Audit us, say independent agencies in survey

Extending the requirement that federal agencies prepare audited financial statements to small independent agencies is a good idea, according to a new survey of officials at such organizations.

Twenty-one of 26 independent agencies surveyed by the General Accounting Office said they supported financial audits for most agencies, particularly those with fiduciary responsibilities or at high risk for mismanagement. The agencies surveyed, which included the Federal Communications Commission and the Federal Trade Commission, are not required to submit audited financial statements under the 1990 Chief Financial Officers Act.

"Overall, the surveyed agencies reported that they either achieved significant benefits or would anticipate achieving such benefits from having audited financial statements," said Gary Engel, director of financial management and assurance at GAO, at a hearing last Tuesday before the House Government Reform Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations.

Twelve of the 26 agencies included in GAO's survey prepared audited financial statements in the past five years, even though they were not required by law to do so. The agencies told GAO that the audits improved accountability, helped identify weaknesses and enhanced their public image.

GAO conducted its study at the request of Rep. Patrick Toomey, R-Pa., who introduced legislation (H.R. 4685) earlier this month that would amend the 1990 Chief Financial Officers Act to require agencies with budgets of $25 million or more to submit annual audited financial statements. Currently, only the 24 largest federal agencies have to prepare audited statements.

"The federal government has a responsibility to ensure that the American taxpayer's hard-earned money is used properly," Toomey said at the May 14 hearing. "Auditing financial statements is a fundamental part of good management and oversight."

But the cost of such audits could drain the resources of smaller agencies that do not operate trust funds or grant programs and already have strong internal controls, according to Alison Doone, deputy staff director for management at the Federal Election Commission. For an agency like the FEC, which enforces the financial laws governing federal elections, "preparation of audited financial statements would increase costs with few or no material benefits," Doone testified at the hearing. The FEC, whose budget was about $44 million in fiscal 2002, has not conducted financial audits.

Frederick Zirkel, inspector general of the Federal Trade Commission, agreed that financial audits can be expensive, but said they are an important part of the management process and could prevent additional costs in the future.

"Conducting a financial statement audit is a major commitment of OIG [Office of Inspector General] resources," Zirkel said at the hearing. "Yet, I believe the resource commitment is a wise expenditure of taxpayer funds." Zirkel's office has an annual budget of about $100,000-$60,000 of which went to conducting a financial audit in 2001. The FTC, which enforces antitrust and consumer protection laws, had a total budget of nearly $156 million for fiscal 2002.

Audits can also result in money being returned to the agency, Zirkel said. In fiscal 2000, the FTC identified $189,000 in overpayments of its rent, according to Zirkel. Most of that money has been returned to the agency, he said.

The true cost of a financial audit is usually directly related to how well the agency is managed, Zirkel said. "All other things being equal, the better managed the unit or organization being audited, the lower the cost of the audit will be for management."

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