Office of Justice Programs Annual Financial Statement
Fiscal Year 2004

Audit Report No. 05-17
March 2005
Office of the Inspector General

Commentary and Summary

This audit report contains the Annual Financial Statement of the Office of Justice Programs (OJP) for the fiscal year ended September 30, 2004. Under the direction of the Office of the Inspector General (OIG), PricewaterhouseCoopers LLP (PwC) performed the audit, which resulted in a disclaimer of opinion on the FY 2004 financial statements. A disclaimer of opinion means that the auditors were unable to express an opinion on the financial statements. PwC was precluded from expressing an opinion in the required timeframe because they were unable to rely upon OJPís financial and information technology controls used to process grant transactions. PwC also reported that they were precluded from expressing an opinion because OJP could not provide adequate documentation to support grant and non-grant differences between the general ledger and subsidiary ledger. Finally OJP was not able to provide adequate responses to inquiries about advances from others, transfers, and other related budgetary accounts in the financial statements within the required timeframe.

As a result of the uncertainties raised with regard to OJPís methodologies used for calculating the grant accrual during the FY 2004 audit, KPMG LLP, the auditors for FY 2003, determined that certain procedures related to grant accrual methodologies had been omitted and subsequently withdrew their unqualified opinion on the OJP FY 2003 financial statements and reissued it as a disclaimer.

PwC also issued its Report of Independent Auditors on Internal Control and Report of Independent Auditors on Compliance and Other Matters. In its FY 2004 Report of Independent Auditors on Internal Control, the auditors identified six reportable conditions, five of which were considered to be material weaknesses. The first material weakness related to the overall improvements needed in cross-cutting elements of OJPís internal control structure. Specifically, OJPís management had not performed a comprehensive risk assessment, analyzed the possible effects of the risks identified, and designed and implemented controls to address these risks. The second material weakness related to weaknesses in OJPís financial management system controls which specifically involved problems the auditors identified with the adequacy of the change control process, access controls and interface controls between core and feeder systems. The three other material weaknesses were related to improvements needed in grant accounting and monitoring, maintenance of documentation for significant transactions, and processes to ensure financial reporting is consistent with generally accepted accounting principles (GAAP). The auditors also noted one reportable condition which was not considered to be a material weakness related to improvements needed in grant and non-grant deobligations.

In its FY 2004 Report of Independent Auditors on Compliance and Other Matters, the auditors reported non-compliance with the Federal Financial Management Improvement Actís (FFMIA) federal financial management systems requirements and federal accounting standards. The auditors also identified incorrect interest payment amounts related to the Prompt Payment Act and inadequate implementation of the Improper Payments Information Act.

The OIG reviewed PwCís 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 OJPís financial statements, conclusions about the effectiveness of internal control, conclusions on whether the OJPís financial management systems substantially complied with FFMIA, or conclusions on compliance with laws and regulations. PwC is responsible for the attached auditorsí report dated October 27, 2004, and the conclusions expressed in the report. However, our review disclosed no instances where PwC did not comply, in all material respects, with generally accepted government auditing standards.