Report details errors in Agriculture financial disclosures

The Agriculture Department's 2003 financial statements were error-filled and potentially misleading, according to a new report from the Government Accountability Office.

The review (GAO-06-254R) identified accounting system problems that led to major errors in four of the five central statements in USDA's financial filing for that year, for which the agency originally received a clean audit. GAO also found that notes and discussions in the agency's 2004 financial statements downplayed the restated results in ways that could be misleading.

The GAO report is the fifth in a series discussing problems that led to financial restatements by 11 of the 23 agencies required to submit financial statements in fiscal 2003. GAO is focusing on the nine of those agencies that originally received unqualified audits: the departments of Agriculture, State, Justice, Transportation, and Health and Human Services, and the General Services Administration, National Science Foundation, Nuclear Regulatory Commission, and Office of Personnel Management.

In its analysis, GAO traced the errors that required Agriculture to issue a restatement for 2003 to problems with internal controls. For example, one control problem resulted in a misstatement of about $4.7 billion.

"Frequent restatements to correct errors can undermine public trust and confidence in both the entity and all responsible parties," wrote Gary Engel, GAO's director of financial management and assurance, in a letter to the Agriculture Department's chief financial officer and inspector general.

But Engel's report gave equal weight to other problems with the way Agriculture disclosed and presented certain information on its financial statements. In a section of the 2004 audit report titled "Management Discussion and Analysis," Agriculture asserted that it had obtained clean financial statement opinions since 2002, without acknowledging that the opinions for 2002 and 2003 subsequently were restated for significant errors.

According to the report, the Agriculture IG's office said it did not believe disclosure of that information was necessary in its audit report, a conclusion that GAO disagreed with, noting "potential for the reader to be misled."

The GAO review also indicated that in a footnote labeled "prior period adjustments," most of the corrections listed were not for a prior period, and that a presentation of the department's changes in net position could be misinterpreted because it used 2004 beginning-year balances that did not correspond with the 2003 ending balances.

USDA Chief Financial Officer Charles Christopherson had no comments on the report, except to note that "current plans and efforts will assure that our consolidated financial statements are accurate and timely."

USDA Inspector General Phyllis Fong agreed with GAO's recommendations to remedy the internal controls problems identified, and said her office had strengthened quality control measures over its audit procedures.