REPORT OF AUDIT - THE AGENCY'S ADMINISTRATION OF TRANSACTIONS WITH OTHER GOVERNMENT AGENCIES

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 06636474
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 35
• Document Creation Date: March 8, 2023
• Document Release Date: July 25, 2019
• Case Number: F-2016-02241
• Publication Date: October 29, 2004

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REPORT OF AUDIT
(U) The Agency's Administration of Transactions
With Other Government Agencies
Central Intelligence Agency
Office of Inspector General
Audit Staff
-SEC RETH20290513-
29 October 2004
DATE ISSUED
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(U) Table of Contents
(U) SUMMARY 1
(U) BACKGROUND 2
(U) The Economy Act 2
(U) The Agency's Process for Administering Transactions
With Other Government Agencies 2
(U) Financial Statement Reporting and Accounting Standards 4
(U) Implementation of a New Accounting Model for Recording
Transactions With Other Government Agencies in FY 2004 5
(U) AUDIT RESULTS AND RECOMMENDATIONS 5
(U/Tet:10-)- Amounts Reported for the Agency's Transactions
With Other Government Agencies Are Not Fairly Presented on
the FY 2003 Financial Statements 5
(U/LE0t142)- Transactions Are Not Reported on an
Accrual Accounting Basis 5
(U/iFetie)- Financial Activities of Other Entities Are Included
Inappropriately on the Agency's Financial Statements 7
(U/WOU0)

(UMF-600)- Reconciliations With Other Government
Agencies Are Not Being Conducted
9
9
(111/Fiatie)- Transactions in Certain General Ledger
Accounts Are Improperly Reported as Intragovernmental
on the FY 2003 Financial Statements 10
(Ulli-G14e)- The Agency Is Not in Compliance With Office of
Management and Budget Requirements for Financial Statement
Presentation of Intragovernmental Activity 13
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(UHFet:M) Transactions With Other Government Agencies
Are Not Properly Segregated on the Statement of Net Cost 13
(U/iFel:M) Disclosures in the FY 2003 Financial Statements
Are Not Accurate or Complete 15
(U) Other Matters 16
(U) Objectives, Scope, and Methodology Exhibit A
-(8)- FY 2003 Balance Sheet, Statement of Net Cost,
and Related Notes to the Financial Statements
(Draft, dated December 2003) Exhibit B
(U) List of Recommendations Exhibit C
(U) Audit Team Members Exhibit D
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Report of Audit
(U) The Agency's Administration of Transactions
With Other Government Agencies
(U) SUMMARY
(U) The objectives of this audit were to determine whether:
� The financial statements of the CIA fairly present the amounts
associated with goods and services ordered from and provided to other
government agencies (OGAs), in accordance with generally accepted
accounting principles.
� Internal controls related to recording goods and services ordered from
and provided to OGAs are adequate to detect or prevent errors or
misstatements that have a material effect on the financial statements.
� The Agency complies with laws and regulations that have an effect on
the financial statement presentation for transactions involving OGAs.
(U//f61344)--The amounts presented for the Agency's transactions with OGAs
are materially misstated on the financial statements as of 30 September 2003.1 The
Agency's transactions with OGAs are not reported on an accrual accounting basis as
required by generally accepted accounting principles. Therefore, revenues and
expenses are not recorded in the appropriate accounting period, and the financial
statements do not include all of the Agency's activities with OGAs for FY 2003.
In addition, the Agency's financial statements continue to include the financial
activities of other entities, like the Community Management Staff (CMS), that
either: (1) should not be reported on the Agency's financial statements, or
(2) should be consolidated with the Agency's financial activities and the statements
no longer presented as only the CIA's financial statements.
(U//FOU0)
The Agency is not conducting required reconciliations of its
intragovernmental activity and balances with OGAs to confirm that amounts reported
are accurate, complete, and agree with the other agencies' records. In addition,
financial transactions in several general ledger accounts are improperly included as
intragovernmental activity on the FY 2003 financial statements.
I (U//F U ) Because the FY 2003 financial statements had not been finalized before audit fieldwork ended in
January 2004, we based our analysis and conclusions on a draft of the financial statements that was provided to
us in December 2003 by Accounting Operations officials.
2 (U) The terms "transactions with OGAs" and "intragovernmental activity" are used interchangeably throughout
this report.
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(UNFOU0) The Agency is generally in compliance with laws and regulations that
have a material impact on the financial statement presentation of intragovernmental
transactions. However, the Agency is not in compliance with the reporting
requirements issued by the Office of Management and Budget (OMB). The Agency's
intragovernmental activity is not properly segregated or readily identifiable on the
Statement of Net Cost on the FY 2003 financial statements as required by
OMB Bulletin No. 01-09. In addition, the FY 2003 financial statements contain
inaccuracies in the notes and are missing other required disclosures.
(U) BACKGROUND
(U) The Economy Act
(U) The Economy Act, 31 U.S.C. � 1535, is the primary source of statutory
authority for transfers between the appropriations of individual Federal Government
agencies. Under the Economy Act, a Federal agency may place orders with any other
Federal agency for goods and services if it is determined by the head of the ordering
agency to be in the best interest of the Federal Government. The statute was intended
to enable an agency to benefit from another agency's ability to provide services at less
cost or more conveniently than the ordering agency could provide for itself. In order
to avoid illegally supplementing the appropriations of either the agency providing or
receiving the goods and services, the Economy Act requires an agency to recover the
actual cost of the goods and services provided to another agency.
(U) The Agency's Process for
Administering Transactions With
Other Government Agencies
(UHFOU0) The Agency frequently requests that OGAs provide goods and services
under provisions of the Economy Act in order for the Agency to complete its mission.
Likewise, the Agency assists OGAs by acquiring or providing goods and services on
their behalf. Office' of Finance
processes these transactions with OGAs, regardless of whether the Agency is receiving
or providing the goods and services.
-(-S-)- When the Agency is requesting goods and services from another government
agency, an Agency component will submit a procurement requisition to
through the ;ystem, citing valid appropriated funding.3 The
request should provide, at a minimum, all relevant component information
and a complete description of the goods and services to be obtained. The component
will also appoint a certified Agency Contracting Officer's Technical Representative to
manage the requirement. The request is forwarded to the
within in order to initiate correspondence with the other
3 4C-i-
functiona
is the Agency's acquisition and logistics support system. Provides automated
ity for requesting, purchasing, receiving, and paying for goods and services needed by the Agency.
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Agency for payment as the work is performed, and
payment of invoices received by the Agency. During FY 2003,
reported that the Agency processed payments to OGAs totaling
sEeRET*2029061-8-
government agency. A letter request is generated by to support the terms of the
agreement between the agencies. The other government agency typically bills the
ensures the
4
-(43")- When the Agency is providing goods and services to another government
agency, serves as the focal point for receiving the incoming
requests. For reimbursable transactions less than $1,000, the Agency will bill the
other government agency for payment after the goods and services are provided.5
The Agency typically requires payment in advance from the other government agency
for transactions greater than $1,000. tracks the funds received
from the other government agency and allocates the transferred funds to the Agency
component responsible for performance. In many cases, the component will apply the
funds received from the other government agency to an Agency contract with an
outside vendor in order to supply the goods and services requested. The component is
responsible for monitoring the status of funds received from the other government
agency so that any unused funds can becc!jy to the other
government agency. Durin FY 2003, reported that the Agency
processed nearly n payments received from OGAs.6
(b)(1)
(b)(3)
(UHFOU0) Office of Finance
is responsible for ensuring that transactions with OGAs are properly reported on the
financial statements, with the appro riate disclosures. During FY 2004, transactions
with OGAs have been recorded in
management system. In most cases,
general ledger accounts in the Agency's financial
s assigned either primary
or secondary responsibility for monitoring the activity that is recorded in these general
ledger accounts.
4+S} The includes amounts paid by the Agency to OGAs for goods and services in support of
Agency operations. It also reflects payments made by the Agency to OGAs on behalf of Federal entities, like
the and the National Reconnaissance Office (NRO), which use
the Agency's financial management system to process some of their financial transactions.
5 (U//F U ) The majority of these transactions involve the salaries and benefits of Agency employees who are
. assigned to OGAs under separate, reimbursable agreements to perform specific tasks on behalf of those OGAs.
6 (-St The includes amounts received from OGAs in exchange for goods and services provided by the
Agency. It also reflects payments received by the Agency from OGAs on behalf of Federal entities, like_______
and NRO, which use the Agency's financial management system to process some of their financial transactions.
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(U) Financial Statement Reporting
and Accounting Standards
(U) Claims of an agency against other Federal agencies are considered
intragovernmental assets; claims against an agency by other Federal agencies are
considered intragovernmental liabilities. OMB Bulletin No. 01-09, Form and Content
of Agency Financial Statements, requires that transactions with OGAs be presented as
intragovernmental activity and balances on an agency's financial statements.7 The
intent of this requirement is to segregate intragovernmental activity so that such
amounts may be eliminated from each Federal agency's financial statements when the
US Government-wide consolidated financial statements are prepared and the Federal
agencies report their financial activities as a single entity.
(U) To ensure consistency in reporting intragovernmental activity by Federal
agencies, OMB established a set of standard business rules with the issuance of
OMB Memorandum M-03-01, Business Rules for Intragovernmental Transactions,
dated 4 October 2002. These rules are intended to address material weaknesses in
internal controls and financial reporting processes�including issues related to the
reconciliation and elimination of intragovernmental activity and balances�that have
been identified by the General Accounting Office during its annual audit of the
US Government's consolidated financial statements. In addition, the Department of the
Treasury issued guidance�The Federal Intragovernmental Transactions Accounting
Policies Guide, dated 23 October 2002�that provides Federal agencies with
government-wide accounting policies related to transactions between Federal agencies,
tools to facilitate a reconciliation process, and examples of accounting and reporting for
various types of transactions. The guide further explains that each Federal agency is
responsible for:
� Establishing and maintaining an internal control structure for its
transactions with OGAs. This includes establishing procedures related
to the initiating, executing, recording, reconciling, and reporting of
transactions with OGAs.
� Documenting and supporting the information recorded in its accounting
records related to transactions with OGAs.
� Reconciling the data regarding transactions with OGAs in its accounting
records to the supporting documentation and corresponding records in
other agencies' accounts.
� Ensuring that the reconciliation and confirmed balances for transactions with
OGAs agree to amounts reported on agency audited financial statements.
� Representing that all balances related to transactions with OGAs have
been reconciled and that the agency's audited financial statements
conform to OMB Bulletin No. 01-09 for intragovernmental requirements.
7 (U) Intragovernmental activity does not include transactions with non-Federal entities.
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(U) Implementation of a New
Accounting Model for Recording
Transactions With Other Government
Agencies in FY 2004
(U//FOU0) During FY 2003, Finance officials completed an internal review of
the Agency's process for accounting for transactions with OGAs as part of the�
_ This review highlighted
deficiencies in the existing process. The accounting process that was used did not
meet the requirements of the US Standard General Ledger (USSGL) because some
USSGL budgetary accounts were either not used or were used incorrectly by the
Agency. In view of this, Finance officials developed a new accounting model for
processing transactions with OGAs that would bring the Agency into compliance with
the USSGL.
(UPF0+4444 The new accounting model requires alteration of the current general
ledger account names and various accounting processes as well as restatement of
accounting information already recorded in the financial management system.
A phased-in approach, beginning in FY 2004, is being used to implement the new
accounting model. Finance officials explained that this will provide the time necessary
to negotiate and establish bilateral Intragovernmental Payment and Collection (IPAC) 8
funding agreements with OGAs that will eliminate the time delays currently experienced
between acceptance of the order for goods and services and the subsequent receipt of the
funds. In addition, upgrades are being developed for the current financial management
system�expected to be operational in FY 2006�that will expand the capabilities of the
system and enable the Agency's process to become fully USSGL compliant.
(U) AUDIT RESULTS AND RECOMMENDATIONS
(U/Ifel:fre) Amounts Reported for the
Agency's Transactions With Other
Government Agencies Are Not Fairly
Presented on the FY 2003 Financial
Statements
(U/Ifekle) Transactions Are Not Reported
on an Accrual Accounting Basis
(U//FOU0) The Agency's transactions with OGAs are not reported on an accrual
accounting basis as required by generally accepted accounting principles.9 Therefore,
revenues and expenses are not recorded in the appropriate accounting period, and the
8 (U) The IPAC system was implemented by the Department of the Treasury as an internet web-based system
that is used by Federal agencies to process intragovernmental payments on an immediate basis.
9 (U) Generally accepted accounting principles require that transactions be recorded on an accrual accounting
basis so that revenues can be recognized in the period earned and can be matched with the expenses that were
incurred during that period to generate the revenues.
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financial statements do not include all of the Agency's activities with OGAs for
FY 2003. As a result, the amounts presented for the Agency's transactions with OGAs
are materially misstated on the financial statements as of 30 September 2003.
(U//F�04449) The Agency has not established policies or procedures to record
revenues and expenses related to transactions with OGAs on an accrual accounting
basis. In order to record revenues and expenses in the appropriate accounting period,
accrual accounting requires adjusting entries at the end of each period to record any
revenues that have been earned, but not recorded, and to record any expenses for which
the benefits from the expenditures have been received, even though cash payment is
made in another accounting period.
(S) To determine the significance of not recording transactions with OGAs on an
accrual basis, we estimated the accruals that should have been recorded for a judgmental
sample of 21 transactions that occurred in FY 2003.1� Based on our review of the
21 transactions:
� At least
pf expenses should have been recorded for FY 2003
as an accrual adjustment."
� Over of expenses recorded in FY 2003 should have been
recorded for either FY2002 or FY2004.
� At least of revenues should have been recorded for FY 2003
as an accrual adjustment.
(U//FOU0) Calculating an accurate accrual amount for the Agency's
intragovernmental transactions will be complicated. For example, the methodology for
determining the amount to accrue must consider all means of payment. Transactions
related to intragovernmental activity are not always paid through 12
Payments can also be made via the IPAC system or with a payment voucher, so an
accrual amount based only on transactions processed through would not be
complete. In addition, all intragovernmental-related activity processed through
10 (um- u ) We originally selected a judgmental sample of 47 transactions, but we did not estimate accruals for
26 of those transactions for several reasons. We were unable to estimate the accruals for 14 of the 26 transactions
that involved the funding of multiple contracts because sufficient records were not maintained to correlate the
funds received from the other government agency with the funds dispersed to individual contracts. In addition,
10 of the 26 transactions belonged to NGA or NRO. These transactions are not considered Agency activity and
should not be reported on the Agency's financial statements. Accruals for two of the 26 transactions could not be
estimated because the data could not be compiled by the program manager in a reasonable time frame.
I I (U//F134444
I 2 Finance officials stated that a accrual for all contractual expenses (including some
intragovernmental transactions) was recorded for FY 2003 based on data contained , but this
adjustment did not segregate the accrual pertaining specifically to intragovernmental.transactions. Based on
the results of our testing, the accrual adjustment appears to be too conservative, as it purportedly
represents all of the Agency's contractual expenses.
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may not be recorded in the system at yearend�either due to time delays in
recording invoices received but not yet processed or because invoices have not been
received.
(U//pm") Financial Activities
of Other Entities Are Included
Inappropriately on the Agency's
Financial Statements
(U//FOU0) The Agency's financial statements include the financial activities of
other entities�such as the CMS, the NGA, the NRO, and the DCI's Center for Security
Evaluation�that are not organizationally part of the Agency.I4 The financial activities
of these other entities either: (1) should not be reported on the Agency's financial
statements, or (2) should be consolidated with the Agency's financial activities and the
statements no longer presented as only the Agency's financial statements. Because the
financial activities of these other entities are merged with Agency financial activity�
and not consolidated�transactions between the Agency and these other entities are
not properly reported on the financial statements. Consequently, transactions between
the Agency and these other entities are reflected twice on the financial statements,
overstating certain financial statement line items.
(U//FOU0) The financial activities of these other entities are recorded in the
Agency's financial management system for administrative convenience. Although
Finance officials are developing an implementation plan to properly segregate
non-Agency funds, we were told that the current system configuration makes it difficult
13 (U) In its Federal Intragovernmental Transactions Accounting Policies Guide, the Department of the Treasury
explains that agencies should work together to calculate and estimate accruals and to record corresponding entries
in each set of accounting records so that they are in agreement and/or long-term accounting policy differences can
be easily identified.
14 (U//FOU0)
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to extract the transactions of these other entities from the system with any accuracy.15
For example, during FY 2003, officials were able to manually
extract certain financial activities of the NGA and the NRO from the financial
statements, but the related assets (cash) and liabilities (advance) transactions are still
reflected on the Balance Sheet. The financial activities of other entities, like CMS,
continue to be reported entirely as part of the Agency's financial statements.
While there are inherent challenges involved in segregating the financial
information of other entities in the Agency's financial system, certain financial
statement line items could be materially affected by reporting transactions of other
entities on the Agency's financial statements and by not eliminating transactions
between these other entities and the Agency. For example, in our sample, we
identified two transactions totaling nearly that involved CMS funding
to the within the Directorate of Science and
Technology. CMS recorded the total amount of funding as an expense when the
funds were passed to the Agency. In addition, the Agency has recorded expenses
as the funds are used. No adjusting entries were recorded to eliminate this
intra-reporting entity activity. As a result, these expenses are reflected twice on
the financial statements.
(U//f13171-09)- Agency management must determine whether the Agency's financial
statements will continue to reflect the financial activities of these other entities or
whether a means to accurately extract their financial activities will be developed.
Other entities, like the newly created Terrorist Threat Integration Center, present
unique situations that must be considered because administrative responsibilities for
these entities are shared with OGAs. Once a decision is made, however, the Agency's
must provide appropriate and full disclosures
about the nature of the reporting entity and follow standard reporting requirements to
properly and accurately present the financial and program performance of the complete
entity transactions.16
IS (U/.Q3 As noted in our prior audit report, Form and Content of the Agency's Fiscal Year 2001 Financial
Statements, dated 27 March 2002, Finance officials indicated at that time that it would take several years to create
new transactions codes, re-code existing reports, retrain users, and modify interface systems in order to extract
the financial activities of CMS and other entities from the Agency's financial management system.
16 (Li) Statement of Federal Financial Accounting Concepts No. 2, Entity and Display, explains that in reporting
the transactions and balances of a Federal reporting entity in its entirety, it is conceptually desirable, although not
always practicable, to eliminate the intra-entity transactions and balances. Factors to consider are the utility of
the information if the intra-entity balances are not eliminated, the misunderstanding that might result if balances
are not eliminated, and the cost-benefit of making the eliminations. However, the financial statements must
disclose all information that is necessary to inform users adequately about the reporting entity.
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(tm/Feue)l
(11//fG140) Reconciliations With
Other Government Agencies Are
Not Being Conducted
(UHF0U0) The Agency is not conducting reconciliations of its activity and
balances with the OGAs that are the Agency's trading partners." OMB specifies that
agencies should reconcile and confirm balances with their trading partners in accordance
with requirements in OMB Bulletin No. 01-09. These reconciliations confirm that
activities and balances reported in the intragovernmental accounts are accurate,
complete, and agree in amount to the trading partner's accounts." In addition,
agencies should investigate and correct any discrepancies identified between their
intragovernmental account balances and the reciprocal account balances of their trading
partners before preparation of the agencies' financial statements. According to
OMB Memorandum M-03-01, this process should be conducted quarterly.
17 (U) Trading partners are identified as Federal Government agencies, departments, or other components that do
business with each other.
18 (U) In its report, Financial Audit: Process for Preparing the Consolidated Financial Statements of the
U.S. Government Needs Improvement (GAO-04-45), dated 30 October 2003, the GAO reported that Federal
agencies were unable to fully reconcile intragovernmental activity and balances for FY 2002. A substantial
number of agencies did not fully perform the required reconciliations, citing reasons such as (1) failure of trading
partners to provide needed data, (2) limitations and incompatibility of agency and trading partner systems, and
(3) human resource issues. It was noted that, without improvement in this area, the Department of the Treasury
cannot properly eliminate intragovernmental activity and balances from the government-wide consolidated
financial statements. As a result, assets, liabilities, revenues, and costs reported on the US Government financial
statements may not be fairly stated.
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(UHFOU0) The integrity of the data reported in the Agency's financial records is
dependent on timely and accurate reconciliations of intragovernmental activity and the
resulting account balances. OMB Bulletin No. 01-02, Audit Requirements for Federal
Financial Statements, dated 16 October 2000, specifies that an agency must make
statements within its Management Representation Letter to confirm that a reconciliation
process is in place.19 Until an effective reconciliation process is implemented by the
Agency, Agency officials will be unable to make the required statements.
(UPPE11:10). Transactions in
Certain General Ledger Accounts
Are Improperly Reported as
Intragovernmental on the FY 2003
Financial Statements
(U/S,44140)- Financial transactions in several general ledger accounts are reported
improperly as part of the intragovernmental line items on the FY 2003 financial
statements. The intragovernmental line items should only include transactions with
other Federal Government agencies. However, officials
explained that they do not always have sufficient time to manually review the activity in
each general ledger account before compiling the financial statements. In some cases,
assumptions are made incorrectly about the activity in the accounts based solely on the
account titles. As a result, certain intragovernmental line items on the financial
statements include activity that is unrelated to transactions with OGAs.
(S)
In addition, the following issues were identified for several general ledger accounts that
are reported as part of the intragovernmental line items on the financial statements.
19 (U) The Management Representation Letter accompanies an agency's financial statements and is signed by
the agency head and the chief financial officer. In this letter, an agency's management typically acknowledges its
responsibility for the agency's financial statements and its belief that the financial statements are presented in
conformity with generally accepted accounting principles.
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(b)(1 )
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
� Allowance for Loss on Accounts Receivable (general ledger
account 1319). This account represents a contra asset account and
relates to amounts due from employees, rather than OGAs. The
balance of the account erroneously offsets the financial statement line
item, Intragovernmental � Accounts Receivable. As a result, this
intragovernmental line item is understated by for FY 2003.
� Prepayments (general ledger account 1450). The balance in this account
at 30 September 2003 was . Of this amount,
represents a yearend adjustment recorded by
to reclassify the debit balance of Agency imprest fund credit card
accountings from a liability account to an asset account for financial
reporting purposes. The entire balance of this general ledger account
is carried forward to the Intragovernmental � Other line ,item on the
financial statements, even though it does not relate exclusively to
intragovernmental activity. As a result, the line item is overstated by
(b)(3)
(b)(1)
� Accounts Payable� Other (general ledger account 2112). This (b)(3)
account is reported as part of the Intragovernmental � Accounts
Payable line item on the financial statements. The balance of this
account at 30 September 2003 was The account is used (b)(1)
primarily to record expense accruals for the Working Capital Fund (b)(3)
businesses for items such as building leases, utility payments,
furniture costs, etc. Although we noted accruals for lease and utility
payments to the General Services Administration, the account
balance does not exclusively represent transactions with other Federal
agencies. As a result, the Intragovernmental � Accounts Payable line
item is overstated.
� Advances from Others (general ledger account 2310). The balance in
this account was at 30 September 2003.20 The entire
balance is reported as part of the Intragovernmental � Liabilities line
item on the financial statements. We could not complete a review of this
account due to the magnitude of the transactions recorded in this account.
20 (S) Of the balance for this account at yearend, a summary report shows that over half of the
balance is related to the funds of other entities that record their financial transactions in the Agency's financial
management system� is related to CMS funds, and
(b)(1 ) th \ (-4 \
is related to NRO tunds. However, it is unclear whether the transactions of these other entities \to \
represent business with the Agency or administrative use of the Agency's financial management system, whil.u. )k`-')
directly affects whether these transactions should be reported as intragovernmental activity. (b)(1 )
(b)(1)
(b)(3)
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(b)(3)
(b)(3)
(b)(3)
Based on a limited review, however, we noted transactions that are
longstanding and appear to be unrelated to intragovernmental
activity
, etc.
responsibility for reviewing this account, and
has secondary responsibility.
is assigned primary
officials explained
that they review only transactions that are recorded by their office to
this account. At the time of our audit, no one within
had been assigned responsibility for monitoring activity
recorded in this account. In addition, the capability to print reports
showing the details of the account has been turned off by
due to the size of the report produced. Because internal
controls are not in place to ensure that all activity in this account is
sufficiently monitored and analyzed, we have no assurances that the
entire balance of that is reflected as intragovernmental
activity on the financial statements is proper.
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(b)(3)
(b)(5)
(b)(3)
(b)(3)
(b)(3)
(b)(1)
(b)(3)
(b)(3)
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(UHFOlde) The Agency Is Not in Compliance
With Office of Management and Budget
Requirements for Financial Statement
Presentation of Intragovernmental Activity
(11//0:40) Transactions With Other
Government Agencies Are Not Properly
Segregated on the Statement of Net Cost
(U//FOU0) Intragovernmental activity is not properly segregated or readily
identifiable on the Statement of Net Cost as specified by OMB Bulletin No. 01-09.
In some cases, amounts presented as transactions with OGAs are inaccurate. As a result,
the Statement of Net Cost does not appropriately reflect the Agency's transactions with
OGAs and may be misleading for financial statement users.
(U) According to OMB Bulletin No. 01-09, the Statement of Net Cost should
show the net cost of operations for the reporting entity as a whole and for its
programs. For each program, the net cost for intragovernmental activity must be
reported separately from the other costs identified for that program. The net cost
related to intragovernmental activity consists of gross costs less any related exchange
revenues. Exchange revenues are amounts earned by an agency for providing goods
and services on behalf of OGAs. For illustrative purposes, OMB provides the
following format.
(U) Consolidated Statement of Net Cost
For the years ended September 30, 20x2 and 20x1
Program Costs: 20x2 20x1
Program A:
1. Intragovernmental gross costs $ xxx $ xxx
2. Less: Intragovemmental earned revenue - xxx - XXX
3. Intragovernmental net costs $ xxx $ xxx
4. Gross costs with the public $ xxx $ xxx
5. Less: Earned revenues from the public - xxx - xxx
6. Net costs with the public $ xxx $ xxx
7. Total net cost $x,xxx $x,xxx
(U//FOU0) The programs shown on the Agency's Statement of Net Cost are the
Agency's expenditure centers; intragovernmental costs and revenues associated with
each expenditure center are not separately reported for FY 2003 Exhibit B). For
example, we identified intragovernmental costs totalin (for eight
transactions related to three different expenditure centers) that are intermingled with
the other costs of the expenditure centers and not separately identified.
officials explained that intragovernmental activity could not be accurately
extracted from other financial activity for FY 2003. As a result, full reporting of
intragovernmental activities supporting the Agency's programs could not be achieved
as intended by Federal financial accounting standards.
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(UNFOU0) In another example, a separate expenditure center named "Other
Government Agencies" that may appear to a financial statement reader to report
intragovernmental activity is included on the Statement of Net Cost. This line item
shows a net cost of for FY2003. However, further review showed that
transactions included in this line item are assigned to a "blank" expenditure center in
the Agency's financial management system, and it is unclear to which expenditure
centers the costs actually belong. As a result, amounts presented for this "Other
Government Agencies" line item are misleading.
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(U/tFeEle) Disclosures in the FY 2003
Financial Statements Are Not Accurate
or Complete
(UHF0U0) The FY 2003 financial statements contain inaccuracies in the notes
and are missing other required disclosures. Information presented on the financial
statements should be both me aningful and accurate. Agencies are required by
OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements, dated
25 September 2001, to disclose more detailed information in the notes to the financial
statements or as required supplementary information (RSI) in order to properly
convey and explain the summary information that is presented on the financial
statements. Users of the financial statements cannot fully comprehend the meaning of
financial information provided about the Agency's intragovernmental activity and
balances without complete and accurate disclosures.
(UHFOU0) The notes to the Agency's financial statements contain errors and
inaccuracies. For example, note 5 erroneously discusses the allowance for bad debts
as related to the Agency's transactions with OGAs. In actuality, this allowance
account relates exclusively to the bad debts associated with amounts due from
employees. In another example, note 1.0 explains that accruals were recorded for the
Agency's contractual expenses. However, this note does not explain that accruals
related to the Agency's intragovernmental activity are not recorded on the FY 2003
financial statements.
(UHFOU0) The financial statements are also missing the following required
disclosures related to intragovernmental activity:
� Intragovernmental gross costs and earned revenues are not disclosed
in the notes by budget functional classification. According to
Section 9.25 of OMB Bulletin No. 01-09, Gross Cost and Earned
Revenue by Budget Functional Classification, agencies reporting
intragovernmental earned revenues should also report�by budget
functional classification�the gross cost of goods, services, and other
transactions that generated the intragovernmental earned revenue.
� The Agency's trading partners are not identified as part of the RSI
reporting. Section 11.3 of OMB Bulletin No. 01-09, Required
Supplementary Infirmation for Intragovernmental Earned Revenues
and Related Costs, requires that agencies with total intragovernmental
earned revenues from trade greater than $500 million shall report such
revenues by trading partners.
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(U) Other Matters
(UNFee-elt We reviewed the new accounting model for recording transactions with
OGAs that is being implemented by Finance officials in FY 2004 in order to improve
the Agency's compliance with the Department of the Treasury guidelines. Based on our
testing, the new procedures for processing and recording intragovernmental activity in
FY 2004 are generally in compliance with the US Standard General Ledger.
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� Memorandum accounts have been established to track amounts billed
from OGAs. However, these memorandum accounts contain some
longstanding and mismatched amounts that require further research to
clear.
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Exhibit A
(U) Objectives, Scope, and Methodology
(U) The objectives of our audit were to determine whether the financial statements
of the CIA fairly present the amounts associated with goods and services ordered from
and provided to other government agencies (OGAs), in accordance with generally
accepted accounting principles; whether internal controls related to recording goods and
services ordered from and provided to OGAs are adequate to detect or prevent errors or
misstatements that have a material effect on the financial statements; and, whether the
Agency complies with laws and regulations that have an effect on the financial
statement presentation for transactions involving OGAs.
(UHFOU0) In conducting the audit, we:
� Reviewed the presentation of line items on the FY 2003 Balance Sheet,
Statement of Net Cost, and note disclosures (Exhibit B) associated with
the Agency's transactions with OGAs.'
� Reviewed the supplemental information accompanying the financial
statements, including the Management Discussion and Analysis.
� Examined documentation prepared by the Office of Finance to support
the amounts presented in the FY 2003 Balance Sheet, Statement of
Net Cost, and related note disclosures?
� Discussed with personnel from Finance, (b)(3)
and Agency components the process for initiating, (b)(3)
recording, and monitoring transactions with OGAs.
� Selected a judgmental sample of 47 transactions to test the procedures
for handling intragovernmental transactions. Twenty-six of these
transactions were selected from the "OGA Log" maintained by
to track funds received by the Agency from OGAs.
I (um- u ) Because the FY 2003 financial statements had not been finalized before audit fieldwork ended in
January 2004, we based otir analysis and conclusions on a draft of the financial statements that was provided to
us in December 2003 by officials.
2 (U) There are no requirements for separately disclosing transactions with OGAs on the Statement of Financing,
Statement of Budgetary Resources, and Statement of Changes in Net Position. Therefore, we did not conduct an
in-depth analysis of these statements during this audit.
This Exhibit is
UNCLASSIFIED/If-4944A-
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Twenty-one of these transactions were selected from a database
maintained by the Interdepartmental Contracts Team within
to track funds provided to other agencies. Our sample was
designed to ensure that we reviewed transactions with various
government agencies.
� Contacted responsible officials in Agency offices and OGAs to
determine the percentage of work completed on certain programs in
order to ensure that expenses and revenues were reflected in the
proper time period.
� Inquired about the processes for ensuring that accurate balances are
recorded in the Agency's general ledger accounts and reconciled with
OGAs.
� Reviewed activity in the following general ledger accounts, which are
reported as intragovernmental activity on the financial statements to
verify that the transactions were properly recorded during FY 2003:
General Ledger
Account Number Account Name
Accounts Receivable - Unbilled
Accounts Receivable - Billed
Accounts Receivable - Estimated OGA Receipts
Allowance For Loss On Accounts Receivable
Advances to Other US Government Agencies
Prepayments
Receivable from Appropriation
Accounts Payable - Other
Advances From Others
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� Reviewed the Economy Act in order to determine the statutory
requirements associated with the transfer of goods and services
between government agencies.
� Reviewed the applicable Statements of Federal Financial Accounting
Standards and Office of Management and Budget bulletins in order to
identify the Federal requirements for financial statement presentation
and internal controls related to transactions with OGAs.
� Reviewed relevant reports and guidelines issued by the General
Accounting Office, Department of the Treasury, and other Federal
agencies.
� Reviewed our prior audit report, Form and Content of Agency's
Fiscal Year 2001 Financial Statements, dated 27 March 2002, and
other audit reports to identify key issues and concerns that have been
previously reported related to the Agency's transactions with OGAs.
� Reviewed documentation regarding a new accounting model for
recording transactions with OGAs that was developed by Finance
officials in FY2003 to address deficiencies identified in the existing
process.
� Compared the new accounting model to the requirements outlined in
the US Standard General Ledger.
� Tested a judgmental sample of 12 of 87 transactions that were
recorded in early FY 2004 using the new accounting model to ensure
that these transactions were recorded accurately and in compliance
with applicable guidelines.
(U) We conducted our audit work at Agency facilities within the Washington, D.C.
area from September 2003 to January 2004. Our audit was performed in accordance
with generally accepted government auditing standards. Comments on a draft of this
report were received from the Director of Finance and were considered in the
preparation of this report.
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Financial Statements Were
Provided by the Office of Finance
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Central Intelligence Agency
Notes to Financial Statements
September 30, 2003
Note 1. Summary of Significant Accounting Policies
A. Basis of Presentation
These financial statements have been prepared to report the assets, liabilities, net cost of operations, changes in
net position, budgetary resources, and financing of the Central Intelligence Agency, hereinafter referred to as
either CIA or the Agency. These statements have been prepared from the books and records of the CIA.
The CIA has prepared these statements using the CFO Act and the OMB Bulletins as guidelines. Further,
the Agency recognizes the Statements of Federal Financial Accounting Standards (SFFAS) provided by the
Federal Accounting Standards Advisory Board (FASAB) as Generally Accepted Accounting Principles (GAAP)
and therefore, where possible, has instituted their guidance.
The formats and instructions included in the OMB Bulletins provide a framework within which individual
agencies have some flexibility in the presentation of information. The Agency reviewed the intent of the
standards provided and applied this intent consistently throughout the preparation of the financial statements.
To present the Agency!s financial statements in accordance with the suggested formats,
produced a crosswalk from the Agency's general ledger to the US standard general ledger (SGL). This permitted
the Agency to translate its GL-based trial balance data into financial statements using the US SGL structure.
B. Reporting Entities
The accompanying financial statements reflect the financial activities of the CIA as well as the activities related
to Other Government Agencies (OGA), Community Management Staff (CMS), Center for Security Evaluation
(CSE), Central Intelligence Agency Central Services Working Capital Fund (WCF), and Central Intelligence
Agency Retirement and Disability System (CIARDS). The Agency's current accounting system does not
properly segregate non-agency funds. The Agency is currently working toward an implementation plan to
properly segregate non-Agency funds from OGA funds. In an effort to more accurately reflect only Agency
related funds on the financial statements for FY03, the financial activities of
and National Reconnaissance Office (NRO), with the exception of the related assets (cash)
and liabilities (advance) transactions, were not included as a CIA reporting entity.
C. Basis of Accounting
The financial statements were prepared to report assets, liabilities, net cost of operations, changes in net position,
budgetary resources, and financing at the CIA. The financial statements reflect both accrual and budgetary
accounting transactions. The Agency's Working Capital Fund activity records all transactions on an accrual
basis and the Agency has continued their effort to report on an accrual basis, this year accruing contractual
expenses and pay and benefits. Therefore, the statements do reflect the Agency's continued efforts to report on
an accrual basis. Under the accrual method of accounting, revenues are recognized when earned and expenses
are recognized when incurred, without regard to the receipt or payment of cash. Budgetary accounting is
designed to recognize the obligation of funds according to legal requirements, which in many cases is made prior
to the occurrence of an accrual-based transaction. Budgetary accounting is essential for compliance with legal
constraints and control over the use of Federal funds.
I On 24 November 2003, NIMA was officially renamed the National Geospatial-Intelligence Agency.
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Liabilities (continued)
Intragovernmental Accounts Payable covered by budgetary resources represents advances from other
government agencies, foreign governments and WCF related accounts payable transactions. Other
intragovernmental liabilities include due payable to the thrift savings plan and of
WCF related unearned revenues.
(b)(1)
Included in Contractor payments is of accrued liability relating to unpaid vendor invoices, (b)(3)
(b)(1) the remaining represents the Agency's liability for funds withheld from commercial contracts
(b)(3) pending satisfaction of the withholding provisions of the contracts. (b)(1)
(b)(3)
The Central Intelligence Agency has no authority to liquidate a liability unless budgetary resources have been
made specifically available to do so. Since no budgetary resources have been made available to liquidate the
CIARDS pension liability, it is classified as being "not covered by budgetary resources." Per SFFAS No. 5,
the CIARDS pension liability is considered to be an intragovernmental liability.
Note 12. Statement of Net Cost
The Statement of Net Cost is designed to display the net cost of the reporting entity's operations, by program,
for the period. The Statement of Net Cost includes gross costs incurred by the CIA, the CIA's Working Capital
Fund, the CIARDS retirement fund, and the Community Management Staff, which is an administrative entity of
the CIA. Earned revenue consists of exchange revenue received by the CIA for performing services on behalf
of other government agencies utilizing reimbursable authority from OMB. For the CIARDS Program, earned
revenue also includes employer and employee contributions, as well as interest income generated by investments
in US Treasury securities. Currently, the Statement of Net Cost is not fully compliant with Federal accounting
and reporting standards, for example, not all Agency costs are allocated to the core mission programs and the
accounting model for earned revenue is not SGL-compliant. As part of the
, the Statement of Net Cost is undergoing a review to improve its accuracy and compliance.
Note 14. Statement of Budgetary Resources
The Statement of Budgetary Resources provides information about how budgetary resources were made
available as well as their status at the end of the period. This statement includes all activity, CIA and CMS, that
is recorded in the Agency's budgetary accounting records. In addition, due to the co-mingling of entity and
non-entity information, it is not possible for the Agency to separate direct obligations incurred vice reimbursable
obligations incurred. The Agency's reimbursable and OGA accounting models used in FY2003 are not
consistent with US Treasury guidelines for reimbursable activity. However, the Agency did implement new
accounting models at the beginning of FY2004 that are consistent with US Treasury guidelines.
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(b)(1)
(b)(3)
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This Exhibit is
UNCLASSIFIEDHPOttet
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Exhibit D
(U) Audit Team Members
(U/ ) This report was prepared by the Financial Management Division,
Audit Staff, Office of the Inspector General.
This Exhibit is
UNCLASSIFIED/iFe4:10-
When Separated From Report
4EGRE-T1120290540-
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