EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF MANAGEMENT AND BUDGET

WASHINGTON DC, 20503

January 25, 1999

M 99-08

TO THE HEADS AND INSPECTORS GENERAL OF EXECUTIVE DEPARTMENTS AND
ESTABLISHMENTS

FROM: G. Edward DeSeve

> Deputy Director for Management

SUBJECT: Amendments to OMB Bulletin No. 98-08, \"Audit Requirements for
Federal Financial Statements\"

1\. [Purpose]{.underline}. This transmittal memorandum contains
amendments to Office of Management and Budget (OMB) Bulletin No. 98-08,
\"Audit Requirements for Federal Financial Statements.\" The purpose of
these amendments is to address certain issues that have arisen since the
issuance of Bulletin 98-08 relating to deferred maintenance and required
supplementary stewardship information (RSSI). These amendments reduce
the scope of audit for deferred maintenance and RSSI for audits of
Federal financial statements for the fiscal year ended September 30,
1998. They do not modify the financial reporting and disclosure
requirements for deferred maintenance and RSSI prescribed by Federal
accounting standards. OMB expects to increase the level of audit
assurance relating to deferred maintenance and RSSI in future years as
the standards and criteria for reporting such information are developed
further and agencies gain experience reporting such information.

2\. [Applicability]{.underline}. These amendments apply to audits of
financial statements of those entities listed in Appendices A and B of
OMB Bulletin 98-08.

3\. [Effective Date]{.underline}. These amendments are effective for
audits of financial statements for the fiscal year ended September 30,
1998.

4\. [Instructions]{.underline}. Replace original pages in OMB Bulletin
98-08 with the replacement pages attached to this memorandum (see the
attached list of replacement pages).

5\. [Inquiries]{.underline}. Further information concerning this
memorandum may be obtained by contacting the Office of Management and
Budget (OMB), Office of Federal Financial Management, Washington, DC
20503, telephone (202) 395‑3993.

6\. [Copies]{.underline}. Copies of this memorandum, as well as the
amended version of OMB Bulletin 98-08, may be obtained from the OMB home
page on the Internet at http://www.whitehouse.gov/WH/EOP/omb.

Attachments

**LIST OF REPLACEMENT PAGES**

**TO**

**OMB BULLETIN NO. 98-08**

ATTACHMENT AND APPENDICES

+-----------------------+-----------------------+-----------------------+
| **Technical           |                       |                       |
| Amendments to OMB     |                       |                       |
| Bulletin 98-08,**     |                       |                       |
|                       |                       |                       |
| **\"Audit             |                       |                       |
| Requirements for      |                       |                       |
| Federal Financial     |                       |                       |
| Statements\"**        |                       |                       |
+=======================+=======================+=======================+
| **Replacement Page    | **Technical Change**  | **Purpose of Change** |
| and Paragraph         |                       |                       |
| Numbers**             |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Page 5, paragraph     | Added subparagraph    | To remove the         |
| 6.a.(1)               | (c).                  | requirement to audit  |
|                       |                       | deferred maintenance  |
|                       |                       | information.          |
+-----------------------+-----------------------+-----------------------+
| Page 5, paragraph     | Removed the           | To remove the         |
| 6.a.(2)               | requirement for the   | requirement to audit  |
|                       | auditor to determine  | stewardship property, |
|                       | whether stewardship   | plant, and equipment  |
|                       | property, plant, and  | for the purpose of    |
|                       | equipment is          | rendering an opinion  |
|                       | presented fairly in   | on such information.  |
|                       | all material respects |                       |
|                       | in accordance with    |                       |
|                       | the requirements of   |                       |
|                       | SFFAS No. 8, and      |                       |
|                       | added the requirement |                       |
|                       | that the auditor      |                       |
|                       | consider this         |                       |
|                       | information required  |                       |
|                       | supplementary         |                       |
|                       | information and       |                       |
|                       | perform procedures    |                       |
|                       | described in AU       |                       |
|                       | Section 558, Required |                       |
|                       | Supplementary         |                       |
|                       | Information, of the   |                       |
|                       | [Codification of      |                       |
|                       | Statements on         |                       |
|                       | Auditing              |                       |
|                       | St                    |                       |
|                       | andards]{.underline}. |                       |
+-----------------------+-----------------------+-----------------------+

+-----------------------+-----------------------+-----------------------+
| **Technical           |                       |                       |
| Amendments to OMB     |                       |                       |
| Bulletin 98-08,**     |                       |                       |
|                       |                       |                       |
| **\"Audit             |                       |                       |
| Requirements for      |                       |                       |
| Federal Financial     |                       |                       |
| Statements\"**        |                       |                       |
+=======================+=======================+=======================+
| Page 5, paragraph     | Removed the           | To remove the         |
| 6.a.(3)               | requirement for the   | requirement to audit  |
|                       | auditor to determine  | stewardship           |
|                       | whether stewardship   | investments for the   |
|                       | investments are       | purpose of rendering  |
|                       | presented fairly in   | an opinion on such    |
|                       | all material respects | information.          |
|                       | in accordance with    |                       |
|                       | the requirements of   |                       |
|                       | SFFAS No. 8, and      |                       |
|                       | added the requirement |                       |
|                       | that the auditor      |                       |
|                       | consider this         |                       |
|                       | information required  |                       |
|                       | supplementary         |                       |
|                       | information and       |                       |
|                       | perform procedures    |                       |
|                       | described in AU       |                       |
|                       | Section 558, Required |                       |
|                       | Supplementary         |                       |
|                       | Information, of the   |                       |
|                       | [Codification of      |                       |
|                       | Statements on         |                       |
|                       | Auditing              |                       |
|                       | St                    |                       |
|                       | andards]{.underline}. |                       |
+-----------------------+-----------------------+-----------------------+
| Page 7, paragraph     | Deleted reference to  | To modify the         |
| 6.f.                  | Required              | auditor\'s            |
|                       | Supplementary         | responsibility for    |
|                       | Stewardship           | the effects of the    |
|                       | Information.          | technical amendments  |
|                       |                       | to paragraphs 6.a.(2) |
|                       |                       | and (3).              |
+-----------------------+-----------------------+-----------------------+
| Page 8, paragraph     | Removed reference to  | To clarify that the   |
| 6.g.                  | AU Section 551 and    | auditor should        |
|                       | added requirement to  | perform procedures    |
|                       | perform procedures    | described in AU       |
|                       | described in AU       | Section 558.          |
|                       | Section 558.          |                       |
+-----------------------+-----------------------+-----------------------+
| Page 8, paragraph     | Deleted reference to  | To delete the         |
| 7.a.                  | Required              | requirement that the  |
|                       | Supplementary         | auditor render an     |
|                       | Stewardship           | opinion on Required   |
|                       | Information.          | Supplementary         |
|                       |                       | Stewardship           |
|                       |                       | Information.          |
+-----------------------+-----------------------+-----------------------+
| Page 9, paragraph     | Deleted reference to  | To delete the         |
| 7.c.(1)               | Required              | requirement that the  |
|                       | Supplementary         | auditor render an     |
|                       | Stewardship           | opinion on Required   |
|                       | Information.          | Supplementary         |
|                       |                       | Stewardship           |
|                       |                       | Information.          |
+-----------------------+-----------------------+-----------------------+
| Page 9, paragraph     | Added reference to    | To add a reference to |
| 7.c.(1)(a)            | paragraph 6.a.(5).    | paragraph 6.a.(5).    |
+-----------------------+-----------------------+-----------------------+

+-----------------------+-----------------------+-----------------------+
| **Technical           |                       |                       |
| Amendments to OMB     |                       |                       |
| Bulletin 98-08,**     |                       |                       |
|                       |                       |                       |
| **\"Audit             |                       |                       |
| Requirements for      |                       |                       |
| Federal Financial     |                       |                       |
| Statements\"**        |                       |                       |
+=======================+=======================+=======================+
| Page 9, paragraph     | Added stewardship     | To require the        |
| 7.c.(1)(b)            | PP&E and stewardship  | auditor to consider   |
|                       | investments referred  | stewardship PP&E and  |
|                       | to in paragraphs      | stewardship           |
|                       | 6.a.(2) and (3) and   | investments required  |
|                       | replaced references   | supplementary         |
|                       | to AU Section 551 and | information and to    |
|                       | 558 of [Codification  | provide a more        |
|                       | of Statements on      | specific reference to |
|                       | Auditing              | AU Section 551.15 of  |
|                       | S                     | [Codification of      |
|                       | tandards]{.underline} | Statements on         |
|                       | with a more specific  | Auditing              |
|                       | reference.            | St                    |
|                       |                       | andards]{.underline}. |
+-----------------------+-----------------------+-----------------------+
| Page 9, paragraph     | Replaced "financial"  | To modify the         |
| 7.c.(1)(c)            | with "Principal" and  | auditor's reporting   |
|                       | deleted reference to  | responsibilities for  |
|                       | Required              | the effects of the    |
|                       | Supplementary         | technical amendments  |
|                       | Stewardship           | to paragraphs 6.a.(2) |
|                       | Information.          | and (3).              |
+-----------------------+-----------------------+-----------------------+
| Page 10, paragraph    | Deleted reference to  | To modify the         |
| 7.c.(1)(e)            | Required              | auditor's reporting   |
|                       | Supplementary         | responsibilities for  |
|                       | Stewardship           | the effects of the    |
|                       | Information.          | technical amendments  |
|                       |                       | to paragraphs 6.a.(2) |
|                       |                       | and (3).              |
+-----------------------+-----------------------+-----------------------+
| Page 10, paragraph    | Inserted the phrase   | To clarify that the   |
| 7.c.(2)(a)            | \"over financial      | phrase \"internal     |
|                       | reporting\" and added | control over          |
|                       | a reference to        | financial reporting\" |
|                       | paragraph 2.g.(2).    | used in Appendix F    |
|                       |                       | includes internal     |
|                       |                       | control relating to   |
|                       |                       | financial reporting   |
|                       |                       | and compliance with   |
|                       |                       | laws and regulations. |
+-----------------------+-----------------------+-----------------------+
| Pages 25-28, Appendix | Added reference to    | To modify the         |
| E                     | Required              | illustrative          |
|                       | Supplementary         | management            |
|                       | Stewardship           | representation letter |
|                       | Information in        | for the effects of    |
|                       | paragraphs numbered 1 | the technical         |
|                       | and 13. Deleted       | amendments to the     |
|                       | reference to Required | Bulletin.             |
|                       | Supplementary         |                       |
|                       | Stewardship           |                       |
|                       | Information in all    |                       |
|                       | paragraphs, except in |                       |
|                       | paragraphs numbered   |                       |
|                       | 12 and 15. Corrected  |                       |
|                       | certain references in |                       |
|                       | footnote 8 of         |                       |
|                       | Appendix E.           |                       |
+-----------------------+-----------------------+-----------------------+

+-----------------------+-----------------------+-----------------------+
| **Technical           |                       |                       |
| Amendments to OMB     |                       |                       |
| Bulletin 98-08,**     |                       |                       |
|                       |                       |                       |
| **\"Audit             |                       |                       |
| Requirements for      |                       |                       |
| Federal Financial     |                       |                       |
| Statements\"**        |                       |                       |
+=======================+=======================+=======================+
| Page 29-30, Appendix  | Deleted reference to  | To modify the         |
| F                     | Required              | illustrative          |
|                       | Supplementary         | auditor's report on   |
|                       | Stewardship           | internal control for  |
|                       | Information in the    | the effects of the    |
|                       | first paragraph and   | technical amendments  |
|                       | added a separate      | in paragraphs 6.a.(2) |
|                       | paragraph addressing  | and (3).              |
|                       | this information.     |                       |
+-----------------------+-----------------------+-----------------------+
| Page 31, Appendix G   | Deleted reference to  | To modify the         |
|                       | Required              | illustrative          |
|                       | Supplementary         | auditor's reporting   |
|                       | Stewardship           | on compliance for the |
|                       | Information.          | effects of the        |
|                       |                       | technical amendments  |
|                       |                       | in paragraphs 6.a.(2) |
|                       |                       | and (3).              |
+-----------------------+-----------------------+-----------------------+

**TECHNICAL AMENDMENTS**

**TO**

**OMB BULLETIN NO. 98-08**

**ATTACHMENT AND APPENDICES**

> a\. With respect to the Principal Statements and Required
> Supplementary Stewardship Information, the auditor shall:
>
> \(1\) Determine whether the Principal Statements present fairly, in
> all material respects, in conformity with Federal accounting
> standards, the 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.
>
> \(a\) If consolidating statements are presented, the auditor shall
> consider the consolidating statements supplemental information and
> report in accordance with paragraph 7.c.(1)(a) of this Bulletin,
> unless the auditor\'s objective is to express an opinion on the
> consolidating statements.
>
> \(b\) If the auditor is unable to determine whether the Principal
> Statements are fairly presented because, for example, of the
> auditor\'s inability to obtain sufficient competent evidential matter
> due to inadequate accounting records, the auditor shall, to the extent
> practicable, obtain sufficient evidence about closing balances to
> enable the auditor to opine on the subsequent year\'s financial
> statements.
>
> \(c\) When deferred maintenance information is presented in the notes
> to the Principal Statements, the auditor is not expected to audit such
> information and, in this circumstance, the disclosures may be
> identified as \"unaudited\" or \"not covered by the auditor\'s
> report.\" The auditor should read the deferred maintenance information
> and consider whether such information, or the manner of its
> presentation, is materially inconsistent with information, or the
> manner of its presentation, appearing in the Principal Statements.
>
> \(2\) Consider stewardship property, plant, and equipment (PP&E)
> required supplementary information and perform the procedures
> described in AU Section 558, \"Required Supplementary Information,\"
> of the [Codification of Statements on Auditing Standards]{.underline}.
>
> \(3\) Consider stewardship investments (including non-Federal physical
> property (such as highways), human capital (expenditures for training
> and education), and research and development) required supplementary
> information and perform the procedures described in AU Section 558,
> \"Required Supplementary Information,\" of the [Codification of
> Statements on Auditing Standards]{.underline}.

(4) Determine whether risk-assumed information (including projections of
    pension, deposit, and other insurance programs required by SFFAS No.
    5, \"Accounting for Liabilities of the Federal Government\") is
    presented fairly in all material respects, in accordance with the
    requirements of SFFAS No. 5, and any subsequent revisions. In
    assessing the reasonableness of risk-assumed information, the
    auditor shall consider the need to follow the guidance in Auditing
    (AU) Section 336, Using the Work of a Specialist, of the
    [Codification of Statements on Auditing Standards]{.underline}.

> 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[^1], 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]{.underline} (FFMSR). As of the date of this Bulletin,
> the issuances in this series are:
>
> \-- [Framework for Federal Financial Management Systems]{.underline},
> FFMSR-0, January 1995,
>
> \-- [Core Financial System Requirements]{.underline}, FFMSR-1,
> September 1995,
>
> \-- [Personnel-Payroll System Requirements]{.underline}, FFMSR-2, May
> 1990,
>
> \-- [Travel System Requirements]{.underline}, FFMSR-3, January 1991,
>
> \-- [Seized/Forfeited Asset System Requirements]{.underline}, FFMSR-4,
> March 1993,
>
> \-- [Direct Loan System Requirements]{.underline}, FFMSR-5, December
> 1993,
>
> \-- [Guaranteed Loan System Requirements]{.underline}, FFMSR-6,
> December 1993,
>
> \-- [Inventory System Requirements]{.underline}, FFMSR-7, June 1995,
> and
>
> \-- [Managerial Cost Accounting]{.underline}, FFMSR-8, February 1998.
>
> f\. With respect to information accompanying the Principal Statements,
> 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.
>
> g\. With respect to required supplementary information referred to in
> paragraph 2.a.(4) of this Bulletin, the auditor shall perform the
> procedures described in AU Section 558, [Codification of Statements on
> Auditing Standards]{.underline}.
>
> 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]{.underline}. 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]{.underline}.
>
> \(1\) 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, 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]{.underline} 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 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]{.underline}.
>
> \(a\) With respect to reporting on other accompanying information,
> which includes the information referred to in paragraphs 2.a.(1),
> 2.a.(5), and 6.a.(5) of this Bulletin, the auditor shall follow AU
> Section 551, [Codification of Statements on Auditing
> Standards]{.underline}.
>
> \(b\) When stewardship PP&E and stewardship investments referred to in
> paragraphs 6.a.(2) and (3), respectively, and required supplementary
> information referred to in paragraph 2.a.(4) of this Bulletin are
> presented, the auditor shall follow AU Section 551.15, [Codification
> of Statements on Auditing Standards]{.underline}.
>
> \(c\) If the Principal 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
> or by reference in the auditor\'s report to an explanatory note in the
> Notes to Principal Statements 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]{.underline} and this Bulletin. If
> material weaknesses and other reportable conditions prevented the
> conduct of the audit in accordance with [Government Auditing
> Standards]{.underline} 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 auditors report on the Principal
> Statements shall include an explanatory paragraph identifying the
> nature of the change and referring the reader to the note to the
> Principal Statements that discusses the change in detail.
>
> \(2\) A report on internal control[^2], which shall at a minimum:
>
> \(a\) State that, with respect to internal control over financial
> reporting as described in paragraphs 2.g.(1) and (2) 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 entitys FMFIA report.

**APPENDIX E**

**ILLUSTRATIVE MANAGEMENT REPRESENTATION LETTER**[^3]

\[Entity Letterhead\]

\[Date of auditor\'s report\]

\[Name and title of head of audit organization\]

\[Address of audit organization\]

Dear \[name of head of audit organization\]:

This letter is in connection with your audits of the \[entity\'s\]
Principal Statements (also referred to as financial statements\") \[list
Principal Statements\] as of \[end of year(s) covered by Principal
Statements and for the year(s) then ended\] for the purposes of (1)
expressing an opinion as to whether the Principal Statements are
presented fairly, in all material respects, in conformity with Federal
accounting standards, and (2) reporting whether the agencys 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 auditors report, and pertain
to the period \[or periods\] covered by the 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 Principal
Statements and Required Supplementary Stewardship Information 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

a.  financial records and related data,

b.  where applicable, minutes of meetings of the Board of Directors \[or
    other similar bodies\] or summaries of actions of recent meetings
    for which minutes have not been prepared, and

c.  communications from OMB concerning noncompliance with or
    deficiencies in financial reporting practices.

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:

> a\. possible violations of laws or regulations whose effects should be
> considered for disclosure in the financial statements or as a basis
> for recording a loss contingency,
>
> b\. material liabilities or gain or loss contingencies that are
> required to be accrued or disclosed, that have not been accrued or
> disclosed, or
>
> c\. unasserted claims or assessments that are probable of assertion
> and that must be disclosed, that have not been disclosed.

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 Principal 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
Principal Statements or Required Supplementary Stewardship Information)
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:

> a\. Reliability of financial reporting - transactions are properly
> recorded, processed, and summarized to permit the preparation of the
> Principal Statements and Required Supplementary Stewardship
> Information in accordance with Federal accounting standards, and the
> safeguarding of assets against loss from unauthorized acquisition,
> use, or disposition;
>
> b\. Compliance with applicable laws and regulations - transactions are
> executed in accordance with: (i) laws governing the use of budget
> authority and other laws and regulations that could have a direct and
> material effect on the financial statements, and (ii) any other laws,
> regulations, and governmentwide policies identified by the Office of
> Management and Budget (OMB) in Appendix C of OMB Bulletin 98-08; and
>
> c\. Reliability of performance reporting - transactions and other data
> that support reported performance measures are properly recorded,
> processed, and summarized to permit the preparation of performance
> information in accordance with criteria stated by management.

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.

> \[Signed by Agency Head\]
>
> \[Signed by Chief Financial Officer\]

**APPENDIX F**

**ILLUSTRATIVE AUDITORS REPORT ON INTERNAL CONTROL**

*\[Addressee\]*

We have audited the Principal Statements (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]{.underline}, 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 agencys 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.[^4]

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 agencys
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, we considered \[*Name of Federal Agency*\]s internal
control over Required Supplementary Stewardship Information by obtaining
an understanding of the agencys internal controls, determined whether
these internal controls had been placed in operation, assessed control
risk, and performed tests of controls as required by OMB Bulletin 98-08
and not to provide assurance on these internal controls. Accordingly, we
do not provide assurance on such controls.

Finally, 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 auditors 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 agencys ability to collect, process, record, and summarize
> performance information and report performance measures in accordance
> with managements 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 agencys ability to
> collect, process, record, and summarize performance information and
> report performance measures in accordance with managements 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.

*\[Signature\]*

*\[Date\]*

**APPENDIX G**

**ILLUSTRATIVE AUDITORS REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS**

\[*Addressee*\]

We have audited the Principal Statements (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]{.underline}, 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 agencys 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^1^[^5] disclosed
instances of noncompliance with the following laws and regulations that
are required to be reported under [Government Auditing
Standards]{.underline} and OMB Bulletin 98-08, which are described
below.

> *Describe any instances of noncompliance required to be reported and
> list laws and regulations for which noncompliance was disclosed
> exclusive of FFMIA* \[*or provide such information in an accompanying
> schedule*\]

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]{.underline} or OMB Bulletin 98-08.

[^1]: ^?^Federal financial management systems requirements to be tested
    do not include those contained in the [Framework for Federal
    Financial Management Systems]{.underline} and [Travel System
    Requirements]{.underline}. These systems requirements do not affect
    an agencys ability to prepare financial statements in accordance
    with Federal accounting standards.

[^2]: ^?^ An illustrative auditors report on internal control is
    provided in Appendix F. Use of this guidance is optional.

[^3]: 8 This illustrative management representation letter must be
    customized to the situation of the audited entity. Representations
    number 1-13 relate to the opinion on the financial statements;
    numbers 14-16 relate to management\'s assertion about the
    effectiveness of internal control; numbers 17-19 relate to
    management\'s assertion about the financial management systems\'
    substantial compliance with Federal financial management system
    requirements; and numbers 20-22 relate to compliance with laws and
    regulations. AU Section 333, \"Management Representations,\"
    [Codification of Statements on Auditing Standards]{.underline},
    provides examples of additional representations that may be
    appropriate.

[^4]: 9 ^9^ If the objective is to express an opinion on the agencys
    internal controls over financial reporting, the auditor should
    follow Statement on Standards for Attestation Engagements No. 2,
    Reporting on an Entitys Internal Control Over Financial Reporting,
    issued by the American Institute of Certified Public Accountants.

[^5]: 0 ^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.