Page 1 GAO-07-295R OST Financial Audit Recommendations and Follow-up 

United States Government Accountability Office

Washington, DC 20548 

January 19, 2007 

The Honorable Byron L. Dorgan 

Chairman 

Committee on Indian Affairs 

United States Senate 

The Honorable Daniel K. Inouye 

United States Senate 

The Honorable Tim Johnson 

United States Senate 

Subject: Office of Special Trustee for American Indians: Financial Statement Audit 

Recommendations and the Audit Follow-up Process 

In 1994, Congress enacted the American Indian Trust Fund Management Reform Act, 

Pub. L. No. 103-412, recognizing the federal government’s fiduciary responsibilities 

toward American Indians. The act called for more effective management of the 

Department of the Interior’s (Interior) fiduciary responsibilities, required an annual 

audit of Indian trust funds, and created the Office of Special Trustee for American 

Indians (OST) in Interior. In 1996, the Secretary of the Interior ordered the transfer 

of responsibility for trust fund management, including preparation of the financial 

statements of the Tribal and Other Trust Funds and Individual Indian Monies Trust 

Funds (Indian trust funds), from the Bureau of Indian Affairs (BIA) to OST. Since 

then, OST has prepared and independent public accountants have audited the 

financial statements1

 of the Indian trust funds. The auditors have issued qualified 

audit opinions each year since 1996 because of inadequacies in Interior’s trust-related 

systems, controls, and processes, disagreements between Interior and the trust funds’ 

beneficiaries on amounts owed, and potential claims against the government. 

You expressed concern about deficiencies identified and reported in the Indian trust 

funds’ annual financial statement audits for fiscal years 1996 through 2005. You 

asked us to determine (1) the reported status of OST management’s responses to 

financial statement audit recommendations from fiscal years 1996 through 2005 and 

(2) whether financial statement audit follow-up procedures and controls for OST are 

designed to meet the requirements of applicable guidance and whether controls are 

 

1

The Indian trust funds’ financial statements contain the tribal accounts, which are reported on a cash 

basis and Individual Indian Monies accounts, which are reported on a modified cash basis. These are 

comprehensive bases of accounting other than U.S. generally accepted accounting principles. 
in place to reasonably assure that audit follow-up objectives are achieved. This letter 

transmits our slides we used to brief your staff on October 5, 2006.2

 The slides from 

that briefing are presented in their entirety in enclosure I. 

The independent auditors of the Indian trust funds’ financial statements issued 

numerous recommendations from fiscal years 1996 through 2005 to address identified 

financial audit weaknesses. In performing their annual audits for 1996 through 2000, 

independent auditors Griffin and Associates, P.C. (Griffin) determined that a majority 

of the recommendations could be closed based on OST management actions. The 

successor auditors, KPMG, LLP (KPMG), reassessed the outstanding 

recommendations in 2001, closed or downgraded some recommendations based on 

additional audit work, and consolidated the remaining 12 recommendations into 2 

overall recommendations addressing issues considered to be material weaknesses. 

KPMG also added a third recommendation in 2001 to address a reportable condition 

which was subsequently downgraded in severity to advisory comments based on OST 

management actions. Consequently, 2 broad recommendations addressing material 

weaknesses3

 remain open as of September 30, 2005. The first material weakness, 

concerning unresolved financial reporting matters from prior audit periods, 

encompasses five deficiencies, all outstanding since before 1996. The second 

material weakness, concerning OST reliance on processing of Indian trust 

transactions at BIA encompasses seven deficiencies and was first reported as an 

overall weakness in 2001, although related deficiencies had been noted earlier. 

Financial statement audit follow-up procedures and controls for OST are designed to 

meet the requirements of the Office of Management and Budget’s (OMB) Circular No. 

A-50, Audit Follow-up, and internal controls are in place to reasonably assure that 

audit follow-up objectives are achieved. OMB Circular No. A-50 prescribes standards 

for audit follow-up. We identified Interior policies addressing each of the standards. 

We also found that OST, Interior, and Interior’s Office of Inspector General (OIG) 

have implemented specific control procedures directed at assuring effective audit 

follow-up. At the same time, we did not see evidence that Interior is conducting a 

periodic evaluation of its entire audit follow-up system. Such an evaluation is 

required by OMB Circular No. A-50 to assure efficient, prompt, and proper resolution 

of audit recommendations. However, the independent auditors of the Indian trust 

funds may mitigate any associated risks for financial statement audits because they 

annually validate whether OST’s previously identified underlying deficiencies, which 

were the basis for the recommendations, have been corrected. 

 2

On December 8, 2006, we briefed a staff member who was not able to attend our October 5, 2006, 

briefing. 3

For the financial reporting periods covered by the audits in our review, Statement on Auditing 

Standard (SAS) No. 60, Communicating Internal Control Related Matters Noted in an Audit, defined 

a material weakness as resulting when internal control did not reduce to a relatively low level the risk

that material errors, fraud, or noncompliance could occur and not be promptly detected by the audited

entity. It further defined a reportable condition as resulting when significant deficiencies in the design 

or operation of internal control could adversely affect information presented in the financial

statements. Finally, it defined an advisory comment as resulting when other deficiencies existed that 

were not reportable conditions and were not clearly inconsequential. For subsequent financial 

reporting periods, SAS No. 112, Communicating Internal Control Related Matters Identified in an 

Audit, changed the terminology and definitions used by auditors in communicating internal control 

matters. 

Page 2 GAO-07-295R OST Financial Audit Recommendations and Follow-up
Agency Comments and Our Evaluation 

The Department of the Interior provided written comments on a draft of this briefing. 

In responding to our observation that we did not see evidence of a periodic 

evaluation of Interior’s entire audit follow-up system, as required by OMB Circular 

No. A-50, Interior stated that it has policies and procedures in place and carries out 

periodic audit follow-up evaluations to meet OMB requirements. To support its 

position, Interior cited its semiannual status meetings and lessons learned meetings 

held at year-end with its bureaus, procedures directed at analyzing bureau progress 

reporting, and its use of annual goals for resolving corrective actions to measure 

effectiveness. Interior also cited its financial statement audit results, updated 

internal control handbook, executive performance agreements, and comparisons of 

recommendation tracking information with similar OIG information. As we 

recognized in our briefing, for financial statement audit recommendations, the 

independent public accountants provide an independent assessment of whether 

OST’s underlying deficiencies have been corrected. 

However, we do not agree that the specific audit follow-up evaluative activities cited 

by Interior constitute the comprehensive assessment of audit recommendation

resolution and corrective action called for in OMB Circular No. A-50. Specifically, 

Interior’s cited policies, procedures, and practices do not provide a department-level 

evaluation of the overall effectiveness of Interior’s audit follow-up activities. Instead, 

the department relies on indirect measures, such as the number of corrective actions 

reported as resolved by its bureaus, as a surrogate measure of its effectiveness. In 

addition, we found no evidence that Interior verifies the veracity of bureau-reported 

corrective actions. Also, as discussed in our briefing, Interior provided us a study 

completed in 1993 as evidence of its most recent assessment of its compliance with 

requirements of OMB Circular No. A-50. 

Along with its comments, Interior provided an updated summary of the latest 

corrective action plans for OST’s 12 open financial statement audit deficiencies as of 

September 30, 2005. Interior also provided some technical corrections, which we 

have incorporated as appropriate. Interior’s comments are reprinted in enclosure II. 

Scope and Methodology 

To determine the reported status of OST management’s responses to financial 

statement audit recommendations from fiscal years 1996 through 2005, we obtained 

and reviewed the Indian trust funds’ financial audit reports and management letters 

for fiscal years 1996 through 2005 and identified and summarized the status of 

recommendations from the auditors’ reports. We also reviewed information from 

OST’s corrective action plans and Interior recommendation status reports related to 

the financial statement audits of the Indian trust funds. We interviewed officials from 

the independent financial statement auditors—Griffin & Associates, P.C., the auditors 

of the Indian trust funds’ financial statements for fiscal years 1996 through 2000, and 

KPMG, LLP, the auditors for fiscal years 2001 through 2005. 

To determine whether financial statement audit follow-up procedures and controls 

for OST are designed to meet the requirements of applicable guidance and whether 

controls are in place to reasonably assure that audit follow-up objectives are 

Page 3 GAO-07-295R OST Financial Audit Recommendations and Follow-up
achieved, we interviewed officials from OST, Interior, OIG, Griffin and Associates, 

P.C., and KPMG to understand their respective roles in the process. We obtained and 

reviewed all OIG follow-up audit reports and verification and status reports issued 

from fiscal years 2000 through 2005 to identify any systemic audit follow-up issues 

related to financial statement audits. We reviewed Interior’s departmental policy 

manual, audit follow-up policies in Interior’s Management Control and Audit Followup handbook, and Guidelines for Fiscal Year 2005 Internal Control and Audit 

Follow-up Program relative to OMB Circular No. A-50, Audit Follow-up, in the 

context of financial statement audits. We assessed aspects of Interior’s and OST’s 

internal control related to audit follow-up in the context of financial statement audits. 

OST’s ability to prepare and report on Indian trust funds’ financial statements that are 

fairly stated depends on correcting material weaknesses identified in the financial 

statement audits and establishing historical beginning trust fund balances. Our work 

focused on the recommendations arising from the annual financial statement audits 

for fiscal years 1996 through 2005. While several of these recommendations are 

affected by Interior’s efforts to establish historical beginning trust fund balances, the 

status of those efforts was beyond the scope of this review. 

We performed our work at the Department of the Interior’s headquarters, in

Washington, D.C., including interviewing key OST management officials who were 

visiting from their offices in Albuquerque, New Mexico. We performed our work 

from August 2005 though July 2006 in accordance with U.S. generally accepted 

government auditing standards. 

--------------------- 

As arranged with your offices, unless you publicly announce its contents earlier, we 

plan no further distribution of this report until 14 days from the report date. At that 

time, we will send copies of this report to interested congressional committees, the 

Secretary of the Interior, the Special Trustee for American Indians, and other 

interested parties. We will also make copies available to others upon request. In 

addition, this report will be available at no charge on GAO’s Web site at 

www.gao.gov. Should you or your staff have any questions about this report, please 

contact me at (202) 512-9508 or martinr@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs can be found on the last page of this 

report. Robert E. Martin, Mary Arnold Mohiyuddin, and Paul Caban made key 

contributions to this report.

Robert E. Martin 

Director, Financial Management and Assurance 

Enclosures 

Page 4 GAO-07-295R OST Financial Audit Recommendations and Follow-up
Enclosure I October 5, 2006 Briefing 

Page 5 GAO-07-295R OST Financial Audit Recommendations and Follow-up

1

A Briefing for Senator Byron L. Dorgan, 

Senator Daniel K. Inouye, and

Senator Tim Johnson

Office of Special Trustee for

American Indians

Financial Statement Audit Recommendations 

and the Audit Follow-up Process

October 5, 2006

2

Briefing Agenda

• Introduction

• Objectives

• Scope and Methodology

• Results in Brief

• Background

• Status of Financial Statement Audit Recommendations

• Audit Follow-up Process

• Conclusions

• Agency Comments and Our Evaluation
Enclosure I October 5, 2006 Briefing 

Page 6 GAO-07-295R OST Financial Audit Recommendations and Follow-up

3

Introduction

• In 1994, Congress enacted the American Indian Trust Fund

Management Reform Act, Pub. L. No. 103-412, recognizing the federal

government’s trust responsibilities toward American Indians. 

• The act called for more effective management of the Department of the 

Interior’s (Interior) trust responsibilities, required an annual audit of 

Indian trust funds, and created the Office of Special Trustee for 

American Indians (OST) in Interior.

• The Secretary of the Interior implemented the transfer of the Office of 

Trust Funds Management from the Bureau of Indian Affairs (BIA) to 

OST by secretarial order in 1996. 

• Beginning with its first financial statement audit of Indian trust funds for

fiscal year 1996, OST has received a qualified audit opinion each year

because of inadequacies in Interior’s trust-related systems and 

processes, disagreements between Interior and beneficiaries on

amounts owed, and potential claims against the government.

4

Objectives

You asked us to determine

• the reported status of OST management’s responses to 

financial statement audit recommendations from fiscal years 

1996 through 2005 and

• whether financial statement audit follow-up procedures and 

controls for OST are designed to meet the requirements of 

applicable guidance and whether controls are in place to 

reasonably ensure that audit follow-up objectives are achieved.
Enclosure I October 5, 2006 Briefing 

Page 7 GAO-07-295R OST Financial Audit Recommendations and Follow-up

5

Scope and Methodology

To fulfill our first objective on the status of reported financial statement 

audit recommendations, we

• obtained and reviewed the Indian trust funds financial 

statement audit reports and auditor management letters for 

fiscal years 1996 through 2005;

• identified and summarized the status of recommendations from 

the auditors’ reports; 

• reviewed information from OST’s corrective action plans and 

Interior recommendation status reports related to the financial 

statement audits of the Indian trust funds; and

• interviewed officials from independent financial statement 

auditors—Griffin & Associates, P.C. (fiscal years 1996–2000) and KPMG, LLP (fiscal years 2001–2005).

6

Scope and Methodology

To fulfill our second objective on audit follow-up for financial statement 

audits, we

• interviewed officials from OST, Interior, the Office of the 

Inspector General (OIG), Griffin & Associates, P.C., and KPMG

to understand their respective roles in the process;

• obtained and reviewed OIG follow-up audit reports and 

verification and status reports to identify any systemic audit 

follow-up issues related to financial statement audits;

• reviewed Interior’s policy manual and other guidance relative to

Office of Management and Budget (OMB) Circular No. A-50, 

Audit Followup, in the context of financial statement audits; and

• assessed aspects of Interior’s and OST’s internal control in the

context of financial statement audit follow-up.
Enclosure I October 5, 2006 Briefing 

Page 8 GAO-07-295R OST Financial Audit Recommendations and Follow-up

7

Scope and Methodology

• We performed our work at Interior headquarters, in Washington, 

D.C., including interviewing key OST management officials who 

were visiting from their offices in Albuquerque, New Mexico. 

• We performed our work from August 2005 through July 2006 in 

accordance with U.S. generally accepted government auditing 

standards.

8

Results in Brief

• The independent auditors of the Indian trust funds financial 

statements made numerous recommendations to address the 

financial statement audit weaknesses they identified.

• In performing their annual testing, independent auditors determined

that a majority of the recommendations could be closed based on

OST management actions.

• Two broad recommendations addressing material weaknesses

remain open as of and for the year ending September 30, 2005.

1. Unresolved financial reporting matters from prior audit periods

2. OST reliance on processing of Indian trust funds transactions at

BIA
Enclosure I October 5, 2006 Briefing 

Page 9 GAO-07-295R OST Financial Audit Recommendations and Follow-up

9

Results in Brief

Unresolved Financial Reporting Matters from Prior Audit Periods

• This material weakness relates to five deficiencies, all 

outstanding since before 1996.

1. Lack of reliable Individual Indian Money (IIM) balance 

2. Trust fund balances—tribal

3. Cash—tribal

4. Special deposit accounts (SDA)—inconsistent practices 

5. Trust fund balances—IIM

10

Results in Brief

OST Reliance on Processing of Indian Trust Funds Transactions at

BIA

• This material weakness relates to seven deficiencies, which 

were first reported comprehensively in 2001, but related 

deficiencies existed earlier.

1. Trust systems

2. Segregation of duties

3. Accounts receivable

4. Probate backlog

5. Untimely deposits

6. Supervised and restricted accounts

7. Appraisal review
Enclosure I October 5, 2006 Briefing 

Page 10 GAO-07-295R OST Financial Audit Recommendations and Follow-up

11

Results in Brief

Financial statement audit follow-up procedures and controls for OST 

are designed to meet the requirements of OMB Circular No. A-50, and 

controls are in place to reasonably ensure that audit follow-up 

objectives are achieved.

• OMB Circular No. A-50 prescribes standards for audit follow-up, and Interior policy addresses each of the standards.

• We noted control activities were in place at OST, Interior, and 

OIG to support audit follow-up. 

We did not see evidence of periodic evaluation of the audit follow-up

system, as required by OMB Circular No. A-50 and Interior’s own 

policy; however, the role of the independent auditors may mitigate any 

associated risk for financial statement audits.

12

Results in Brief

• In its response to our observation that we did not see evidence of a

periodic evaluation of the audit follow-up process as required by

OMB Circular No. A-50 and in its own policy, Interior stated that it 

carries out periodic evaluations as required by OMB. Interior listed 

various policies and procedures to support its position. 

• Interior does not evaluate the effectiveness of its audit follow-up

activities directly. Instead, it relies on the number of corrective

actions reported as resolved by its bureaus to measure its own 

effectiveness. In addition, we found no evidence that Interior 

verifies this bureau-reported information.

• As a result, we do not believe the activities cited by Interior

constitute the comprehensive assessment of the audit follow-up

system for efficiency, promptness, and proper resolution and 

corrective action called for in OMB Circular No. A-50. 
Enclosure I October 5, 2006 Briefing 

Page 11 GAO-07-295R OST Financial Audit Recommendations and Follow-up

13

Background

Weaknesses in the management and accounting practices of the Indian 

trust funds have been a long-standing issue. 

• As early as 1928, and in numerous subsequent reports, GAO, 

congressional committees, and others have highlighted weak

accounting practices and other problems in trust fund management.

• In Interior’s fiscal year 1987 supplemental appropriations act, 

Congress directed BIA to provide an accounting to the account 

holders and Congress. 

• In1994, Congress enacted the American Indian Trust Fund

Management Reform Act of 1994, requiring a full accounting for 

Indian trust funds. 

• In1996, Interior became a defendant in a class action lawsuit, Cobell

v. Babbitt, associated with the department’s historical management of 

funds held in trust for individual Indians, the IIM.

14

Background

• In January 2003, Interior filed with the U.S. District Court for the

District of Columbia its Historical Accounting Plan for Individual 

Indian Money Accounts to reconstruct historical balances in the IIM

statements.

• OST’s ability to prepare and report on Indian trust funds financial 

statements that are fairly stated depends on correcting material

weaknesses identified in the financial statement audits and 

establishing historical beginning trust fund balances. 

• This work focuses on the recommendations arising from the annual

financial statement audits beginning with those in fiscal year 1996. 

Efforts to establish historical beginning trust fund balances are

beyond the scope of this review.
Enclosure I October 5, 2006 Briefing 

Page 12 GAO-07-295R OST Financial Audit Recommendations and Follow-up

15

Background

• OST reports directly to the Secretary of the Interior and oversees

and coordinates Indian trust asset reform efforts across Interior.

• OST also performs financial trust services on behalf of individual 

Indian and tribal account holders.

• OST depends on receiving timely and accurate information from

financial and other transaction records maintained by BIA, the 

Minerals Management Service, and other Interior offices to allocate

receipts and disbursements to trust beneficiaries.

16

Background

• As of September 30, 2005, OST maintained approximately 1,450

accounts with reported assets exceeding $2.8 billion, and over

277,000 IIM accounts with reported assets of about $420 million.

• Income is generated from the leasing of Indian-owned land, the 

sales of natural resources, royalties from oil and gas exploration 

and production, judgment awards and settlements of claims, and 

interest earned on invested funds.
Enclosure I October 5, 2006 Briefing 

Page 13 GAO-07-295R OST Financial Audit Recommendations and Follow-up

17

Background

• Since 1996, OST has prepared annual financial statements for the

Indian trust funds, and independent public accountants have

audited the financial statements.

• The financial statements are prepared on cash (tribal) and modified

cash (IIM) bases, which are comprehensive bases of accounting 

other than U.S. generally accepted accounting principles.

• Griffin & Associates, P.C., performed the financial statement audits 

for fiscal years 1996 through 2000.

• KPMG, LLP, performed the financial statement audits for fiscal 

years 2001 through 2005 and continues to be the auditor for the 

Indian trust funds financial statements.

18

Status of Financial Statement Audit 

Recommendations

• Griffin & Associates, P.C., made approximately 60 

recommendations to OST based on its audits of the Indian trust 

funds financial statements from fiscal years 1996 through 2000.

• OST’s corrective action plans and other internal documents indicate

that OST management’s actions corrected 37 of the 60 internal 

control and compliance recommendations. 

• Accordingly, Griffin closed these 37 recommendations. 
Enclosure I October 5, 2006 Briefing 

Page 14 GAO-07-295R OST Financial Audit Recommendations and Follow-up

19

Status of Financial Statement Audit 

Recommendations

In 2001, KPMG

• reassessed the outstanding recommendations made by Griffin;

• closed or downgraded some based on additional audit testing;

• consolidated 12 others into two broad areas, each of which it 

considered to be a material weakness, and issued two

recommendations thereon; and

• added a third recommendation for a reportable condition on

information technology (IT) controls.

KPMG concluded that OST management actions from fiscal years 

2001 through 2005 had corrected most deficiencies making up the IT

reportable condition; hence, KPMG downgraded it to an advisory 

comment in 2005.

20

Status of Financial Statement Audit 

Recommendations

During the audit period: 

• A material weakness resulted when internal control did not reduce 

to a relatively low level the risk that material errors, fraud, or

noncompliance could occur and not be promptly detected by the

audited entity. 

• A reportable condition resulted when significant deficiencies in the 

design or operation of internal control could adversely affect 

information presented in the financial statements.

• An advisory comment resulted when other deficiencies existed that

were not reportable conditions and were not clearly 

inconsequential.
Enclosure I October 5, 2006 Briefing 

Page 15 GAO-07-295R OST Financial Audit Recommendations and Follow-up

21

Status of Financial Statement Audit 

Recommendations

• The first outstanding recommendation is for a material weakness 

labeled as unresolved financial reporting matters from prior audit 

periods.

• This material weakness consists of five deficiencies which, based 

on our analysis, have been outstanding in one form or another 

since before 1996.

1. Lack of reliable IIM balance 

2. Trust fund balances—tribal

3. Cash—tribal

4. SDAs—inconsistent practices 

5. Trust fund balances—IIM

22

Status of Financial Statement Audit 

Recommendations

Unresolved Financial Reporting Matters from Prior Audit 

Periods

1. Lack of reliable IIM balance: Control account balance for IIM 

account holders did not agree with the subsidiary ledger.

2. Trust fund balances—tribal: Proper recipients of interest for 

tribal accounts have not been determined.

3. Cash—tribal: Overdrafted payments and improper accounting 

left 12 tribal trust fund accounts with negative cash balances.

4. SDAs: SDA moneys have not been distributed to recipients.

5. Trust fund balances—IIM: Proper recipients of interest for IIM 

accounts have not been determined.
Enclosure I October 5, 2006 Briefing 

Page 16 GAO-07-295R OST Financial Audit Recommendations and Follow-up

23

Status of Financial Statement Audit 

Recommendations

• The second outstanding recommendation is for a material 

weakness labeled as OST reliance on processing of Indian trust 

funds transactions at BIA.

• This weakness was first reported comprehensively in 2001 and 

presently consists of seven financial statement reporting 

deficiencies.

1. Trust systems

2. Segregation of duties

3. Accounts receivable

4. Probate backlog

5. Untimely deposits

6. Supervised and restricted accounts

7. Appraisal review

24

Status of Financial Statement Audit 

Recommendations

OST Reliance on Processing of Indian Trust Funds Transactions at

BIA 

1. Trust systems: BIA did not consistently implement automated 

systems for Indian trust assets. 

2. Segregation of duties: Indian trust processing responsibilities 

at BIA were not properly separated to prevent or detect 

errors. 

3. Accounts receivable: BIA did not fully develop and

communicate standardized policies and procedures for 

accounts receivable. 

4. Probate backlog: BIA did not always enter probate orders for 

land title into the trust management systems in a timely way. 
Enclosure I October 5, 2006 Briefing 

Page 17 GAO-07-295R OST Financial Audit Recommendations and Follow-up

 

25

Status of Financial Statement Audit 

Recommendations

OST Reliance on Processing of Indian Trust Funds Transactions at

BIA (continued)

5. Untimely deposits: BIA did not consistently forward trust 

receipts in a timely manner to OST for deposit. 

6. Supervised and restricted accounts: BIA did not consistently 

maintain documentation for supervised accounts or

consistently perform annual reviews of active accounts. 

7. Appraisal review: Approval controls over tribally performed 

appraisals conducted through self-determination or selfgovernance contracts/compacts were not in place. 

26

Status of Financial Statement Audit 

Recommendations

Several outstanding issues are complex and will not be fixed by OST 

alone.

• Both Griffin and KPMG have noted the historical nature of 

issues, arising primarily from lack of adequate financial 

reporting systems and inadequate controls. 

• Some balances that are part of OST’s unresolved matters from 

prior periods are affected by years of accumulated errors.

• OST has stated that some corrective actions would require 

legislative fixes because OST is not authorized to use current 

appropriations to fund differences arising from prior years. 

• Factors affecting ownership records are complex.

• System and data fixes depend on joint efforts with BIA. 
Enclosure I October 5, 2006 Briefing 

Page 18 GAO-07-295R OST Financial Audit Recommendations and Follow-up

27

Audit Follow-up Process

• Interior policy for follow-up on financial statement audit

recommendations addresses each of the required standards under 

OMB Circular No. A-50.

• We saw evidence of control activities to support audit follow-up by

OST, Interior, and the Interior OIG.

• We did not see evidence of periodic evaluation of the audit followup system, as required by OMB Circular No. A-50 and Interior’s

own policy.

• However, for financial statement audits, the independent auditors 

annually validate whether OST’s underlying deficiencies previously

identified, and which were the basis for the recommendations, have

been corrected.

28

Audit Follow-up Process

OST control activities related to financial statement audit follow-up

include

• issuing quarterly and monthly corrective action plans and status

reports to Interior,

• designating a senior OST official to review and approve status 

reports,

• designating an OST audit liaison officer as the focal point for OST 

status reporting to Interior headquarters,

• participating in semiannual issue resolution meetings with Interior

and its OIG,

• submitting closure documents to Interior headquarters and 

retaining supporting documentation on actions taken, and

• drafting policy on OST audit follow-up activities.
Enclosure I October 5, 2006 Briefing 

Page 19 GAO-07-295R OST Financial Audit Recommendations and Follow-up

29

Audit Follow-up Process

Interior’s audit follow-up control activities include

• a policy clearly defining audit follow-up roles and responsibilities for 

OST, Interior, and the Interior OIG;

• an official designated with overall responsibility for audit follow-up

and resolving differences with the auditors;

• a management council of senior executives to resolve audit issues 

that may not otherwise be resolved routinely;

• monthly and quarterly reporting by OST to Interior and semiannual 

status meetings between Interior and OST staff; and

• a tracking database used to monitor and report OST’s progress on

implementation and resolution of audit deficiencies.

30

Audit Follow-up Process

OIG control activities related to financial statement audit follow-up

include

• referring findings and recommendations identified by the 

independent auditor as part of the annual financial statement 

audit to Interior; 

• performing quality reviews of the work of the independent 

auditors, who determine if actions reported by OST 

management have corrected the underlying deficiency;

• maintaining a database for tracking and reporting on the status

of referred recommendations and reconciling it with Interior’s

database; and

• reporting semiannually on the status of outstanding financial 

and other recommendations to Congress.
Enclosure I October 5, 2006 Briefing 

Page 20 GAO-07-295R OST Financial Audit Recommendations and Follow-up

 

31

Conclusions

• The majority of the recommendations on financial statement 

reporting deficiencies issued from fiscal years 1996 through 2005 

related to the independent audit of the Indian trust funds financial 

statements are closed. The two remaining recommendations relate

to 12 deficiencies that have been outstanding for some time. 

• Effective corrective actions and audit follow-up processes are key 

to resolution of identified audit deficiencies. OST’s and Interior’s 

procedures and controls are designed to meet the requirements of

applicable guidance, and controls are in place to reasonably ensure 

that audit follow-up objectives are achieved for financial statement 

audits.

• Timely and effective responses to correct the remaining 

deficiencies will depend on OST’s sustained efforts to implement its 

corrective actions over time and on Interior’s and the OIG’s 

oversight efforts as part of the audit follow-up process.

32

Agency Comments and Our Evaluation

• The Department of the Interior provided written comments on a 

draft of this briefing. 

• In responding to our observation that we did not see evidence of a 

periodic evaluation of the audit follow-up system, as required by

OMB Circular No. A-50 and Interior’s own policy, Interior stated that 

it carries out periodic evaluations as required by OMB. 

• Interior listed several policies and procedures to support its 

position, some of which we have cited previously as audit follow-up

control activities. Interior also made reference to its audit follow-up 

performance measures, financial statement audits, updated internal

control handbook, and its executive performance agreements.

• Interior stated it analyzed bureau progress reports, identified 

lessons learned, and used annual goals for resolved corrective

actions to measure effectiveness.
Enclosure I October 5, 2006 Briefing 

Page 21 GAO-07-295R OST Financial Audit Recommendations and Follow-up

33

Agency Comments and Our Evaluation

• Interior does not evaluate the effectiveness of its audit follow-up

activities directly. Instead, it relies on the number of corrective

actions reported as resolved by its bureaus to measure its own 

effectiveness. In addition, we found no evidence that Interior 

verifies this bureau-reported information.

• As a result, we do not believe the activities cited by Interior

constitute the comprehensive assessment to determine if the audit 

follow-up system results in efficient, prompt, and proper resolution

and corrective action on audit recommendations called for in OMB

Circular No. A-50. Instead, the activities cited are part of the audit 

follow-up system and not a comprehensive assessment of it.

• However, as we state in this briefing, for financial statement audit 

recommendations, the independent public accountants annually 

determine whether OST’s underlying deficiencies have been 

corrected.

34

Agency Comments and Our Evaluation

• Also, as part of our review, we requested the results of the most 

recent OMB Circular No. A-50 evaluation. Interior provided a May 

1993 report assessing compliance by three Interior bureaus with 

the Federal Managers’ Financial Integrity Act of 1982. The report 

did not include an assessment of the audit follow-up system with

respect to Indian Trust Fund audit recommendations.

• Along with its comments, Interior provided an updated summary of

the latest corrective action plans for OST’s 12 open financial 

statement audit recommendations as of September 30, 2005. 

Interior also provided some technical corrections, which we have

incorporated as appropriate.

• Interior’s comments are reprinted in enclosure I.
Enclosure II Comments from the Department of the Interior 

Page 22 GAO-07-295R OST Financial Audit Recommendations and Follow-up
Enclosure II Comments from the Department of the Interior 

Page 23 GAO-07-295R OST Financial Audit Recommendations and Follow-up
Enclosure II Comments from the Department of the Interior 

Page 24 GAO-07-295R OST Financial Audit Recommendations and Follow-up
Enclosure II Comments from the Department of the Interior 

Page 25 GAO-07-295R OST Financial Audit Recommendations and Follow-up
Enclosure II Comments from the Department of the Interior 

Page 26 GAO-07-295R OST Financial Audit Recommendations and Follow-up
Enclosure II Comments from the Department of the Interior 

Page 27 GAO-07-295R OST Financial Audit Recommendations and Follow-up

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