Federal Bureau of Investigation Annual Financial Statement
Fiscal Year 2005

Audit Report 06-06
January 2006
Office of the Inspector General

Commentary and Summary

This audit report contains the Annual Financial Statement of the Federal Bureau of Investigation (FBI) for the fiscal years (FY) ended September 30, 2005, and September 30, 2004. Under the direction of the Office of the Inspector General (OIG), KPMG LLP (KPMG) performed the FBI audit. The audit resulted in an unqualified opinion on the FY 2005 financial statements. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and the results of the entity’s operations. For FY 2004, the FBI also received an unqualified opinion on its financial statements (OIG Report No. 05-08).

The Independent Auditors’ Report on Internal Control over Financial Reporting identified two material weaknesses and one reportable condition. One material weakness continued in the internal controls over the FBI’s financial reporting, a long standing concern that has been reported since FY 2001. The other material weakness, related to information systems controls, was reported as a reportable condition in FY 2004 but as a material weakness from FY 1998 through FY 2003. The reportable condition regarding property and equipment indicates improvement in this area, as it was previously a material weakness that had persisted since FY 1999.

As a result of these weaknesses, timely and accurate information is not available to management throughout the year, and the auditors were required to perform additional substantive testing in order to ensure the balances were materially correct at year end. This significantly increased the risk that the FBI would not meet the financial statement reporting deadline. Although the FBI was able to meet the challenge by performing extensive labor intensive manual reviews of its records and made the necessary adjustments, this may not be possible in future years.

In their Report on Compliance and Other Matters, the auditors concluded that the FBI’s financial management systems did not substantially comply with federal financial management system requirements, applicable federal accounting standards, and use of the United States Standard General Ledger at the transaction level as required by the Federal Financial Management Improvement Act of 1996 (FFMIA). This noncompliance with FFMIA has been reported since FY 1997.

The OIG reviewed KPMG’s report and related documentation and made necessary inquiries of its representatives. 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 FBI’s financial statements, conclusions about the effectiveness of internal control, conclusions on whether the FBI’s financial management systems substantially complied with FFMIA, or conclusions on compliance with laws and regulations. KPMG is responsible for the attached auditors’ report dated October 24, 2005, and the conclusions expressed in the report. However, our review disclosed no instances where KPMG did not comply, in all material respects, with generally accepted government auditing standards.