oversight

Report 2012-001-FIN - Audit of the Equal Employment Opportunity Commission's Fiscal Year 2012 Financial Statements

Published by the Equal Employment Opportunity Commission, Office of Inspector General on 2012-11-15.

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

                                          Independent Auditors’ Report

Inspector General
U.S. Equal Employment Opportunity Commission

We have audited the accompanying consolidated balance sheets of the U.S. Equal Employment
Opportunity Commission (EEOC), as of September 30, 2012 and 2011, and the related consolidated
statements of net cost and changes in net position, and combined statements of budgetary resources, for
the years then ended. These financial statements are the responsibility of EEOC management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States
of America, the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, and OMB Bulletin No. 07-04, Audit
Requirements for Federal Financial Statements, as amended.

Those 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 the amounts and disclosures in the financial statements. An audit also
includes assessing the 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 audits of the EEOC for fiscal years 2012 and 2011, we found

   •   the financial statements are presented fairly, in all material respects, in conformity with U.S.
       generally accepted accounting principles,
   •   no material weaknesses in internal control over financial reporting (including safeguarding of
       assets) and compliance with laws and regulations, and
   •   no reportable noncompliance with laws and regulations we tested.

The following sections discuss in more detail (1) these conclusions, (2) our conclusions on
Management’s Discussion and Analysis and other supplementary information, and (3) our and
management’s responsibilities.

Opinion on the Financial Statements
In our opinion, the financial statements including the accompanying notes present fairly, in all material
respects, the financial position of EEOC as of September 30, 2012 and 2011, and its net cost of
operations, 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.




                        Harper, Rains, Knight & Company, P.A. • Certified Public Accountants • Consultants
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Inspector General
U.S. Equal Employment Opportunity Commission - Continued
Consideration of Internal Control
In planning and performing our audits, we considered EEOC’s internal control over financial reporting
and compliance. We did this in order to determine our audit procedures for the purpose of expressing
our opinion on the financial statements and not to provide an opinion on internal control. We limited our
internal control testing to those controls necessary to achieve the objectives described in OMB Bulletin
No. 07-04, as amended. We did not test all internal controls relevant to the operating objectives as
broadly defined by the Federal Managers' Financial Integrity Act of 1982. Providing an opinion on
internal control was not the objective of our audit. Accordingly, we do not express an opinion on
EEOC’s internal control over financial reporting and compliance or on management’s assertion on
internal control included in Managements’ Discussion and Analysis. However, for the controls we
tested, we found no material weaknesses in internal control over financial reporting (including
safeguarding of assets) and compliance.

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 deficiency in internal control, or a
combination of 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. A material weakness is a significant
deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that
the design or operation of one or more internal controls will not allow management or employees, in the
normal course of performing their duties, to promptly detect or prevent errors, fraud, or noncompliance
in amounts that would be material to the financial statements. We consider the deficiencies described in
Exhibit I to be a significant deficiency.

Our internal control work would not necessarily disclose all deficiencies in internal control that might be
material weaknesses or other significant deficiencies.

We noted certain additional matters that we will report to management of EEOC in a separate letter.

Compliance with Applicable Laws and Regulations
The management of EEOC is responsible for complying with laws and regulations applicable to EEOC.
As part of obtaining reasonable assurance about whether EEOC’s financial statements are free of
material misstatement, we performed tests of its compliance with selected provisions of laws and
regulations including laws governing the use of budgetary authority and government-wide policies
identified in OMB Bulletin No. 07-04, as amended, non-compliance with which could have a direct and
material effect on the determination of consolidated and combined financial statements. Our tests
disclosed no instances of noncompliance with laws and regulations which would be reportable under
auditing standards generally accepted in the United States of America or OMB audit guidance.

We limited our tests of compliance to the provisions of laws and regulations referred to in the preceding
paragraph. Providing an opinion on compliance with those provisions was not an objective of our audit.
Accordingly, we do not express such an opinion.
Inspector General
U.S. Equal Employment Opportunity Commission - Continued
Consistency of Other Information
Management’s Discussion and Analysis (MD&A) is not a required part of the financial statements but is
supplementary information required by the Federal Accounting Standards Advisory Board and OMB
Circular A-136, Financial Reporting Requirements. We have applied certain limited procedures, which
consisted principally of inquiries of management regarding the methods of measurement and
presentation of the MD&A. However, we did not audit the information and accordingly, we express no
opinion on it.

Responsibilities
EEOC’s management is responsible for (1) preparing the financial statements in conformity with
accounting principles generally accepted in the United States of America, (2) establishing, maintaining,
and assessing internal control to provide reasonable assurance that the broad control objectives of the
Federal Managers’ Financial Integrity Act are met, and (3) complying with applicable laws and
regulations.

We are responsible for obtaining reasonable assurance about whether the financial statements are
presented fairly, in all material respects, in conformity with accounting principles generally accepted in
the United States of America. We are also responsible for (1) obtaining a sufficient understanding of
internal control over financial reporting and compliance to plan the audit, (2) testing compliance with
selected provisions of laws and regulations that have a direct and material effect on the financial
statements and laws for which OMB audit guidance requires testing, and (3) performing limited
procedures with respect to certain other information appearing in the Annual Financial Statement.

In order to fulfill these responsibilities, we

    •   examined, on a test basis, evidence supporting the amounts and disclosures in the financial
        statements;
    •   assessed the accounting principles used and significant estimates made by management;
    •   evaluated the overall presentation of the financial statements;
    •   obtained an understanding of the entity and its operations, including its internal control related to
        financial reporting (including safeguarding assets), and compliance with laws and regulations
        (including execution of transactions in accordance with budget authority);
    •   tested relevant internal controls over financial reporting, and compliance, and evaluated the
        design and operating effectiveness of internal control;
    •   considered the design of the process for evaluating and reporting on internal control and financial
        management systems under the Federal Managers’ Financial Integrity Act; and
    •   tested compliance with selected provisions of laws and regulations that have a direct and material
        effect on the financial statements and those required by OMB Bulletin No. 07-04, as amended.

We did not evaluate all internal controls relevant to operating objectives as broadly defined by the
Federal Managers’ Financial Integrity Act, such as those controls relevant to preparing statistical reports
and ensuring efficient operations. We limited our internal control testing to controls over financial
reporting and compliance. Because of inherent limitations in internal control, misstatements due to error
or fraud, losses, or noncompliance may nevertheless occur and not be detected. We also caution that
projecting our evaluation to future periods is subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with controls may deteriorate. In
addition, we caution that our internal control testing may not be sufficient for other purposes.
Inspector General
U.S. Equal Employment Opportunity Commission - Continued
We did not test compliance with all laws and regulations applicable to EEOC. We limited our tests of
compliance to selected provisions of laws and regulations that have a direct and material effect on the
financial statements and those required by OMB audit guidance that we deemed applicable to the
EEOC’s financial statements for the fiscal year ended September 30, 2012. We caution that
noncompliance may occur and not be detected by these tests and that such testing may not be sufficient
for other purposes.

We performed our audits in accordance with auditing standards generally accepted in the United States
of America and OMB audit guidance.

Our audits were conducted for the purpose of forming an opinion on the financial statements of EEOC
taken as a whole. The other accompanying information included in this performance and accountability
report is presented for purposes of additional analysis and is not a required part of the financial
statements. Such information has not been subjected to the auditing procedures applied in the audit of
the financial statements and, accordingly, we express no opinion on them.

This report is intended solely for the information and use of the management of the U.S. Equal
Employment Opportunity Commission, the U.S. Office of Management and Budget, the U.S.
Government Accountability Office, and the U.S. Congress and is not intended to be and should not be
used by anyone other than these specified parties.




November 15, 2012
Significant Deficiencies
Exhibit I

1. Lack of Sufficient Controls over Supporting Documentation for Personnel Expenses

   The U.S. Equal Employment Opportunity Commission (EEOC) does not properly maintain
   supporting documentation for personnel expenses recorded in the general ledger. EEOC maintains
   personnel files for all employees to ensure that wages and elections for withholdings and benefits are
   consistent with the employee’s intent. These files have minimum standards for accuracy, relevancy,
   necessity, timeliness, and completeness.

   In FY 2012, we tested a sample of 78 employees’ personnel expenses and supporting documentation
   maintained by EEOC in the employees’ personnel files (eOPF) for the period of October 1, 2011
   through June 30, 2012. Based on our testing, we identified the following exceptions:

   •   Fifteen (15) employees’ enrollment code per most recent FEHB enrollment form (SF-2809, SF-
       2810 or transcript) in eOPF does not agree to enrollment code on LES for pay period sampled.
   •   Five (5) employees do not have a FEHB enrollment form (SF-2809, SF-2810 or transcript) in
       eOPF.

   •   Two (2) employees’ have no FEGLI election form (SF-2817, FE 2004 or RI 76-27) in eOPF;
       therefore, elected FEGLI coverage per most recent FEGLI election form (SF-2817, FE 2004 or
       RI 76-27) in eOPF does not agree to election code per SF-50 effective during pay period
       sampled.
   •   Eight (8) employees’ elected coverage per most recent FEGLI election form (SF-2817, FE 2004
       or RI 76-27) in eOPF does not agree to election code per SF-50 effective during pay period
       sampled.

   •   Five (5) employees’ have no TSP election form (TSP-1 or transcript) in eOPF; therefore,
       contribution (percentage/dollar amount) per most recent TSP election form (TSP-1 or transcript)
       in eOPF does not agree to contribution on LES for pay period sampled.

   •   Twenty-eight (28) employees’ elected contribution (percentage/dollar amount) per most recent
       TSP election form (TSP-1 or transcript) in eOPF does not agree to contribution on LES for pay
       period sampled.
   These exceptions were caused by insufficient controls in place at EEOC to ensure proper and timely
   documentation is maintained in the eOPF. We identified similar exceptions in our audits from FY
   2010 and FY 2011.

   EEOC’s failure to properly record and maintain official personnel records increases the risk for
   improper calculations of liabilities on the Balance Sheets and improper calculations of program costs
   on the Statements of Net Cost.

   The Government Accountability Office’s (GAO) GAO Standards for Internal Control in the Federal
   Government (Green Book) states: “Internal control and all transactions and other significant events
   need to be clearly documented, and the documentation should be readily available for examination.
Significant Deficiencies
Exhibit I
   The documentation should appear in management directives, administrative policies, or operating
   manuals and may be in paper or electronic form. All documentation and records should be properly
   managed and maintained.”

   To address this issue, we recommend that EEOC update its controls over the maintenance of its
   official personnel files. Additionally, management should perform a thorough review of its
   employees’ personnel files to ensure that documentation is current and complete.

   Management’s Response: Management concurs with the finding. As mentioned in last year’s
   report, we partnered with the Interior Business Center (IBC) (DOI) to provide a means to have the
   actions taken in Employee Express by our employees which will allow them to flow automatically to
   their e-OPFs. This data feed went live June 2, 2011. The data feed contains all FEHB, FEHB
   Premium Conversion, TSP, and TSP Catch-up records since the first day of FEHB open season
   (11/8/10) through the live date. After this date, IBC would send the actions on a daily basis Monday
   through Friday. While this process is working efficiently, the lack of resources has been and still is
   an issue. The Benefits Assistant in charge of this function went out on maternity leave during last
   year (which was reported in our last audit response), returned and now has left the agency. In order
   to process daily actions from Employee Express (with some employees making changes on a daily
   basis) appropriate resources are required. However, we have found in the meantime, to ensure that
   our separating employees’ e-OPFs are complete. We receive a report bi-weekly from IBC that
   contains Employee Express actions, which in turn we download and scan into their e-OPF prior to
   releasing them. In order to improve on the resource issue, OHR is committed to partner with the
   Veterans Administration’s wounded veterans in order to secure a volunteer to work with us to begin
   to put a process in place and clear up the backlog.

   Auditors’ Response: FY 2013 audit procedures will determine whether the corrective actions have
   been implemented and are operating effectively.


2. Lack of Sufficient Controls over Financial Reporting

   In FY 2012, EEOC implemented the new Financial Cloud Solutions (FCS) accounting and reporting
   system to replace its legacy system Momentum. EEOC encountered implementation issues related to
   the new FCS system, including weaknesses identified in the conversion, the development of new
   reconciliation processes, and implementation of new complimentary user controls. As a result, the
   ability of management to perform their day-to-day procedures was significantly impacted.
   Specifically we noted the following issues:

   Reconciliation of Data: EEOC identified differences between user reports/subledgers and the FCS
   general ledger; however no support was provided evidencing the reconciliations and the subsequent
   resolution of identified issues. Prompt resolution of differences is an essential component of
   financial data integrity, and its absence compromises the integrity of the financial reporting.

   Complimentary User Controls: EEOC did not fully implement the complementary user controls
   identified in the SSAE 16 Type II report provided by its service provider. Implementation of all user
   controls is an essential component of EEOC’s financial management control structure, and the
Significant Deficiencies
Exhibit I
   absence of implementing complimentary user controls can compromise the integrity of the internal
   controls at EEOC’s and EEOC’s ability to rely on the SSAE 16 report.

   Manual Adjustments: EEOC does not have controls in place to identify, review, and maintain
   documentation of manual adjustments entered by its service provider. Management review and
   acceptance of all manual adjustments is essential to management determining the appropriateness of
   transactions posted to the general ledger.

   Policy and Procedure: EEOC did not update its standard operating procedures for each transaction
   cycle after implementation of its new accounting and reporting system, FCS. GAO Standards for
   Internal Control state “Internal control and all transactions and other significant events need to be
   clearly documented, and the documentation should be readily available for examination. The
   documentation should appear in management directives, administrative policies, or operating
   manuals and may be in paper or electronic form. All documentation and records should be properly
   managed and maintained.’ Documentation of standard operating procedures is an essential
   component of internal control, the lack of documentation compromises the internal controls of
   EEOC.

   To address these issues, we recommend EEOC (a) identify and update all policies and procedures
   impacted by the implementation of FCS, (b) document and monitor the implementation of all
   complimentary user control considerations, (c) implement stringent reconciliations and resolution
   procedures over financial reporting reconciliations of management reports/subledgers to FCS general
   ledger data, and (d) implement procedures over manual adjustments made by its service provider
   that meet the same rigor and documentation standards as internally generated manual adjustments.

   Managements Response: EEOC will implement a review of the trial balance at least weekly to
   determine that the proprietary and budgetary accounts are in balance. For instance:

              •   General ledger proprietary account 1010 (disbursements) agrees with budgetary
                  account 4902.
              •   General ledger proprietary account 1310 (accounts receivable) agrees with the
                  subsidiary ledger.
              •   General ledger proprietary account 2110 (accounts payable) agrees with subsidiary
                  ledger and budgetary account 4901.
              •   General ledger account 4801 agrees with the unliquidated obligations subsidiary.
              •   Proprietary revenue agrees with budgetary revenue.
              •   Proprietary expenses agree with budgetary expenses.

   We agree with recommendation and will update the standard operating procedure (SOP) guides that
   affect the accounting in FCS. The Financial Operations Division will update the relevant SOPs.

   EEOC is revising the JV standard operating procedures to include all items in the recommendation.

   Auditors Response: FY 2013 audit procedures will determine whether the corrective actions have
   been implemented and are operating effectively.