This is the accessible text file for GAO report number GAO-14-415R entitled 'Patient-Centered Outcomes Research Institute: Review of the Audit of the Financial Statements for 2013 and 2012' which was released on March 27, 2014. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. 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Washington, DC 20548: March 27, 2014: Congressional Committees: Patient-Centered Outcomes Research Institute: Review of the Audit of the Financial Statements for 2013 and 2012: This report presents the results of our review of the Patient-Centered Outcomes Research Institute's (PCORI) 2013 and 2012 financial statement audit.[Footnote 1] PCORI was created in 2010 by the Patient Protection and Affordable Care Act (PPACA)[Footnote 2] as a federally funded, nonprofit corporation that is neither an agency nor establishment of the United States government.[Footnote 3] According to PPACA, PCORI's purpose is to assist patients, clinicians, purchasers, and policymakers in making informed health decisions. This is accomplished through advancing the quality and relevance of evidence concerning the manner in which diseases, disorders, and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored, and managed through research and evidence synthesis. PPACA requires PCORI to obtain an annual financial statement audit from a private entity with expertise in conducting financial audits, and requires the Comptroller General of the United States to annually perform a review of the audit of PCORI's financial statements and report the results of the review to the Congress.[Footnote 4] This is the third year PCORI has prepared financial statements and engaged an independent public accountant (IPA) to conduct the financial statement audit. Accordingly, this is the third year we have reviewed this audit.[Footnote 5] PCORI received an unmodified opinion from the IPA on its 2013 and 2012 financial statements. The IPA found that PCORI's financial statements were presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles.[Footnote 6] For 2013, the IPA did not identify any deficiencies in internal control that it considered to be material weaknesses.[Footnote 7] Furthermore, in its report issued as required for performing the audit of the financial statements in accordance with U.S. generally accepted government auditing standards (GAGAS),[Footnote 8] the IPA reported that it found no instances of noncompliance with laws, regulations, contracts, and grant agreements that have a direct and material effect on the determination of financial statement amounts.[Footnote 9] PCORI did not disagree with the IPA report's conclusions. Objective, Scope, and Methodology: Our objective was to determine whether the audit of PCORI's 2013 and 2012 financial statements was conducted in accordance with GAGAS, in all material respects. To satisfy this objective, we reviewed the IPA's audit report, the audited 2013 and 2012 PCORI financial statements, the IPA's audit documentation, and the IPA's professional qualifications. We also met with IPA representatives and PCORI management officials to discuss issues pertinent to our objective. Our review, as differentiated from an audit of the financial statements, was not intended to enable us to express, and we do not express, an opinion on PCORI's financial statements or conclude on the effectiveness of its internal control over financial reporting. Furthermore, we do not express an opinion on PCORI's compliance with laws, regulations, contracts, and grant agreements. The IPA is responsible for its reports on PCORI dated March 10, 2014, and the conclusions expressed therein. We performed our review using Section 650, "Using the Work of Others," of the GAO/President's Council on Integrity and Efficiency Financial Audit Manual as a guide.[Footnote 10] This guidance requires us to: * evaluate the IPA's independence and objectivity, * evaluate the IPA's qualifications, and: * review and evaluate the IPA's work. We evaluated the IPA's independence, objectivity, and qualifications by reviewing the following: * the results of the IPA's most recent peer review,[Footnote 11] dated December 4, 2013; * the request for proposal sent out by PCORI when seeking an audit firm to conduct the audit of its financial statements; * the proposal submitted by the IPA; * the IPA's certification of independence; * the engagement letter between the IPA and PCORI,[Footnote 12] which described the responsibilities of the IPA and those of PCORI and set forth the scope and objectives of the audit service; * résumés of key audit team members; and: * the continuing professional education of the IPA staff members assigned to the PCORI audit. Additionally, to evaluate the IPA's work in order to determine whether the financial statement audit was conducted in accordance with professional standards, we reviewed the IPA's planning, testing, and reporting audit documentation to conclude whether the auditor appropriately assessed risk for the audit and designed appropriate audit procedures to address the identified risk and whether sufficient audit work was performed to support the IPA's opinion and conclusions. We conducted this performance audit from January 2014 to March 2014 in accordance with U.S. generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Audit of PCORI's Financial Statements Was Performed in Accordance with Professional Standards: We found that the IPA's audit of PCORI's 2013 and 2012 financial statements was performed in accordance with professional standards, in all material respects. We determined that the IPA was independent and objective in its audit of PCORI by reviewing the IPA staff members' certifications of independence. We also reviewed the résumés of key audit team members and continuing professional education transcripts of the IPA staff members assigned to the PCORI audit and determined that its staff members were qualified to perform the audit of PCORI. In addition, the IPA received a passing rating in its peer review report dated December 4, 2013.[Footnote 13] Furthermore, we analyzed key audit planning documentation focusing on the IPA's risk assessment, the audit procedures developed in response to this assessment, and the key audit completion documents summarizing the results and conclusions reached by the IPA and did not identify any instances in which the IPA did not perform sufficient audit work to support its audit opinion and its conclusions on internal control and compliance with laws, regulations, contracts, and grant agreements. Our review also did not identify any instances in which the IPA did not comply, in all material respects, with GAGAS. Agency and Third-Party Comments: We provided a draft of this report to PCORI and PCORI's IPA for review and comment. In response, PCORI's management and PCORI's IPA had no comments in regard to our report. We are sending copies of this report to the Executive Director of the Patient-Centered Outcomes Research Institute and other interested parties. In addition, the report is available at no charge on the GAO website at [hyperlink, http://www.gao.gov]. If you or your staffs have any questions about this report, please contact me at (202) 512-3406 or malenichj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report include Gary Chupka (Assistant Director), Gregory Marchand, Megan McGehrin, Andrew Stephens, and Carrie Wehrly. Signed by: J. Lawrence Malenich: Director: Financial Management and Assurance: List of Committees: The Honorable Ron Wyden: Chairman: The Honorable Orrin G. Hatch: Ranking Member: Committee on Finance: United States Senate: The Honorable Tom Harkin: Chairman: The Honorable Lamar Alexander: Ranking Member: Committee on Health, Education, Labor, and Pensions: United States Senate: The Honorable Fred Upton: Chairman: The Honorable Henry A. Waxman: Ranking Member: Committee on Energy and Commerce: House of Representatives: The Honorable Dave Camp: Chairman: The Honorable Sander Levin: Ranking Member: Committee on Ways and Means: House of Representatives: [End of section] Footnotes: [1] PCORI's audited financial statements are presented in a 2-year comparative format with 2013 as the current year under audit and 2012 as the prior year that was previously audited. Effective for 2013, PCORI changed from a year-end of December 31 to a year-end of September 30. As a result, PCORI's audited financial statements are presented in a 2-year comparative format with 2013 displaying 9 months of activity and 2012 displaying 12 months of activity. [2] Pub. L. No. 111-148, § 6301(a), 124 Stat. 119, 728, (2010), classified at 42 U.S.C. § 1320e(b)(1). [3] PCORI was established as a nonprofit corporation subject to the District of Columbia Non-Profit Corporation Act and organized within the meaning of section 501, subsections (c)(1) and (l), of the Internal Revenue Code of 1986, as amended. [4] Pub. L. No. 111-148, § 6301(a), 124 Stat. 119, 736, (2010), classified at 42 U.S.C. § 1320e(g)(1), (2)(A)(i). [5] We reported on the results of our review of PCORI's first two financial audits in GAO, Patient-Centered Outcomes Research Institute: Review of the Audit of the Financial Statements for 2011 and 2010, [hyperlink, http://www.gao.gov/products/GAO-12-663R] (Washington, D.C.: May 10, 2012), and Patient-Centered Outcomes Research Institute: Review of the Audit of the Financial Statements for 2012 and 2011, [hyperlink, http://www.gao.gov/products/GAO-13-390R] (Washington, D.C.: Mar. 29, 2013). [6] PCORI's financial statements consist of the statements of financial position, statements of activities, statements of cash flows, statements of functional expenses, and accompanying notes to the financial statements. [7] A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. [8] GAGAS, issued by the Comptroller General of the United States, incorporate U.S. generally accepted auditing standards and constitute the professional standards under which PCORI's financial statement audit was performed. [9] For an audit of financial statements performed in accordance with GAGAS, the auditor is required to report on internal control over financial reporting and on compliance with provisions of laws, regulations, contracts, or grant agreements that have a material effect on the financial statements, regardless of whether the auditor identifies internal control deficiencies or instances of noncompliance. GAGAS do not require the auditor to express opinions on the effectiveness of internal control over financial reporting or compliance. [10] GAO, Financial Audit Manual, vol. 2, [hyperlink, http://www.gao.gov/products/GAO-08-586G] (Washington, D.C.: July 2008). [11] GAGAS require each audit organization to have an external peer review conducted at least once every 3 years by reviewers independent of the organization being reviewed. The external peer review should determine whether, during the period under review, the reviewed audit organization's internal quality control system was adequate and whether quality control policies and procedures were being complied with to provide the audit organization with reasonable assurance that it conforms with applicable professional standards. [12] An engagement letter describes the objectives and scope of the work performed and includes a reference to the professional standards governing the conduct of the engagement. [13] There are two types of peer reviews: system reviews and engagement reviews. System reviews focus on a firm's system of quality control, while engagement reviews focus on work performed on particular selected engagements. Firms can receive a rating of pass, pass with deficiencies, or fail. The IPA's firm received a rating of pass on a systems review. 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