Financial Audit:

The Department of Veterans Affairs' Fiscal Year 2004 Management Representation Letter on Its Financial Statements

GAO-05-599R: Published: Jul 22, 2005. Publicly Released: Jul 22, 2005.

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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 Veterans Affairs' (VA) fiscal year 2004 management representation letter. Our objective is to help ensure that future management representation letters submitted by VA 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."

VA's fiscal year 2004 management representation letter did not provide all the information necessary to support Treasury and OMB's preparation of the CFS management representation letter. This in turn impacted our ability to rely on the representations in the CFS management representation letter in combination with individual federal agency representation letters. We identified some needed improvements in two of the five key areas we reviewed. First, the letter included 25 of the 29 representations from the FAM that were applicable to VA. For the other 4 representations, 3 were not fully included and 1 was not provided at all. In addition, VA did not include a complete summary of unadjusted misstatements with its management representation letter. We believe that these matters can be easily addressed. We are making two recommendations to VA's Acting Chief Financial Officer targeted to specific changes needed. Also, we are recommending that the VA Inspector General, with the contracted independent public accountant, work with the department to help ensure that future management representation letters meet the key conditions noted as needing improvements in this report.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: VA's Acting Chief Financial Officer should ensure that in the future the management representation letter fully include all representations from the FAM that are applicable to VA.

    Agency Affected: Department of Veterans Affairs

    Status: Closed - Implemented

    Comments: As part of our FY 2005 audit of the consolidated financial statements (CFS) of the U.S government, we evaluated the agencies' management representation letters to determine whether all applicable representations from the FAM were fully provided. VA's FY 2005 management representation letter fully provided all applicable representations from the FAM.

    Recommendation: VA's Acting 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.

    Agency Affected: Department of Veterans Affairs

    Status: Closed - Implemented

    Comments: As part of our fiscal year 2006 audit of the CFS, we reviewed the Department of Veterans Affairs' (VA) Summary of Unadjusted Misstatements (SUM). We determined that VA's SUM provided the necessary information for us to prepare the governmentwide SUM.

    Recommendation: The VA 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.

    Agency Affected: Department of Veterans Affairs

    Status: Closed - Implemented

    Comments: As part of our FY 2005 and 2006 audits of the consolidated financial statements (CFS) of the U.S government, we evaluated the agencies' management representation letters to determine whether they were sufficient to help support Treasury's and OMB's preparation of the CFS management representation letter. VA's FY 2005 management representation letter provided all applicable representations from the FAM. VA's FY 2006 management representation letter included a complete summary of unadjusted misstatements. As a result, VA's management representation letter has met all of the key conditions noted as needing improvements.

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