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1 1 (January 9, 2019)

handle is hein.crs/govybn0001 and id is 1 raw text is: Conresoa Reerh evc S Updated January 9, 2019 Defense Primer: FY2018 Department of Defense Audit Results The Chief Financial Officers Act of 1990 (CFO Act, P.L. 101-576) requires annual audits of financial statements for federal agencies. Under the CFO Act, audits of federal agencies are the responsibility of the agency's inspector general (IG), but the IG may contract with one or more external auditors to perform the audit. The Department of Defense's (DOD) IG conducted the first-ever agency-wide financial audit of DOD in FY2018. A number of DOD components have previously undergone annual audits (e.g., the U.S. Army Corps of Engineers, Defense Contract Audit Agency, and National Reconnaissance Office). The agency-wide audit was conducted by nine Independent Public Accounting (IPA) firms contracted by DOD IG. The IPAs conducted 24 separate audits within DOD. The DOD released the results of the FY2018 audit on November 15, 2018. DOD received a disclaimer of opinion-meaning auditors could not express an opinion on the financial statements because the financial information was not sufficiently reliable. DOD is expected to submit a full report to Congress on this effort by March 31, 2019. Going forward, DOD has stated that it will be audited annually, with audit results expected to be issued in November for the prior fiscal year. DOD spent $413 million to conduct the FY2018 audit: $192 million on audit fees for the IPAs and $221 million on government costs to support the audit. DOD spent an additional $406 million on audit remediation and $153 million on financial system fixes. Generally, the process and standards used to audit DOD are the same as those used to audit other federal agencies. Understanding why and how the DOD audit was conducted can help Congress evaluate the first agency-wide audit results and usefulness of the audit. Why an Audit? Government entities, including the United States government as a unitary entity, issue annual reports that present their current financial position and condition, and discuss key financial topics and trends. An audit of the government's financial information provides accountability over government agencies' use of public resources to Congress, oversight bodies, and the public. Financial audits aim to provide reasonable assurance that the audited firm's financial statements are free of material misstatements whether caused by error or fraud. DOD audits can provide critical insight into (1) the reliability of its financial data; (2) the efficiency and effectiveness of internal operations; and (3) its compliance with statutes and financial regulations. With such information, DOD and Congress could take steps to improve DOD's performance in these areas. DOD's financial management has been on the Government Accountability Office's (GAO's) High-Risk list since 1995. Those on the High-Risk list are considered more vulnerable to fraud, waste, abuse, and mismanagement. How Are Audits Done? For each line item on a financial statement and notes to the financial statement, an auditor is to examine a sample of underlying economic events to determine the accuracy of the information reported. The auditor is expected to give an unbiased opinion on whether the financial statements and related disclosures are fairly stated in all material respects for a given period of time in accordance with Generally Accepted Accounting Principles (GAAP). While the Federal Accounting Standards Advisory Board (FASAB) sets the financial reporting and accounting standards for the federal government, GAO is responsible for establishing auditing standards for federal agencies, including for federal grant recipients in state and local governments. Material misstatement in financial reporting can be defined as information on a financial statement that could potentially affect the reader's decision or the conclusions drawn by a reader about the financial status of an agency Auditing Standards GAO issues the Generally Accepted Government Auditing Standards (GAGAS), also commonly known as the Yellow Book, which provides a framework for conducting federal government audits. The Yellow Book requires auditors to consider the visibility and sensitivity of government programs in determining the materiality threshold. Similar to the requirements in the private sector, GAGAS requires federal financial reporting to disclose compliance with laws, regulations, contracts, and grant agreements that have a material effect on the entities' financial statements. Some organizations within the federal government use a hybrid of external and internal auditors. Whether external or internal auditors perform the function, they are required to adhere to the standards established under GAGAS. In addition to examining financial information, an audit evaluates management's assertion of internal control over financial reporting. Audit of internal control includes audit of computer systems at the entity-wide, system, and application levels. GAGAS recommends using specific frameworks for internal control policies and procedures, including certain evaluation tools created specifically for federal government entities. https:I/crsreports.conc -- -q

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