oversight

Report 2014-001-FIN - Audit of the Equal Employment Opportunity Commission's Fiscal Year 2014 Financial Statements

Published by the Equal Employment Opportunity Commission, Office of Inspector General on 2014-11-17.

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

                                         Independent Auditors' Report

Inspector General
U.S. Equal Employment Opportunity Commission

Report on the Financial Statements

We have audited the accompanying consolidated balance sheet of the Equal Employment Opportunity
Commission (EEOC), as of September 30, 2014 and 2013, and the related consolidated statements of net
cost, and changes in net position, and combined statement of budgetary resources, for the fiscal years
then ended and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in
accordance with general accepted accounting principles in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.

Auditors' Responsibility

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 audit contained in Government Auditing Standards issued
by the Comptroller General of the United States; and Office of Management and Budget (OMB)
Bulletin No. 14-02, Audit Requirements for Federal Financial Statements. Those standards and OMB
Bulletin No. 14-02 require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditors' judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

                        Harper, Rains, Knight & Company, P.A. • Certified Public Accountants • Consultants
                                    700 12th Street, NW, Suite 700 • Washington, DC 20005
                            Telephone 202.558.5167 • Facsimile 601.605.0733 • www.hrkcpa.com
Inspector General
U.S. Equal Employment Opportunity Commission - Continued
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 the Equal Employment Opportunity Commission as of September 30,
2014 and 2013, and its net cost of operations, changes in net position, and budgetary resources for the
fiscal years then ended, in conformity with accounting principles generally accepted in the United States
of America.

Other Matters
Required Supplementary Information

Generally accepted accounting principles in the United States of America require that the information in
the Management's Discussion and Analysis, and Required Supplementary Information sections be
presented to supplement the basic financial statements. Such information, although not a part of the
basic financial statements, is required by the Federal Accounting Standards Advisory Board who
considers it to be an essential part of financial reporting for placing the basic financial statements in an
appropriate operational, economic, or historical context. We have applied certain limited procedures to
the required supplementary information in accordance with auditing standards generally accepted in the
United States of America, which consisted of inquiries of management about the methods of preparing
the information and comparing the information for consistency with management's responses to our
inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic
financial statements. We do not express an opinion or provide any assurance on the information because
the limited procedures do not provide us with sufficient evidence to express an opinion or provide any
assurance.

Other Information

Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a
whole. The information in the Message from the Chair and in the Message from the Chief Financial
Officer (CFO) is presented for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has not been subjected to the auditing procedures applied in the
audit of the basic financial statements, and accordingly, we do not express an opinion or provide any
assurance on it.

Other Reporting Required by Government Auditing Standards

Internal Control over Financial Reporting

In planning and performing our audits of the financial statements, we considered EEOC's internal
control over financial reporting (internal control) to determine the audit procedures that are appropriate
in the circumstances for the purpose of expressing our opinion on the financial statements, but not for
the purpose of expressing an opinion on the effectiveness of EEOC's internal control. Accordingly, we
do not express an opinion on the effectiveness of EEOC's internal control. We did not test all internal
controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial
Integrity Act of 1982.
A deficiency in internal control 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
Inspector General
U.S. Equal Employment Opportunity Commission - Continued
Internal Control over Financial Reporting - continued

detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control, such that there is a reasonable possibility that a material
misstatement of the entity's financial statements will not be prevented, or detected and corrected on a
timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by those charged
with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies
may exist that were not identified. During our audit, we did identify deficiencies in internal control that
we consider to be significant deficiencies, described in Exhibit I.
We noted certain additional matters that we will report to management of EEOC in a separate letter.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether EEOC's financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on
the determination of financial statement amounts, and certain provisions of other laws and regulations
specified in OMB Bulletin No. 14-02. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The
results of our tests of compliance disclosed no instances of noncompliance or other matters that are
required to be reported herein under Government Auditing Standards or OMB Bulletin No. 14-02.
EEOC's Responses to Findings
EEOC's responses to the findings identified in our audit are described in Exhibit I. EEOC's responses
were not subjected to the auditing procedures applied in the audit of the consolidated financial
statements and, accordingly, we express no opinion on the responses.
Purpose of the Other Reporting Required by Government Auditing Standards
The purpose of the communication described in the Other Reporting Required by Government Auditing
Standards section is solely to describe the scope of our testing of internal control and compliance and
the result of that testing, and not to provide an opinion on the effectiveness of EEOC's internal control or
compliance. Accordingly, this communication is not suitable for any other purpose.




November 17, 2014
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 2014, we tested a sample of 63 employees' personnel expenses and supporting documentation
   maintained by EEOC in the employees' personnel files (eOPF) for the period of October 1, 2013
   through March 31, 2014. Based on our testing, we identified the following exceptions:
      Two (2) employees do not have a FEHB enrollment form (SF-2809, SF-2810 or transcript) in
       eOPF, but show FEHB transactions per FPPS and LES.
      Five (5) 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 which
       results in a variance between the employee's withholding amount calculated by the auditor and
       per the LES.
      Four (4) 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 which
       results in a variance between the employer's contribution amount calculated by the auditor and
       per FPPS.
      Two (2) employees do not have a FEGLI enrollment form (SF-2817, FE 2004 or RI 76-27) in
       eOPF, but show FEGLI transactions per FPPS and LES.
      Six (6) 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
       which results in a variance between actual employee withholdings per LES and calculated
       employee withholdings per OPM.
      Three (3) 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 which results in a variance between actual employer contributions per FPPS and
       employer contributions as calculated by the auditor.
      One (1) employee does not have a TSP election form (TSP-1 or transcript) in eOPF, but shows
       TSP transactions per LES.
      Seven (7) 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 which results in variances between the employee withholding amount per LES and
       employee withholding as calculated by the auditor.
      Seven (7) 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
Significant Deficiencies
Exhibit I
       sampled which results in variances between the employer contribution amount per FPPS and
       employer withholding as calculated by the auditor.

   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 audit from FY
   2010, FY 2011, FY 2012, and FY 2013.

   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.
   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: We accept the recommendation that EEOC update its controls over the
   maintenance of its official personnel files. The Office of Chief Human Capital Office (OCHCO) has
   established a policy and procedure to perform internal audits of the EEOC eOPF system for proper
   implementation and application of all OPM and EEOC policies and procedures over the recording
   and maintaining of official personnel records. We currently have an agreement with IBC to
   automatically post changes made in Employee Express to be posted in e-OPF directly. However,
   this is not always done in “real” time. Therefore, OCHCO is currently working with Interior
   Business Center (IBC) to establish a link to “view FEHB/TSP Transaction Data” bi weekly. This
   report will allow OCHCO to view all FEHB and TSP transactions completed in Employee Express
   in a certain time frame (bi weekly); whereas we can cross reference any activities. This should be
   accomplished by November 24, 2014; and if not OCHCO will follow-up with IBC.

   As for those issues that continue to require hard copy submissions, we plan to correct this going
   forward by fully utilizing our new WTTS/EODS systems (automated on-boarding system) and
   scanning in those documents we have received from our new hires. In addition, management will
   continue to perform a thorough review of its employees’ personnel files to ensure that
   documentation is accurate and current, as we started this spring.

   Also, you tested a sample of 63 payroll expense transaction and noted 37 exceptions. We have
   reviewed the 37 exceptions of which seven issues (2/6/51/55 and 1/10/26) were the same
   employees/same issues; twenty-two (22) were exceptions, which we will have to possibly negotiate
   with affected employees to complete a corrective document; and the remaining 8 have been
   investigated, forms located and scanned, in the appropriate e-OPF.
Significant Deficiencies
Exhibit I


   Auditors' Response: FY 2015 audit procedures will determine whether the corrective actions have
   been implemented and are operating effectively.

2. Lack of Sufficient Controls over Financial Management

   The U.S. Equal Employment Opportunity Commission (EEOC) did not properly evaluate the
   controls in place at its financial systems service provider, Global Computer Enterprises, Inc. (GCE),
   during the fiscal year.

   The U.S. Government Accountability Office's (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.
   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.”
   The Office of Management and Budget (OMB) Circular A-123, Management's Responsibility for
   Internal Control states: “Internal control over financial reporting is a process designed to provide
   reasonable assurance regarding the reliability of financial reporting. Reliability of financial reporting
   means that management can reasonably make the following assertions:
         Documentation for internal control, all transactions, and other significant events is readily
          available for examination.

   The Federal Managers Financial Integrity Act of 1982 (FMFIA) states: “Internal accounting and
   administrative controls of each executive agency shall be established in accordance with standards
   prescribed by the Comptroller General, and shall provide reasonable assurances that --

   (i)       obligations and costs are in compliance with applicable law
   (ii)      funds, property, and other assets are safeguarded against waste, loss, unauthorized use, or
             misappropriation; and
   (iii)     revenues and expenditures applicable to agency operations are properly recorded and
             accounted for to permit the preparation of accounts and reliable financial and statistical
             reports and to maintain accountability over the assets.

   GCE ceased its operations in September, 2014. As a result, GCE did not conduct or provide EEOC
   with an SSAE 16 Report over the controls in place during the fiscal year and EEOC did not perform
   an evaluation of the controls at the service provider.

   The lack of monitoring internal controls could result in an inadequate assessment of the risk of
   material misstatement to the financial statements, ineffective review of financial transactions, and
   potential misstatement of the financial statements.

   To address this issue, we recommend that EEOC implement procedures to ensure that it has a
   complete understanding of policies and procedures at its service providers.
Significant Deficiencies
Exhibit I
   Management's Response: EEOC will be proactive to implement procedures so that we have a clear
   understanding of the services that are provided by our financial service provider (Note: relative to
   this recommendation, there was an unusual situation with GCE/GSA/DOL with the purchase of
   GCE). In February 2015, EEOC service provider will be DOI/IBC. Our previous experiences with
   DOI/IBC were exceptional and we do not foresee that this problem will exist with DOI/IBC.

   Auditors' Response: FY 2015 audit procedures will determine whether the corrective actions have
   been implemented and are operating effectively.