October 16, 2000

OMB BULLETIN NO. 01-02

TO THE HEADS, INSPECTORS GENERAL, AND CHIEF FINANCIAL OFFICERS OF

EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS

SUBJECT: Audit Requirements for Federal Financial Statements

1. Purpose. This Bulletin, which includes an Attachment and Appendices A through I, establishes

minimum requirements for audits of Federal financial statements. The Bulletin is issued under the

authority of the Budget and Accounting Act of 1921, as amended, and the Budget and Accounting

Procedures Act of 1950, as amended. It implements the audit provisions of the Chief Financial

Officers (CFOs) Act of 1990 (P.L. 101-576), as amended, the Government Management Reform Act

(GMRA) of 1994 (P.L. 103-356), and the Federal Financial Management Improvement Act of 1996

(P.L. 104-208). The requirements of this Bulletin are set forth in the Attachment.

2. Applicability. The provisions of the Bulletin apply to audits of financial statements of executive

departments and agencies and certain components of these agencies, listed in Appendices A and B,

respectively.

3. Effective Date. The provisions of this Bulletin are effective for audits of financial statements for fiscal

years (FYs) ending on or after September 30, 2000. Audit reports 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 are prepared.

4. Inquiries. Further information concerning this Bulletin may be obtained by contacting the Office of

Management and Budget (OMB), Office of Federal Financial Management, Washington, DC 20503,

telephone (202) 395-3993.

5. Copies. Individual copies of this Bulletin may be obtained from the OMB website on the Internet at

http://www.whitehouse.gov/OMB/financial.

Jacob J. Lew

Director

Attachment
i

Significant Revisions to OMB Bulletin No. 98-08,

"Audit Requirements for Federal Financial Statements,” as amended

Current Bulletin Reference

(OMB 98-08, as amended

reference, if different, in

parentheses)

Revision Purpose of Revision

Paragraph 2

(OMB 98-08 ¶¶2 and 5)

Replaced "federal accounting

standards" with "generally

accepted accounting principles"

(GAAP) in the definitions in

paragraph 2 and removed former

paragraph 5, which discussed the

prior hierarchy of accounting

standards. Also made conforming

changes where applicable

throughout the Bulletin. 

To reflect the American Institute of

Certified Public Accountants'

(AICPA's) recognition of FASAB

standards as GAAP for Federal

government entities. Auditors may

now express an opinion that the

financial statements of a Federal

government entity are in conformity

with GAAP, if they are prepared in

accordance with FASAB standards. 

Paragraph 5

(OMB 98-08 No reference - added

new paragraph)

Added explicit guidance requiring

open and timely communication

throughout the audit.

To facilitate frequent and complete

communication of audit matters

between Inspectors General

(auditors) and agency management.

Paragraph 6 Reorganized the subparagraphs

under paragraph 6.

For clarity and to reduce

redundancy.

Current - No reference-former

paragraph deleted

(OMB 98-08 ¶6.a.(1)(c))

Deleted former paragraph 6.a.(1)(c). This guidance became obsolete with

the issuance of Statement of

Federal Financial Accounting

Standards (SFFAS) No. 14,

“Amendments to Deferred

Maintenance Reporting,” which was

effective for periods beginning after

September 30, 1998, and which

changed the location of deferred

maintenance information from a note

to the principal statements to

required supplementary information. 

Current Paragraph 6.b.(2)(c)

(OMB 98-08 ¶6.a.(5))

Changed treatment of social

insurance information from "other

accompanying information" to

required supplementary information

for audit purposes.

To revise the audit requirements for

social insurance information to

reflect SFFAS 17, "Accounting for

Social Insurance," which is effective

for FY 2000 and beyond.

Current Paragraph 6.e.

(OMB 98-08 ¶6.b)

Revised paragraph to emphasize

controls relating to intra-entity and

intra-governmental transactions

and balances. 

Ensure controls are in place and

operational relating to intra-entity

and intra-governmental transactions

and balances.
Significant Revisions to OMB Bulletin No. 98-08,

"Audit Requirements for Federal Financial Statements,” as amended

Current Bulletin Reference

(OMB 98-08, as amended

reference, if different, in

parentheses)

Revision Purpose of Revision

ii

Current Paragraph 6.h.

(OMB 98-08 ¶6.e.)

Deleted specific guidance on

testing Federal Financial

Management Improvement Act of

1996 ( FFMIA) requirements,

pending completion of revisions to

FFMIA implementation guidance.

An interagency task force is

revising implementation guidance

for FFMIA, which will be issued as a

separate document in the fall of

2000.

Current Paragraph 6.b.(1)

(OMB 98-08 ¶6.f.)

Consider Management's

Discussion and Analysis (MD&A,

previously referred to as Overview

of Reporting Entity) as required

supplementary information. 

To revise the audit requirements for

MD&A (Overview of Reporting

Entity) to reflect SFFAS No. 15,

"Management's Discussion and

Analysis," which is effective for FY

2000 and beyond.

Current Paragraph 6.j.

(OMB 98-08 No reference -added

new paragraph)

Added guidance to auditors to

consider audit guidance developed

by the Accounting and Auditing

Policy Committee (AAPC) and

issued by OMB.

To recognize AAPC audit guidance. 

Current Paragraphs 7.c.(1)(b)

(OMB 98-08 ¶7.c.(1)(a) and

7.c.(1)(b))

Revised reporting requirements for

MD&A and social insurance

information. 

To reflect the reporting based on the

audit requirements for the

information required by the new

accounting standards effective for

FY 2000 and beyond. 

Current Paragraph 8.

(OMB 98-08 ¶6.i.)

Relocated discussion of legal

letters to Paragraph 8. Added

requirement for management to

prepare a schedule in a prescribed

format to reflect how legal letter

information was considered in the

financial statements.

To provide additional guidance on

the preparation of legal letters and

to facilitate implementation of

management's financial reporting

responsibility for litigation and

related audit coverage. 

Appendix C Added specific provisions of

general laws to be tested.

To clarify that all provisions of the

general laws listed in Appendix C

need not be tested.

Appendix D Removed FFMIA implementation

guidance from the Bulletin.

An interagency task force is

revising implementation guidance

for FFMIA, which will be issued as a

separate document in the fall of

2000.
Significant Revisions to OMB Bulletin No. 98-08,

"Audit Requirements for Federal Financial Statements,” as amended

Current Bulletin Reference

(OMB 98-08, as amended

reference, if different, in

parentheses)

Revision Purpose of Revision

iii

Appendix E Revised illustrative management

representation letter to include

specific reference to reconciliation 

of intra-governmental transactions

with relevant trading partners.

To emphasize management's

responsibility for identifying intragovernmental transactions and

balances and reconciling data with

relevant trading partners.

Appendices F & G Revised illustrative auditor’s

reports to reflect requirements of

Statement on Auditing Standards

(SAS) No. 87, “Restricting the Use

of an Auditor’s Report.”

To illustrate the requirements of 

SAS No. 87 and clarify the auditor’s

responsibility for internal control

and compliance.

Appendix H

(OMB 98-08 No reference - added

new appendix)

Added new Appendix H, with three

distinct documents: illustrative

legal letter inquiry (H-1), illustrative

legal letter response (H-2), and

format for management's schedule

of legal letter information (H-3).

To provide additional guidance on

the preparation of legal letters to

conform with AU Section 337

requirements of the Codification of

Statement on Auditing Standards,

and to facilitate the collection of

data concerning litigation, claims,

and assessments for agency-wide

and government-wide reporting.

Appendix I

(OMB 98-08 Appendix H)

OPM’s Agreed Upon Procedures

(AUPs), formerly presented in

Appendix H, have been redesignated Appendix I. OPM’s

AUPs revised to reflect the use of

RITS data vs. data from Form 2812.

To reflect more widespread use of

electronic information.
 

1

 This list is included in OMB's Form and Content Bulletin, which prescribes the Principal

Statements that shall be prepared.

1

OMB Bulletin No. 01-02 ATTACHMENT

AUDITS OF FEDERAL FINANCIAL STATEMENTS

1. BACKGROUND. The Government Management Reform Act (GMRA) of 1994 amended the

requirements of the Chief Financial Officers (CFOs) Act of 1990 by requiring, among other things, the

annual preparation and audit of organizationwide financial statements of 24 executive departments and

agencies (Appendix A). The GMRA also requires audited financial statements of components of

executive departments and agencies designated by the Director of the Office of Management and

Budget (OMB), which are identified in Appendix B. In addition, the Federal Financial Management

Improvement Act (FFMIA) of 1996 requires, among other things, that the report on these audits state

whether the agency financial management systems comply substantially with Federal financial

management systems requirements, applicable Federal accounting standards, and the U.S. Government

Standard General Ledger at the transaction level. 

2. DEFINITIONS. For the purposes of this Bulletin, the following definitions apply:

a. "Annual Financial Statement" means the financial statement of a reporting entity as

described in Section 3515 of Title 31 of the United States Code and OMB Bulletin 97-

01, "Form and Content of Agency Financial Statements" and subsequent issuances

(OMB's Form and Content Bulletin), and, shall be comprised of:

(1) Management's Discussion and Analysis (also called Overview of the Reporting

Entity).

(2) Principal Statements and Related Notes. The Principal Statements1 include the

following financial statements and notes thereto:

(a) Balance Sheet.

(b) Statement of Net Cost.

(c) Statement of Changes in Net Position.

(d) Statement of Budgetary Resources.

(e) Statement of Financing.

(f) Statement of Custodial Activity, if applicable.

(g) Notes to Principal Statements.

(3) Required Supplementary Stewardship Information, if applicable.

(4) Required Supplementary Information, if applicable.

(5) Other Accompanying Information, if applicable.
2

b. Codification of Statements on Auditing Standards is a codification of Statements on

Auditing Standards issued by the American Institute of Certified Public Accountants

(AICPA). The AICPA's standards of field work and reporting are incorporated in

their entirety in Government Auditing Standards by reference.

c. "Federal Financial Management Improvement Act of 1996 (FFMIA) section 803(a)

requirements" are Federal financial management systems requirements, applicable

Federal accounting standards, and the United States Government Standard General

Ledger at the transaction level. Agencies are required to establish and maintain

financial management systems that comply substantially with these requirements.

d. "Generally accepted accounting principles" (GAAP) for Federal government entities are

identified in Statement on Auditing Standards (SAS) No. 91, Federal GAAP

Hierarchy, Amendment to SAS 69, The Meaning of Present Fairly In Conformity

With Generally Accepted Accounting Principles in the Independent Auditor's Report,

which is codified in AU Sections 411.11- 411.16 of the AICPA's Codification of

Statements on Auditing Standards. Federal financial statements shall be prepared in

accordance with OMB Bulletin No. 97-01, “Form and Content of Agency Financial

Statements,” and subsequent OMB issuances. The requirements of OMB’s Form and

Content Bulletin are generally accepted accounting principles because they constitute

“practices that are widely recognized and prevalent in the federal government” under

category (d) of the Federal GAAP Hierarchy. 

e. Government Auditing Standards are those standards issued by the Comptroller General

of the United States.

f. "Independent auditor" means an auditor who meets the independence standards

specified in the Government Auditing Standards.

g. "Internal control" as it relates to the Principal Statements and Required Supplementary

Stewardship Information, is a process, effected by the agency's management and other

personnel, designed to provide reasonable assurance that the following objectives are

met:

(1) 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 generally accepted accounting principles, and assets are

safeguarded against loss from unauthorized acquisition, use, or disposition;

(2) Compliance with applicable laws and regulations - transactions are executed in

accordance with: (a) laws governing the use of budget authority and other laws

and regulations that could have a direct and material effect on the Principal
3

Statements or Required Supplementary Stewardship Information, and (b) any

other laws, regulations, and governmentwide policies identified by OMB in

Appendix C of this Bulletin; and

(3) 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.

h. "Management letter" means a letter prepared by the auditor which discusses findings

and recommendations for improvements in internal control, that were identified during

the audit and were not required to be included in the auditor's report on internal control,

and other management issues. See Chapter 5, paragraph 5.28 of Government Auditing

Standards.

i. "Management's Discussion and Analysis (MD&A)" means a brief narrative overview,

prepared by management, which describes the reporting entity and its mission,

activities, program and financial results, and financial condition. Statement of Federal

Financial Accounting Standards (SFFAS) No. 15, Management's Discussion and

Analysis, requires MD&A to be included in each annual financial statement as required

supplementary information. OMB’s Form and Content Bulletin refers to MD&A as

"Overview of the Reporting Entity" and provides additional guidance. 

j. "Material weaknesses in internal control" are reportable conditions in which the design

or operation of the internal control does not reduce to a relatively low level the risk that

errors, fraud or noncompliance in amounts that would be material in relation to the

Principal Statements or Required Supplementary Stewardship Information being

audited, or material to a performance measure or aggregation of related performance

measures, may occur and not be detected within a timely period by employees in the

normal course of performing their assigned functions. The auditor shall use this

definition of material weaknesses to report on an entity's internal control in accordance

with the requirements of Government Auditing Standards and this Bulletin, rather than

the definition of material weaknesses used by management to prepare an agency's

Federal Managers' Financial Integrity Act (FMFIA) of 1982 report.

k. "Reportable conditions" are matters coming to the auditor's attention that, in the

auditor's judgment, should be communicated because they represent significant

deficiencies in the design or operation of internal control, that could adversely affect the

organization's ability to meet the objectives in paragraph 2.g. of this Bulletin.

l. "Reporting Entity" means one of the executive departments and agencies and

components of such departments and agencies listed in Appendices A and B, or an

agency, bureau, or other organization that represents a meaningful unit for program
4

management, for which a financial statement is prepared, and for which management

chose to have an audit performed in accordance with this Bulletin. OMB’s Form and

Content Bulletin further defines "Reporting Entity."

m. "United States Government Standard General Ledger (SGL)" means the uniform chart

of accounts prescribed by the Department of the Treasury in its Treasury Financial

Manual.

3. FREQUENCY OF AUDIT. Audits shall be performed annually.

4. RESPONSIBILITY FOR AUDIT. For purposes of this Bulletin, the following responsibilities

apply:

a. For the 24 executive departments and agencies and selected components of such

departments and agencies listed in Appendices A and B, the audits of financial

statements shall be performed by the Inspector General (IG) of the executive

department or agency or by an independent auditor as determined by the IG.

b. GMRA provides that, in lieu of an audit otherwise required, the Comptroller General of

the United States may, at his or her discretion and following consultation with the IG,

perform the audit.

5. COMMUNICATION. There shall be open and timely communication between agency

management, including the CFO, and the Inspector General (and the audit firm, if the audit is contracted

out) throughout the audit process. The purpose of this communication is to ensure that all parties are

kept up to date on the progress and results of the audit to avoid "surprises" at the end. Matters that

should be communicated include, but are not limited to, the following:

a. The audit timetable and changes thereto,

b. Issues or problems arising in the conduct of the audit, including the inability or difficulty

in gaining access to records or lack of cooperation of agency personnel, and

c. Potential audit findings as they are developed, including indications of materially

misstated or unsupported amounts in the financial statements, reportable conditions and

material weaknesses in internal control, and material noncompliance with laws and

regulations (including FMFIA). 

6. SCOPE OF AUDIT. Financial statements shall be audited in accordance with Government

Auditing Standards and the provisions of this Bulletin. 

a. The auditor shall determine whether the Principal Statements present fairly, in all

material respects, in conformity with generally accepted accounting principles, the
5

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.

(1) 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.

(2) 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.

b. The auditor shall perform the procedures described in AU Section 558, "Required

Supplementary Information," of the Codification of Statements on Auditing Standards

for the following:

(1) Management's Discussion and Analysis. 

(2) Required Supplementary Stewardship Information, including:

(a) Stewardship property, plant, and equipment (PP&E) (including national

defense assets (weapon systems and systems support), stewardship

land (most Federally-owned lands, such as national parks, but

excluding land that meets the definition of general PP&E), and heritage

assets (those assets having historical, natural cultural, educational,

architectural, or artistic characteristics)),

(b) Stewardship investments (including non-Federal physical property

(such as highways), human capital (expenditures for training and

education), and research and development), and

(c) Social insurance information.

(3) Required Supplementary Information referred to in paragraph 2.a.(4) of this

Bulletin.

c. The auditor shall 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
6

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.

d. The auditor shall assess whether the other accompanying information referred to in

paragraph 2.a.(5) of this Bulletin, or its manner of presentation, is materially inconsistent

with the information in the Principal Statements. 

e. With respect to the internal control objectives described in paragraphs 2.g. (1) and (2)

of this Bulletin relating to the Principal Statements and Required Supplementary

Stewardship Information, the auditor shall obtain an understanding of the components

of internal control (see AU Section 319.07 of the Codification of Statements on

Auditing Standards) and assess the level of control risk relevant to the assertions

embodied in the classes of transactions, account balances, and disclosure components

of the financial statements. Such controls include relevant EDP general and application

controls and controls relating to intra-entity and intra-governmental transactions and

balances. For those internal controls that have been properly designed and placed in

operation, the auditor shall perform sufficient tests to support a low assessed level of

control risk. See AU Section 319.45-.63 of the Codification of Statements on Auditing

Standards. Those internal controls that have not been properly designed or placed in

operation and those internal controls that are found to be ineffective shall be reported in

accordance with paragraph 7 of this Bulletin.

(1) In obtaining an understanding of the components of internal control, particularly

the risk assessment component, and assessing control risk, the auditor shall

obtain an understanding of the process by which the agency identifies and

evaluates weaknesses required to be reported under FMFIA and related

agency implementing procedures.

(2) The auditor shall compare material weaknesses disclosed during the audit with

those material weaknesses reported in the agency's FMFIA report that relate to

the financial statements of the entity under audit and document material

weaknesses disclosed by audit that were not reported in the agency’s FMFIA

report. The auditor should consider whether the failure to detect and report

material weaknesses constitutes a reportable condition or material weakness in

the entity’s internal control.

f. With respect to the internal control objective described in paragraph 2.g. (3) of this

Bulletin relating to performance measures, the auditor shall obtain an understanding of

the components of internal control relating to the existence and completeness assertions

relevant to the performance measures included in the MD&A. Those internal controls
 

2

 An interagency task force is revising the FFMIA implementation guidance formerly located in

Appendix D of the OMB Audit Bulletin. It will be issued as a separate document in the fall of 2000.

7

that have not been properly designed and placed in operation shall be reported in

accordance with paragraph 7 of this Bulletin. The objective of gaining an understanding

of internal control in this subparagraph is to report deficiencies in the design of internal

control, rather than to plan the financial statement audit. 

g. 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, including laws governing the use of budget authority, and any other laws,

regulations, and governmentwide policies identified by OMB in Appendix C of this

Bulletin.

h. The auditor shall perform tests of the entity's compliance with Federal Financial

Management Improvement Act of 1996 (FFMIA), section 803(a) requirements. This

provision only applies to audits of entities listed in Appendices A and B.2

i. 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. An

illustrative management representation letter is provided in Appendix E.

j. In planning and performing the audit, the auditor should consider relevant audit

guidance contained in documents developed by the Accounting and Auditing Policy

Committee (AAPC) and adopted by OMB. 

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. 

b. The audit report(s) shall state that the audit was made in accordance with Government

Auditing Standards and the provisions of this Bulletin.
8

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 generally accepted

accounting principles. See AU Section 508 of the Codification of Statements

on Auditing Standards.

(a) If the Principal Statements are materially affected by a departure from

generally accepted accounting principles, the auditor shall issue a

qualified or adverse opinion and include an explanatory paragraph that

describes 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. If

the effects of the departure(s) are disclosed in a note to the Principal

Statements, the explanatory paragraph may be shortened by referring

to it.

(b) 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 and this Bulletin. If material

weaknesses and other reportable conditions prevented the conduct of

the audit in accordance with Government Auditing Standards 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).

(c) When there is a change in accounting principles, for example, changes

to comply with SFFASs, the auditor’s 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.

(d) With respect to reporting on MD&A, required supplementary

stewardship information, and required supplementary information

referred to in paragraph 6.b., the auditor shall follow AU Section

551.15 of the Codification of Statements on Auditing Standards.

(e) With respect to reporting on other accompanying information referred

to in paragraph, 2.a.(5), the auditor shall follow AU Section 551,

“Reporting on Information Accompanying the Basic Financial
 

3

 An illustrative auditor’s report on internal control is provided in Appendix F. Use of this guidance

is optional.

 

4

 An illustrative auditor's report on compliance with laws and regulations is provided in Appendix G. 

Use of this guidance is optional.

9

Statements in Auditor-Submitted Documents,” of the Codification of

Statements on Auditing Standards.

(2) A report on internal control3, 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 MD&A, 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 control.

(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 entity’s FMFIA report.

(3) A report on the reporting entity's compliance with applicable laws, regulations,

and governmentwide policy requirements.4

(a) The auditor shall report noncompliance with laws and regulations

disclosed by audit, except for those instances of noncompliance that, in

the auditor's judgment, are clearly inconsequential. In meeting this

requirement, the auditor shall list those laws and regulations that tests

disclosed reportable instances of noncompliance.
 

5

 An interagency task force is revising the FFMIA implementation guidance formerly located in

Appendix D of the OMB Audit Bulletin. It will be issued as a separate document in the fall of 2000.

10

(b) With respect to laws and regulations tested for which the audit

disclosed no reportable instances of noncompliance, the report shall

state that the audit disclosed no reportable instances of noncompliance

with these laws and regulations. A listing of these laws and regulations

is not required.

(c) Section 803(b) of FFMIA requires the auditor to report whether the

reporting entity’s financial management systems substantially comply

with FFMIA section 803(a) requirements.5 To meet this requirement,

for each of the three FFMIA section 803(a) requirements, the audit

report shall reflect instances in which the reporting entity’s systems did

not substantially comply with the requirement, or state that the audit

disclosed no instances in which the reporting entity’s systems did not

substantially comply. If the audit disclosed no instances of substantial

noncompliance with any of the three FFMIA section 803(a)

requirements, a single statement to this effect is sufficient. Where tests

disclosed that the reporting entity’s systems did not substantially comply

with one or more of the three requirements, the auditor’s report on

compliance, (or an accompanying schedule that is referenced in the

compliance report) should group findings together based on the

requirement they relate to (i.e., Federal financial management systems

requirements, applicable Federal accounting standards, or the U.S.

Standard General Ledger) and, as required by FFMIA:

(i) Identify the entity or organization responsible for the financial

management systems that were found not to comply with the

requirements.

(ii) Include all facts pertaining to the noncompliance, including the

nature and extent of the noncompliance, the primary reason or

cause of the noncompliance, and any relevant comments from

reporting entity management or employees responsible for the

noncompliance.

(iii) Provide recommended remedial actions and the time frames to

implement such actions.
11

(d) With respect to the objectives of tests of compliance generally, the

auditor’s report on compliance shall state whether or not providing an

opinion on compliance was an objective of the audit and whether or not

the tests performed provided sufficient evidence to support an opinion.

d. In preparing the reports in paragraph 7.c., the auditor shall report the status of known

but uncorrected material findings and recommendations from prior audits that affect the

current audit objectives. See Chapter 4, paragraphs 4.7, 4.10, and 4.11 of

Government Auditing Standards.

e. The reporting entity shall provide comments on the auditor's findings and

recommendations included in the audit report, including corrective actions taken or

planned and comments on the status of corrective actions taken on prior findings. To

the extent practical, these comments shall be included in the audit report on internal

control or report on compliance, as applicable. If corrective actions are not necessary,

an explanatory statement shall be included in the applicable audit report.

f. Copies of the audit report shall be distributed to the head of the executive department

or agency and subsequently included in the CFO’s annual report or the agency’s

Accountability Report.

8. LEGAL LETTERS AND MANAGEMENT'S SCHEDULES. In accordance with AU Section

337, "Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments," of the Codification

of Statements on Auditing Standards, 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 Appendix H-1 for an illustrative letter of inquiry from entity management to legal

counsel.) Management should document in a schedule how the information contained in the legal

counsel's response(s) was considered in preparing the financial statements. Legal letters and

management's schedules are required for the audits of agency financial statements and the "Financial

Report of the United States Government."

a. Legal counsels shall consider the guidance contained in the American Bar Association's

"Statement of Policy Regarding Lawyers' Responses to Auditors' Request for

Information" (December 1975) in preparing their responses. (See Appendix H-2 for

an illustrative response letter from legal counsel to the auditor).
12

b. To satisfy management's responsibilities under SFFAS 5, Accounting for Liabilities of

the Federal Government, as amended, related to contingent liabilities arising from

litigation, and to facilitate the audit thereof, the CFO shall prepare a schedule to

document how the information contained in the legal counsel's response was considered

in preparing the financial statements. (See Appendix H-3 for the format to be used for

management's schedule.) 

c. The timing of legal letter requests, responses, and related management's schedules shall

be coordinated between agency legal counsel, agency management, and the auditor, in

consideration of the following:

(1) Audit of agency financial statements. The auditor's request to agency

management to send a letter of inquiry to agency counsel should follow AU

Section 337 of the Codification of Statements of Auditing Standards, and its

interpretations (AUI Section 337), with respect to the timing of the letter of

inquiry and the effective and response dates for the legal counsel response(s). 

Management's schedule should be provided at the same time as the legal

counsel's response is provided to the auditor. Depending on the anticipated

completion date for the agency's financial statement audit, the auditor, CFO and

legal counsel may want to plan the timing of the requests, legal responses and

management schedules to minimize the need to obtain additional or updated

legal counsel responses and management schedules for the consolidated audit. 

(See paragraph 8.c.(2) below.) 

(2) Audit of the "Financial Report of the United States Government." The letter of

inquiry should be sent to legal counsel no later than October 15 after the end of

the fiscal year. Interim and updated agency legal counsel responses and

management schedules, effective no earlier than December 1 and February 15,

respectively, shall be submitted to the auditor. Updated legal responses and

management schedules need only include changes from the interim

responses/schedules, or a statement that there are no changes. After applying

applicable audit procedures, interim and updated legal letters and management

schedules shall be submitted by the Inspector General to OMB (Deputy

Controller, Office of Federal Financial Management), Department of the

Treasury (Commissioner, Financial Management Service), and the General

Accounting Office (Managing Director, Finance and Assurance Team) no later

than December 31 and March 6, respectively. Mailing addresses for these

officials can be found on the OMB website at

http://www.whitehouse.gov/OMB/financial.

9. MANAGEMENT LETTER. Other deficiencies in internal control, that are not required to be

included in the audit report, but that the auditor considers necessary to communicate, should be

separately communicated to management of the reporting entity in a management letter. If a
13

management letter containing other deficiencies in internal control is issued, the auditor shall refer to that

management letter in the auditor's report on internal control (see paragraph 5.28 of Government

Auditing Standards).

10. AGREED-UPON PROCEDURES: RETIREMENT, HEALTH BENEFITS, AND LIFE

INSURANCE WITHHOLDINGS/CONTRIBUTIONS AND SUPPLEMENTAL SEMIANNUAL

HEADCOUNT REPORT SUBMITTED TO THE OFFICE OF PERSONNEL MANAGEMENT

(OPM). The Agreed-Upon Procedures (AUPs) enumerated in Appendix I-1 shall be performed

annually for each entity listed in Appendix A. See AU Section 622, "Engagements to Apply AgreedUpon Procedures to Specified Elements, Accounts, or Items of a Financial Statement," of the

Codification of Statements on Auditing Standards. The AUPs are designed to assist OPM in assessing

the reasonableness of the Retirement, Health Benefits, and Life Insurance withholdings/contributions as

well as semiannual headcount information submitted by agencies. The AUPs shall be applied to the 12

months ended September 30 of each year. To facilitate meeting the reporting deadline specified in

paragraph 10.b., interim work is encouraged. If a specific AUP cannot be performed, the auditor

should submit to OPM written proposed alternate procedures that would accomplish the AUP

objectives. 

a. The AUPs shall be applied separately, and the results reported separately, for each

Agency Payroll Office (APO) that services 30,000 or more employees.

(1) If an agency does not have an APO that services 30,000 or more employees, it

shall perform the AUPs on its largest APO serviced by the employing agency. 

If a cross-servicing agency does not have an APO that services 30,000 or

more employees, the AUPs must be applied to the largest APO serviced by the

cross-servicing agency.

(2) Where an agency performs payroll cross-servicing functions for other agencies,

the auditor of the cross-servicing agency will be the principal auditor for the

purpose of applying these AUPs. The extent of participation by the auditors for

the employing agencies should be determined in conjunction with the principal

auditor. 

b. The report on the application of these procedures shall be submitted no later than the

December 15 following the end of the fiscal year for which the financial statements are

prepared. To the extent practical, management’s comments on the auditor’s findings

shall be included in the report. Agencies shall notify OPM by November 15 of each

year at the address in 10c. of any anticipated delays or difficulties in completing the

AUPs and submitting the required report by the December 15 deadline.
14

c. Agencies shall submit three copies of the report on the application of these procedures

to the Inspector General of OPM at the following address:

U.S. Office of Personnel Management

Office of Inspector General

Room 6400

1900 E Street, N.W.

Washington, DC 20415

11. INSPECTOR GENERAL OVERSIGHT.

a. IGs shall:

(1) Ensure that audits are performed and audit reports completed in a timely

manner and in accordance with the requirements of this Bulletin. This

responsibility pertains to audits conducted directly by IG staff and audits

conducted by independent auditors under contract.

(2) Provide technical advice and liaison to agency officials and independent

external auditors.

(3) Obtain or conduct quality control reviews of audits made by independent

external auditors and provide the results, when appropriate, to other interested

organizations.

(4) Monitor and report on management's progress in resolving audit findings related

to audits made pursuant to this Bulletin, in accordance with the Inspector

General Act of 1978, as amended, the provisions of OMB Circular A-50,

"Audit Followup," and FFMIA.

b. IGs are encouraged to work with CFOs to accelerate the preparation of financial

statements, and to accelerate the completion of audits.
15

Table of Appendices

Appendix A: Executive Departments and Agencies Required to Prepare Financial Statements

Appendix B: Components of Executive Departments and Agencies Required to Prepare Financial

Statements

Appendix C: General Laws

Appendix D: The Federal Financial Management Improvement Act of 1996–OMB Implementation

Guidance for CFOs and IGs (This guidance is being revised by an interagency task

force and is expected to be issued as a separate document in the Fall of 2000.) 

Appendix E: Illustrative Management Representation Letter

Appendix F: Illustrative Auditor’s Report on Internal Control

Appendix G: Illustrative Auditor’s Report on Compliance with Laws and Regulations

Appendix H: Guidance Regarding Legal Letters

H-1: Illustrative Letter of Inquiry from Agency Management to Legal Counsel

Concerning Contingent Liabilities for Litigation, Claims, and Assessments 

H-2: Illustrative Response from Legal Counsel Concerning Litigation, Claims, and

Assessments

H-3: Format for Management's Schedule of Information Contained in Legal

Responses for Financial Reporting Purposes

Appendix I: Agreed-Upon Procedures: Retirement, Health Benefits, and Life Insurance

Withholdings/Contributions and Supplemental Semiannual Headcount Report

Submitted to the Office of Personnel Management

I-1: Agreed-Upon Procedures

I-2: Illustrative Independent Accountants Report on the Application of AgreedUpon Procedures
16

APPENDIX A

EXECUTIVE DEPARTMENTS AND AGENCIES REQUIRED TO PREPARE FINANCIAL

STATEMENTS

Department of Agriculture

Department of Commerce

Department of Defense

Department of Education

Department of Energy

Department of Health and Human Services

Department of Housing and Urban Development

Department of the Interior

Department of Justice

Department of Labor

Department of State

Department of Transportation

Department of the Treasury

Department of Veterans Affairs

Agency for International Development

Environmental Protection Agency

Federal Emergency Management Agency

General Services Administration

National Aeronautics and Space Administration

National Science Foundation

Nuclear Regulatory Commission

Office of Personnel Management

Small Business Administration

Social Security Administration
 

6

 The requirement for components to prepare financial statements may be satisfied by presenting the

components separately in consolidating agencywide financial statements and conducting an audit, in

accordance with this Bulletin, at the consolidating financial statement level.

17

APPENDIX B

COMPONENTS OF EXECUTIVE DEPARTMENTS AND AGENCIES REQUIRED TO

PREPARE FINANCIAL STATEMENTS6

Department of Agriculture

Food and Nutrition Service

Forest Service

Rural Development Mission Area

Department of Defense

Department of Army General Funds

Department of Navy General Funds

Department of Air Force General Funds

Military Retirement Trust Fund

U.S. Army Corps of Engineers Civil Works Program

Department of Army Working Capital Fund

Department of Navy Working Capital Fund

Department of Air Force Working Capital Fund

Department of Health and Human Services

Health Care Financing Administration

Department of Transportation

Federal Aviation Administration

Highway Trust Fund

Department of the Treasury

Bureau of Alcohol, Tobacco and Firearms

Internal Revenue Service

United States Customs Service

Office of Personnel Management

Civil Service Retirement and Disability Fund

Federal Employees Health Benefits Program

Federal Employees Life Insurance Program
 

7

 The auditor is not expected to test all provisions of each law presented. However, the auditor is

expected to test, at a minimum, the provisions cited above. 

18

APPENDIX C

GENERAL LAWS7

Anti-Deficiency Act (codified as amended in 31 U.S.C. 1341, 1342, 1351, 1517)

• 31 U.S.C. 1341(a)(1)(A) and (C)

• 31 U.S.C. 1517 (a)

Provisions Governing Claims of the United States Government as provided primarily in sections 3711-

3720E of Title 31, United States Code (including provisions of the Debt Collection Improvement Act

of 1996, Pub. L. No. 104-134, 110 Stat. 1321-358, which also is codified in various sections of 5

U.S.C., 18 U.S.C., 26 U.S.C., 28 U.S.C., 31 U.S.C., 42 U.S.C.)

• 31 U.S.C. 3711

• 31 U.S.C. 3717 (a), (b), (c), (e) and (f)

• 31 U.S.C. 3719

Federal Credit Reform Act of 1990, Pub. L. No. 101-508, 104 Stat. 1388-610 (codified in various

sections of 2 U.S.C.)

• 2 U.S.C. 661(b) and (e)

Pay and Allowance System for Civilian Employees as provided primarily in Chapters 51-59 of Title 5,

United States Code

• 5 U.S.C. 5332 and 5343

• 29 U.S.C. 206

Prompt Payment Act (codified as amended in 31 U.S.C. 3901-3907) 

• 31 U.S.C. 3902(a), (b), and (f)

• 31 U.S.C. 3904
19

APPENDIX D

THE FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996

OMB IMPLEMENTATION GUIDANCE FOR CFOs and IGs

This guidance is being revised by an interagency task force and it is expected to issued as a

separate document in the fall of 2000.
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, provides examples of additional representations that may be appropriate.

20

APPENDIX E

ILLUSTRATIVE MANAGEMENT REPRESENTATION LETTER8

[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 generally accepted

accounting principles, and (2) reporting whether the agency’s 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 auditor’s 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 generally accepted accounting

principles.
21

2. The financial statements are fairly presented in conformity with 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 the Office of Management and Budget (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-entity transactions and balances have been appropriately identified and eliminated for

financial reporting purposes, unless otherwise noted. All intra-governmental transactions and

balances have been appropriately recorded, reported, and disclosed. We have reconciled intragovernmental transactions and balances with the appropriate trading partners for the four

fiduciary transactions identified in Treasury's Intra-governmental Fiduciary Transactions

Accounting Guide, and other intra-governmental asset, liability and revenue amounts as required

by OMB Bulletin 97-01, as amended. 

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;
22

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 generally accepted

accounting principles, and that assets are safeguarded 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 government wide policies identified by the Office of

Management and Budget (OMB) in Appendix C of OMB's Audit Bulletin; 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, 20XX [or date of latest audited financial statements]

provided reasonable assurance that the foregoing objectives are met.
23

If there are material weaknesses in internal control, the foregoing representation should be

modified to read: “Those controls in place on September 30, 20XX, 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, 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 guidance issued by OMB.

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 substantially comply with only one or two of the

above elements, this representation should be modified as in the following example: 

As of [date of financial statements], the entity's financial management systems comply substantially

with [specify which of the three elements for which there is substantial compliance (e.g.,

applicable Federal standards and the SGL at the transaction level)], but did not comply

substantially with [specify which of the elements for which there was a lack of substantial

compliance (e.g., federal financial management systems requirements)] as described below (or in

an attachment).]

[If the financial management systems do not comply substantially with any of the three

elements, use the following paragraph:

As of [date of financial statements], the entity's financial management systems do not comply

substantially with the Federal financial management systems requirements. This representation

does not change the representation in paragraph 2 of this letter.]

If there is a lack of substantial compliance with one or more of the three 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. 

20. We are responsible for [entity's] compliance with applicable laws and regulations.
24

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]
 

9

 If the objective is to express an opinion on the agency’s internal control over financial reporting,

the auditor should follow Statement on Standards for Attestation Engagements No. 2, “Reporting on an

Entity’s Internal Control Over Financial Reporting,” issued by the American Institute of Certified Public

Accountants.

25

APPENDIX F

ILLUSTRATIVE AUDITOR’S 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, issued by the Comptroller General of the United States; and, Office of Management and

Budget (OMB) Bulletin No. 01-02, "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 agency’s internal control, determined whether

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. We limited our internal control testing to those controls necessary to achieve the objectives

described in OMB Bulletin No. 01-02. We did not test all internal controls relevant to operating

objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982, such as those

controls relevant to ensuring efficient operations. The objective of our audit was not to provide

assurance on internal control. Consequently, we do not provide an opinion on internal control.9

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 agency’s 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. Because of inherent limitations in internal controls, misstatements, losses, or

noncompliance may nevertheless occur and not be detected. However, we noted certain matters
26

[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 agency’s internal control,

determined whether these internal controls had been placed in operation, assessed control risk, and

performed tests of controls as required by OMB Bulletin No. 01-02 and not to provide assurance on

these internal controls. Accordingly, we do not provide an opinion on such controls.

Finally, with respect to internal control 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 No. 01-02. 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 auditor’s 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 agency’s ability to collect, process, record, and

summarize performance information and report performance measures in accordance with

management’s 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 agency’s ability to collect, process,

record, and summarize performance information and report performance measures in

accordance with management’s criteria.” 

This report is intended solely for the information and use of the management of [Name of Federal

Agency], OMB and Congress, and is not intended to be and should not be used by anyone other than

these specified parties. 

[Signature]

[Date]
 

10 FFMIA requires reporting on whether an agency's financial management systems substantially

comply with the FFMIA section 803 (a) requirements relating to Federal financial management systems

requirements, applicable Federal 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.

27

APPENDIX G

ILLUSTRATIVE AUDITOR’S 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, issued by the Comptroller General of the United States; and, Office of Management and

Budget (OMB) Bulletin No. 01-02, "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 agency’s

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 No. 01-02, including the requirements referred to in the Federal Financial Management

Improvement Act (FFMIA) of 1996. We limited our tests of compliance to these provisions and we

did not test compliance with all laws and regulations applicable to [Name of Agency].

The results of our tests of compliance with the laws and regulations described in the preceding

paragraph exclusive of FFMIA10 disclosed instances of noncompliance with the following laws and

regulations that are required to be reported under Government Auditing Standards and OMB Bulletin

No. 01-02, 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]
28

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 or OMB Bulletin No.01-02.

Under FFMIA, we are required to report whether the agency’s financial management systems

substantially comply with the Federal financial management systems requirements, applicable Federal

accounting standards, and the United States Government Standard General Ledger at the transaction

level. To meet this requirement, we performed tests of compliance with FFMIA section 803(a)

requirements.

The results of our tests disclosed no instances in which the agency’s financial management systems did

not substantially comply with the three requirements discussed in the preceding paragraph.

[If the results of tests disclosed that the agency’s systems did not substantially comply with one

or more of the foregoing requirements, the preceding sentence should be replaced with the

following:

The results of our tests disclosed instances, described below (or described in an accompanying

schedule), where the agency’s financial management systems did not substantially comply with 

[specify which of the three requirements where a lack of substantial compliance was found,

e.g. Federal financial management systems requirements and the U.S. Government

Standard General Ledger at the transaction level]. 

[If the results of the audit disclosed no lack of substantial compliance with one or two of

the foregoing requirements, add the following:

The results of our tests disclosed no instances in which the agency's financial management systems

did not substantially comply with [specify which of the three requirements where a lack of

substantial compliance was not found, e.g., applicable Federal accounting standards].

In addition, when tests disclosed that the agency’s systems did not substantially comply with the

foregoing requirements, the auditor’s report on compliance or an accompanying schedule should

provide the following information as required by FFMIA and paragraph 7.c.(3)(c) of this

Bulletin. Findings should be grouped together based on the requirement they relate to (i.e.,

Federal financial management systems requirements, applicable Federal accounting standards,

or the U.S. Government Standard General Ledger). 

1. The entity or organization responsible for the financial management systems that were

found not to comply with the requirements.

2. All facts pertaining to the noncompliance, including: (a) the nature and extent of the

noncompliance, (b) the primary reason or cause of the noncompliance, and (c) any relevant
 

11 If the objective is to express an opinion on the agency’s compliance with laws and regulations, the

auditor should follow Statement on Standards for Attestation Engagements No. 3, “Compliance

Attestation,” issued by the American Institute of Certified Public Accountants.

29

comments from reporting entity management or employees responsible for the

noncompliance.

3. Recommended remedial actions and the time frames to implement such actions.]

Providing an opinion on compliance with certain provisions of laws and regulations was not an objective

of our audit and, accordingly, we do not express such an opinion.11

This report is intended solely for the information and use of the management of [Name of Federal

Agency], OMB and Congress, and is not intended to be and should not be used by anyone other than

these specified parties. 

[Signature]

[Date]
 

12 When agreeing on due dates, auditors and CFOs may want to consider the due dates for

providing legal letters for the governmentwide financial statements discussed in paragraph 8. of the

30

APPENDIX H-1

ILLUSTRATIVE LETTER OF INQUIRY FROM AGENCY MANAGEMENT TO LEGAL

COUNSEL CONCERNING CONTINGENT LIABILITIES FOR LITIGATION, CLAIMS,

AND ASSESSMENTS

[CFO Office Letterhead]

Date: [No later than October 15]

To: General Counsel

From: Chief Financial Officer

Subject: [Auditor’s] Audit of the Fiscal Year XXX0 Financial Statements

Pursuant to 31 U.S.C. § 3515, the [Auditor name] is conducting an audit of the financial statements of

the [Government entity] as of and for the fiscal year ended September 30, XXX0. In performing audits

of government entities, auditors are required to follow Government Auditing Standards, issued by the

Comptroller General of the United States (the “Yellow Book”). For financial statement audits,

Government Auditing Standards incorporate the fieldwork and reporting standards of the American

Institute of Certified Public Accountants (AICPA) and the Statements on Auditing Standards that

interpret them. Consistent with the procedures contained in AU 337 of the AICPA’s Codification of

Statements on Auditing Standards, [Auditor] has inquired about litigation, claims, and assessments to

satisfy itself as to the financial accounting and reporting of such matters with respect to the financial

statements. The purpose of this letter is to request your assistance in responding to that inquiry. The

American Bar Association “Statement of Policy Regarding Lawyers’ Responses to Auditors’ Request

for Information” (December 1975) provides relevant guidance for the lawyer’s response to the

auditor’s request.

In accordance with Statement of Federal Financial Accounting Standards (SFFAS) Number 5,

“Accounting for Liabilities of the Federal Government,” as amended by SFFAS Number 12, and

Interpretation Number 2 of SFFAS Numbers 4 and 5, [Government entity] reports certain information

in its financial statements and notes concerning contingent liabilities for litigation, claims, and

assessments. We request that you provide [Auditor] (with a copy to me) with information involving

matters with respect to which you have been engaged and to which you have devoted substantive

attention on behalf of the [Government entity] in the form of legal consultation or representation. You

should furnish an interim response by [agreed-upon date]12, including matters that existed as of
Audit Bulletin.

 

13 See footnote 12.

 

14Management and the auditor should agree on a materiality level to use in the letter of inquiry. A

guideline for setting the materiality level for the legal letter is 0.5 percent of planning materiality, as

defined in the President's Council on Integrity and Efficiency (PCIE) Policy Manual: Federal Financial

Statement Audit Manual and GAO’s Financial Audit Manual.

31

September 30, XXX0, and from that date through at least December 1, XXX0. You should furnish an

updated response by [agreed-upon date]13, that is effective no earlier than February 15, XXX1, that

includes any changes from the interim response, or a statement that there are no changes.

Include any cases with respect to which you have been engaged and to which you have devoted

substantive attention on behalf of the [Government entity] in the form of legal consultation or

representation, even those cases where you believe the Judgment Fund or some financing source other

than [Government entity]’s budgetary resources will pay any potential loss. Under generally accepted

accounting principles, such amounts should be included as liabilities or disclosure items in the

[Government entity]’s financial statements. Cases similar in nature should be aggregated where

appropriate. It would be helpful if you could list the matters in order of the amount of potential loss,

starting with the largest.

Pending or Threatened Litigation (excluding unasserted claims)

We and [Auditor] have determined that any matters where the amount of potential loss exceeds $X,

individually or in the aggregate, could be material to the financial statements. Please provide to

[Auditor] the information described below about pending or threatened litigation where the amount of

potential loss exceeds $X14:

1. The nature of the matter. Include a description of the case or cases and amount

claimed, if specified.

2. The progress of the case to date.

3. The government's response or planned response (for example, to contest the case

vigorously or to seek an out-of-court settlement).

4. An evaluation of the likelihood of unfavorable outcome. Please categorize likelihood as

probable (an unfavorable outcome is likely to occur), reasonably possible (the chance

of an unfavorable outcome is less than probable but more than remote), or remote (the

chance of an unfavorable outcome is slight). 

5. An estimate of the amount or range of potential loss, if one can be made, for losses

considered to be probable or reasonably possible.
32

6. The name of the [Government entity]’s attorney handling the case and names of any

outside legal counsel/other lawyers representing or advising the government in the

matter (Department of Justice or outside law firms).

Unasserted Claims and Assessments

Please provide the following information for all unasserted claims and assessments that you consider to

be probable of assertion and which, if asserted, would have at least a reasonable possibility (more than

remote) of an unfavorable outcome in an amount over $X, individually or in the aggregate, involving

matters to which you have devoted substantive attention.

 1. A description of the nature of the matter.

 2. The government's planned response if the claim is asserted.

 3. An evaluation of the likelihood of an unfavorable outcome. (Categorize likelihood as probable

(likely to occur) or reasonably possible (less than probable but more than remote).)

 4. An estimate of the amount or range of potential loss, if one can be made.

Please specifically confirm to [Auditor] that our understanding of the following is correct: whenever, in

the course of performing legal services for us, with respect to a matter recognized to involve an

unasserted possible claim or assessment that may call for financial statement disclosure, if you have

formed a professional conclusion that we should disclose or consider disclosure concerning such

possible claim or assessment, as a matter of professional responsibility to us, you will: (1) advise us of

your conclusion, and (2) consult with us concerning the question of such disclosure and the applicable

requirements of SFFAS No. 5, as amended.

Please separately identify any cases with respect to which you have been engaged and to which you

have devoted substantive attention on behalf of the [Government entity] in the form of legal consultation

or representation for which you believe another government entity will be responsible for any potential

liability.

Please specifically identify the nature of and reasons for any limitations on your response to this request.

Please address your reply to [Auditor], and contact him/her at (phone number), when your reply is

available for pick up, and send a copy of your reply to me. Do not hesitate to contact me or [Auditor]

if you have any questions regarding this request.

[Signed by]

Chief Financial Officer
 

15 This illustrative response is based on examples presented in AU Section 337C, “ABA Statement

of Policy Regarding Lawyers’ Responses to Auditor’s Requests for Information,” of the Codification of

Statements on Auditing Standards.

 

16 See Paragraph 3 of the American Bar Association (ABA) Statement of Policy and the

accompanying Commentary for guidance where the response is limited to material items.

33

APPENDIX H-2

ILLUSTRATIVE RESPONSE FROM LEGAL COUNSEL CONCERNING 

LITIGATION, CLAIMS, AND ASSESSMENTS15

[General Counsel Letterhead]

Date:

To: Inspector General / Independent Auditor

From: General Counsel

Subject: Legal Response in connection with the XXX0 Financial Statement Audit of [agency

name]

As General Counsel of [Name of Agency], I am writing in response to the letter of inquiry from

the Agency’s Chief Financial Officer dated ____, in connection with the audit of [Name of Agency]’s

financial statements as of and for the fiscal year ended September 30, XXX0.

I call your attention to the fact that as General Counsel for the Agency, I have general supervision

of the Agency’s legal affairs. [If the general legal supervisory responsibilities of the person signing the

letter are limited, set forth a clear description of those legal matters over which such person exercises

general supervision, indicating exceptions to such supervision and situations where primary reliance

should be placed on other sources.] In such capacity, I have reviewed litigation and claims threatened

or asserted involving the Agency and have consulted with outside legal counsel with respect thereto

where I have deemed appropriate. 

Subject to the foregoing and to the last paragraph of this letter, I advise you that since [insert date

of beginning of fiscal year period under audit] neither I, nor any of the lawyers over whom I exercise

general legal supervision, have given substantive attention to, or represented the Agency in connection

with [material16] loss contingencies coming within the scope of clause (a) of Paragraph 5 of the

Statement of Policy referred to in the last paragraph of this letter, except as follows:
 

17 It is expected that cases or matters will be aggregated where appropriate.

34

[Describe litigation and claims which fit the foregoing criteria as follows:]17

Pending or Threatened Litigation (excluding unasserted claims)

a. Nature of the matter (include a description of the case or cases and amount claimed, if

specified).

b. Progress of the case to date.

c. Current or intended response.

d. Evaluation of the likelihood of an unfavorable outcome (categorize likelihood as

probable, reasonably possible, or remote).

e. Estimated amount or range of potential loss, if determinable, for losses considered to be

probable or reasonably possible.

f. Name of [Government entity]’s attorney handling the case and names of any outside

legal counsel representing or advising the government in the matter.

With respect to matters which have been specifically identified as contemplated by clauses (b) or

(c) of paragraph 5 of the ABA Statement of Policy, I advise you, subject to the last paragraph of this

letter, as follows:

Unasserted Claims and Assessments (considered to be probable of assertion and which, if

asserted, would have at least a reasonable possibility of an unfavorable outcome )

a. Nature of the matter.

b. Intended response if claim would be asserted.

c. Evaluation of the likelihood of an unfavorable outcome. (Categorize likelihood as

probable or reasonably possible.)

d. Estimated amount or range of potential loss, if determinable.

The information set forth herein is [(as of the date of this letter) or (as of (insert date), the date on

which we commenced our internal review procedures for purposes of preparing this response)], except

as otherwise noted, and I disclaim any undertaking to advise you of changes which thereafter may be

brought to my attention or the attention of our lawyers over whom I exercise general legal supervision.

This response is limited by, and in accordance with, the ABA Statement of Policy Regarding

Lawyers’ Responses to Auditors’ Requests for Information (December 1975); without limiting the

generality of the foregoing, the limitations set forth in such Statement on the scope and use of this

response (Paragraphs 2 and 7) are specifically incorporated herein by reference, and any description

herein of any “loss contingencies” is qualified in its entirety by Paragraph 5 of the Statement and the

accompanying Commentary (which is an integral part of the Statement). Consistent with the last

sentence of Paragraph 6 of the ABA Statement of Policy, this will confirm as correct the Agency’s

understanding that whenever, in the course of performing legal services for the Agency with respect to a

matter recognized to involve an unasserted possible claim or assessment that may call for financial
35

statement disclosure, I have formed a professional conclusion that the Agency must disclose or consider

disclosure concerning such possible claim or assessment, I, as a matter of professional responsibility to

the Agency, will so advise the Agency and will consult with the Agency concerning the question of such

disclosure and the applicable requirements of Statement of Federal Financial Accounting Standards

(SFFAS) Number 5, “Accounting for Liabilities of the Federal Government,” as amended by SFFAS

Number 12, and Interpretation Number 2 of SFFAS Numbers 4 and 5. [Describe any other or

additional limitation as indicated by Paragraph 4 of the Statement.]

cc: Chief Financial Officer
 

18 As required by paragraph 8.b. of OMB's Audit Bulletin, the CFO shall prepare and the auditor shall review a summary of the information contained in the

legal counsel’s response using this format. An electronic version of this form is available in Mircosoft Excel at OMB’s website on the Internet at

http://www.whitehouse.gov/OMB/financial

36

APPENDIX H-3

FORMAT FOR MANAGEMENT'S SCHEDULE OF INFORMATION CONTAINED IN LEGAL RESPONSES 

FOR FINANCIAL REPORTING PURPOSES18

1 2 3 4 5 6 7

Reference

Key

Amount

Claimed

Name of Case/

Related Cases Likelihood of Loss

Amount or range of potential loss Disposition in

Financial Statements

(a) P (b) R/P (c) Upper Amt. Recorded Note Disclosure

$ $ $ $ $

Instructions

General:

1. Matters should be listed on this schedule in order of the amount or range of potential loss, starting with the largest. 

2. The level of aggregation should generally be at the same level as in the legal counsel's letter. However, there may be

instances where the level of aggregation is too high to be able to prepare this schedule in a way that is meaningful. 

In such cases, the CFO should work with legal counsel to provide further disaggregation of dissimilar cases. There

may also be other instances where a higher level of aggregation is desirable. CFOs should use professional

judgment, considering the purpose of this schedule when determining the level of aggregation. 

Column:

1. Reference Key: Page number of the legal representation letter obtained from General Counsel discussing the case, or other reference

information.

2. Amount Claimed: Amount claimed in the litigation, claim, or assessment (if specified).

3. Name of Case / Related Cases: Self-explanatory.

4. Likelihood of Loss: List management's evaluation of the likelihood of loss:

Options: P: Probable (loss is likely to occur)

R/P: Reasonably Possible (the chance of loss is less than probable, but more than remote)

R: Remote (chance of loss is slight)

U: Legal Counsel Unable to Determine

5. Amount or Range of Potential Loss:

Options: 5a: Probable (P): Provide single estimate or lower end of range, if known. Enter “U,” if unknown. (Also,

provide column totals.)
37

5b: Reasonably Possible (R/P): provide single estimate or lower end of range, if known. Enter “U,” if

unknown. (Also, provide column totals.)

5c: If the estimate in 5a or 5b is a range, provide upper end of range; otherwise, enter “n/a.”

6. Disposition in Financial Statements - Amount Recorded: If applicable, provide dollar amount recorded as a liability in the

financial statements. (Also, provide column totals.) 

7. Disposition in Financial Statements - Note Disclosure: If applicable, indicate by note reference number where case

information is separately disclosed or included in amounts disclosed in notes to the financial statements.
38

APPENDIX I-1

AGREED-UPON PROCEDURES

RETIREMENT, HEALTH BENEFITS, AND LIFE INSURANCE

WITHHOLDINGS/CONTRIBUTIONS AND SUPPLEMENTAL SEMIANNUAL

HEADCOUNT REPORT SUBMITTED TO THE

OFFICE OF PERSONNEL MANAGEMENT

OBJECTIVE

Assist the Office of Personnel Management (OPM) in assessing the reasonableness of Retirement,

Health Benefits, and Life Insurance withholdings and/contributions as well as enrollment information

submitted via the Semiannual Headcount Report.

BACKGROUND

The Agreed-Upon Procedures (AUPs) relating to the submission to OPM of withholdings/

contributions for Retirement, Health Benefits, and Life Insurance relate to the use of the Retirement and

Insurance Transfer System (RITS). RITS is the authorized method of submission of withholding and

contribution information to OPM. Agency payroll offices (APOs) that are technically unable to transmit

benefit information to OPM via RITS may continue to submit withholdings and contributions via the

hard copy SF 2812 (and SF 2812-A), “Report of Withholdings and Contributions for Health Benefits,

Life Insurance and Retirement to OPM.” The AUPs to be applied to those APOs submitting

withholdings and contributions to OPM via the hard copy SF 2812 forms are similar to those for RITS.

PROCEDURES

Gain an understanding of the APO’s procedures for reconciling payroll information to RITS

submissions. Obtain the APO’s most recent Semiannual Headcount Report submitted to OPM and a

summary of RITS submissions for the current fiscal year. Randomly select three RITS submissions for

the current fiscal year, one of which coincides with the most recent Semiannual Headcount Report. 

Obtain payroll information for the periods covered by the RITS submissions selected. 

Note that, as used in these AUPs, the term payroll information refers to all payroll information,

whether it be a payroll register, payroll data file, or other payroll support data.

1. Compare RITS submission data with payroll information by performing the following procedures:

1.a. Foot the payroll information. If the auditor chooses to use a subset of payroll

information, the subset must be representative of all payroll information and be subject

to the same control procedures over payroll information associated with the three RITS

submissions selected.
39

1.b. Trace employee withholding information shown on the payroll information footed in step

1.a. for Retirement, Health Benefits, and Life Insurance (as adjusted for reconciling

items) to the related amounts shown on the RITS submission for the corresponding

period. 

1.c. Obtain support for differences between amounts shown on the source of payroll

information (e.g., payroll register, payroll data, etc.) or derived from files footed in step

1.a. and amounts shown on the RITS submission selected. 

1.d. Trace reconciling items to supporting documentation and verify agreement. 

1.e. Foot each RITS submission selected. 

Report any differences or exceptions that are unsupported or unsubstantiated, or represent an

error. 

2. Review or perform a reconciliation of payroll information, including RITS data, to the agency’s

general ledger. For the three pay periods selected, review the agency’s reconciliation of payroll

transactions to its general ledger expense and cash disbursement accounts or, if such

reconciliation does not exist, perform the reconciliation. Agencies should post Retirement, Health

Benefits, and Life Insurance employer contributions to Standard General Ledger (SGL) account

6400–Benefits Expense. Report when the APO did not prepare the reconciliation. Also report

any unsupported or unsubstantiated differences (i.e., gross rather than net) in the total payroll paid

for the selected pay period and the amount recorded in the general ledger that exceeds 5 percent

of total payroll. Report any differences (i.e., gross rather than net) between the withholding and

contributions reported on the RITS submissions and the amounts posted to the SGL accounts

greater than 1 percent. Employee contributions should be reported to 6400N and employer

contributions to 6400G. Report postings of employer contributions for Retirement, Health

Benefits, and Life Insurance to any SGL account other than account 6400G.

For further information, see the FACTS Elimination Guidance at

www.fms.treas.gov/cfs/dev/index.html

3. Agree employee salary and contributions to the SF-50 (“Notification of Personnel Action”),

authorized withholding/contributions, and benefit program elections. Randomly select a total of

25 individuals who were on the payroll system for all three of the RITS submissions selected for

testing above. The 25 employees must be selected from a pool of employees who meet each of

the following characteristics: covered by Civil Service Retirement System (CSRS) or the Federal

Employees Retirement System (FERS); enrolled in the Federal Employees Health Benefits

Program; covered by Basic Life Insurance; and covered by at least one FEGLI optional

coverage (Option A, B, or C). Obtain the Official Personnel File (OPF) for each individual

selected, and perform the following procedures: 
40

3.a. Verify that the base salary used for payroll purposes and upon which withholdings and

contributions generally are based agrees with the base salary reflected on the

employees' SF-50. 

3.b. For Retirement, verify that amounts withheld and contributed for participants in the

CSRS and the FERS are correct, based upon the official withholdings and contribution

rates required by law. [See Payroll Office Letters P-98-13 and P-99-27.]

3.c. For Health Benefits, verify that employee withholdings and agency contributions agree

with the official subscription rates issued by OPM for the plan and option elected by the

employees, as documented by a Health Benefits Registration Form (SF-2809) in the

employees' OPF. See Payroll Office Letters P-98-10 and P-99-24, for FY 2000

rates.

If an employee elected his/her current health plan via Employee Express, there

likely will not be documentation in the OPF. Employee Express is an automated

system that allows employees to process health benefits enrollment changes,

without having to submit a hard-copy enrollment form (SF2809); further

information may be obtained at www.EmployeeExpress.gov. In addition, some

agency payroll systems also afford the ability to effect health benefits enrollment

changes without use of SF 2809. The auditor must obtain documentation from

Employee Express, which maintains a history of all FEHB transactions entered by

employees, or from the payroll systems that afford the capability of end-user

update. Rather than requesting documentation directly from Employee Express,

auditors should work through each agency’s personnel office. Employee Express

key representatives have been apprised of this potential requirement.

3.d. For Life Insurance, verify that Basic Life Insurance was elected by the employees, as

documented by a Life Insurance Election Form (SF 2817), in his/her OPF and that

withholdings and contributions are correct.

i. For employee withholdings: Round the employee’s annual base salary to the

nearest thousand dollars and add $2,000. For pay periods beginning on or

after 4/24/99, divide this total by 1,000 and multiply by $0.155 (for APOs with

biweekly pay periods) or $0.3358 (for APOs with monthly pay periods. 

ii. For agency contributions: Divide the employee withholdings derived in step

3.d.i. by two.

3.e. Also, for Life Insurance, verify Optional coverage was elected, as documented by an

SF 2817 in the employees’ OPF, and that withholdings are correct. The withholding

rates for Options A, B, and C are based upon the age of the employee and the amount

of coverage elected. [See the April 1999 revised “FEGLI Program Booklet” RI

76-21 available at www.opm.gov/insure/life/index.htm.] Report any differences or

exceptions that are unsupported or unsubstantiated, or represent an error.
41

Note: For step 3.e. only, randomly select additional individuals as necessary so

that 10 individuals are selected for each Life Insurance option (i.e., Options A, B,

and C).

4. Randomly select a total of 10 employees, who have no Health Benefits withholdings, from the

payroll information corresponding to the three RITS submissions selected for testing above. 

Verify from a review of the OPF that the employees did not elect Health Benefits coverage -- this

may be proven by the absence of an election form SF 2809 in the OPF, if the employee never

elected coverage. Alternatively, for an employee who canceled enrollment after having been

enrolled in the Health Benefits program, look for an SF 2809 with Section E checked, indicating

election of coverage cancellation. Report any exceptions that are unsupported or

unsubstantiated, or represent an error. 

To conclude with finality that there was no election of Health Benefits, the auditor must first

confirm with Employee Express, via the agency’s personnel office, that no election was made or

coverage canceled by this means.

5. Randomly select a total of 10 employees who have no Life Insurance withholdings from the

payroll information corresponding to the three RITS submissions selected for testing above. 

Verify that the employees either waived or canceled Life Insurance coverage. This will be proven

by the presence in the OPF of an SF 2817, by which an employee waives or cancels Basic Life

Insurance coverage. Report any exceptions.

6. Calculate the headcount reflected on the Semiannual Headcount Report selected for testing

above, as follows.

6.a. Obtain existing payroll information supporting the selected Supplemental Semiannual

Headcount report. If existing payroll data is not available, have a payroll system query

performed that summarizes detailed payroll data supporting the Supplemental

Semiannual Headcount Report, as follows:

• Benefit Category [see Semiannual Headcount Report].

• Dollar Amount of withholdings and contributions.

• Number Enrolled (deductions made/no deductions).

• Central Personnel Data File Code.

• Aggregate Base Salary.

It may be that the payroll information needed to recalculate the selected Headcount

Report is no longer available on the payroll system. If such is the case, query the

payroll information currently residing on the payroll system and compare it to the

selected Headcount Report. Account for any significant personnel changes that may

affect withholdings, contributions, and numbers of employees enrolled.

6.b. Recalculate the Headcount reflected on the Semiannual Headcount Report. A

suggested method of recalculating the Headcount is as follows: (1) estimate the number
42

of employees per payroll register page by counting the employees listed on several

pages, (2) count the number of pages in the payroll register, and (3) multiply the number

of employees per page by the number of pages, or count (using a computer audit

routine) the number of employees on the payroll data file for the period.

6.c. Compare the results of payroll information from step 6.a with the calculated headcount

from step 6.b to the information shown on the Semiannual Headcount Report.

6.d. Report any differences (i.e., gross rather than net) greater than 2 percent between the

headcount reporting on the agency's Semiannual Headcount Report and payroll

information from step 6.a and the calculated Headcount from step 6.b.

7. Calculate employer and employee contributions for Retirement, Health Benefits, and Life

Insurance. 

7.a. Calculate Retirement withholdings and contributions for the three pay periods selected,

as follows: 

i. Multiply the CSRS and FERS payroll base by the withholding and employer

contribution rates required by law.

ii. Compare the calculated totals with related amounts shown on the RITS

submissions. Report any variances (i.e., gross rather than net) between the

calculated amounts and the amounts reported on the RITS submissions greater

than 5 percent.

7.b. Calculate employee withholdings and employer contributions for Health Benefits for the

three pay periods selected, as follows: 

i. Multiply the number of employees enrolled in each Health Benefit plan and plan

option by the employee withholdings and employer contributions for the plan

and option. 

ii. Sum the totals in step 7.b.i. and compare the result with the Health Benefit

withholding and contribution amounts shown on the RITS submissions. Report

any variances (i.e., gross rather than net) between the calculated amounts and

the amounts reported on the RITS submissions greater than 5 percent. 

7.c. Calculate the Basic Life Insurance employee withholdings and employer contributions

for the three pay periods selected as follows:

i. Have APO personnel perform a payroll system query to determine the total

number of employees with Basic Life Insurance Program coverage and the

aggregate annual basic pay for all employees with Basic Life Insurance
43

Program coverage. (See the CSRS/FERS Handbook, Section 30A1.1-2 for

definition of basic pay.)

ii. For employee withholdings: Add the product of 2,000 times the number of

employees with Basic Life Insurance coverage to the aggregate annual basic

pay for all employees selected. This represents the estimated total Basic Life

Insurance coverage. For pay periods beginning on or after 4/24/99, divide this

total by 1,000 and multiply by $0.155 (for APOs with biweekly pay periods)

or $0.3358 (for APOs with monthly pay periods). 

iii. Compare the result in step 7.c.ii. to the withholdings for Basic Life Insurance

coverage reported on the RITS submission. Report any difference (i.e., gross

rather than net) between the estimate and the amount of withholdings reported

on the RITS submission greater than 5 percent. 

iv. For agency contributions: Divide the results of step 7.c.ii. by two -- this

approximates agency contributions, which are one-half of employee

withholdings. Compare this result to the amount reported on the RITS

submission. and report any differences (i.e., gross rather than net) between the

estimate and the amount reported on the RITS submission greater than 5

percent.

7.d. Calculate the Option A and Option C Life Insurance coverage withholdings for the

three pay periods selected by using the results of payroll system queries from step 6.a

or have the APO personnel perform a payroll system query that summarizes the number

of employees, by age group, who elected Options A and C during the pay periods

selected.

i. Multiply the number of employees in each age group by the appropriate rate for

Option A or Option C, in accordance with the rates for age groups provided in

the FEGLI Program Booklet for pay periods beginning on or after 4/24/99. 

Report any differences (i.e., gross rather than net) greater than 2 percent for

Option A and/or Option C. 

ii. Contributions for Option B cannot be tested for reasonableness by these

methods because of the number of variables involved in electing this option.

INQUIRIES

Questions on the application of the AUPs should be directed to OPM’s Financial Policy Staff at (202)

606-0606, or via the Internet at: finance@opm.gov.
44

APPENDIX I-2

ILLUSTRATIVE INDEPENDENT ACCOUNTANT'S REPORT ON THE

APPLICATION OF AGREED-UPON PROCEDURES

To the Inspector General 

U.S. Office of Personnel Management: 

We have performed the procedures described below (or in the attachment), which were agreed to by

the Inspector General, Chief Financial Officer, and the Associate Director for Retirement and Insurance

of the U.S. Office of Personnel Management (OPM), solely to assist with respect to the employee

withholdings and employer contributions reported on the Report of Withholdings and Contributions for

Health Benefits, Life Insurance, and Retirement for the payroll periods ended [state dates] and

Semiannual Headcount Report as of [state date]. This engagement to apply agreed-upon procedures

was performed in accordance with the standards established by the American Institute of Certified

Public Accountants. The sufficiency of the procedures is solely the responsibility of the Inspector

General, Chief Financial Officer, and the Associate Director for Retirement and Insurance of OPM. 

Consequently, we make no representation regarding the sufficiency of the procedures described below

either for the purpose for which this report has been requested or for any other purpose. 

Insert the following unless the procedures and findings are in an attachment.

The procedures and the associated findings are as follows: 

[Insert procedures and findings]

We were not engaged to, and did not, perform an audit, the objective of which would be the expression

of an opinion on the withholdings and contributions for Health Benefits, Life Insurance, and Retirement,

and the Headcount Report of the [name of agency]. Accordingly, we do not express such an opinion. 

Had we performed additional procedures, other matters might have come to our attention that would

have been reported to you. 

This report is intended solely for the use of the Inspector General, Chief Financial Officer, and the

Associate Director for Retirement and Insurance of OPM and should not be used by those who have

not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their

purposes. 

[Signature] 

[Date] 

cc: Chief Financial Officer of OPM

Associate Director of Retirement and Insurance of OPM