oversight

Report 2009-004- FIN - Audit of the Equal Employment Opportunity Commission Fiscal Year 2009 and 2008 Financial Statements

Published by the Equal Employment Opportunity Commission, Office of Inspector General on 2009-11-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

MEMORANDUM

TO:                 Stuart J. Ishimaru
                    Acting Chair
FROM:               Aletha L. Brown
                    /s/
                    Inspector General
SUBJECT:            Audit of the Equal Employment Opportunity Commission's Fiscal Year
                    2009 and 2008 Financial Statements (OIG Report No. 2009-04-FIN)

The Office of Inspector General (OIG) contracted with the independent certified public
accounting firm of Cotton and Company LLP to audit the financial statements of the U.S. Equal
Employment Opportunity Commission (EEOC) for fiscal years 2009 and 2008. The contract
required that the audit be done in accordance with U.S. generally accepted government auditing
standards; Office of Management and Budget's Bulletin 07-04, Audit Requirements for Federal
Financial Statements, and the Government Accountability Office/President's Council on
Integrity and Efficiency's Financial Audit Manual.

Cotton and Company LLP issued an unqualified opinion on EEOC's FY 2009 and 2008 financial
statements. In its Report on Internal Control, Cotton and Company LLP noted two areas
involving internal control and its operation that were considered to be significant deficiencies.
These included time and attendance controls and controls over revenue and receivables. In its
Report on Compliance, Cotton and Co. LLP noted no instances of non compliance with certain
laws and regulations applicable to the agency.

In connection with the contract, OIG reviewed Cotton and Company LLP's report and related
documentation and inquired of its representatives. Our review, as differentiated from an audit in
accordance with U.S. generally accepted government auditing standards, was not intended to
enable us to express, and we do not express, opinions on EEOC's financial statements or
conclusions about the effectiveness of internal controls or on whether EEOC's financial
management systems substantially complied with FFMIA; or conclusions on compliance with
laws and regulations. Cotton and Company LLP is responsible for the attached auditor's report
dated November 13, 2009 and the conclusions expressed in the report. However, OIG's review
disclosed no instances where Cotton and Company LLP did not comply, in all material respects,
with generally accepted government auditing standards.

EEOC management was given the opportunity to review the draft report and to provide
comments. Management comments are included with the report as an attachment.

cc:      Richard Roscio
         Jeffrey A. Smith
         Raj Mohan
         Nicholas Inzeo
         John Schmelzer
         Anna Middlebrook
         Lisa Williams
         Kimberly Hancher
         Peggy Mastroianni

Independent Auditor's Report




Inspector General
Equal Employment Opportunity Commission

                INDEPENDENT AUDITOR'S REPORT
We have audited the Balance Sheets of the U.S. Equal Employment Opportunity Commission
(EEOC) as of September 30, 2009, and 2008, and the related Statements of Net Cost, Changes in
Net Position, and Budgetary Resources for the years then ended. These financial statements are
the responsibility of EEOC management. Our responsibility is to express an opinion on the
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United
States of America; 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 07-04, Audit Requirements for Federal Financial Statements. These
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit
also includes assessing 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.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of EEOC as of September 30, 2009, and 2008, and its net costs, changes in
net position, and budgetary resources for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.

Management's Discussion and Analysis (MD&A) and other accompanying information are not
required as part of EEOC's basic financial statements. For MD&A, which is required by OMB
Circular A-136, Financial Reporting Requirements, and the Federal Accounting Standards
Advisory Board's Statement of Federal Financial Accounting Standards No. 15, Management's
Discussion and Analysis, we made certain inquiries of management and compared the
information for consistency with EEOC's audited financial statements and against other
knowledge we obtained during our audits. For other accompanying information, we compared
the information with the financial statements. On the basis of this limited work, we found no
material inconsistencies with the financial statements, U.S. generally accepted accounting
principles, or OMB guidance. We did not audit the MD&A or other accompanying information,
and therefore express no opinion on them.

In accordance with Government Auditing Standards, we have also issued separate reports dated
November 13, 2009, on our consideration of EEOC's internal control over financial reporting,
and on our tests of its compliance with certain provisions of laws and regulations. The purpose of
those reports is to describe the scope of our testing of internal control over financial reporting
and compliance, and the results of that testing; not to provide an opinion on internal control over
financial reporting or on compliance. Those reports are an integral part of an audit performed in
accordance with Government Auditing Standards and should be considered in assessing results
of our audits.

COTTON & COMPANY LLP




Colette Y. Wilson, CPA
Partner

November 13, 2009
Alexandria, Virginia




INDEPENDENT AUDITOR'S REPORT ON INTERNAL
CONTROL WITH COMMENTS
Inspector General
Equal Employment Opportunity Commission

      INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL

We have audited the Balance Sheets of the U.S. Equal Employment Opportunity Commission
(EEOC) as of September 30, 2009, and 2008, and the related Statements of Net Cost, Changes in
Net Position, and Budgetary Resources for the years then ended. We have issued our report
thereon dated November 13, 2009. We conducted our audits in accordance with auditing
standards generally accepted in the United States of America; 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 07-04, Audit
Requirements for Federal Financial Statements.

In planning and performing our audits, we considered EEOC's internal control over financial
reporting as a basis for designing audit procedures for the purpose of expressing an opinion on
the financial statements, but not for the purpose of expressing an opinion on the effectiveness of
EEOC's internal control over financial reporting. Accordingly, we do not express an opinion on
the effectiveness of EEOC's internal control over financial reporting.

A control deficiency exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control deficiency, or combination
of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record,
process, or report financial data reliably, in accordance with generally accepted accounting
principles, such that there is more than a remote likelihood that a misstatement of the entity's
financial statements that is more than inconsequential will not be prevented or detected by the
entity's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected by the entity's internal control.

Our consideration of internal control over financial reporting was for the limited purpose
described above and would not necessarily identify all deficiencies in internal control that might
be significant deficiencies or material weaknesses. We did not identify any deficiencies in
internal control over financial reporting that we consider to be material weaknesses, as defined
above. We did, however, note two matters involving internal control and its operation, which we
considered to be significant deficiencies.

   1. Time-and-Attendance Controls
   2. Inaccurate Timekeeping

       During fiscal year (FY) 2009, EEOC continued to experience difficulties in correctly
       recording time and attendance information. In addition, timekeepers and certifiers did not
       perform thorough reviews of information entered into EEOC's timekeeping system to
       ensure that it accurately reflected work performed by employees.

       We noted the following during our testing:

           o 55 timesheets were not signed by the employee
           o 32 timesheets were not signed by the supervisor
           o 33 instances in which the activity coding and/or hours per the timesheet did not tie
             to the information in Federal Personnel Payroll System (FPPS)
           o 69 instances in which the program coding per the timesheet did not tie to
             information in the FPPS
           o 13 SF-71 Request for Leave forms were not properly approved
           o 14 instances in which the information per the SF-71 did not tie to the information
             in FPPS.

       Per EEOC policy, each employee is required to complete a Cost Accounting Bi-weekly
       Timesheet each pay period. The employee is required to record and allocate time worked
       using activity codes that represent EEOC program areas. In addition, certifiers are
       expected to review and approve the assignment of hours to activity codes.

       Failure to properly record hours worked and activity codes on the Bi-weekly Timesheet
       or entering incorrect data into EEOC's accounting system could lead to improper
       calculations of accrued annual leave liability as presented on the Balance Sheets, as well
       as incorrect program cost allocation on the Statements of Net Cost.

       Recommendation: We recommend that the EEOC Office of Human Resources (OHR)
       review and refine controls in place over time-and-attendance reporting to ensure that all
       employees report accurate and complete information to timekeepers. Additionally, we
       recommend that OHR implement a policy requiring timesheets with incorrect or
       incomplete information to be returned to employees for correction before certifying time-
       and-attendance information in EEOC's online timekeeping system.

       Management Response: Management concurred with the finding and recommendation.
       See appendix B for management's detailed response.

   3. Controls Over Revenue and Receivables
   4. Untimely Revenue Recognition
Revenue transactions for the Revolving Fund (RF) were recorded in the wrong period.
Our testing of RF training-event transactions identified revenues of $12,694 recorded in
FY 2008 for training events that occurred in FY 2009. This error was noted during the
FY 2008 audit, but an adjustment was not processed in FY 2009 to properly record the
revenue.

Statement of Federal Financial Accounting Standards (SFFAS) No. 7, Accounting for
Revenue and Other Financing Sources, Paragraph 36, states:

       When services are provided to the public or another Government entity (except
       for specific services produced to order under a contract), revenue should be
       recognized when the services are performed.

SFFAS No. 7 also states in Paragraph 37:

       When advance fees or payments are received... revenue should not be recognized
       until costs are incurred from providing the goods and services (regardless of
       whether the fee or payment is refundable). An increase in cash and an increase in
       liabilities, such as "unearned revenue," should be recorded when the cash is
       received.

The Revolving Fund Division (RFD) recognizes exchange revenue at the time a customer
registers for a training course. In FY 2008, an accrual was processed at yearend to
recognize that income that had not yet been earned was deferred for reporting purposes.
This accrual did not, however, capture all unearned revenue at yearend. In FY 2009, an
adjustment was not processed to properly recognize the revenue in FY 2009.

Recommendation: We recommend that the Chief Financial Officer (CFO), along with
the Director of the RFD, review accrual procedures in place and refine these procedures
to ensure that all revenue not earned at yearend is properly classified as deferred in the
financial statements.

Management Response: Management concurred with the finding and recommendation.
See appendix B for management's detailed response.

Incorrect Amounts and Ineffective Reconciliations over Revenue

Reconciliations are ineffective between Momentum and Certain Registration, the feeder
system used to record event registrations and product orders for the RF. Momentum
activity reconciled for FY 2009 did not tie to the yearend revenue balance reported on the
financial statements. Additionally, differences in reconciliations were not resolved in a
timely manner.

Results of testing also noted unsupported revenue amounts recorded in the general ledger.
During substantive testing of revenue balances, RF personnel could not provide
  documentation to support revenue amounts recorded in the general ledger. This resulted
  in a known $2,392 overstatement of revenue and a projected overstatement of $272,440.

  The Government Accountability Office's (GAO) Standards for Internal Control in the
  Federal Government, GAO/AIMD-00-21.3.1, p. 15,states that control activities should be
  in place "... to ensure that all transactions are completely and accurately recorded."

  The failure to ensure that financial system data are complete and accurate could lead to
  inaccurate and incomplete information being reported in the financial statements.

  Recommendation: We recommend that the CFO work with the Director of RFD to
  ensure that documentation is maintained to support all transactions recorded in the
  general ledger. Additionally, we recommend that the CFO coordinate with the Director of
  RFD to ensure that timely, complete, and accurate reconciliations are performed between
  the general ledger and the subsidiary ledger, and that differences identified are researched
  and resolved.

  Management Response: Office of Field Program (OFP) Management provided the
  following response:

  "We believe this matter was resolved and need more information on the alleged
  discrepancies in order to determine if this finding is correct as we provided you with
  timely reconciled reports for FY 2009 from the Certain Registration System via Willie
  Eggleston on October 20, 2009. Additionally, we provided you with copies of the
  consolidated reconciliations from our current registration system managed by Kinsail
  Inc. on October 16, 2009."

  Auditor Response: We received the documentation referenced in OFP's response and
  noted that the information included in the reconciliations provided did not tie to the
  yearend trial balance. We followed up with OFP personnel on 11/03/2009 regarding the
  discrepancies noted. Additionally, the 11/03/2009 email was forwarded to OFP
  management on 11/13/2009 upon receipt of OFP's comments. No response was received
  thus we still consider this matter unresolved.

  The status of recommendations included in the FY 2008 Report on Internal Control is
  detailed in appendix A.

  We noted other matters involving internal control and its operation that we will report to
  EEOC management in a separate letter.

  This report is intended solely for the information and use of EEOC management, others
  within EEOC, OMB, and Congress. It is not intended to be and should not be used by
  anyone other than these specified parties.

5. COTTON & COMPANY LLP
     Colette Y. Wilson, CPA
     Partner

     November 13, 2009
     Alexandria, Virginia




                                  APPENDIX A
                  STATUS OF MANAGEMENT'S ACTIONS ON
                     PRIOR-YEAR RECOMMENDATIONS
              FISCAL YEAR 2009 FINANCIAL STATEMENT AUDIT
           U.S. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION

                                                                           Status as of
Recommendation                                                             11-13-2009
We recommend that the EEOC Office of Human Resources (OHR)                  Unresolved:
review and refine controls in place over time-and-attendance reporting to Repeat Condition
ensure that all employees report accurate and complete information to
timekeepers. Additionally, we recommend that OHR implement a policy
requiring return of timesheets with incorrect or incomplete information
to employees for correction before certification of time-and-attendance
information in EEOC's online timekeeping system.
We recommend that the CFO, along with the Director of the RFD,               Unresolved:
review accrual procedures in place and refine these procedures to ensure Repeat Condition
that all revenue not earned at yearend is properly classified as deferred in
the financial statements.
We recommend that the CFO work with the Director of RFD to ensure          Unresolved:
that documentation is maintained to support all transactions recorded in Repeat Condition
the general ledger. Additionally, we recommend that the CFO coordinate
with the Director of RFD to ensure that timely, complete, and accurate
reconciliations are performed between the general ledger and the
subsidiary ledger and that differences identified are researched and
resolved.
                                      APPENDIX B


                                      November 13, 2009

MEMORANDUM

TO:                      Aletha L. Brown
                         Inspector General
FROM:                    Lisa M. Williams /s/
                         Chief Human Capital Officer
SUBJECT:                 Response to Draft FY 2009 Financial Statement Audit of the EEOC

This is in response to the draft audit reports from Cotton & Company dated November 12, 2009.
By way of this memorandum, our response is as follows:

Original Entry in the Draft letter:

Time and Attendance Reporting -- Recommendation

We recommend that the EEOC Office of Human Resources (OHR) review and refine controls in
place over time-and-attendance reporting to ensure that all employees report accurate and
complete information to timekeepers. Additionally, we recommend that OHR implement a
policy requiring timesheets with incorrect or incomplete information to be returned to employees
for correction before certification of time-and-attendance information in EEOC's online
timekeeping system.

Response to Recommendation:

As we reported in our response to the FY 08 audit report, in early October 2008, the update for
the FY 09 Time Attendance Guidance was produced and placed on EEOC's internal website for
reference. It dictates that "Timekeepers will review time and attendance documentation to
determine that they are complete and accurate. If any documentation is missing or if the Bi-
Weekly Worksheet is coded inaccurately, the Timekeeper must return the form to the employee
for correction." Also at that time, OHR sent an email through the FPPS GroupWise Mailbox to
all timekeepers and certifiers; a reminder that this has been an issue in past audit results and
advised them to review those documents that may be requested of them. One piece of good news
is that the Agency has purchased a web based time and attendance system which will alleviate
most of these problems. It will be completely paperless and will provide a number of edits
which will ensure the accuracy of the data. It is set for implementation in January 2011. In the
meantime, OHR would like to request a list of the specific offices involved in the audit and any
other information that can be provided. We would like to communicate the information directly
to Office and District Directors to ensure a better outcome of next year's audit.
If you have any questions, please feel free to contact Arlethia Monroe of my staff at (202) 663-
4340.



November 13, 2009

TO:      Aletha L. Brown
         Inspector General
FROM:    Nicholas M. Inzeo /s/
         Director, Office of Field Programs
SUBJECT: November 12, 2009 Transmittal-Draft FY 2009 Financial Statement Audit of The
         EEOC

Following is management’s response to the Untimely Revenue Recognition noted for the
Revolving Fund:

We agree with your findings. However, please note that although the $12,694 of revenue was not
properly identified as deferred it was reported as earned. Therefore, we could not reclassify the
amount as unearned or deferred and ultimately correct the error.

Following is management’s response to Incorrect Amounts and Ineffective Reconciliations over
Revenue:

We believe this matter was resolved and need more information on the alleged discrepancies in
order to determine if this finding is correct as we provided you with timely reconciled reports for
FY 2009 from the Certain Registration System via Willie Eggleston on October 20, 2009.
Additionally, we provided you with copies of the consolidated reconciliations from our current
registration system managed by Kinsail Inc. on October 16, 2009.

In response to the unsupported revenue amounts recorded in the general ledger:

We agree with this finding and implemented controls on December 2, 2008 with our new
contractor to insure that proper documentation is being kept to support all revenue amounts in
the general ledger. We have had at least two internal control reviews to test this system of
controls the week of May 19, 2009 and the week of June 25, 2009 and found that our new
registration contractor is properly maintaining support documentation.



                                       November 13, 2009

MEMORANDUM

TO:                      Aletha L. Brown
                         Inspector General
FROM:                    Jeffrey A. Smith
                         Chief Financial Officer
SUBJECT:                 November 12, 2009 Transmittal -- Draft FY 2009 Financial Statement
                         Audit of the EEOC

We have no comments on the draft reports for the financial audit and compliance with laws and
regulations.

For the draft internal control report, we have no comments on the "Inaccurate Timekeeping"
findings and "Recommendation."

For the draft internal control report, we have no comments on the "Untimely Revenue
Recognition" and "Incorrect Amounts and Ineffective Reconciliations over Revenue" findings.
Similar recommendations carried forward without resolution from the fiscal year 2008 internal
control report. The Office of the Chief Financial Officer (OCFO) accounting staff went to
considerable lengths during fiscal year 2009 to assist the Office of Field Programs (OFP) staff
with hands-on reconciliations and technical meetings on these accounting issues. We thought
our technical assistance would help clear the findings. We suggest OFP, possibly with a third
party, conduct a detail review of the revolving fund accounting processes and procedures. This
review and subsequent action plan may help eliminate these findings for the fiscal year 2010
financial audit.

We thank Cotton & Company LLP management and staff for their professional audit services for
fiscal year 2009 and the prior six years.