# Presentation: 049622

## Office of Inspector General and KPMG LLPPresentation at The CFO Financial Statement /Superusers Workshop

-  FY 2007 Financial Statement
- Audit – Overview, Issues, and Status

## Overview

- OIG’s Role in the Financial Statement Audit
- Results of FY 2006 Financial Statement Audit
- FY 2007 Financial Statement Audit Status
- Questions and Answers

## OIG’s Role in the Financial Statement Audit

- Coordinate with Audit Liaisons
- Announce Audit – HQ and Field
- Entrance and Exit Conference
- Audit Coordination Meetings, SAS 99 Interviews, EM Planning Meetings
- IPA and OIG Field Audit Activities
- Monitor Progress
- Review Planning Documents
- Review Key Work Papers
- Review Status Reports and Billings

## OIG Role in Financial Statement Audit (cont.)

- Coordinate Audit Activities with External Agencies (GAO, OMB, Treasury)
- Review and Distribute Audit Findings
- Review and Transmit Audit Opinion and Management Letters
- Directly participate in certain audit procedures (both IT and non-IT) at certain sites (new for 2007)
- Audit Coordination Committee Meetings

## OIG Role in Financial Statement Audit (cont.)

- Perform Quality Assurance Procedures
- Consolidated Audit Work Papers
- Separate Fund Audits
- Power Management Administrations
- Assist GAO in Oversight Efforts
- EM Site Visits
- Interviews with HQ-EM Officials

## OIG Points of Contact

- IG is Primary Point of Contact for Problems, Accounting or Auditing Issues
- Scott Ward
-     _[fredrick.ward@hq.doe.gov](mailto:fredrick.ward@hq.doe.gov)__; 301-903-8967_
- David Lamantia
-     _[david.lamantia@hq.doe.gov](mailto:david.lamantia@hq.doe.gov)__; 301-903-5376_
- Brad Milliron
-     _[bradley.milliron@hq.doe.gov](mailto:bradley.milliron@hq.doe.gov)__; 301-903-6614_

## Results of FY 2006 Financial Statement Audit 

- Qualified opinion relating to undelivered orders
- Material weakness in accounting for obligations and undelivered orders
- Reportable conditions in the following areas:
- Unclassified network and information systems security
- Performance measurement reporting

## Scope of the FY 2007 Audit

- Opinion on the Department’s consolidated financial statements and footnotes
- Review of *Management’s Discussion and Analysis*, required supplementary stewardship information *(RSSI),* and other required supplementary information *(RSI)*
- Opinion on the Closing Package
- AUP on intragovernmental transactions/balances
- Additional testing – undelivered orders – 10/1/06 opening balances at 8 sites

## Changes in Auditor’s Report for FY 2007:Communicating Internal Control Related Matters

- The definitions for material weaknesses and reportable conditions are different in 2007
- This terminology is consistent with AICPA and PCAOB standards

## Material Weakness Change

- Material Weakness – Old
- 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 caused by error or fraud, 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.
- Material Weakness – New
- A significant deficiency, or combination of significant deficiencies, that results in _more than a remote likelihood_ that a material misstatement of the financial statements will not be prevented or detected.

## Reportable Condition vs. Significant Deficiencies

- Reportable Condition – Old
- Matters relating to significant deficiencies in the design or operation of internal controls that could _adversely affect_ the entity’s ability to record, process, summarize, and report financial data consistent with the assertions by management.
- Significant Deficiencies – New
- Deficiencies in internal control that adversely affect the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with GAAP, such that there is _more than a remote likelihood_ that a _misstatement_ of the entity’s financial statements _that is more than inconsequential_ will not be prevented or detected.

## Additional New Definitions

- Remote – same as SFAS No. 5 – less than probable or possible (more than remote but less than likely)
- Inconsequential – a misstatement is inconsequential if a reasonable person would conclude that the misstatement, either individually or when aggregated with other misstatements, would clearly be immaterial to the financial statements

## Comparison 2006 to 2007

|  |  |
| --- | --- |
| Old Definitions | New Definitions  |
| Material weakness (GAGAS paragraph 5.14 and AU 325.15) | Material weakness   

 |
| Reportable condition (GAGAS paragraph 5.13 and AU 325.02)

 |  |
|  | Significant deficiency  

 |
| Management letter comment 
(GAGAS paragraph 5.16)
 |  |
|  | Other matters related to internal control  |

## Summary of 2006 Findings

- Obligations, Budget Execution and Funds Control
- IT
- Performance Measures
- Environmental liabilities (including EM and Active Facilities)
- Property, Plant and Equipment
- Procurement
- Inventory
- Grants
- Closing Package
- Financial Reporting

## Areas of Focus for FY 2007

- Undelivered orders remediation
- IT controls and network security
- Property, plant and equipment (including CWIP)
- Environmental liabilities (including EM, LM, active facilities, and other environmental liabilities)
- Nuclear materials (valuation, production costing, and disposition)
- Implementation of FAS 158, *Employers’ Accounting for Defined Pension and Other Postretirement Plans*
- Non-GAAP accounting policies

## Other Audit Areas and Topics

- Status of Yucca Mountain Project
- Liability for SNF litigation
- Continued phase-in of OMB Circular A-123
- Use of statistical sampling
- Surprise sites

## Other  Matters for FY 2007 

- Timing of field work and completion
- Monitoring by CFO management of requests for audit supporting documentation
- Findings process:
- Transmittal of prior year findings
- New findings
- Weekly meetings with ACC (KPMG, OIG, and OCFO) to discuss audit status as fieldwork progresses

## Status of Audit - FY 2007 Consolidated Financial Statements

- Planning work is completed
- Overall entrance conference was held 2/23/07
- UDO remediation audit work is in process – test work started in late February
- 2007 field work is in process at some locations
- Mostly IT work, so far
- Controls sampling will begin in late April
- Most EM/LM work is planned for July-September

## Questions?