Homeland Security achieves new level in auditability

The Homeland Security Department’s decade-long struggle to integrate components and achieve clean books passed a major milestone with the release this month of DHS’ annual financial report, officials told Government Executive. For the first time, the department was given a “qualified audit opinion,” having submitted five statements of financial management for review.

The key area of improvement was auditing of real property, plant and equipment management, particularly in its Coast Guard organization, officials said.

“This was truly a team effort and really shows the success of the management integration efforts we have been pursuing here at DHS,” Undersecretary for Management Rafael Borras said. “Accounting for property has traditionally been a tough part of the audit to get, but we’ve made huge strides this year, particularly at the U.S. Coast Guard and Transportation Security Administration, the latter of which corrected long-standing internal control deficiencies.”

Borras praised DHS Chief Financial Officer Peggy Sherry for her “in-depth risk assessment of the issues,” and for working “closely with our component agencies to create mitigation plans” and for meeting “regularly with component CFOs to ensure adherence to the established milestones and remediation plans.” Other partners included DHS’ Office of the Chief Procurement Officer and the Office of the Chief Readiness Support Officer.

“Making this kind of progress is a sign of maturity for the department in being able to tackle such a significant undertaking as a qualified audit,” Sherry added. “On Capitol Hill, they’re starting to treat us as business as usual, which is good. Qualified audit doesn’t sound as good as an unqualified one, but in our little 10-year history, it shows how far we’ve come in getting financial statements into a position where they can be audited.”

When the department was stood up in 2003, auditors faced 30 significant deficiency conditions, of which 18 were material weaknesses, Sherry explained, so progress required work with the Homeland Security’s Office of Inspector General, Congress, the Office of Management and Budget and GAO to implement the 2004 DHS Financial Accountability Act.

When the 2011 audit produced qualified opinions in two areas, Secretary Janet Napolitano pushed for execution of a “deeper dive” into all five statements in 2012. With billions in property for the whole department spread nationwide, Sherry added, it took major collaboration to audit them all at the same time.

“The full-scope audit opinion,” Sherry said, “is confirmation of DHS’ ongoing commitment to instituting sound financial practices to safeguard taxpayer dollars. We’ve provided reasonable assurance that internal controls over financial reporting as required by law are effective. With the exceptions of a few areas, we have good business practices in place to ensure our financial statements are accurate.”

DHS’ progress in general management reforms drew praise a year ago from Comptroller Danny Werfel, but its audit issues remain on the Government Accountability Office’s high-risk list.

Friday’s announcement is “an important step,” Sherry said, in the department’s ongoing work with GAO “on the criteria for removal from the high-risk list.” One noteworthy fact is “our ability to get a qualified opinion for two consecutive years. It’s a piece, but the progress sets us on the path.”

Another thing GAO would look for, added Borras, is “not one-time events but progress that is sustainable and repeatable.” He said he expects continued progress next year leading to a clean audit.