Appendixes

Appendix B: Material Weaknesses Reported by Auditors and Federal Managers´ Financial Integrity Act (FMFIA) Tables

OMB audit guidance requires auditors to disclose material weaknesses in internal control over financial reporting. The FMFIA and OMB guidance require the head of each executive agency to annually report whether there is reasonable assurance that the agency´s controls are achieving the intended objectives and whether the agency´s financial management systems conform to governmentwide requirements.

Agency heads are required to identify material weaknesses related to agency programs and operations (pursuant to Section 2 of FMFIA) and non-conformances with governmentwide financial systems requirements (pursuant to Section 4 of FMFIA). Reporting material weaknesses under FMFIA is not limited to weaknesses over financial reporting.

The following tables include: the number of material weaknesses reported by independent auditors, the number of material weaknesses reported by agency heads under Section 2 of FMFIA, and the number of financial system non-conformances reported by agency heads under Section 4 of FMFIA. The number of material weaknesses may differ from those identified by independent auditors and those identified by agency heads. This difference is primarily due to the more in-depth review that management is required to perform on its internal control environment over financial reporting, per OMB Circular A-123, which may result in more material weaknesses being identified.

Table Definitions:

• Beginning—the number of material weaknesses (beginning balance) reported in the Independent Auditor´s Report or FMFIA Report for the prior fiscal year.
• New—the number of new material weaknesses reported in the Independent Auditor´s Report or FMFIA Report for the current fiscal year which could include reportable conditions/significant deficiencies reported from the prior fiscal year whose severity has risen to the level of a material weakness.
• Resolved—the number of material weaknesses reported in the Independent Auditor´s Report or FMFIA Report for the current fiscal year that were reported as resolved or whose severity has been reduced so that it is no longer a material weakness.
• Consolidated—the number of material weaknesses reported in the Independent Auditor´s Report or FMFIA Report that were combined with other repeat material weaknesses from a prior fiscal year or with a new material weakness from the current fiscal year.
• Ending—the number of material weaknesses (ending balance) reported in the Independent Auditor´s Report or FMFIA Report for the current fiscal year. The number is calculated by adding the number of new material weaknesses reported from the current fiscal year to the number of material weaknesses reported the prior fiscal year and then subtracting the number of weaknesses resolved and consolidated weaknesses during the current fiscal year.

Fiscal Year 2010 Auditor-Identified Material Weaknesses by Category

This year great strides were made in the area of Financial Management and Reporting, and material weaknesses, were reduced by nearly 30 percent. By improving controls over the reporting process agencies are better positioned to prepare reliable, useful, and timely financial information for decision making. In addition, there were reductions in the material weaknesses over Property, Plant, and Equipment and Accounts Payable and Other Liabilities, both which reduced by a third. While progress is being made at many agencies and across the Government in identifying and resolving internal control deficiencies, continued diligence and commitment are needed.

In fiscal year 2010, the total number of material weaknesses and the number of repeat material weaknesses decreased from 38 to 31 and from 29 to 26, respectively. A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. The existence of material weaknesses does not necessarily mean the financial statements are unreliable. However, they are indicators and their existence suggests an increased likelihood that the financial statements include material misstatements.

Fiscal Year 2010: FMFIA Section 2—Consolidated Totals

The agency head is responsible for submitting an annual assurance statement on the effectiveness of the agency’s internal control. The OMB Circular A-123 requires the Agency Head to separately address the effectiveness of internal control over operations separately from the internal control over financial reporting. The assurance statement must take one of the following forms: a) Unqualified statement of assurance (no material weaknesses reported); b) Qualified statement of assurance, considering the exceptions explicitly noted (one or more material weaknesses reported); or c) Statement of no assurance (no processes in place or pervasive material weaknesses).

A material weakness over operations includes reportable conditions in which the agency head determines to be significant enough to report outside of the agency. A material weakness over financial reporting is a reportable condition, or a combination thereof which results in more than a remote)¹ likelihood that a material misstatement of the financial statements, or other significant financial reports, will not be prevented or detected.

Fiscal Year 2010: FMFIA Section 2–Consolidated Totals

Footnotes

¹ The term "remote" is defined in SFFAS No. 5, Accounting for Liabilities of the Federal Government, as the chance of the future event, or events, occurring is slight. (Back to Content)