Federal Housing Finance Agency Office of Inspector General: Improvements Needed in Review Procedures for Payroll Accounting
Fast Facts
Each year, we audit the Federal Housing Finance Agency's financial statements. While independent from FHFA's operations, the FHFA Office of Inspector General's financial activities are included in those statements.
During our 2023 audit, we found an issue with the internal controls over the Office of Inspector General's payroll accounting. Internal controls are processes to reasonably assure that transactions are properly authorized and recorded.
We considered one of the issues to be a "significant deficiency" when combined with a related FHFA control deficiency.
Our 2 recommendations address these issues.
Highlights
What GAO Found
During its audits of the Federal Housing Finance Agency's (FHFA) fiscal year 2023 consolidated financial statements, GAO identified deficiencies in the FHFA Office of Inspector General's (OIG) internal controls. Although these control deficiencies did not negatively affect GAO's overall audit opinion on FHFA's consolidated financial statements or internal controls over financial reporting, they nonetheless warrant the attention of FHFA OIG management.
Of the control deficiencies it identified, GAO considered one—which was related to the accuracy of FHFA OIG's payroll accruals—to be a significant deficiency when combined with a related FHFA control deficiency. GAO identified another less-critical deficiency related to FHFA OIG's not properly identifying unexplained variances above its $1.5 million threshold for quarterly reconciliations. By addressing these deficiencies, FHFA OIG can make it more likely that agency management and employees will prevent, or detect and correct, misstatements in financial reporting.
Why GAO Did This Study
In November 2023, GAO reported on the results of its audits of FHFA's consolidated financial statements for fiscal years 2023 and 2022. Although GAO found that FHFA had maintained effective internal control over financial reporting as of September 30, 2023, GAO did identify some deficiencies in FHFA OIG's internal controls. The purpose of this report is to present the internal control deficiencies GAO identified during its fiscal year 2023 audit.
To evaluate FHFA OIG's internal control over financial reporting, GAO reviewed FHFA OIG's policies and procedures; interviewed FHFA OIG management and staff; observed controls in operation; and conducted tests of controls to determine whether controls were designed, implemented, and operating effectively.
Recommendations
GAO is making two recommendations to FHFA OIG to reasonably assure that (1) reviews of payroll accrual information timely detect and correct errors and (2) reviews of quarterly intragovernmental reconciliations ensure explanations for variances above $1.5 million. FHFA OIG agreed with GAO's two recommendations and described actions it has taken to address each recommendation.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Federal Housing Finance Agency | The FHFA Inspector General should direct the appropriate FHFA OIG management officials to develop sufficiently detailed guidance for how FHFA OIG staff should review accounting information it provides to FHFA, for inclusion in FHFA's consolidated financial statements, to prevent misstatements. (Recommendation 1) |
In commenting on our draft report, FHFA OIG stated that it agreed with our recommendation and described actions it has taken to address the review procedures. We will evaluate the effectiveness of FHFA OIG's efforts on this recommendation during our audit of FHFA's fiscal year 2024 financial statements.
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| Federal Housing Finance Agency | The FHFA Inspector General should direct the appropriate FHFA OIG management officials to develop monitoring procedures to reasonably assure that FHFA OIG staff are effectively reviewing the FHFA OIG quarterly reconciliations to timely identify and resolve intragovernmental differences. (Recommendation 2) |
In commenting on our draft report, FHFA OIG stated that it agreed with our recommendation and described actions it has taken to address the review procedures. We will evaluate the effectiveness of FHFA OIG's efforts on this recommendation during our audit of FHFA's fiscal year 2024 financial statements.
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