Effective Date: 1/9/01

Series: Audit

Part 361: Audit Followup

Chapter 2: Followup to Inspector General Audits

Originating Office: Office of Financial Management

2.1 Purpose.

A. Objectives. These instructions provide policies and authorities for follow-up to OIG-issued audit reports.

B. Scope. This chapter applies to performance, single, external and financial statement audit reports that are issued by the OIG, including audits conducted by other Federal audit agencies, and audits conducted by state and local government auditors and independent public accountants under cognizance assignment of the OIG.

2.2 Policy. It is the policy of the Department that timely actions be taken in response to audit findings and recommendations contained in audit reports issued by the OIG. Audit reports will be given careful attention by those officials responsible for programs or activities covered by the reports and such action will be taken as may be necessary to promptly correct conditions that are shown to be deficient. Information, advice, and guidance from OIG-issued reports will be used for the maximum benefit to the Department. This requires:

A. Full cooperation with the OIG in the conduct of its audits.

B. Timely, objective consideration by appropriate management officials of the findings and recommendations contained in audit reports.

C. Development and submission of responses to audit recommendations within the required time frames specified in 361 DM 1.4.

D. Timely implementation of audit recommendations.

2.3 Authority.

A. Office of Management and Budget (OMB) Circular A-50 (Audit Follow-up), dated September 29, 1982. Circular A-50 sets forth policies and procedures for management's use when considering OIG audit reports. It establishes the role of the audit follow-up official, management officials, and the OIG with regard to audit follow-up. Circular A-50 also establishes policy for resolving audits, and action requirements for audit follow-up systems.

B. OMB Circular A-102 (Common Rule), Grants and Cooperative Agreements with State and Local Governments, dated October 7, 1994, amended August 29, 1997. Circular A-102 establishes consistency and uniformity among Federal agencies in the management of grants and cooperative agreements with State, local and Federally-recognized Indian tribal governments.

C. OMB Circular A-110, Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations, dated November 19, 1993. Circular A-110 promulgates standards for obtaining consistency and uniformity among Federal agencies in the administration of grants to and other agreements with, public and private institutions of higher education, public and private hospitals, and other quasi-public and private nonprofit organizations.

D. OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, dated June 24, 1997. Circular A-133 sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of States, local governments, and nonprofit organizations expending Federal awards.

These circulars are available on the OMB Home Page at the following Website: (HTTP://WWW.Whitehouse.gov/WH/EOP/OMB/HTML/OMBHOME). Information on grants management may be found at HTTP://WWW.Whitehouse.Gov/OMB/Grants/Index.html.

2.4 Roles and Responsibilities.

A. Office of Inspector General.

(1) Notifies the cognizant Assistant Secretary and bureau/office director of the initiation of an Office of Inspector General audit to be conducted in the Department of the Interior or operations related to the Department of the Interior.

(2) Provides the results of each audit to the organization being audited following the policies and procedures established by the Office of Inspector General.

(3) Provides both hard and electronic copies of all audit initiation memoranda and draft and final internal audit reports to the audit follow-up official, PFM, the cognizant Assistant Secretary and bureau/office director.

(4) In instances where management and the OIG are unable to reach agreement (management decision) for recommendations contained in an internal audit, the OIG will refer the audit report to the audit follow-up official, with a copy to PFM, for resolution within 90 days following the report’s issue date. Referrals will include a copy of the audit report and will identify the issue(s) under disagreement, the respective positions of management and the OIG on the matter, and a statement of efforts that have been taken to reach agreement. If the OIG does not agree with the final determination of the audit follow-up official, the OIG may report the disagreement in its semiannual report to the Congress.

(5) In instances where resolution has been achieved, but final action on a recommendation(s) is incomplete or has not been taken, the OIG will refer the audit report containing the recommendation(s) to the audit follow-up official, with a copy to PFM, for tracking through final action. Referrals for tracking will include a copy of the audit report, a copy of management’s response to the final audit report and will identify actions to be taken, target dates for accomplishment of all necessary actions, names of responsible officials, and management’s agreement or disagreement with monetary amounts identified for each recommendation. The referral will identify those recommendations for which final action was taken prior to referral.

(6) When a response has not been received from management within 120 days from the issuance of an external audit report (except for preaward contract award audits), the OIG will refer the audit report to the audit follow-up official, with a copy to PFM. The referral will include the recommendations and questioned costs, if any, being referred, and a copy of the audit report and related correspondence.

(7) Conducts periodic evaluations of the effectiveness of the audit follow-up system.

(8) Conducts follow-up reviews and audits to ensure that actions reported by management have, in fact, been taken.

B. Office of Financial Management.

(1) Ensures that management is promptly notified of referrals of audit reports from the OIG.

(2) Ensures that disagreements between the OIG and management concerning audit recommendations are promptly negotiated or subsequently resolved by the audit follow-up official. As part of this process, notifies OIG of planned meetings with bureau and Department officials and provides OIG an opportunity to participate in the resolution process.

(3) Ensures that actions agreed to be taken in a management decision are tracked through final action.

(4) Ensures that the OIG is notified when a management decision has been achieved on any audit report referred for resolution.

(5) Ensures that the OIG is notified upon concurrence with management’s request to change target dates for implementing audit recommendations.

(6) Ensures that there is coordination with management and the OIG on any deviations, other than target date changes, to a management decision on an audit.

(7) Ensures that management and the OIG receive notification upon the closure of recommendations and/or reports referred by the OIG.

(8) Ensures that the Departmental audit follow-up tracking database is accurate and up-to-date.

(9) Provides information on the status of audits that have been referred to the audit follow-up official for the OIG’s Semi-Annual Report to Congress.

(10) Functions as ALO for the Audit Follow-up Official.

C. Each Program Assistant Secretary.

(1) Appoints and oversees the activities of an ALO who will be responsible for the conduct of audit coordination and follow-up activities identified in 361 DM 1.3C. Provides notice of the appointment to the audit follow-up official, PFM, OIG, and Bureau or Office Directors.

(2) Ensures that timely responses are made to all audit reports within the cognizance or direct responsibility of the Assistant Secretary.

(3) Ensures that corrective actions agreed to be taken in a management decision are completed.

(4) Upon receipt of a request by management for a change of target implementation dates, or other deviation from a management decision, concurs or non-concurs in the request and forward the decision to the audit follow-up official for appropriate action.

(5) Ensures that performance appraisals of appropriate management official include effectiveness in responding to and implementing audit recommendations.

D. Each Bureau and Office Director.

(1) Appoints and oversees the activities of an ALO who will be responsible for the conduct of audit coordination and follow-up activities. Provides notice of the appointment to the audit follow-up official, PFM, OIG, and the cognizant program Assistant Secretary.

(2) Implements corrective actions agreed upon in a management decision within established time frames.

(3) Notifies the audit follow-up official, with a copy to PFM, upon completion of final action for each recommendation/audit report referred by the OIG for tracking through implementation, including final action on disallowed/sustained costs. Provides PFM with supporting documentation showing actions taken for each recommendation, including documentation of the disposition of audit-related debt, as appropriate.

(4) Notifies the audit follow-up official, with a copy to PFM, when a contractor or grantee appeals a contracting officer’s decision. Notice will include the identification of the audit report, the date issued, the date of the contracting officer’s decision on the claim and the amount of money appealed, and identification of the board or court to which the claim was made along with the docket number. Subsequent notice will be given to the audit follow-up official with a copy to PFM, upon the board or court’s final disposition of the claim.

2.5 Other Reporting Requirements.

A. Classification of Monetary Amounts. OIG internal audit reports of agency operations and programs, and external audit reports involving audits of pre-award contracts and post-award claims, grants, and concessions and single audits, will routinely classify monetary amounts associated with audit findings as "questioned costs", "funds recommended for better use," or "potential additional, lost or underpaid revenues". The Departmental Accountability Report will report on final action taken by management for those reports containing disallowed costs and funds recommended for better use. Audit reports containing potential additional revenues will be classified and reported separately.

B. Application to Insular Governments. Public Law 97-357 (96 Stat. 1705) empowers the OIG to audit expenditures of Federal and local funds received by the governments of Guam, American Samoa, the United States Virgin Islands, and the Commonwealth of the Northern Mariana Islands, and to report findings and recommendations to the Secretary. The Director, Office of Insular Affairs will, as needed, seek the cooperation of these governments in obtaining responses and in implementing recommendations agreed to be taken resulting from audit reports. The OIG will refer to the audit follow-up official for tracking or resolution, only those audit reports involving Federal funds/issues.

C. Accounting and Collection Controls. In order to ensure effective recovery action of audit-related debt, each bureau will establish accounting and collection controls for amounts due the Government as a result of an audit to include providing notice to the audit follow-up official upon establishing and collecting audit-related receivables. Unless otherwise required by statute, debts arising from disallowed costs shall be collected in accordance with the Federal Claims Collection Standards (4 CFR, Parts 101-105) and the Departmental Manual (344 DM "Debt Collection").

2.6 Financial Statement Audits

A. Preparation of Financial Statements. Financial statements for the Department and the bureaus will be prepared and audited on an annual basis. Final financial statements, including the auditor’s opinion on the financial statements, will be issued on or before the statutory due date of March 1 each year.

The financial statements will be prepared in compliance with OMB’s Form and Content of Agency Financial Statements (OMB Bulletin No. 97-01 or its successor documents).

B. Audit Opinions on Financial Statements. The audit opinions will be issued in compliance with OMB’s "Audit Requirements for Federal Financial Statements" (OMB Bulletin No. 98-08 or its successor documents). The audit opinion will include the following:

(1) An opinion as to whether the reporting entity’s Principal Statements is fairly presented in all material respects, in conformity with Federal Accounting Standards.

(2) A report on internal controls.

(3) A report on the reporting entities compliance with applicable laws, regulations, and government-wide policy requirements.

C. Reporting Entity Responses to Audit Opinion Findings. As required by OMB’s audit guidance, 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 action taken on prior findings. To the extent practical, these comments shall be included in the audit report on internal controls or report on compliance. Departmental and bureau responses to audit findings shall be provided to the OIG within 14 calendar days of the issuance of the draft audit report to allow for the timely publication of the audited financial statements.

D. Correction of Material Weaknesses and Reportable Conditions. Material weaknesses and reportable conditions reported in the auditors opinion, report on internal controls, and or report on compliance, will be tracked in the Department Audit Follow-up Tracking System in a similar manner as other OIG, GAO or other audit recommendations. Corrective action plans with appropriate interim milestones and target dates will be developed by Bureau Chief Financial Officers, ALO’s and other cognizant offices, and updated on a regular basis. The audited entity should seek to complete corrective action plans before the next annual financial statement audit. The Department will monitor implementation progress to ensure completion of corrective actions by original target dates.

E. Non-Compliance with Federal Financial Management Improvement Act (FFMIA). The Department will comply with policies and guidance on reporting of FFMIA non-compliance. Required corrective action plans related to FFMIA non-compliance will be provided to OMB following OMB requirements. The Department will use the Audit Follow-up Tracking System and implementation progress information to monitor corrective action plans to bring the Department or individual bureaus into compliance with the FFMIA.

1/9/01 #3353

Replaces 5/10/91 #2913