oversight

2010 Peer Review of the OIG's Audit Function

Published by the Farm Credit Administration, Office of Inspector General on 2011-02-04.

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

                           U.S. COMMODITY FUTURES TRADING COMMISSION
                                                 Three Lafayette Centre 

                                      1155 21st Street, NW, Washington , DC 20581 

                                              Telephone: (202) 418-5110 

                                               Facsimile : (202) 418-5522 

                                                      www.cftc.gov

                                               February 4, 2011
   Office of the
Inspector General



      Mr. Carl Clinefelter
      Inspector General
      Farm Credit Administration 

      1504 Farm Credit Drive 

      McLean, Virginia 22102   M
      Dear Inspector General Cl.inefelter.

      We have reviewed the system of quality control for the audit organization of the Farm Credit
      Administration Office of the Inspector General (FCA-OIG) in effect for the period May 1, 2007,
      through April 30, 2010. A system of quality control encompasses FCA-OIG 's organizational
      structure and the policies adopted and procedures established to provide it with reasonable
      assurance of conforming with Government Auditing Standards (July 2007 Revision-GAG-07­
      731G). The elements of quality control are described in Government Auditing Standards. The
      FCA-OIG is responsible for designing a system of quality control and complying with it to
      provide the FCA-OIG with reasonable assurance of performing and reporting in conformity with
      applicable professional standards in all material re spects. Our responsibility is to express an
      opinion on the design of the system of quality control and FCA-OIG ' s compliance therewith
      based on our review.

      Our review was conducted in accordance with Government Auditing Standards and guidelines
      established by the Council of the Inspectors General on Integrity and Efficiency (ClGIE). During
      our review, we interviewed FCA-OIG personnel and obtained an understanding of the nature of
      the FCA-OlG audit organization, and the design of the FCA-OIG 's system of quality control
      sufficient to assess the risks implicit in its audit function. Based on our assessments, we selected
      engagements and administrative files to test for conformity with professional standards and
      compliance with the FCA-OIG's system of quality control. The engagements selected
      represented a reasonable cross-section of the FCA-OIG ' s audit organization, with emphasis on
      higher-risk engagements. Prior to concluding the review, we reassessed the adequacy of the
      scope of the peer review procedures. Subsequently, we met with FCA-OIG management to
      discuss the results of our review. We believe that the procedures we performed provide a
      reasonable basis for our opinion.

      In performing our review, we obtained an understanding of the system of quality control for the
      FCA-OIG 's audit organi zation. In addition , we tested compliance with the FCA-OIG 's quality
      control policies and procedures to the extent we considered appropriate. These tests covered the
      application of the FCA-OIG' s policies and procedures on selected engagements. Our review was
based on these selected tests; therefore, it would not necessarily detect all weaknesses in the
system of quality control or all instances of noncompliance with it.

There are inherent limitations in the effectiveness of any system of quality control, and therefore
noncompliance with the system of quality control may occur and not be detected. Moreover,
projection of any evaluation of a system of quality control to future periods is subject to the risk
that the system of quality control may become inadequate because of changes in conditions, or
because the degree of compliance with the policies or procedures may deteriorate.

In addition to reviewing FCA-O[O ' s system of quality control to ensure adherence with
Government Auditing Standards, we applied certain limited procedures in accordance with
guidance established by the C[O[E related to FCA-OIO ' s monitoring of engagements performed
by Independent Public Accountants (lPA) under contract where the [PA served as the principal
auditor. It should be noted that monitoring of engagements performed by [PAs is not an audit
and therefore is not subject to the requirements of Government Auditing Standards. The purpose
of our limited procedures was to determine whether FCA-O[O had controls to ensure [PAs
performed contracted work in accordance with professional standards. However, our objective
was not to express an opinion and accordingly, we do not express an opinion, on FCA-O[O ' s
monitoring of individual work performed by [PAs.

Ellclosure 1 to this report identifies the offices of the FCA-O[O that we visited and the
engagements that we reviewed.
Ellclosure 2 to this report reexamines the findings and recommendations from an earlier peer
review report dated April 30,2007 that was conducted by the National Archives and Records
Administration 0[0 (NARA-OIO).

[n our opinion, the system of quality control for the audit organization of FCA-O[O in effect for
the period May 1, 2007, through April 30, 2010, has been suitably designed and complied with to
provide FCA-O[O with reasonable assurance of performing and reporting in conformity with
applicable professional standards in all material respects. Federal audit organizations can receive
a rating of pass, pass with deficiencies , or/ail. FCA-O[O has received a peer review rating of
pass. As is customary, we have issued a letter dated (2-4-11) that sets forth findings that were
not considered to be of sufficient significance to affect our opinion expressed in this report.

Thank you for the assistance that you provided me and my staff during the conduct of this
review.

                                                 Sincerely,



                                                 A. Roy Lavi
                                                             ---~
                                                 Inspector Oenera

Enclosures




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                                          Enclosure 1



SCOPE and METHODOLOGY

We tested compliance with the FCA-OIG audit organization's system of quality control to the
extent we considered appropriate. These tests included a review of 2 audit reports issued during
the period May 1, 2007, through April 30, 2010, and semiannual reporting periods September
2007 to April 2010. We held the entrance conference on April 22, 2010 and signed a
Memorandum of Understanding on May 18,2010. We concluded our fieldwork on December
20, 2010. We also reviewed the internal quality control reviews performed by FCA-OIG.

In addition, we reviewed the FCA-OIG's monitoring of an engagement performed by an IPA
where the IP A served as the principal auditor during the period May 1, 2007, through April 30,
2010. During the period, FCA-OIG contracted with an IPA for the audit of Farm Credit
Administration's Fiscal Year 2009 financial statements.

We conducted this peer review at FCA-OIG office in McLean, Virginia. We reviewed the
following:


Reviewed Engagements Performed by FCA-OIG

            Report                         Issued Date
Office of Examination Travel     July 23, 2009
Expense Budgeting, Usage,
and Control
Efficiencies Realized Through    May 20,2008
Outsourcing

Reviewed Monitoring Files of FCA-OIG
For Contracted Engagements

           Report                          Issued Date
Audit of FCA's Financial          November 4, 2009
Statements Fiscal Year 2009
by Brown & Company CPAs,
LLC




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                                         Enclosure 2­
                      Review of Prior Peer Review of FCA-OIG 



During our review of the system of quality control for the audit organization of Farm Credit
Administration Office of the Inspector General (FCA-OIG) in effect for the period May 1,2007,
through April 30, 2010 we examined documents related to the prior peer review conducted by
the National Archives and Records Administration OIG (NARA-OIG). The NARA-OIG audit
report made several recommendations. We examined each of the recommendations mentioned
in the NARA-OIG report and our findings are listed below.

Independence

NARA-OIG recommendation-May 2007 report page 1
     The DIG should enhance its policy on independence to include signatures offederal
     auditors certifying their independence on each review performed in accordance with
     Government Auditing Standards.

Analysis-April 2010
       We reviewed two audits conducted by FCA-OIG:
               1.     Office of Examination Travel Expense Budgeting, Usage, and Control
               2.     Efficiencies Realized Through Outsourcing
       In both cases we found documents certifying auditor's independence during these audits.

Supervision

NARA-OIG recommendation-May 2007 report page 2
    The FCA 1G should document supervisory comments ofaudit work performed using the
    Working Paper Review Sheet.

Analysis-April 2010
      We reviewed two audits conducted by FCA-OIG:
                  1. Office of Examination Travel Expense Budgeting, Usage, and Control
                 2. Efficiencies Realized Through Outsourcing
      In both cases we found documents indicating supervisory review of the auditor's work
      product.


Audit Planning

NARA-OIG recommendation-May 2007 report page 2
    The FCA 1G should include audit steps relating to previous audits and risks due to fraud
    in FCA DIG audit programs and document the results ofthe work performed.



                                              4
Analysis-April 2010
      We reviewed two audits conducted by FCA-OIG:
                  1. 	 Office of Examination Travel Expense Budgeting, Usage, and Control
                  2. 	 Efficiencies Realized Through Outsourcing
       In both cases we found documents indicating awareness of previous audits and studies,
      and an understanding of the risks due to fraud in the area under review.

Monitoring the work of Non-Federal Auditors

       Our review included the Audit ofFCA's Financial Statements Fiscal Year 2009
       conducted by Brown & Company CP As, LLC, an independent public accountant under
       contract to the OIG in accordance with Government Auditing Standards. Accordingly,
       we reviewed monitoring of this audit performed by Brown & Co. to assess FCA-OIG's
       response to the recommendations stated in the NARA peer review.


NARA-OIG recommendation May 2007 report page 2
       1. 	 FCA-OIG did not document the planned level ofreview at the overall and
            material line item level in accordance with FAM 650.36

Analysis-April 2010
The work papers contained a monitoring plan for the financial statement audit which addressed
this issue.

NARA-OIG recommendation May 2007 report page 2
       2. 	 FCA-OIG did not document their designed oversight procedures in using the
            work ofother auditors contracted to perform the FY 2005 Financial Statement
            Audit or the type ofreporting in accordance with FAM 650

Analysis-April 2010
              The work papers contained a Financial Statement Oversight Guide which
              documented FCA-OIG's oversight procedures of the IPA.

NARA-OIG recommendation May 2007 report page 2
       3. 	 FCA-OIG did not document their assessment or update their previous assessment
            ofthe firm's independence, the firms' internal quality control system oftheir
             assessment ofkey staffqualifications. While certain individuals signed
             independence statements, the latest peer review was documented and certain
            resumes and CPEs were documented, FCA-OIG did not document their
            assessment ofthis information. In addition, FCA-OIG did not document their
             verification ofCPA licensing standings for the auditors engaged to perform the
            financial statement audit.

Analysis-April 2010




                                               5
              The FCA-0 IG acquired independence statements from the IP A and provided to
              the review team documentation to address these issues.

NARA-OIG recommendation May 2007 report page 2
       4. 	 No evidence was presented that FCA-OIG provided comments on the other
            auditor's working papers or reports.

Analysis-April 2010

The work papers contained documents that addressed these issues to our satisfaction.

In our review of the Audit ofFCA's Financial Statements Fiscal Year 2009 conducted by Brown
& Company CP As, LLC we found sufficient documents which provided evidence of FCA­
~IG's monitoring of IPA.


We did not review the audit weaknesses identified by NARA-OIG with respect to the FY2005
FISMA Review.




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