oversight

                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                                 Washington, DC 20415



  Office of the                                 November 15, 2012
Inspector General




                                                                           Report No, 4A-CF-00-12-039


             MEMORANDUM FOR JOHN BERRY
                            Director

             FROM:                    PATRICK E, McFARLAND
                                      Inspector General

             SUBJECT:                 Audit of the Office ofPersonnel Management's Fiscal Year
                                      2012 Consolidated Financial Statements


             This memorandum transmits KPMG LLP's (KPMG) report on its financial statement
             audit of the Office of Personnel Management's (OPM) Fiscal Year 20 I2 Consolidated
             Financial Statements and the results ofthe Office of the Inspector General's (OlG)
             oversight of the audit and review of that report OI'M's consolidated financial statements
             include the Retirement Program, Health Benefits Program, Life Insurance Program,
             Revolving Fund Programs (RF) and Salaries & Expenses funds (S&E),

             Audit Reports on Financial Statements, Internal Controls and Compliance
             with Laws and Regulations

             The ChielTinancial Officers (CFO) Act of 1990 (P.L 101-576) requires OPM's Inspector
             General or an independent external auditor, as determined by the Inspector General, to
             audit the agency's financial statements in accordance with Government Auditing
             Standards (GAS) issued by the Comptroller General of the United States, We contracted
             with the independent certified public accounting firm KPMG ttl' to audit OPM's
             consolidated financial statements as of September 30, 2012 and for the fiscal year then
             ended, The contract requires that the audit be performed in accordance with gcnerally
             accepted government auditing standards and the Office of Management and Budget
             (OMB) Bulletin No, 07-04, Audit Requirementsfor Federal Financial Statements. as
             amended,

             KPMG's audit report tor Fiscal Year 2012 includes: (I) opinions on the consolidated
             financial statements and the individual statements tor the three bene lit programs, (2) a




        www.o pm.gov                                                                             www.usejcbs.gcv
John Berry                                                                                    2


report on internal controls, and (3) a report on compliance with laws and regulations. In
its audit of OPM, KPMG found:

   •   The consolidated financial statements were fairly presented, in all material
       respects, in conformity with U.S. generally accepted accounting principles.

   •   KPMG’s report identified no material weaknesses in the internal controls.

       A material weakness is a deficiency, or 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.

   •   KPMG’s report identified two significant deficiencies:

                Information Systems Control Environment (OPM and the Programs)

                Controls over Financial Management and Reporting Processes of the
                 OPM Operational Activities and Related Data.

       A significant deficiency is a deficiency, or 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.


OIG Evaluation of KPMG’s Audit Performance

In connection with the audit contract, we reviewed KPMG’s report and related documentation
and made inquiries of its representatives regarding the audit. To fulfill our audit
responsibilities under the CFO Act for ensuring the quality of the audit work performed, we
conducted a review of KPMG’s audit of OPM’s Fiscal Year 2012 Consolidated Financial
Statements in accordance with GAS. Specifically, we:

   •   reviewed KPMG’s approach and planning of the audit;
   •   evaluated the qualifications and independence of its auditors;
   •   monitored the progress of the audit at key points;
   •   examined its working papers related to planning the audit and assessing internal
       controls over the financial reporting process;
   •   reviewed KPMG’s audit reports to ensure compliance with Government Auditing
       Standards;
   •   coordinated issuance of the audit report; and
   •   performed other procedures we deemed necessary.

Our review, as differentiated from an audit in accordance with generally accepted
government auditing standards, was not intended to enable us to express, and we do not
express, opinions on OPM’s financial statements or internal controls or on whether OPM’s
John Berry                                                                                 3


financial management systems substantially complied with the Federal Financial
Management Improvement Act of 1996, or conclusions on compliance with laws and
regulations. KPMG is responsible for the attached auditor’s report dated November 7,
2012, and the conclusions expressed in the report. However, our review disclosed no
instances where KPMG did not comply, in all material respects, with the generally
accepted GAS.

In accordance with the OMB Circular A-50 and Public Law 103-355, all audit findings
must be resolved within six months of the date of this report. The OMB Circular also
requires that agency management officials provide a timely response to the final audit
report indicating whether they agree or disagree with the audit findings and
recommendations. When management is in agreement, the response should include
planned corrective actions and target dates for achieving them. If management disagrees,
the response must include the basis in fact, law or regulation for the disagreement.

To help ensure that the timeliness requirement for resolution is achieved, we ask that the
CFO coordinate with the OPM audit follow-up office, Internal Oversight and Compliance
(IOC), to provide their initial responses to us within 30 days, as outlined in OMB Circular
A-50. IOC should be copied on all final report responses. Subsequent resolution activity
for all audit findings should also be coordinated with IOC. The CFO should provide
periodic reports through IOC to us, no less frequently than each March and September,
detailing the status of corrective actions, including documentation to support this activity,
until all findings have been resolved.

In closing, we would like to congratulate OPM’s financial management staff for once
again issuing the consolidated financial statements by the November 15 due date. Their
professionalism, courtesy, and cooperation allowed us to overcome the many challenges
encountered during OPM’s preparation, KPMG’s audit, and the OIG’s oversight of the
financial statement audit this year. If you have any questions about KPMG’s audit or our
oversight, please contact me or have a member of your staff contact Michael R. Esser,
Assistant Inspector General for Audits, at           .

cc: Dennis Coleman
    Chief Financial Officer


   Deputy Chief Financial Officer