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To the Honorable Elaine L. Chao Secretary of Labor
The Chief Financial Officers Act of 1990 (CFO Act) requires
agencies to report annually to Congress on their financial status and any other
information needed to fairly present the agencies' financial position and
results of operations. To meet the CFO Act reporting requirements, the United
States Department of Labor (DOL), a Department of the United States Government,
prepares annual financial statements, which are subjected to audit.
The objectives of the audit are to express an opinion on the fair
presentation of DOL's principal financial statements. Additionally, the
objectives include expressing an opinion on DOL's compliance with requirements
of the Federal Financial Management Improvement Act of 1996, based on
an examination.
We have audited the consolidated balance sheets of DOL as of September
30, 2005 and 2004, and the related consolidated statements of net cost, changes
in net position, financing, and custodial activity and the combined statements
of budgetary resources for the years then ended. These financial statements are
the responsibility of DOL's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America; 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. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Relationship to the Single Audit Act
The financial statements for the years ended September 30, 2005 and
2004, include:
- costs for grants, subsidies, and contributions primarily with various
state and local governments and nonprofit organizations in the amounts of $9.4
billion and $10.1 billion, respectively;
- costs for unemployment benefits incurred by state employment security
agencies in the amounts of $32.3 billion and $41.7 billion, respectively;
- state employer tax revenue of $33.1 billion and $30.1 billion,
respectively;
- net receivables for state unemployment taxes, reimbursable benefits,
and benefit overpayments of $.9 billion and $1.0 billion, respectively; and
- reimbursements from state, local, and nonprofit reimbursable
employers for unemployment benefits paid on their behalf, in the amounts of
$1.9 billion and $2.4 billion, respectively.
Our audits included testing these costs, financing sources,
and balances at the Federal level only. Pursuant to a mandate by Congress, the
examination of these transactions below the Federal level is primarily
performed by various auditors in accordance with the Single Audit Act of 1984,
as amended, and OMB Circular A-133, Audits of States, Local Governments,
and Non-Profit Organizations. The results of those audits are reported to
Federal agencies that provide direct grants, and each Federal agency is
responsible for resolving findings for its awards.
Opinion on Financial Statements
In our opinion the aforementioned financial statements present fairly,
in all material respects, the assets, liabilities, and net position of the DOL
as of September 30, 2005 and 2004; and the net cost, changes in net position,
budgetary resources, reconciliation of net cost to budgetary resources, and
custodial activity for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
Other Accompanying Information
Our audits were conducted for the purpose of forming an opinion on the
consolidated and combined financial statements of DOL taken as a whole. The
accompanying information discussed below is not a required part of the
principal financial statements.
The supplementary information included in the Management's Discussion
and Analysis, Required Supplementary Stewardship Information, and Required
Supplementary Information sections of the Performance and Accountability Report
are required by the Federal Accounting Standards Advisory Board and OMB
Circular A-136, Financial Reporting Requirements. We have applied
limited procedures, performed at the Federal level only, which consisted
principally of inquiries of management regarding the methods of measurement and
presentation of the information. However, we did not audit the information and
express no opinion on it.
The information included in the Secretary's Message, Performance
Section, Chief Financial Officer's Letter, 2005 Top Management Challenges
Facing the Department of Labor Identified by the Office of Inspector General
and the report appendices are presented for purposes of additional analysis.
Such information has not been subjected to the auditing procedures applied in
the audit of the consolidated and combined financial statements and,
accordingly, we express no opinion on it.
Report on Internal Control
In planning and performing our audit, we considered DOL's internal
control over financial reporting by obtaining an understanding of the
Department'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.
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 caused by error or fraud
in amounts that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by employees in
the normal course of performing their assigned functions. Because of inherent
limitations in internal controls, misstatements, losses, or noncompliance may,
nevertheless, occur and not be detected. We noted certain matters, discussed in
the following paragraphs, involving the internal control and its operations
that we consider to be reportable conditions. However, none of the reportable
conditions are believed to be a material weakness.
In addition, we considered DOL's internal control over Required
Supplementary Stewardship Information by obtaining an understanding of the
agency's internal controls, determining whether they had been placed in
operation, assessing control risk, and performing tests of controls as required
by OMB Bulletin No. 01-02. The objective of our audit was not to provide
assurance on these internal controls. Accordingly, we do not provide an opinion
on such controls.
Finally, with respect to internal control relating to performance
measures included in the Performance Section, 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.
Reportable Conditions
Incomplete Capitalization of Internal Use Software Costs
Statement of Federal Financial Accounting Standard (SFFAS) No. 10
requires agencies to capitalize costs related to the development of internal
use software, such as direct salary and fringe benefits of federal employees
involved and related indirect costs such as overhead, rent, and travel. Our FY
2005 audit identified more than $53 million of internally-developed software
costs that were not appropriately capitalized in accordance with generally
accepted accounting principles (GAAP) and DOL policy. Specifically, DOL
agencies did not capitalize software development costs, such as the direct
salary and fringe benefit costs associated with Federal employees involved with
software development, and the related indirect costs such as overhead, rent,
and travel. Three of the agencies involved were unaware of the capitalization
requirements, and we concluded that the OCFO was not sufficiently monitoring
agencies in this regard. Accordingly, we recommended that the Chief Financial
Officer (CFO) monitor agency compliance with Federal and departmental
accounting requirements for internal use software. Management recorded
appropriate adjustments to the year-end financial statements, and agreed to
monitor agency compliance and reissue the guidance for capitalizing costs of
internally-developed software.
Software License Fees Inappropriately Capitalized
Our FY 2005 audit disclosed that DOL agencies inappropriately
capitalized $6.7 million of software licenses acquired in FY 2005, and $2.4
million acquired in prior years. The costs of these licenses did not meet the
criteria for capitalization established in GAAP, and, accordingly, the costs
should have been expensed in the year acquired. We found that DOL's policy
manual, the Department of Labor Manual Series (DLMS), did not provide guidance
or requirements as to how DOL agencies should account for software license
fees, and that the OCFO was not monitoring agencies in this regard. We
recommended that the CFO issue relevant written guidance, monitor agency
compliance over accounting for software licenses, and record appropriate
adjustments in the general ledger. Management agreed with the recommendations
and expensed approximately $4.9 million of license fees in FY 2005 and will
research the remaining amounts and make the appropriate adjustments in FY 2006.
Management also agreed to issue relevant guidance and monitor agency compliance
over accounting for software license costs.
Internal Control Weaknesses Noted for Job Corps Real Property
DOL owns a significant amount of real property, which is capitalized and
depreciated in the Department's accounting records, and is reported in the
Department's financial statements. In the FY 2003 audit, we reported errors in
amounts reported for Job Corps real property, and concluded that ETA did not
establish sufficient controls to ensure that capitalized real property was
safeguarded and accurately reported in the Capitalized Assets Tracking and
Reporting System (CATARS) and the Department of Labor Accounting and Related
Systems (DOLAR$) general ledger. We recommended that management record property
transactions timely and make other improvements over accounting for real
property. During the FY 2005 audit, our review of the construction in progress
(CIP) account disclosed that the account inappropriately contains completed
construction projects. We identified 18 CIP contracts that were completed and
should have been transferred from CIP to the buildings or leasehold
improvements accounts. The value of these completed projects was $55.5 million.
We identified three additional contracts, valued at $2.8 million, that were
inappropriately recorded in the CIP account (these items were not for
construction projects), and six items recorded in the property accounts that
had been disposed and should have been written off. The net book value of the
disposed items was $.4 million.
Management responded that they performed a complete review of items in
CIP, and moved over 100 old items out of CIP during the year. Additionally,
they made changes to their procedures to ensure that newly finished structures
entered into CATARS were in accordance with the newly reorganized asset
designation and identification system. The documentation of the remaining
completed projects was not available until near year-end, and could not be
properly entered into CATARS. Management made an adjustment for the value of
the completed projects so as to properly present the effect of completing these
construction projects. Work for all the remaining projects will be completed by
December 31, 2005.
Weaknesses Noted Over ESA Benefit Program Accounting
The Employment Standards Administration's (ESA) Office of Management,
Administration, and Planning (OMAP) performs the accounting for ESA's benefit
programs, including Federal Employees' Compensation Act (FECA), Energy
Employees Occupational Illness Compensation Program Act (EEOICPA), Longshore
and Harbor Workers' Compensation Act (LHWCA), and District of Columbia
Compensation Act (DCCA). These accounting procedures include entering
transactions in the DOLAR$ general ledger, reconciling accounts, and working
with employing agencies to ensure receivables are paid. Many of these
transactions are entered in DOLAR$ as monthly summary journal entries from
various subsidiary records. In FY 2005, we noted several instances when the
accounting for these activities was not performed timely, completely, or
accurately. OMB Circular A-127 requires agency financial systems to provide
reliable and timely information.
In addition, we found that ESA did not maintain its subsidiary system
for tracking the balance of Intra-governmental Accounts Receivable for the FECA
program. Although the OCFO has maintained other receivable records, ESA was not
following up with employing agencies or managing the receivable balances.
Without an adequate subsidiary system, ESA cannot properly manage its
receivables or accurately report the employing agency balances.
Additionally, ESA did not have a formal process to reconcile its various
benefit payment subsidiary systems (FECA, EEOICPA, and LHWCA/DCCA) with amounts
reported to Treasury and recorded in the DOLAR$ general ledger. Although the
OCFO performs Funds with Treasury reconciliations, the reconciliations are
based on amounts recorded in the general ledger and do not include the detailed
payment history databases included in the subsidiary systems. Without a
complete and formal reconciliation process, management cannot ensure that its
payment subsidiary systems are in agreement with the actual payments reported
and reconciled to Treasury.
These accounting and reconciliation problems arose because there was a
significant employee turnover in OMAP, and ESA did not have sufficiently
detailed or comprehensive written procedures to enable new staff to perform the
required activities in an accurate and timely manner. In FY 2005, these
weaknesses jeopardized the timely and accurate issuance of the accountability
report.
We recommend that the Chief Financial Officer and the Assistant
Secretary for Employment Standards: ensure that OMAP develops adequate detailed
written procedures that address all significant aspects of its accounting and
financial management; ensure that OMAP implements a human resource
transition/succession plan which includes a description of key positions and
detailed written procedures for the duties assigned to the position; ensure
that OMAP and OWCP develops and implements reconciliation procedures for the
benefit payment histories and the SF-224, FMS 6653 and the DOLAR$ general
ledger; and ensure that OMAP maintains a current Intragovernmental Receivable
subsidiary ledger and establishes written procedures for collecting the
receivables. Management generally concurs and has begun taking steps to address
these recommendations.
Errors in FECA Medical Bill Processing
Our FY 2004 audit disclosed errors in the processing of FECA medical
bills, which were attributed to the fact that management did not have a quality
assurance and internal audit plan in place prior to implementation of a new
medical bill payment system. Both prior to and in response to this finding,
management took steps to correct some of the weaknesses identified in the
audit. We recommended that management move forward with full implementation of
the proposed corrective actions, and adjust the accounting records accordingly.
In response, management implemented certain corrective actions to improve
processing of medical bills. However, our FY 2005 audit identified that medical
bills paid during the year were not consistently priced in accordance with the
appropriate fee schedules. We identified that management needs to take
additional actions to reduce these errors, including: modify the duplicate pay
edit; ensure that version changes to Grouper/Pricer are controlled and
documented; improve controls over the fee schedule changes, so that the
effective date is not before the implementation date; and strengthen the
controls over the manual override function. Management partially concurred with
our recommendations, and indicated that corrective actions had already been
implemented to resolve these audit findings.
Lack of System to Track FECA Medical Bill Receivables
Our FY 2004 audit disclosed that ESA did not have a system to track and
record medical bill overpayments (receivables), and, accordingly, these
receivables were not recorded in the general ledger. Without an effective
system, receivables cannot be adequately monitored and managed, and we estimate
that the Department's accounts receivable are understated by approximately $2
million to $4 million, annually.
In the FY 2004 report, we recommended that ESA develop and implement a
system to identify and record receivables resulting from overpayment of medical
bills. In response, management indicated that the case management system,
inclusive of the receivable system, would be deployed in FY 2005. However, our
FY 2005 audit found that the system implementation was postponed to March,
2006.
Lack of Current Medical Evidence to Support FECA Compensation
Payments
We previously reported that ESA's Office of Workers' Compensation
Programs (OWCP) did not have adequate controls to ensure that current medical
evidence is maintained in the case files to support the continuing eligibility
of claimants, which increases the risk of improper payments. This was a result
of OWCP not properly following its procedures. We recommended that management
implement automated procedures to ensure medical evidence is obtained and
reviewed. In our FY 2005 audit, we continued to note a high error rate where
case files did not contain current medical evidence. Management developed a
corrective action plan that calls for the completion in March 2006 of an
automated system to track the status of medical evidence in the case files.
Lack of Strong Application Controls Over Financial Information
In the FY 2004 audit, we reported that DOL lacked strong application
controls over the access to and protection of financial information. Our FY
2005 application controls testing noted the continued presence of numerous
weaknesses in the information protection controls over applications.
Specifically, we noted consistent weaknesses across the applications tested in
the following application control areas:
- Identification and documentation of supporting environments, such as
process flow documentation and mapping;
- Application password settings, such as passwords that do not adhere
to complexity requirements;
- User access, such as incomplete access request and termination forms;
- Lack of application segregation of duties policies or enforcement of
segregation of duties policies;
- User recertification, including lack of user recertification, or
incomplete recertification documentation;
- Audit trails, such as lack of monitoring of sensitive application
functions and incomplete audit logs; and
- Controls over output to other applications, including reconciliation
of control totals and record counts.
These findings are a result of a breakdown in the implementation and
monitoring of Departmental processes and procedures for application controls.
These application control weaknesses could lead to users with inappropriate
access to financial systems, inefficient processes, lack of completeness,
accuracy, or integrity of financial data, or the lack of detection of unusual
activity within financial systems.
In FY 2004, we recommended that the CIO ensure that the individual
agencies correct the specific application control weaknesses identified during
the audits, and coordinate efforts with the OCFO to develop and/or enforce
procedures and controls to address consistent or systemic application control
weaknesses on current and future financial management systems.
The OCIO generally concurred with the recommendations, and devised
detailed plans to addresses the vulnerabilities associated with application and
logical security control weaknesses systematically and consistently. In
addition, the OCIO indicated that monthly meetings will be held with the
effected agencies to ensure that security weaknesses identified in the audit
are corrected in accordance with the agencies' respective plans of action and
milestones.
Lack of Strong Logical Security Controls
In prior years, the OIG reported that DOL lacked strong logical security
controls to secure the Department's networks and information. The FY 2005 audit
identified continuing weaknesses, as follows:
- Technical security standards and policies need to be updated and
implemented to include stronger logical security controls. Specifically,
patches need to be applied to systems in a timely manner; unnecessary services
need to be disabled; and access to sensitive files and directories needs to be
restricted.
- Background check policies and procedures need to be created for
contract staff and need to be enforced for federal staff to ensure that
adequate levels of clearance are maintained for applicable staff.
- Segregation of duties policies need to be created and enforced for
general support systems of financial applications.
These findings are a result of a breakdown in the implementation and
monitoring of Departmental processes and procedures for logical security
controls. These logical security control weaknesses could lead users to gain
unauthorized access to the agency applications and data, or potential
modification or disclosure of agency data.
In prior years, the OIG recommended that the CIO ensure the specific
security weaknesses identified during the audits and reported in various agency
reports are addressed by the individual agencies, and enhance the Department's
security program to include testing of the noted weaknesses as part of the
CIO's new testing process.
The OCIO generally concurred with the recommendations, and devised
detailed plans to addresses the vulnerabilities associated with application and
logical security control weaknesses systematically and consistently. In
addition, the OCIO indicated that monthly meetings will be held with the
effected agencies to ensure that security weaknesses identified in the audit
are corrected in accordance with the agencies' respective plans of action and
milestones.
Errors Reported by States on ETA 2112 Not Corrected by
ETA
On a monthly basis, states are required to submit form ETA
2112, UI Financial Transaction Summary Unemployment Fund, which provides a
summary of transactions for the state unemployment fund. Our audit of UI
activity recorded in FY 2005 identified that the state reporting entities did
not consistently report certain UI transactions, and that ETA did not
effectively review the monthly reports in order to detect and correct these
errors on a timely basis. As a result, the financial statements of the
Department were misstated. Specifically, we noted the following:
- One state reported a $149 million withdrawal from their unemployment
fund as a negative deposit, which effectively overstated the amount recorded in
DOLAR$ as UI benefit payment expense.
- One state inappropriately reported private loan proceeds as employer
tax revenue, overstating the revenue by $230 million.
- Other states incorrectly reported Trade Readjustment Assistance,
NAFTA and/or TRA funds as UI deposits.
We also noted that the aggregate ending cash balance in the
states' benefit payment accounts as reported on the ETA 2112 did not agree to
the corresponding advance or accounts payable balances recorded in DOLAR$.
Research into these differences disclosed an estimated $222 million
understatement of benefit payment expense.
We concluded that ETA was not sufficiently monitoring
information reported by States on the ETA 2112 reports, and had not provided
adequate instructions or training on reporting UI Trust Fund activity.
Accordingly, we recommend that additional instructions be provided to the UI
reporting entities, procedures be implemented to review data reported on the
ETA 2112, and that differences in ending cash balances be reconciled and
adjusted as necessary. Management concurred with these findings, and has
indicated that various edit checks and reconciliation procedures will be
implemented in FY 2006.
OASAM's Procurement Files Lack Sufficient Documentation
In the FY 2004 audit, we reported that OASAM's procurement files lacked
sufficient documentation and were poorly organized. Based on the condition of
the files and the lack of critical procurement documentation, it was clear that
files were not being maintained in accordance with existing procurement
policies and procedures. As a result, management was not able to demonstrate
compliance with the sections of the FAR pertaining to contract competition for
three contracts. We recommended that management improve record maintenance,
establish consistent practices, and develop a monitoring process to ensure
compliance with applicable procurement requirements.
In response, OASAM implemented a series of policy and procedural changes
designed to improve record maintenance, ensure consistent and compliant
procurement practices, and raise awareness and proficiency in the procurement
award process. Files were reorganized, and our review of a sample of 10 FY 2005
procurement actions identified a significant improvement in that regard.
However, the Office of Procurement Services' (OPS) assessment of FY 2005
procurement activities identified that contract renewal actions were not
processed by October 1, 2004 in full compliance with the FAR. For this reason,
OPS requested a class sole source and ratification authority for FY 2005
continuing service procurement actions. The request was approved and a
Justification for Other Than Full and Open Competition (JOTFOC) was executed
retroactive to October 1, 2004.
Because the majority of procurement actions made by OPS in FY 2005 were
for continuing services subject to the JOTFOC and/or ratification, we were
unable to conclude as to whether or not OPS would be able to produce fully
documented and compliant contract awards under routine operating procedures,
pursuant to applicable procurement laws and regulations. In addition, the
authorizing ratification document indicated that approval was contingent on the
receipt of the monthly reports detailing individual contract actions awarded
under the authority, along with the planned or actual procurement strategies to
assure full FAR compliance next year. We found that OPS did not comply with
this provision.
Management believes that the procedural changes made in FY 2005 have
resolved the original audit findings, and has stated that the report required
by the JOTFOC will be completed by the end of the first quarter of FY 2006.
However, we remain unable to conclude whether or not OPS' revised operating
procedures would produce fully documented compliance with applicable
procurement requirements since the majority of procurement actions made in FY
2005 were subject to a one-time sole source process.
Inaccurate Grant Accounting
The OIG previously reported that significant errors were made in amounts
recorded for ETA's grants and contracts. These errors were attributed to a lack
of sufficient internal control procedures to identify and correct errors on a
timely basis. The OIG recommended that management establish procedures to
identify and correct accounting errors on a timely basis, including
implementation of review procedures and exception reports. ETA management
concurred, and implemented various improvements designed to detect potential
accounting errors. However, our FY 2005 audit continued to note accounting
errors in grants selected for testing, and identified differences in the total
costs reported by grantees in ETA's grant cost subsidiary and the corresponding
amounts recorded in the general ledger. ETA management concurs with our
conclusions, and plans to implement additional procedures to address these
audit findings.
Deficiencies in Controls Over Unemployment Insurance (UI) Benefit
Overpayments
The OIG's FY 2001 audit disclosed certain deficiencies in the internal
controls over Unemployment Insurance (UI) benefit payments. Specifically, the
OIG identified that UI overpayment data collected by the Benefit Accuracy
Measurement (BAM) unit reflect significantly higher overpayments than those
established as accounts receivable by the states' Benefit Payment Control (BPC) system. The OIG also found that there had been little change in the rate of
overpayments (about 8.5 percent) since 1989. The OIG recommended that
management develop a plan to use the BAM data as the impetus for improving
internal controls over the benefit payment process, and include procedures to
identify statistically valid improvements, or lack thereof, in overpayment
rates. In response, management implemented corrective actions, including a
Government Performance and Results Act (GPRA) goal, which they believed would
result in a significant reduction in the detectable, recoverable overpayment
rate. However, we found that recent UI data does not reflect improvements in
the rate of overpayments or in the rate measured with the GPRA goal. The
published UI-benefit overpayment rates for calendar years (CY) 2004, 2003 and
2002 were 9.9 percent, 9.3 percent, and 9.1 percent, respectively, each year
reflecting an increase rather than a decrease in the rate of overpayments.
Management believes that the corrective actions taken in response to
this finding have resulted in a significant reduction in the detectable,
recoverable overpayment rate, and that the fiscal year data presented in this
Performance and Accountability Report (PAR) reflects a decline in the
overpayment rate from 9.7 percent in FY 2004 to 9.46 percent for FY 2005. These
rates are based on data obtained through June 30, 2005, whereas the data
obtained for our audit evaluation was based on annual published data for the
years ended December 31, 2004, 2003 and 2002. We conclude that six additional
months of data is not sufficient evidence to substantiate a permanent downward
trend in the UI overpayment rate, and that the overpayment rate reported by
management for FY 2005 (9.46 percent) reflects an increase from the rate
reported in 2001 with the original audit finding (8.2 percent).
Implementation of Managerial Cost Accounting
In the FY 2002 audit, the OIG reported that DOL was not in compliance
with the requirements for managerial cost accounting (MCA) contained in
Statement of Federal Financial Accounting Standards (SFFAS) No. 4.
Specifically, DOL had not defined outputs for its operating programs nor
developed the capability to routinely report the cost of outputs at the
operating program and activity levels. Further, DOL did not adequately link
cost information to performance measures at the operating program level for use
in managing program operations on a routine basis or use managerial cost
information for purposes of performance measurement, planning, budgeting or
forecasting.
Management concurred with this finding, and developed a comprehensive
plan to implement a Department-wide MCA system that complies with the
requirements of SFFAS No. 4. Cost models were developed for substantially all
of DOL's agencies and their major programs, the MCA system was certified for
processing, and the cost accounting software was installed throughout each of
the program agencies.
However, while the department has made significant progress in
implementing managerial cost-accounting capabilities, current cost information
is not yet being widely used for decision making on a day-to-day basis.
Management concurs, and has indicated that the Department's focus during FY
2006 will shift to expanding the use of cost information by managers at all
levels for decision making on a day-to-day basis.
Other Matters
We noted other matters involving the internal control and its operations
that will be reported to the management of DOL in a separate letter.
Report on Compliance With Laws and Regulations Exclusive of the
Federal Financial Management Improvement Act of 1996 (FFMIA)
The management of the DOL is responsible for complying with laws and
regulations applicable to the Department. As part of obtaining reasonable
assurance about whether the Department'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 laws and regulations specified in OMB Bulletin No. 01-02, including
the requirements referred to in the FFMIA. We limited our tests of compliance
to those provisions and we did not test compliance with all laws and
regulations applicable to the DOL. Providing an opinion on compliance with
those provisions was not an objective of our audit and, accordingly, we do not
express such an opinion.
The results of our tests of compliance with the laws and regulations
described in the preceding paragraph disclosed no instances of noncompliance
with laws and regulations that are required to be reported under Government
Auditing Standards and OMB Bulletin 01-02.
Report on Compliance With FFMIA
We have examined DOL's compliance with the requirements of FFMIA as of
September 30, 2005. These include implementing and maintaining financial
management systems that substantially comply with: (1) financial management
systems requirements, (2) applicable Federal accounting standards, and (3) the
United States Government Standard General Ledger (SGL) at the transaction
level. Management is responsible for DOL's compliance with these requirements.
Our responsibility is to express an opinion on DOL's compliance based on our
examination.
Our examination was conducted in accordance with the attestation
standards established by the American Institute of Certified Public
Accountants; Government Auditing Standards, issued by the Comptroller
General of the United States; and OMB Bulletin No. 01-02, Audit
Requirements for Federal Financial Statements. These standards include
examining on a test basis, evidence about DOL's compliance with those
requirements and performing such other procedures as we considered necessary in
the circumstances. We believe that our examination provides a reasonable basis
for our opinion. Our examination does not provide a legal determination of
DOL's compliance with specified requirements.
In our opinion, as of September 30, 2005, DOL substantially complied
with the requirements of FFMIA.
This report is intended solely for the information and use of the
management of the U.S. Department of Labor, the Office of Management and
Budget, and Congress, and is not intended to be and should not be used by
anyone other than these specified parties.
November 15, 2005
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