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 FY2005 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 seventh consecutive year, and for meeting the fiscal year 2005 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 as of and for the year ended September 30, 2005. The contract required that the audit be done in accordance with U.S. generally accepted government auditing standards and OMB Bulletin 01-02, 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 were two reportable conditions related to weaknesses in controls over the Department’s financial management systems and National Institute of Standards and Technology’s construction-in-progress account monitoring (but not considered material weaknesses 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 tested—the Anti-Deficiency Act.

Although continued strengthening of internal controls is necessary, we are pleased that in 2005 the Department made improvements in general information technology controls and eliminated a finding of noncompliance with laws and regulations (a repeat condition since 1997). During fiscal year 2005, the National Oceanic and Atmospheric Administration achieved compliance with OMB Circular A-11, Preparation, Submission, and Execution of the Budget, by fully funding all of its capital leases. These successes are due to the Department’s continued commitment to sound financial management and reliable financial/performance information and the important role and substantial efforts of the Department’s financial managers and staff to improve internal controls and eliminate specific deficiencies identified by KPMG and our office in prior audits.

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, 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 Department’s consolidated financial statements, conclusions about the effectiveness of internal control, or conclusions on compliance with laws and regulations. KPMG is responsible for the attached audit report dated November 8, 2005, and the conclusions expressed in the report.

In accordance with Department Administrative Order (DAO) 213-5, we ask that the Department’s Chief Financial Officer and Assistant Secretary for Administration provide for our review and concurrence an audit action plan that addresses all of the recommendations contained in this report within 60 days of the date of this memorandum.

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

Attachment

cc:	Otto J. Wolff Chief Financial Officer and Assistant Secretary for Administration Tom Pyke Chief Information Officer Thomas Klausing Acting Chief Financial Officer, NIST