issued by the Comptroller General
of the United States.
f. "Independent auditor"
means an auditor who meets the independence standards specified
in the Government Auditing Standards.
g. "Internal control,"
as it relates to the Principal Statements and Required Supplementary
Stewardship Information, is a process, effected by the agency's
management and other personnel, designed to provide reasonable assurance
that the following objectives are met:
h. "Management letter"
means a letter prepared by the auditor which discusses findings and
recommendations for improvements in internal control, that were identified
during the audit and were not required to be included in the auditor's
report on internal control, and other management issues. See Chapter
5, paragraph 5.28 of Government Auditing Standards.
i. "Material weaknesses
in internal control" are reportable conditions in which the design
or operation of the internal control does not reduce to a relatively
low level the risk that errors, fraud or noncompliance in amounts
that would be material in relation to the Principal Statements or
Required Supplementary Stewardship Information being audited or
material to a performance measure or aggregation of related performance
measures may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions.
The auditor shall use this definition of material weaknesses to
report on an entity's internal control in accordance with the requirements
of Government Auditing Standards and this Bulletin rather
than the definition of material weaknesses used by management to
prepare an agency's Federal Managers' Financial Integrity Act (FMFIA)
of 1982 report.
j. "Overview of the
Reporting Entity" means a brief narrative overview, prepared by
management, also called Management's Discussion and Analysis (MD&A),
which describes the reporting entity and its mission, activities,
program and financial results, and financial condition. OMB's Form
and Content Bulletin further defines the "Overview of the Reporting
Entity."
k. "Reportable conditions"
are matters coming to the auditor's attention that, in the auditor's
judgment, should be communicated because they represent significant
deficiencies in the design or operation of internal control, that
could adversely affect the organization's ability to meet the objectives
in paragraph 2.g. of this Bulletin.
l. "Reporting Entity"
means one of the executive departments and agencies and components
of such departments and agencies listed in Appendices A and B, or
an agency, bureau, or other organization that represents a meaningful
unit for program management, for which a financial statement is
prepared, and for which management chose to have an audit performed
in accordance with this Bulletin. OMB's Form and Content Bulletin
further defines "Reporting Entity."
m. "United States Government
Standard General Ledger (SGL)" means the uniform chart of accounts
prescribed by the Department of the Treasury in its Treasury
Financial Manual.
3. FREQUENCY OF AUDIT.
Audits shall be performed annually.
4. RESPONSIBILITY FOR
AUDIT. For purposes of this Bulletin, the following responsibilities
apply:
a. For the 24 executive
departments and agencies and selected components of such departments
and agencies listed in Appendices A and B, the audits of financial
statements shall be performed by the IG of the executive department
or agency or by an independent auditor as determined by the IG.
b. GMRA provides that,
in lieu of an audit otherwise required, the Comptroller General
of the United States may, at his or her discretion and following
consultation with the IG, perform the audit.
5. ACCOUNTING PRINCIPLES
AND STANDARDS. The Federal Accounting Standards Advisory Board (FASAB)
was established by the Secretary of the Treasury, the Director of
OMB, and the Comptroller General (the Principals) to recommend Federal
accounting standards to the Principals. Specific standards agreed
upon by the Principals are issued by the Director of OMB and the
Comptroller General as Statements of Federal Financial Accounting
Standards (SFFASs). Federal agencies are required to follow these
standards in the preparation of financial statements pursuant to
GMRA. Recognizing that the SFFASs may not explicitly address all
transactions of departments and agencies, the Principals adopted
the following hierarchy of Federal accounting standards, which constitutes
generally accepted accounting principles for the Federal Government:
a. Individual standards
(SFFASs) agreed to by the Director of OMB, the Comptroller General,
and the Secretary of the Treasury and published by OMB and the General
Accounting Office.
b. Interpretations related
to the SFFASs issued by OMB in accordance with the procedures outlined
in OMB Circular A-134, "Financial Accounting Principles and Standards."
c. Requirements contained
in OMB's Form and Content Bulletin in effect for the period covered
by the financial statements.
d. Accounting principles
published by other authoritative standard-setting bodies and other
authoritative sources (a) in the absence of other guidance in the
first three parts of this hierarchy, and (b) if the use of such
accounting principles improves the meaningfulness of the financial
statements.
6. SCOPE OF AUDIT. Financial
statements shall be audited in accordance with Government Auditing
Standards and the provisions of this Bulletin.
a. With respect to the
Principal Statements and Required Supplementary Stewardship Information,
the auditor shall:
b. With respect to the
internal control objectives described in paragraphs 2.g. (1) and (2)
of this Bulletin relating to the Principal Statements and Required
Supplementary Stewardship Information, the auditor shall obtain an
understanding of the components of internal control (see AU Section
319.07, Codification of Statements on Auditing Standards) and
assess the level of control risk relevant to the assertions embodied
in the classes of transactions, account balances, and disclosure components
of the financial statements. Such controls include relevant EDP general
and application controls. For those internal controls that have been
properly designed and placed in operation, the auditor shall perform
sufficient tests to support a low assessed level of control risk.
See AU Section 319.45-.63 of the Codification of Statements on
Auditing Standards. Those internal controls that have not been
properly designed or placed in operation and those internal controls
that are found to be ineffective shall be reported in accordance with
paragraph 7 of this Bulletin.
(1) In obtaining
an understanding of the components of internal control, particularly
the risk assessment component, and assessing control risk, the auditor
shall obtain an understanding of the process by which the agency
identifies and evaluates weaknesses required to be reported under
FMFIA and related agency implementing procedures.
(2) The auditor shall compare material weaknesses disclosed during
the audit with those material weaknesses reported in the agency's
FMFIA report that relate to the financial statements of the entity
under audit and document material weaknesses disclosed by audit
that were not reported in the agency's FMFIA report. The auditor
should consider whether the failure to detect and report material
weaknesses constitutes a reportable condition or material weakness
in the entity's internal control.
c. With respect to
the internal control objective described in paragraph 2.g. (3) of
this Bulletin relating to performance measures, the auditor shall
obtain an understanding of the components of internal control relating
to the existence and completeness assertions relevant to the performance
measures included in the Overview of the Reporting Entity. Those internal
controls that have not been properly designed and placed in operation
shall be reported in accordance with paragraph 7 of this Bulletin.
The objective of gaining an understanding of internal control in this
subparagraph is to report deficiencies in the design of internal control,
rather than to plan the financial statement audit.
d. With respect to compliance
with applicable laws and regulations, the auditor shall perform
tests of compliance with laws and regulations that could have a
direct and material effect on the Principal Statements and Required
Supplementary Stewardship Information, and any other laws, regulations,
and governmentwide policies identified by OMB in Appendix C of this
Bulletin.
e. With respect to compliance
with governmentwide policies contained in OMB Circular A-127, using
the guidance in Appendix D, the auditor shall perform tests of compliance
with Federal financial management systems requirements(2), applicable Federal accounting standards, and the SGL
at the transaction level. This provision only applies to audits
of entities listed in Appendices A and B. Circular A-127 requires
the agency to establish and maintain a single, integrated financial
management system that complies with characteristics stated therein,
that include maintaining accounting data to permit reporting in
accordance with Federal accounting standards, application of the
SGL at the transaction level, and incorporation of the functional
requirements issued by the Joint Financial Management Improvement
Program (JFMIP) in its series Federal Financial Management Systems
Requirements (FFMSR). As of the date of this Bulletin, the issuances
in this series are:
-- Framework for
Federal Financial Management Systems, FFMSR-0, January 1995,
-- Core Financial System Requirements, FFMSR-1, September
1995,
-- Personnel-Payroll System Requirements, FFMSR-2, May 1990,
-- Travel System Requirements, FFMSR-3, January 1991,
-- Seized/Forfeited Asset System Requirements, FFMSR-4, March
1993,
-- Direct Loan System Requirements, FFMSR-5, December 1993,
-- Guaranteed Loan System Requirements, FFMSR-6, December
1993,
-- Inventory System Requirements, FFMSR-7, June 1995, and
-- Managerial Cost Accounting, FFMSR-8, February 1998.
f. With respect to information
accompanying the Principal Statements and Required Supplementary
Stewardship Information, the auditor shall assess whether the information
and manner of its presentation in the Overview of the Reporting
Entity (or MD&A) and any other accompanying information is materially
inconsistent with the information in the Principal Statements and
Required Supplementary Stewardship Information.
g. With respect to required
supplementary information referred to in paragraph 2.a.(4) of this
Bulletin, the auditor shall follow AU Sections 551 and 558, Codification
of Statements on Auditing Standards.
h. The auditor shall
obtain written representation from management as part of an audit
conducted in accordance with this Bulletin. See AU Section 333,
"Management Representations," of the Codification of Statements
on Auditing Standards. An illustrative management representation
letter is provided in Appendix E.
i. The auditor shall
request entity management to send a letter of inquiry to those lawyers
with whom management consulted concerning litigation, claims, and
assessments. See AU Section 337, "Inquiry of a Client's Lawyer Concerning
Litigation, Claims, and Assessments," of the Codification of
Statements on Auditing Standards.
(1) The letter of inquiry
shall be sent to legal counsel no later than October 15 and shall
include a request for an interim response to be effective no earlier
than December 1, except as noted in paragraph 6.i.(3), and submitted
to the auditor by December 15 following the end of the fiscal year
for which the financial statements are prepared. In addition, the
letter of inquiry shall include a request for an updated response
to be effective no earlier than February 15 and submitted to the
auditor by March 1 following the end of the fiscal year for which
the financial statements are prepared.
(2) The Inspector
General shall submit to OMB (Deputy Controller, Office of Federal
Financial Management), Department of the Treasury (Commissioner,
Financial Management Service), and the General Accounting Office
(Assistant Comptroller General, Accounting and Information Management
Division) copies of the interim and updated legal responses described
in paragraph 6.i.(1) by December 31 and March 10, respectively.
(3) If the audit is
completed prior to December 1, the legal response provided in
connection with the audit may be used in place of the interim
response described in paragraph 6.i.(1). In addition, an updated
legal response to be effective no earlier than February 15 shall
be provided. These legal responses shall be submitted in accordance
with paragraph 6.i.(2).
7. AUDIT REPORT.
a. An audit report,
or separate audit reports, on the Principal Statements and Required
Supplementary Stewardship Information, internal control, and compliance
shall be prepared at the completion of the audit. The audit report(s)
shall be submitted to the agency head in sufficient time to enable
the agency head to meet the due date for submitting the audited
financial statement under GMRA, no later than March 1 following
the end of the fiscal year for which the financial statements were
prepared. The audit results shall be discussed with management as
soon as practicable but, in any case, prior to issuance of the audit
report. IGs are encouraged to work with CFOs to accelerate the preparation
of financial statements, and to accelerate the completion of audits.
b. The audit report(s)
shall state that the audit was made in accordance with Government
Auditing Standards and the provisions of this Bulletin.
c. The audit report(s)
shall include:
(1) An opinion as to
whether the reporting entity's Principal Statements and Required
Supplementary Stewardship Information are fairly presented in all
material respects in conformity with Federal accounting standards.
See AU Section 623.05 of the Codification of Statements on Auditing
Standards.
(a) With respect to
reporting on other accompanying information, which includes the
information referred to in paragraph 2.a. (1) and (5) of this
Bulletin, the auditor shall follow AU Section 551, Codification
of Statements on Auditing Standards.
(b) When required
supplementary information referred to in paragraph 2.a.(4) of
this Bulletin is presented, the auditor shall follow AU Sections
551 and 558, Codification of Statements on Auditing Standards.
(c) If the financial
statements are not prepared in accordance with Federal accounting
standards, the auditor shall report the departure(s) from those
standards and, if practicable, the effects of the departure(s)
on assets, liabilities, and net position; net costs; changes
in net position; budgetary resources; reconciliation of net
costs to budgetary obligations; and, if applicable, custodial
activity either directly in the auditor's report on the Principal
Statements and Required Supplementary Stewardship Information
or by reference in the auditor's report to an explanatory note
in the Notes to Principal Statements, or Required Supplementary
Stewardship Information, if applicable, prepared by management.
(d) If the auditor
disclaims an opinion, the report shall describe why the auditor
was unable to conduct the audit in accordance with Government
Auditing Standards and this Bulletin. If material weaknesses
and other reportable conditions prevented the conduct of the
audit in accordance with Government Auditing Standards
and this Bulletin, such conditions shall be included in the
report on internal control described in paragraph 7.c. (2),
along with recommendations for correcting the condition(s).
(e) When there is
a change in accounting principles, for example, changes to comply
with SFFASs, the auditor's report on the Principal Statements
and Required Supplementary Stewardship Information shall include
an explanatory paragraph identifying the nature of the change
and referring the reader to the note to the Principal Statements,
or Required Supplementary Stewardship Information, where applicable,
that discusses the change in detail.
(2) A report on internal
control(3), which shall at a minimum:
(a) State that, with
respect to the internal control objectives described in paragraph
2.g.(1) of this Bulletin, the auditor obtained an understanding
of the design of internal controls, determined whether they have
been placed in operation, assessed control risk, and performed
tests of the reporting entity's internal controls.
(b) State that,
with respect to the internal control objective described in
paragraph 2.g.(3) of this Bulletin, and relating to the performance
measures included in the Overview of the Reporting Entity, the
auditor obtained an understanding of the design of internal
controls relating to the existence and completeness assertions
and determined whether they have been placed in operation.
(c) State whether
or not the tests performed provided sufficient evidence to support
an opinion on internal controls.
(d) Describe reportable
conditions and material weaknesses identified during the audit.
(e) Identify those
material weaknesses disclosed by audit that were not reported
in the reporting entity's FMFIA report.
(3) A report on the reporting
entity's compliance with applicable laws, regulations, and governmentwide
policy requirements.(4)
(a) The auditor shall
report noncompliance with laws and regulations disclosed by audit,
except for those instances of noncompliance that, in the auditor's
judgment, are clearly inconsequential. In meeting this requirement,
the auditor shall list those laws and regulations that tests disclosed
reportable instances of noncompliance.
(b) With respect
to laws and regulations tested for which the audit disclosed
no reportable instances on noncompliance, the report shall state
that the audit disclosed no reportable instances of noncompliance
with these laws and regulations. A listing of these laws and
regulations is not required.
(c) For compliance
with governmentwide policy requirements contained in OMB Circular
A-127 and referred to in FFMIA, the auditor shall report whether
the reporting entity's financial management systems substantially
comply with Federal financial management systems requirements,
Federal accounting standards, and the SGL at the transaction
level. To meet this requirement, the auditor's report shall
state the auditor's reporting requirement and that the auditor
performed tests of compliance in accordance with the requirements
of this Bulletin (see Appendix D). The audit report shall reflect
instances in which the reporting entity's systems did not substantially
comply with the three Federal financial management systems requirements,
or state that the audit disclosed no instances in which the
reporting entity's systems did not substantially comply with
the three requirements. In addition, as required by FFMIA, where
tests disclosed that the reporting entity's systems did not
substantially comply with the three requirements, the auditor's
report on compliance shall:
(i) Identify the
entity or organization responsible for the financial management
systems that were found not to comply with the requirements.
(ii) Include all
facts pertaining to the noncompliance, including the nature
and extent of the noncompliance, the primary reason or cause
of the noncompliance, and any relevant comments from reporting
entity management or employees responsible for the noncompliance.
(iii) Provide
recommended remedial actions and the time frames to implement
such actions.
(d) With respect to
the objectives of tests of compliance generally, the auditor's
report on compliance shall state whether or not providing an opinion
on compliance was an objective of the audit and whether or not
the tests performed provided sufficient evidence to support an
opinion.
d. In preparing the reports
in paragraph 7.c., the auditor shall report the status of known but
uncorrected material findings and recommendations from prior audits
that affect the current audit objectives. See Chapter 4, paragraphs
4.7, 4.10, 4.11 of Government Auditing Standards.
e. The reporting entity
shall provide comments on the auditor's findings and recommendations
included in the audit report, including corrective actions taken
or planned and comments on the status of corrective actions taken
on prior findings. To the extent practical, these comments shall
be included in the audit reports on internal control or report on
compliance. If corrective actions are not necessary, an explanatory
statement shall be included in the applicable audit report.
f. Copies of the audit
report shall be distributed to the head of the executive department
or agency and subsequently included in the CFO's annual report or
the agency's Accountability Report.
8. MANAGEMENT LETTER.
Conditions that are not required to be included in the audit report,
but that the auditor considers necessary to communicate, should
be separately communicated to management of the reporting entity
in a management letter. If a management letter is issued, the auditor
shall refer to that management letter in the auditor's report on
internal control (see paragraph 5.28 of Government Auditing Standards).
9. AGREED-UPON PROCEDURES:
RETIREMENT, HEALTH, AND LIFE INSURANCE WITHHOLDINGS/CONTRIBUTIONS
AND SUPPLEMENTAL SEMIANNUAL HEADCOUNT REPORT SUBMITTED TO THE OFFICE
OF PERSONNEL MANAGEMENT (OPM). The agreed-upon procedures listed
in Appendix H shall be applied separately for each Agency Payroll
Office (APO) that services 30,000 or more employees per year for
the agencies listed in Appendix A during the course of conducting
audits in accordance with this Bulletin. Additionally, the agreed-upon
procedures shall be applied each year to at least one APO per CFOs
Act agency (listed in Appendix A). The period subject to the agreed-upon
procedures shall be for the 12 months ended September 30 of each
year. Reports on the application of these procedures shall be addressed
and submitted to the Inspector General of OPM. Report copies shall
be provided to OPM's CFO and Associate Director for Retirement and
Insurance. These reports shall be submitted no later than December
15 following the end of the fiscal year for which the financial
statements are prepared. The provisions of this paragraph are subject
to AU Section 622, "Engagements to Apply Agreed-Upon Procedures
to Specified Elements, Accounts, or Items of a Financial Statement,"
Codification of Statements on Auditing Standards.
10. INSPECTOR GENERAL
OVERSIGHT.
a. IGs shall:
(1) Ensure that
audits are performed and audit reports completed in a timely manner
and in accordance with the requirements of this Bulletin. This responsibility
pertains to audits conducted directly by IG staff and audits conducted
by independent auditors under contract.
(2) Provide technical
advice and liaison to agency officials and independent external
auditors.
(3) Obtain or make
quality control reviews of audits made by independent external
auditors and provide the results, when appropriate, to other interested
organizations.
(4) Monitor and report
on management's progress in resolving audit findings related to
audits made pursuant to this Bulletin, in accordance with the
Inspector General Act of 1978, as amended, the provisions of OMB
Circular A-50, "Audit Followup," and FFMIA.
Table of Appendices
Appendix
A: Executive Departments and Agencies Required to Prepare Financial
Statements
Appendix
B: Components of Executive Departments and Agencies Required
to Prepare Financial Statements
Appendix
C: General Laws
Appendix
D: The Federal Financial Management Improvement Act of 1996
-- OMB Implementation Guidance for CFOs and IGs
Appendix
E: Illustrative Management Representation Letter
Appendix
F: Illustrative Auditor's Report on Internal Control
Appendix
G: Illustrative Auditor's Report on Compliance with Laws and
Regulations
Appendix
H: Agreed-Upon Procedures: Retirement, Health, and Life Insurance
Withholdings/Contributions and Supplemental Semiannual Headcount
Report Submitted to the Office of Personnel Management
EXECUTIVE DEPARTMENTS
AND AGENCIES REQUIRED TO PREPARE FINANCIAL STATEMENTS
Department of Agriculture
Department of Commerce
Department of Defense
Department of Education
Department of Energy
Department of Health and Human Services
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Department of the Treasury
Department of Veterans Affairs
Agency for International Development
Environmental Protection Agency
Federal Emergency Management Agency
General Services Administration
National Aeronautics and Space Administration
National Science Foundation
Nuclear Regulatory Commission
Office of Personnel Management
Small Business Administration
Social Security Administration
COMPONENTS OF EXECUTIVE
DEPARTMENTS AND AGENCIES REQUIRED TO PREPARE FINANCIAL STATEMENTS(5)
Department of Agriculture
Food and Nutrition Service
Forest Service
Rural Development Mission Area
Department of
Defense
Department of Army General Funds
Department of Navy General Funds
Department of Air Force General Funds
Military Retirement Trust Fund
U.S. Army Corps of Engineers Civil Works Program
Department of Army Working Capital Fund
Department of Navy Working Capital Fund
Department of Air Force Working Capital Fund
Defense Finance and Accounting Service Working Capital Fund
Defense Logistics Agency Working Capital Fund
Department of
Health and Human Services
Health Care Financing Administration
Department of
Labor
Unemployment Trust Fund
Department of
Transportation
Federal Aviation Administration
Highway Trust Fund
Department of
the Treasury
Bureau of Alcohol, Tobacco, and Firearms
Internal Revenue Service
United States Customs Service
Office of Personnel
Management
Civil Service Retirement and Disability Fund
Federal Employees Health Benefits Program
Federal Employees Life Insurance Program
GENERAL LAWS
Anti-Deficiency Act
(codified as amended in 31 U.S.C. 1341, 1342, 1351, 1517)
Provisions Governing
Claims of the United States Government as provided primarily in
sections 3711-3720E of Title 31, United States Code (including provisions
of the Debt Collection Improvement Act of 1996, Pub. L. No. 104-134,
110 Stat. 1321-358, which also is codified in various sections of
5 U.S.C., 18 U.S.C., 26 U.S.C., 28 U.S.C., 31 U.S.C., 42 U.S.C.)
Federal Credit Reform
Act of 1990, Pub. L. No. 101-508, 104 Stat. 1388-610 (codified in
various sections of 2 U.S.C.)
Pay and Allowance System
for Civilian Employees as provided primarily in Chapters 51-59 of
Title 5, United States Code
Prompt Payment Act (codified
as amended in 31 U.S.C. 3901-3907)
THE FEDERAL FINANCIAL
MANAGEMENT IMPROVEMENT
ACT OF 1996
OMB IMPLEMENTATION
GUIDANCE FOR CFOs and IGs
Introduction
The Federal Financial
Management Improvement Act of 1996 (FFMIA), 31 U.S.C. 3512, fundamentally
does two things:
- establishes in statute
certain financial management system requirements that are already
established by Executive Branch policies, and
- establishes new
requirements for auditors to report on agency compliance with
these basic requirements, and for agency heads and agency management
to correct deficiencies within a certain time period.
This Act applies
only to audits of the entities listed in Appendices A and B of OMB
Bulletin 98-08.
Substantive Statutory
Requirement
The 1997 Omnibus Consolidated
Appropriations Act includes Title VIII, the Federal Financial Management
Improvement Act of 1996. Section 803(a) of this Act states:
"In General -- Each
agency shall implement and maintain financial management systems
that comply substantially with Federal financial management systems
requirements, applicable Federal accounting standards, and the United
States Government Standard General Ledger (SGL) at the transaction
level."
These three requirements
-- Federal financial management system requirements, applicable
Federal accounting standards, and the SGL -- are already well-established
in Executive Branch policy documents. These documents, which are
described in more detail below, include: OMB Circulars (A-127, "Financial
Management Systems" and A-134, "Financial Accounting Principles
and Standards"), Joint Financial Management Improvement Program
(JFMIP) documents (such as the Core System Requirements), and Treasury
Department policies.
Section 803 (a) of FFMIA
does not establish any new financial system requirements.
Other sections of FFMIA
establish new procedural requirements. However, these new requirements
follow the basic principles established in Federal audit policies:
- Section 803 (b)(1)
requires that auditors report whether agency systems substantially
comply with Federal financial management systems requirements;
- Section 803 (c)(1)
requires that the head of each agency determine whether the agency's
financial management systems comply with the Act, based on a review
of the report on the applicable agencywide audited financial statement
and any other information the head of the agency considers relevant
and appropriate;
- Section 803 (c)(3)
requires that, when the agency head disagrees with the auditor's
findings,the Director of OMB shall review such determinations
and provide a report on the findings to the appropriate committees
of the Congress;
- Section 803 (c)(3)
requires that when the agency head agrees with the auditor's findings
of noncompliance, a remediation plan shall be developed, in consultation
with OMB, that describes the resources and milestones for achieving
compliance; and
- Section 804 (b)
requires that the Inspector General (IG) report on agency progress
in achieving compliance in the IG's semiannual report required
by the IG Act, as amended.
In addition to these
reporting requirements, both OMB and GAO have annual reporting requirements
under the Act. More detailed information regarding agency responsibilities
follows.
Relationship to Section
4 of FMFIA (the Integrity Act)
There is a close, if
not overlapping, relationship between FFMIA and the Federal Managers'
Financial Integrity Act (FMFIA). Since the acronyms are similar,
this guidance refers to FMFIA as the Integrity Act. The Integrity
Act requires that the agency head, on an annual basis no later than
December 31, provide an assurance statement with respect to agency
management controls (Section 2) and agency compliance with financial
management system requirements (Section 4). For the most part, in
many agencies, the Integrity Act statement of assurance for Section
4 provides management's assertion of compliance with section 803(a)
of FFMIA.
Section 803, Implementation
of FFMIA
Section 803 (a), cited
above, states: "In General -- Each agency shall implement and maintain
financial management systems that comply substantially with Federal
financial management systems requirements, applicable Federal accounting
standards, and the United States Government Standard General Ledger
(SGL) at the transaction level."
This section of the
guidance more fully describes (1) Federal financial management systems
requirements; (2) applicable Federal accounting standards; and (3)
the SGL at the transaction level. In each section, information is
provided on substantial compliance and types of indicators to be
used in assessing whether an agency is in substantial compliance.
The criteria are broad and flexible; yet, they provide a practical
basis for measuring achievement in complying with the FFMIA requirements.
(1) Federal
Financial Management Systems Requirements
Circular A-127 prescribes
policies and standards for agencies to follow in developing, operating,
evaluating, and reporting on financial management systems. In addition,
Circular A-127 also incorporates by reference: Circular A-123, "Management
Accountability and Control;" Circular A-130, "Management of Federal
Information Resources;" other operating policies and related requirements
prescribed by OMB; and Federal Financial Management Systems Requirements
issued by JFMIP.
The financial management
systems subject to the requirements of FFMIA are included in the
inventory of financial management systems subject to the requirements
of Section 4 of the Integrity Act.
Compliance with the
financial management systems requirements of FFMIA applies to all
financial management systems essential to meeting financial statement
preparation and budgetary reporting requirements.
An agency of the Federal
Government is considered to be in substantial compliance with financial
management system requirements if:
- Financial management
systems meet Circular A-127 requirements which, for purposes of
complying with this Act, call for systems to: support management's
fiduciary role; support the legal, regulatory, and other special
management requirements of the agency; support the budget execution
functions; support fiscal management of program delivery and program
decision-making; comply with internal and external reporting requirements,
including, as necessary, the requirement for financial statements
prepared in accordance with the form and content prescribed by
OMB and reporting requirements prescribed by Treasury; and be
monitored by agency staff to ensure the integrity of financial
data. This is accomplished through a unified set of systems comprised
of financial systems and financial portions of mixed systems.
These systems may or may not be operated by the CFO's office.
- Financial management
systems follow requirements published in JFMIP's Federal Financial
Management System Requirements series which prescribe the functions
that must be performed by systems to capture information for financial
statement preparation.
- Compensating procedures
are applied to financial management information produced by third
parties, such as service bureaus, when it is determined that systems
used by third parties to provide those services do not comply
with the provisions of the FFMIA.
- Security over financial
information is provided in accordance with Circular A-130, Appendix 3.
- Internal controls
over financial management systems are designed properly and operating
effectively. Internal controls are described in OMB Bulletin 98-08.
It is not expected that the scope of the auditor's work in this
area would extend beyond the requirements of the Bulletin.
Indicators:
- Annual assurance
statement issued pursuant to the Section 4 Integrity Act report
does not reflect any material non-conformance related to financial
management systems covered by FFMIA.
- Audit procedures
performed for the purpose of obtaining evidence in support of
the auditor's opinion on the financial statements did not disclose
material weaknesses or noncompliance with legal or regulatory
requirements of the agency.(6)
- Standard budget
execution information is provided on a timely basis to OMB and
Treasury in the manner requested and is consistent with budget
execution information used internally within the agency.
- Agency senior management
and program managers have access to timely financial information
on the status of funds (commitments, reservation and obligations)
by operating units and programs that allows analysis of data for
decision-making.
- Funds control decisions
are based on information provided from the agency's financial
management systems.
- The agency core
financial system, supported by other systems containing the detailed
data summarized in the core financial system, is the source of
information used in the preparation of the annual financial statements
and other internal and external reporting requirements. Detailed
information contained in these other systems also may be used
as the source information for reporting where summarized information
contained in the agency core system does not provide the details
necessary to meet reporting requirements.
- The agency has a
management control program that identifies and reports deficiencies
in financial management systems, including deficiencies resulting
in a lack of substantial compliance with the three requirements
of FFMIA, and ensures such deficiencies are corrected.
(2) Federal
Accounting Standards
An agency of the Federal
Government will be considered in substantial compliance with Federal
accounting standards if the agency prepares audited financial statements
in accordance with the hierarchy of Federal accounting standards
included in paragraph 5 of OMB Bulletin 98-08. Substantial compliance
does not require all transactions to be in full compliance with
Federal accounting standards at the point of original entry, but
that financial information used in the preparation of financial
statements, based on such transactions, is adequately supported
by detailed financial records (automated or manual).
Indicators:
- An unqualified opinion
on the agency's financial statements. For a qualified opinion,
a review of the underlying reasons for the qualified opinion is
needed to determine whether or not the agency is in substantial
compliance with this requirement. In limited circumstances, a
qualified opinion on the agency's financial statements may indicate
substantial compliance with this requirement when it is solely
due to reasons other than the agency's ability to prepare auditable
financial statements. Further, a disclaimer of opinion may not
indicate that there is a lack of substantial compliance with this
requirement when it results from a material uncertainty, such
as resolution of litigation or projecting future economic events.
- The audit disclosed
no material weaknesses in internal controls that affect the agency's
ability to prepare auditable financial statements and related
disclosures.(7)
(3) SGL at
the Transaction Level
Implementing the SGL
at the transaction level requires that the Core Financial System
General Ledger Management Function is in full compliance with the
SGL chart of accounts descriptions and posting rules; transactions
from feeder systems are summarized and fed into the Core Financial
System's General Ledger following SGL requirements through an interface
(automated or manual); detail supporting the interface transactions
can be traced back to the source transactions in the feeder systems;
and the feeder systems process transactions consistent with SGL
account descriptions and posting.
An agency of the Federal
Government will be considered in substantial compliance with the
SGL at the transaction level requirement if the agency's classification
of financial events for its financial statements and required financial
information provided to the Department of the Treasury and OMB is
consistent with the account descriptions and posting rules as approved
by the SGL Board and published by the Treasury Department's Financial
Management Service in the Treasury Financial Manual.
Indicators:
- The agency's core
financial system uses the SGL number to capture financial information,
or the agency uses an alternative code (pseudo-code) following
the same account descriptions and posting rules that are used
by the SGL to capture financial information, and the information
can be appropriately matched to SGL codes for reporting to OMB
or Treasury and for preparing financial statements. The use of
the SGL code in the feeder system is not necessary as long as
the code definitions used to capture information are consistent
with the SGL definitions.
- Systems must capture
information using the same descriptions and posting rules as in
the SGL. Detailed information captured in feeder systems can be
summarized in the Core Financial System; however, information
shall be captured and summarized so that it follows the SGL descriptions
and posting rules and is captured at the level necessary to meet
OMB or Treasury reporting requirements and for preparing financial
statements.
- Transactions can
be traced back to the source/point-of-entry in the feeder systems
and to supporting information.
Audit Considerations
Based on the foregoing,
the auditor shall use professional judgment in determining substantial
compliance with the systems requirements of FFMIA. However, lack
of substantial compliance with the requirements in any one or more
of the three areas included in FFMIA -- Federal financial management
system requirements, Federal accounting standards, and the SGL --
would result in lack of substantial compliance with FFMIA.
Further, a lack of substantial
compliance with any one or more of the indicators described herein
would typically result in a lack of substantial compliance with
one or more of the three areas described above and, thus, a lack
of substantial compliance with the systems requirements of FFMIA.
Judgment shall be used in determining a lack of substantial compliance
with an indicator. For instance, if an auditor finds that a few
budget execution reports were submitted late to OMB and contained
minor inaccuracies, this may not result in a lack of substantial
compliance with the indicator regarding standard budget execution
information.
ILLUSTRATIVE MANAGEMENT
REPRESENTATION LETTER(8)
[Entity Letterhead]
[Date of auditor's report]
[Name and title of head
of audit organization]
[Address of audit organization]
Dear [name of head of
audit organization]:
This letter is in connection
with your audits of the [entity's] Principal Statements and Required
Supplementary Stewardship Information (hereinafter referred to as
"financial statements") (list Principal Statements and Required
Supplementary Stewardship Information) as of [end of year(s) covered
by principal statements and required supplementary stewardship information
and for the year(s) then ended] for the purposes of (1) expressing
an opinion as to whether the principal statements and required supplementary
stewardship information are presented fairly, in all material respects,
in conformity with Federal accounting standards, and (2) reporting
whether the agency's financial management systems substantially
comply with Federal financial management systems requirements, applicable
Federal accounting standards, and the U.S. Government Standard General
Ledger at the transaction level as of [the end of the period(s)
covered by the financial statements].
We confirm, to the best
of our knowledge and belief, the following representations made
to you during your audits, that these representations are as of
the date of your auditor's report, and pertain to the period [or
periods] covered by the principal financial statements. [If comparative
statements are presented the following sentence should be added:
"These representations update the representations we provided in
conjunction with your audit of the financial statements as of and
for the year ended (state year)."]
1. We are responsible
for the fair presentation of the financial statements in conformity
with Federal accounting standards [or, where applicable, for the
fair presentation of the financial statements in conformity with
generally accepted accounting principles].
2. The financial statements
are fairly presented in conformity with Federal accounting standards
[or, where applicable, generally accepted accounting principles].
3. We have made available
to you, all
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. The [entity] has
satisfactory title to all owned assets, including stewardship property,
plant, and equipment; such assets have no liens or encumbrances,
nor have any assets been pledged.
6. We have no plans
or intentions that may materially affect the carrying value or classification
of assets and liabilities.
7. Guarantees under
which the agency is contingently liable have been properly reported
or disclosed.
8. Related party transactions
and related accounts receivable or payable, including assessments,
loans, and guarantees have been properly recorded and disclosed.
9. All intra-governmental
transactions and activities have been appropriately recorded, reported,
and disclosed.
10. There are no:
11. We have complied with
all aspects of contractual agreements that would have a material effect
on the financial statements in the event of noncompliance.
12. No material events
or transactions have occurred subsequent to [the date of latest
audited financial statements] that have not been properly recorded
in the financial statements and required supplementary stewardship
information or disclosed in the notes thereto.
13. There has been no
material fraud (intentional misstatements or omissions of amounts
or disclosures in financial statements and misappropriation of assets
that could have a material affect on the financial statements) or
any fraud involving management or employees who have significant
roles in internal control. [Fraud meeting foregoing criteria should
be described.]
14. We are responsible
for establishing and maintaining internal control.
15. Pursuant to the
Federal Managers Financial Integrity Act, we have assessed the effectiveness
of [entity's] internal control in achieving the following objectives:
16. Those controls in place
on September 30, XXXX [or date of latest audited financial statements]
provided reasonable assurance that the foregoing objectives are met.
If there are material
weaknesses in internal control, the forgoing representation should
be modified to read: "Those controls in place on September 30, XXXX,
provided reasonable assurance that the foregoing objectives are
met except for the effects of the material weaknesses discussed
below or in the attachment," or a statement that "internal
controls are not effective" or "do not meet the foregoing objectives."
17. We are responsible
for implementing and maintaining financial management systems that
comply substantially with Federal financial management systems requirements
contained in OMB Circular A-127, "Financial Management Systems,"
applicable Federal accounting standards, and the United States Government
Standard General Ledger (SGL) at the transaction level.
18. We have assessed
the financial management systems to determine whether they comply
substantially with these Federal financial management systems requirements.
Our assessment was based on criteria established under OMB Circular
A-127 and guidance issued by OMB and included in Appendix D of OMB
Bulletin 98-08.
19. The financial management
systems complied substantially with Federal financial management
systems requirements, applicable Federal accounting standards, and
the SGL at the transaction level as of the [date of financial statements].
[If the financial
management systems did not substantially comply, the following paragraphs
should be used instead:
As of [date of financial
statements], the entity's financial management systems do not comply
substantially with the Federal financial management systems 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.
This representation
does not change the representation in paragraph 2 of this letter.]
20. We are responsible
for [entity's] compliance with applicable laws and regulations.
21. 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.
22. We have disclosed
to you all known instances of noncompliance with laws and regulations.
[Signed by Agency Head]
[Signed by Chief Financial Officer]
ILLUSTRATIVE AUDITOR'S
REPORT ON INTERNAL CONTROL
[Addressee]
We have audited the
Principal Statements and Required Supplementary Stewardship Information
(hereinafter referred to as "financial statements") of [Name
of Federal Agency] as of and for the year ended September 30,
XXXX, and have issued our report thereon dated _____________. We
conducted our audit in accordance with generally accepted auditing
standards; the standards applicable to financial audits contained
in Government Auditing Standards, issued by the Comptroller
General of the United States; and, Office of Management and Budget
(OMB) Bulletin No. 98-08, "Audit Requirements for Federal Financial
Statements."
In planning and performing
our audit, we considered [Name of Federal Agency]'s internal
control over financial reporting by obtaining an understanding of
the agency's internal controls, determined whether these internal
controls had been placed in operation, assessed control risk, and
performed tests of controls in order to determine our auditing procedures
for the purpose of expressing our opinion on the financial statements
and not to provide assurance on the internal control over financial
reporting. Consequently, we do not provide an opinion on internal
controls.(9)
Our consideration of the internal control over financial reporting
would not necessarily disclose all matters in the internal control
over financial reporting that might be reportable conditions. Under
standards issued by the American Institute of Certified Public Accountants,
reportable conditions are matters coming to our attention relating
to significant deficiencies in the design or operation of the internal
control that, in our judgment, could adversely affect the agency's
ability to record, process, summarize, and report financial data
consistent with the assertions by management in the financial statements.
Material weaknesses are reportable conditions in which the design
or operation of one or more of the internal control components does
not reduce to a relatively low level the risk that misstatements
in amounts that would be material in relation to the financial statements
being audited may occur and not be detected within a timely period
by employees in the normal course of performing their assigned functions.
However, we noted certain matters [discussed in the following
paragraphs or accompanying schedule] involving the internal
control and its operation that we consider to be reportable conditions
[and material weaknesses].
If none of the reportable
conditions is believed to be a material weakness, the report should
state the following: "However, none of the reportable conditions
is believed to be a material weakness."
If no reportable
conditions were noted during the audit, the report should state
the following: "However, we noted no matters involving the internal
control and its operation that we considered to be material weaknesses
as defined above."
In addition, with respect
to internal controls related to performance measures reported in
[refer to section of financial statement or accountability report],
we obtained an understanding of the design of significant internal
controls relating to the existence and completeness assertions,
as required by OMB Bulletin 98-08. Our procedures were not designed
to provide assurance on internal control over reported performance
measures, and, accordingly, we do not provide an opinion on such
controls.
If conditions came
to the auditor's attention that in his or her judgment represent
significant deficiencies in the design or operation of internal
control over performance measures, which could adversely affect
the agency's ability to collect, process, record, and summarize
performance information and report performance measures in accordance
with management's criteria, the following sentence should be added
to the foregoing paragraph. "However, we noted certain significant
deficiencies in internal control over reported performance measures
[discussed in the following paragraphs or accompanying schedule]
that, in our judgment, could adversely affect the agency's ability
to collect, process, record, and summarize performance information
and report performance measures in accordance with management's
criteria."
This report is intended
for the information of the management of [Name of Federal Agency],
OMB and Congress. However, this report is a matter of public record
and its distribution is not limited.
[Signature]
[Date]
ILLUSTRATIVE AUDITOR'S
REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS
[Addressee]
We have audited the
Principal Statements and Required Supplementary Stewardship Information
(hereinafter referred to as "financial statements") of [Name
of Federal Agency] as of and for the year ended September 30,
XXXX, and have issued our report thereon dated ______________. We
conducted our audit in accordance with: generally accepted auditing
standards; the standards applicable to financial audits contained
in Government Auditing Standards, issued by the Comptroller
General of the United States; and, Office of Management and Budget
(OMB) Bulletin No. 98-08, "Audit Requirements for Federal Financial
Statements."
The management of [Name
of Federal Agency] is responsible for complying with laws and
regulations applicable to the agency. As part of obtaining reasonable
assurance about whether the agency's financial statements are free
of material misstatement, we performed tests of its compliance with
certain provisions of laws and regulations, noncompliance with which
could have a direct and material effect on the determination of
financial statement amounts and certain other laws and regulations
specified in OMB Bulletin 98-08, including the requirements referred
to in the Federal Financial Management Improvement Act (FFMIA) of
1996.
The results of our tests
of compliance with the laws and regulations described in the preceding
paragraph exclusive of FFMIA(10) disclosed instances of noncompliance with the following
laws and regulations that are required to be reported under Government
Auditing Standards and OMB Bulletin 98-08, which are described
below.
The results of our tests
of compliance disclosed no instances of noncompliance with other laws
and regulations discussed in the preceding paragraph exclusive of
FFMIA that are required to be reported under Government Auditing
Standards or OMB Bulletin 98-08.
Under FFMIA, we are
required to report whether the agency's financial management systems
substantially comply with the Federal financial management systems
requirements, Federal accounting standards, and the United States
Government Standard General Ledger at the transaction level. To
meet this requirement, we performed tests of compliance using the
implementation guidance for FFMIA included in Appendix D of OMB
Bulletin 98-08.
The results of our tests
disclosed no instances in which the agency's financial management
systems did not substantially comply with the three requirements
discussed in the preceding paragraph.
[If the results of
tests disclosed that the agency's systems did not substantially
comply with the foregoing requirements, the preceding sentence should
be replaced with the following:
In addition, when tests
disclosed that the agency's systems did not substantially comply with
the foregoing requirements, the auditor's report on compliance or
an accompanying schedule should provide the following information
as required by FFMIA and paragraph 7.c.(3)(c) of OMB Bulletin 98-08.
1. The entity or
organization responsible for the financial management systems that
were found not to comply with the requirements.
2. All facts pertaining
to the noncompliance, including: (a) the nature and extent of the
noncompliance, (b) the primary reason or cause of the noncompliance,
and (c) any relevant comments from reporting entity management or
employees responsible for the noncompliance.
3. Recommended remedial
actions and the time frames to implement such actions.]
Providing an opinion
on compliance with certain provisions of laws and regulations was
not an objective of our audit and, accordingly, we do not express
such an opinion.(11)
This report is intended
for the information of the management of [Name of Federal Agency],
OMB, and Congress. However, this report is a matter of public record,
and its distribution is not limited.
[Signature]
[Date]
AGREED-UPON PROCEDURES:
RETIREMENT, HEALTH, AND LIFE INSURANCE WITHHOLDINGS/CONTRIBUTIONS
AND SUPPLEMENTAL SEMIANNUAL HEADCOUNT REPORT SUBMITTED TO THE
OFFICE OF PERSONNEL MANAGEMENT
Objective: To perform
the procedures enumerated below to assist the Office of Personnel
Management (OPM) in assessing the reasonableness of retirement,
health, and life insurance withholdings/contributions and employee
headcount data submitted by agencies. (Questions may be directed
to OPM's Financial Policy Staff at (202) 606-0606.)
Procedures: Gain an
understanding of the Agency Payroll Office's (APO's) procedures
for reconciling payroll registers to Form 2812, Report of Withholdings
and Contributions for Health Benefits, Life Insurance and Retirement.
Obtain the APO's most recent Supplemental Semiannual Headcount Report
submitted to OPM and the summary of Form 2812 submissions and related
payments to OPM for the current fiscal year. Randomly select two
Form 2812s submitted for the current fiscal year, and also obtain
the Form 2812 that coincides with the most recent Supplemental Semiannual
Headcount Report. Obtain payroll registers or payroll data files
for the periods covered by the Form 2812s selected.
1. Perform the following
procedures:
Report any differences
or exceptions that are unsupported or unsubstantiated, or represent
an error. To the extent practical, management's comments on the auditor's
findings shall be included in the report.
2. For the three pay
periods selected, review the APO's reconciliation of the payroll
data file to the general ledger accounts or, if such a reconciliation
does not exist, perform the reconciliation. Report when the APO
did not prepare the reconciliation. Also report any unsupported
or unsubstantiated differences (i.e., gross rather than net) in
the total payroll paid for the selected pay period and the amount
recorded in the general ledger that exceeds 5% of total payroll.
To the extent practical, management's comments on the auditor's
findings shall be included in the report.
3. From the payroll
registers corresponding to the three Form 2812s selected for testing
in step 1, randomly select a total of twenty-five individuals from
the payroll registers or files footed in step 1.a. that have retirement,
health, and life insurance and at least one optional life coverage.
For step 3.d. only, randomly select additional individuals
as necessary so that ten individuals are selected for each life
insurance option (i.e., Options A, B, and C). For each individual
selected, perform the following procedures:
Report any differences
or exceptions that are unsupported or unsubstantiated, or represent
an error. To the extent practical, management's comments on the auditor's
findings shall be included in the report.
4. Randomly select a
total of ten employees who do not have either health or life insurance
withholdings from the payroll registers or related files footed
in step 1.a. and verify from a review of personnel records that
the employees elected to be excluded from health and/or life insurance
coverage. Report any differences or exceptions that are unsupported
or unsubstantiated, or represent an error. To the extent practical,
management's comments on the auditor's findings shall be included
in the report.
5. Recalculate the headcount
reflected on the Supplemental Semiannual Headcount Report selected
for testing above as follows:
6. For the three pay periods
selected, determine the total number of employees enrolled in each
retirement plan (CSRS and FERS) and the corresponding payroll base
subject to the respective contribution rate, the total number of employees
enrolled in each health insurance plan and plan options, and the total
number of employees enrolled in each life insurance option and base
plan and the corresponding total life insurance basic pay. To the
extent practical, management's comments on the auditor's findings
shall be included in the report.
7. For the three pay periods
selected, compare the grand total of the total column on the Form
2812s with the actual amount transferred. Report any differences (i.e.,
gross rather than net) between the amounts reported on the Form 2812s
and the amounts transferred greater than 1%. To the extent practical,
management's comments on the auditor's findings shall be included
in the report.
Illustrative Independent
Accountant's Report on the
Application of Agreed-Upon
Procedures
To the Inspector General
U.S. Office of Personnel Management:
We have performed the
procedures described below (or in the attachment), which were agreed
to by the Inspector General, Chief Financial Officer, and the Associate
Director for Retirement and Insurance of the U.S. Office of Personnel
Management (OPM), solely to assist with respect to the employee
withholdings and employer contributions reported on the Report of
Withholdings and Contributions for Health Benefits, Life Insurance,
and Retirement for the payroll periods ended [state dates]
and Supplemental Semiannual Headcount Report as of [state date].
This engagement to apply agreed-upon-procedures was performed in
accordance with the standards established by the American Institute
of Certified Public Accountants. The sufficiency of the procedures
is solely the responsibility of the Inspector General, Chief Financial
Officer, and the Associate Director for Retirement and Insurance
of OPM. Consequently, we make no representation regarding the sufficiency
of the procedures described below either for the purpose for which
this report has been requested or for any other purpose.
Insert the following
unless the procedures and findings are in an attachment.
The procedures and the
associated findings are as follows:
[Insert procedures
and findings]
We were not engaged
to, and did not, perform an audit, the objective of which would
be the expression of an opinion on the withholdings and contributions
for health benefits, life insurance, and retirement, and employee
headcount of the [name of agency]. Accordingly, we do not
express such an opinion. Had we performed additional procedures,
other matters might have come to our attention that would have been
reported to you.
This report is intended
solely for the use of the Inspector General, Chief Financial Officer,
and the Associate Director for Retirement and Insurance of OPM and
should not be used by those who have not agreed to the procedures
and taken responsibility for the sufficiency of the procedures for
their purposes.
[Signature]
[Date]
c: Chief Financial Officer
of OPM
Associate Director for Retirement and Insurance of OPM
Footnotes:
1.
This list was included in OMB Bulletin 97-01. At the time of issuance
of this Bulletin, OMB is considering modifying the list of statements
that comprise the Principal Statements. Auditors shall refer to
the most current version of OMB's Form and Content Bulletin to determine
which statements shall be treated as Principal Statements for the
fiscal year for which the financial statements were prepared.
2.
Federal financial management systems requirements to be tested do
not include those contained in the Framework for Federal Financial
Management Systems and Travel System Requirements. These
systems requirements do not affect an agency's ability to prepare
financial statements in accordance with Federal accounting standards.
3.
An illustrative auditor's report on internal control is provided
in Appendix F. Use of this guidance is optional.
4.
An illustrative auditor's report on compliance with laws and regulations
is provided in Appendix G. Use of this guidance is optional.
5.
The requirement for components to prepare financial statements may
be satisfied by presenting the components separately in consolidating
agencywide financial statements and conducting an audit, in accordance
with this Bulletin, at the consolidating financial statement level.
6.
In very limited circumstances, reportable conditions that significantly
impair an entity's ability to meet Federal financial management
systems requirements (such as reportable conditions related to computer
security over financial information covered by OMB Circular A-130,
Appendix 3) may represent conditions reportable under FFMIA.
7.
In very limited circumstances, reportable conditions that significantly
impair an entity's ability to meet Federal financial management
systems requirements (such as reportable conditions related to computer
security over financial information covered by OMB Circular A-130,
Appendix 3) may represent conditions reportable under FFMIA.
8.
This illustrative management representation letter must be customized
to the situation of the audited entity. Representations number 1-14
relate to the opinion on the financial statements and the required
supplementary stewardship information; numbers 14-19 relate to management's
assertion about the effectiveness of internal control; numbers 20-22
relate to management's assertion about the financial management
systems' substantial compliance with Federal financial management
system requirements; and numbers 23-25 relate to compliance with
laws and regulations. AU Section 333, "Management Representations,"
Codification of Statements on Auditing Standards, provides
examples of additional representations that may be appropriate.
9.
If the objective is to express an opinion on the agency's internal
controls over financial reporting, the auditor should follow Statement
on Standards for Attestation Engagements No. 2, "Reporting on an
Entity's Internal Control Over Financial Reporting," issued by the
American Institute of Certified Public Accountants.
10.
FFMIA does not impose any compliance requirements; rather, it requires
reporting on whether an agency's financial management systems substantially
comply with the financial management systems requirements contained
in governmentwide policies, e.g., OMB Circular A-127, "Financial
Management Systems;" Statements of Federal Financial Accounting
Standards; and the United States Government Standard General Ledger
published by the Department of the Treasury. FFMIA imposes additional
reporting requirements when tests disclose instances in which agency
systems do not substantially comply with the foregoing requirements.
11.
If the objective is to express an opinion on the agency's compliance
with laws and regulations, the auditor should follow Statement on
Standards for Attestation Engagements No. 3, "Compliance Attestation,"
issued by the American Institute of Certified Public Accountants.
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