Bureau of Alcohol, Tobacco, Firearms and Explosives Annual Financial Statement
Fiscal Year 2005

Audit Report 06-21
March 2006
Office of the Inspector General

Commentary and Summary

This audit report contains the Annual Financial Statement of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) for the fiscal years (FY) ended September 30, 2005 and 2004. Under the direction of the Office of the Inspector General (OIG), the audit was performed by KPMG LLP (KPMG) and resulted in an unqualified opinion for FYs 2005 and 2004. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and the results of operations in conformity with generally accepted accounting principles in the United States.

On its FY 2004 financial statements, the ATF originally received a qualified opinion because it did not provide adequate documentation to support the amounts recorded as accounts payable. A qualified opinion means that the financial statements are presented fairly in all material respects, except for matters identified in the Independent Auditors’ Report on Financial Statements. However, during the FY 2005 audit the ATF was able to provide adequate documentation to support the FY 2005 beginning balances for amounts recorded on the consolidated balance sheet for intra-governmental accounts payable and other accounts payable. This allowed KPMG to update its original qualified opinion for FY 2004 to an unqualified opinion.

In their Independent Auditors’ Report on Internal Control over Financial Reporting, the auditors identified two reportable conditions, both of which were considered to be material weaknesses. In the first material weakness the auditors reported that the ATF needs to implement effective controls over information systems general access controls and system software. This condition was first reported in FY 2003 and was escalated from a reportable condition in FY 2004 to a material weakness in FY 2005 due to its continued existence and the identification of new weaknesses in the information system access controls area. The ATF also received a repeat material weakness from FY 2004 on its process for recording accounts payable due to the continued existence of errors and inaccuracies with the accrual process used to record accounts payable. In its Independent Auditors’ Report on Compliance and Other Matters, the auditors also noted that ATF’s financial management systems did not substantially comply with applicable financial management systems requirements and federal accounting standards.

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 ATF’s financial statements, conclusions about the effectiveness of internal control, conclusions on whether ATF’s financial management systems substantially complied with Federal Financial Management Integrity Act, or conclusions on compliance with laws and regulations. KPMG is responsible for the attached auditor’s report dated October 28, 2005 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.