TREASURY DIRECTIVE 40-03
Date: February 2, 2001
Sunset Review: February 2, 2005
SUBJECT: Treasury Audit Resolution, Follow-Up, and Closure
1. PURPOSE: This Directive establishes policies and procedures, and assigns responsibilities for implementing and monitoring audit follow-up within the Department of the Treasury (the Department).
2. POLICY: It is the policy of the Department of the Treasury that audit follow-up is an essential component of sound management controls and overall government efficiency. It is also a shared responsibility between Bureau managers and auditors. Accordingly, Bureau staff will ensure that:
a. Audit recommendations are resolved on a timely basis;
b. Resolved audit recommendations, i.e. agreed to by bureau/DO management, are promptly acted upon, and that progress with respect to proposed and ongoing corrective actions is adequately monitored; and
c. Statistical information and other data are appropriately reported pursuant to all statutory and regulatory requirements, including Section 5 of the Inspector General Act of 1978, as amended (IG Act).
3. PROCESS: The audit follow-up process begins when an exit conference is conducted following audit, inspection, or evaluation field work on the activities or operations of the Department or its bureaus [including Departmental Offices (DO)] by the Office of Inspector General for the Department of the Treasury (OIG), the Office of the Treasury Inspector General for Tax Administration (TIGTA), the General Accounting Office (GAO), independent accounting firms, or other audit organizations. The primary steps associated with the audit follow-up process are:
a. Exit conference subsequent to completion of audit organization fieldwork;
b. Issuance of draft report;
c. Issuance of the Bureau response, including agreement or disagreement
with findings, recommendations and associated monetary benefits, and preliminary corrective actions, as necessary;
d. Review of the response by the cognizant audit organization;
e. If necessary, attempted resolution of any recommendations for which disagreement exists between the Department/bureau and the cognizant audit organization;
f. Issuance of the final audit report;
g. Formal resolution of any recommendations for which disagreement exists and
resolution could not be reached between the Department/bureau and the cognizant audit organization;
h. Development, implementation, and validation of detailed corrective actions; and
i. Closure of recommendations. An audit report will be closed when the final corrective action for the last open recommendation of a report is implemented, documented, validated, and reported to the OIG, TIGTA, or the GAO (as well as Congress and OMB, if required).
4. RESPONSIBILITIES:
a. The Deputy Secretary of the Department of the Treasury is responsible for making final management decisions on OIG or TIGTA audit recommendations when disagreement exists and resolution could not be reached between the Department/bureau and Inspector General officials.
b. The Assistant Secretary for Management & Chief Financial Officer is responsible for:
(1) Working with Bureau management and Inspector General officials when they cannot reach agreement on OIG or TIGTA audit recommendations;
(2) Ensuring that specific audit findings are resolved, recommendations are implemented, corrective actions are actually taken, and validation occurs;
(3) Ensuring that appropriate audit follow-up policies and procedures are in place Department-wide, and taking action to strengthen the Department’s audit follow-up performance based upon the recommendations of the Treasury Deputy Chief Financial Officer (TDCFO), other Departmental management officials, OIG, TIGTA, GAO, and other audit organizations; and
(4) Ensuring that audit follow-up is an integral part of the Department’s Federal
Manager’s Financial Integrity Act (FMFIA) and Federal Financial Management Improvement Act (FFMIA) programs.
c. The Treasury Deputy Chief Financial Officer is responsible for:
(1) Ensuring the centralized tracking of OIG, TIGTA, GAO, or other organizations’ audit reports, from final report issuance through corrective action implementation, validation, and closure, through the Department’s Inventory Tracking and Closure (ITC) System, or through other applicable systems;
(2) Ensuring that Department/bureaus provide timely and adequate information to the Office of the TDCFO on the status of audit recommendations and corrective actions;
(3) Monitoring Bureau actions and providing periodic reports for Departmental senior management officials;
(4) Preparing report(s) for the Secretary that contain the data required by Section 5 of the IG Act, and other reports required by statute or regulation;
(5) Performing periodic analyses of audit recommendations and corrective actions to determine Department-wide trends and problems, and to recommend solutions;
(6) Evaluating audit follow-up performance Department-wide, through mechanisms including sample on-site verifications of corrective actions taken, gathering statistical data, and making recommendations to the ASM&CFO to strengthen audit follow-up performance; and
(7) Ensuring the adequacy of audit follow-up activities within DO and designating the Bureau Audit Follow-up officers for DO.
d. Bureau Heads are responsible for:
(1) Ensuring that recommendations are implemented and corrective actions are taken in a timely fashion, through independent verification, and that validation occurs.
(2) Designating a Bureau Audit Follow-up officer (follow-up officer); and
(3) Submitting written statements to the appropriate Congressional committees and/or to the Director of OMB, as required by statute or regulation for audit reports issued by the GAO (see Treasury Directive 40-02, "Corresponding with the General Accounting Office [GAO]").
e. Bureau Audit Follow-up officers are responsible for:
(1) Coordinating the Bureau written response, no later than 30 days following the receipt of the draft report, which includes agreement or disagreement with recommendations contained in draft audit reports, with the responsible program office and the issuing audit organization. For audit reports issued by or for the OIG or TIGTA, where management agrees with the findings and recommendations, this response will be submitted as soon as possible by the follow-up officer. The response will identify planned corrective actions, dates, and other milestones for achieving results and will be submitted to the OIG or TIGTA. A copy should be forwarded to the Office of the TDCFO.
When a bureau disagrees with a recommendation, the response should fully explain the reason(s) for the disagreement and, if the disagreement is based upon an interpretation of law, regulation, or the authority of officials to take or not take action, the legal basis should be included in the response. The follow-up officer should advise and, if necessary, consult with the TDCFO, when such disagreement occurs, and notify TDCFO when a matter will be referred to the Deputy Secretary for resolution. For audit reports issued by the GAO, the follow-up officer will coordinate the Bureau response in accordance with the policies contained in Treasury Directive 40-02, "Corresponding with the General Accounting Office (GAO)."
(2) Representing the Department/bureau in the audit resolution process in those cases where there is disagreement with an audit recommendation; and with all interested parties, using all resources within the Office of the TDCFO and, if necessary, the Office of the ASM&CFO, to attempt to negotiate and resolve any differences before actual referral of any matter to the Deputy Secretary for a formal resolution decision;
(3) Following the completion of the audit resolution process, ensuring that recommendations are implemented and corrective actions are taken in a timely fashion, through independent verification, and that validation occurs. The follow-up officer shall also inform appropriate bureau and Treasury senior officials of problems or potential problems during corrective action implementation. Further, the follow-up officer will request due date extensions for FMFIA material weaknesses and FFMIA deficiencies from the appropriate bureau officials in accordance with paragraph 5. below.
(4) Maintaining and tracking audit recommendations and corrective actions within their respective bureaus, through the use of the Department’s ITC System, or other applicable systems as designated by the TDCFO;
(5) Providing timely responses to the TDCFO on requests for information;
(6) Evaluating audit follow-up performance bureau-wide and ensuring that these evaluations are an integral part of the bureau’s FMFIA and FFMIA programs; and
(7) Ensuring that audit follow-up procedures are consistent with TD 40-04, "Treasury Internal (Management) Control Program," and TD 40-02, "Corresponding with the General Accounting Office (GAO)."
f. The OIG and TIGTA are responsible for:
(1) Ensuring that a copy of draft and final audit reports is provided on a timely basis to the applicable follow-up officer, and all other interested Bureau offices. A copy of the final report only should be sent to the TDCFO;
(2) Reviewing Bureau responses to draft audit reports on a prompt basis
and reaching an agreement with Bureau officials on management decisions with respect to OIG or TIGTA audits;
(3) Notifying the TDCFO when a matter will be referred to the Deputy Secretary for resolution if the Bureau response and management decisions with respect to a final audit report are deemed by OIG or TIGTA to be insufficient or otherwise unsatisfactory. In this circumstance, the OIG or TIGTA, the pertinent follow-up officer, and all interested parties, will use all resources within the Office of the TDCFO and, if necessary, the Office of the ASM&CFO, in an attempt to negotiate and resolve differences before actual referral of any matter to the Deputy Secretary for a formal resolution decision;
(4) Providing timely information and data to the TDCFO for use in Departmental audit follow-up tracking systems; and
(5) Conducting periodic audits of bureau audit follow-up performance, including the actual implementation of recommendations and corrective actions.
5. STANDARDS: In addition to the policies and procedures described in this directive, the standards prescribed in OMB Circular A-50 are applicable to audit follow-up activities within the Department of the Treasury. The following standards apply to final audit reports issued to the Department/bureau by the IG, the GAO, independent accounting firms, and other audit organizations. These basic audit follow-up standards also apply to the regulatory or inspection reviews of financial matters that may result in fines or penalties, assessments or price adjustments, or other monetary recoveries by the Government.
While the basic audit follow-up standards apply to audits of contractors or vendors, Federal acquisition laws and regulations must be recognized as ruling in such matters. Federal acquisition laws and regulations include, for example, specific provisions concerning decision-making authority on audits of contractors or vendors and procedures for review of disagreements between contracting officers and auditors.
All bureau audit follow-up activity should meet the following standards:
a. Audit follow-up policies and performance are subject to oversight and continuous review by the follow-up officer; and
b. The results of all audits are reported to bureau senior management by the follow-up officer. Periodic reports are prepared for the Bureau Chief Financial Officer and other bureau senior management officials as part of the FMFIA and FFMIA processes on the status of audit follow-up activity and significant problems that surfaced through audit follow-up.
c. Written audit follow-up policies at the bureaus shall define:
(1) the procedures to be followed to achieve timely management decisions and
final action;
(2) associated target timeframes, as appropriate;
(3) the bureau officials responsible for making management decisions and final
action determinations;
(4) bureau follow-up procedures, including use of the Department's ITC System that tracks audit reports from receipt through final action; and
(5) the validation process after an audit finding, material weakness, material non-conformance, or FFMIA deficiency is purportedly resolved. For routine findings, consideration should be given to management staff positioned at least two levels above the program management level to provide the validation in writing.
For a material weakness, material non-conformance, or FFMIA deficiency, a higher level of validation should be considered. Attestation should be received from the bureau head, OIG, TIGTA, GAO, or other auditor (such as an independent public auditor (IPA) or external contractor), or by any similar means which would enable the bureau head to provide assurance that the problem has been resolved.
d. Audit follow-up policies, tracking, systems, and reports shall utilize the standard definitions in Section 5 of the IG Act of 1978, as amended.
e. Each bureau management decision on an audit report shall:
(1) be in writing;
(2) fully address every recommendation in the audit report;
(3) be consistent with law, regulation, and Treasury policy; and
(4) include action plans and milestones for the corrective actions necessary.
f. Final bureau action determinations are made on an audit report only when:
(1) all necessary corrective actions have actually been taken (either through implementation of the steps in the management decision or through alternative means that fully address the audit recommendation), or circumstances have rendered the audit recommendation irrelevant; and
(2) validation and all necessary documentation has been made available to the bureau management official making the final action determination.
g. The follow-up officer's evaluations should include independent verification of the validity of final action determinations with results reported to the supervisors of the bureau management officials who made the final action determinations.
h. The audit follow-up responsibility should be considered in the performance evaluations of bureau senior management officials. It may be included in a performance plan as, or as part of, a critical or non-critical element depending upon the extent of the official's responsibility.
i. For audits of contractors or vendors, the bureau procurement official retains full authority and responsibility for making the management decisions (see Section 5, Standards). However, the Department's Office of Procurement should be consulted in cases of disagreement between the bureau procurement official and the OIG or TIGTA on major issues in audits of contractors or vendors.
j. Except for pre-award audits of contractors or vendors, management decisions on unresolved audit recommendations are made within six months of audit report issuance. When management decisions on matters involving parties outside the Federal Government require longer than six months, the circumstances are explained in writing to the OIG or TIGTA by the responsible bureau management official.
6. CHANGES IN MANAGEMENT DECISIONS AND CORRECTIVE ACTION DUE DATES.
Significant changes in management decisions are subject to agreement by the OIG or TIGTA with notification to the TDCFO. If the management official and the OIG or TIGTA cannot reach an agreement, the ASM&CFO will make the proposed changes in management decisions.
Extensions of a due date for the completion of a planned corrective action (PCA) should receive concurrence from appropriate higher management officials, through the chain of command, starting with the person responsible for the function or activity involved. In those instances where the PCA involves a FMFIA material weakness or a FFMIA deficiency, concurrence for the due date extension should be received from the appropriate bureau head, his/her designee, and/or Assistant Secretary.
7. AUTHORITIES
a. OMB Circular A-50, "Audit Follow-up," (September 29, 1982);
b. Inspector General Act of 1978, as amended, 5 U.S.C. Appendix 3;
c. Treasury Directive 40-01, "Responsibilities of and to the Inspector General;"
d. Treasury Directive 40-02, "Corresponding with the General Accounting Office (GAO);"
e. Federal Managers Financial Integrity Act of 1982 (P.L. 97-255), codified at 31 U.S.C. 3512;
f. Federal Financial Management Improvement Act of 1996,Title VIII of Section 101(f) of Title I, Division A of P.L. 104-208, as codified at 31 U.S.C. 3512 note;
g. General Accounting Office, "Standards for Internal Control in the Federal Government," GAO/AIMD-00-21.3.1.
8. REFERENCES. TD 40-04, "Treasury Internal (Management) Control Program."
9. CANCELLATION. TD 40-03, "Treasury Audit Resolution, Follow-Up, and Closure," October 3, 1995, is superseded.
10. OFFICE OF PRIMARY INTEREST. Office of Accounting and Internal Control, Office of the Deputy CFO, Office of the Assistant Secretary for Management and CFO.
/s/
James Flyzik
Acting Assistant Secretary for Management
and Chief Information Officer