Federal Bureau of Investigation Annual Financial Statement
Fiscal Year 2003

Report No. 04-21
May 2004
Office of the Inspector General

Commentary and Summary

This audit report contains the Annual Financial Statement of the Federal Bureau of Investigation (FBI) for the fiscal years ended September 30, 2003 and September 30, 2002. Under the direction of the Office of the Inspector General (OIG), KPMG LLP performed the FBI audit.

The FBI received an unqualified opinion on its FY 2003 financial statements. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and the results of the entity's operations. For FY 2002, the FBI also received an unqualified opinion on its financial statements (OIG Report No. 03-29).

The FBI had two material weaknesses, both of which involved repeat conditions from the previous fiscal year. Material weaknesses continued in the internal controls over the FBI's information systems and the timely preparation and submission of financial statement information. These material weaknesses are long standing, having persisted since the FY 1996 and 2001 audits respectively. A prior material weakness that had been reported in the area of property since 1999 showed significant improvement this year. As a result, the property issues were combined into the material weakness on financial reporting.

The OIG is concerned with the persistent nature of the material weaknesses, and believes the FBI must dedicate sufficient resources to correct these deficiencies. Continued weaknesses in controls over information systems could compromise the security and reliability of financial or program data. With the accelerated reporting deadlines imposed by the Department and the Office of Management and Budget, the FBI also must improve on its ability to prepare timely financial information and ensure personnel outside the finance office are involved in the process.

In their Report on Compliance with Laws and Regulations, the auditors concluded that the FBI's financial management systems did not substantially comply with Federal Financial Management Systems requirements and applicable federal accounting standards as required by the Federal Financial Management Improvement Act of 1996. This noncompliance was also reported for FY 2002.

The OIG reviewed KPMG's report and related documentation and made necessary inquiries 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, an opinion on the FBI's financial statements, conclusions about the effectiveness of internal control, or conclusions on compliance with laws and regulations. KPMG is responsible for the attached auditors' report dated November 14, 2003, and the conclusions expressed in the report. However, our review disclosed no instances where KPMG did not comply, in all material respects, with generally accepted government auditing standards.