Report of Independent Auditors' – Cover Letter

I am pleased to provide you with the attached audit report, which presents an unqualified opinion on the Department of Commerce’s FY2006 consolidated financial statements. The audit results indicate that the Department has established an internal control structure that facilitates the preparation of reliable financial and performance information. We commend the Department for the noteworthy accomplishment of once again attaining an unqualified opinion—the eighth consecutive year—and for meeting the fiscal year 2006 accelerated reporting deadline.

My office contracted with the independent public accounting firm of KPMG LLP (KPMG) to perform the audit of the Department’s financial statements for the year ended September 30, 2006. The contract required that the audit be done in accordance with U.S. generally accepted government auditing standards and OMB Bulletin 06-03, Audit Requirements for Federal Financial Statements.

In its audit of the Department, KPMG found that:

• the financial statements were fairly presented, in all material respects and in conformity with U.S. generally accepted accounting principles;
• there was one reportable condition related to weaknesses in controls over the Department’s financial management systems (but not considered a material weakness in internal control as defined on page 3 of the audit report);
• there were no instances in which the Department’s financial management systems did not substantially comply with the requirements of the Federal Financial Management Improvement Act of 1996; and
• there was one instance in which the Department did not comply with other laws and regulations (the Anti-Deficiency Act).

My office defined the audit’s scope and oversaw its performance and delivery. We reviewed KPMG’s report and related documentation and made inquiries of its representatives. Our review disclosed no instances where KPMG did not comply, in all material respects, with U.S. generally accepted government auditing standards. However, our review cannot be construed as an audit in accordance with U.S. generally accepted government auditing standards. It was not intended to enable us to express, and we do not express, any opinion on the Department’s consolidated financial statements, conclusions about the effectiveness of internal controls, or conclusions on compliance with laws and regulations. KPMG is solely responsible for the attached audit report dated November 8, 2006, and the conclusions expressed in the report.

We are pleased that the Department made some improvements in general information technology controls during FY 2006. These successes are evidence of the Department’s continued commitment to sound financial management and reliable financial/performance information. This also demonstrates the efforts of the Department’s financial managers and staff to improve internal controls and eliminate specific deficiencies previously identified in audits by KPMG and our office.

In accordance with Department Administrative Order (DAO) 213-5, we ask that an audit action plan be submitted for our review and concurrence within 60 days of the date of this memorandum. To streamline the process, we suggest that you provide an action plan as part of the response to the separate, limited-distribution IT general controls report (FSD-18004-7-0001). The plan should address each of the report’s recommendations and be formatted as specified in exhibit 7 of the DAO or as agreed upon with my office. It should give specific details and dates for how and when each recommendation will be implemented; and if there are any that you choose not to implement, it must provide the rationale and/or legal basis behind the decision.

If you wish to discuss the contents of this report, please call me on (202) 482-4661, or Elizabeth Barlow, Deputy Inspector General, on (202) 482-3516. We appreciate the cooperation and courtesies the Department extended to both KPMG and my staff during the audit.

Attachment

cc:	Otto J. Wolff Chief Financial Officer and Assistant Secretary for Administration Barry C. West Chief Information Officer