FINANCIAL MANAGEMENT: Management Letter for the Audit of the Exchange Stabilization Fund’s Financial Statements for Fiscal Years 2023 and 2022
Summary
Department of the Treasury Office of Inspector General Audit Report OIG-24-017, Management Letter for the Audit of the Exchange Stabilization Fund's Financial Statements for Fiscal Years 2023 and 2022, dated December 19, 2023. A memorandum from Pauletta Battle, Deputy Assistant Inspector General for Financial Management and Transparency Audits, to the Under Secretary for International Affairs transmits the management letter that KPMG LLP (KPMG), the contracted independent public accounting firm, issued during its audit. The letter discusses a deficiency in internal control over financial reporting identified during the audit, involving ineffective procedures over the budget and accrual reconciliation. The memorandum states that KPMG is responsible for the letter and its conclusions.
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Audit Report
OIG-24-017
FINANCIAL MANAGEMENT
Management Letter for the Audit of the Exchange
Stabilization Fund’s Financial Statements for Fiscal Years
2023 and 2022
December 19, 2023
Office of Inspector General
Department of the Treasury
This Page Intentionally Left Blank
DEPART MENT OF THE TREASURY
W AS H I N GT ON, D.C. 2 0220
December 19, 2023
OFFICE OF
INS PECT OR G EN ER AL
MEMORANDUM FOR JAY SHAMBAUGH
UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
FROM: Pauletta Battle /s/
Deputy Assistant Inspector General for Financial
Management and Transparency Audits
SUBJECT: Management Letter for the Audit of the Exchange
Stabilization Fund’s Financial Statements for Fiscal Years
2023 and 2022
We hereby transmit the attached subject report. Under a contract monitored by our
office, KPMG LLP (KPMG), a certified independent public accounting firm, audited
the financial statements of the Exchange Stabilization Fund (ESF) as of
September 30, 2023 and 2022, and for the years then ended. The contract
required that the audit be performed in accordance with U.S. generally accepted
government auditing standards, Office of Management and Budget Bulletin
No. 24-01, Audit Requirements for Federal Financial Statements, and the
Government Accountability Office/Council of the Inspectors General on Integrity
and Efficiency, Financial Audit Manual.
As part of its audit, KPMG issued the attached management letter dated
December 19, 2023, that discusses a matter involving a deficiency in internal
control over financial reporting that was identified during the audit. The matter
involved ineffective procedures over the budget and accrual reconciliation.
In connection with the contract, we reviewed KPMG’s management letter and
related documentation and inquired of its representatives. KPMG is responsible for
the letter and the conclusions expressed in the letter. However, our review
disclosed no instances where KPMG did not comply, in all material respects, with
U.S. generally accepted government auditing standards.
If you wish to discuss this report, please contact me at (202) 597-1819, or a
member of your staff may contact Ade Bankole, Director, Financial Statement
Audits, at (202) 927-5329.
Attachment
KPMG LLP
Suite 12000
1801 K Street, NW
Washington, DC 20006
December 19, 2023
Mr. Richard K. Delmar
Deputy Inspector General
Department of the Treasury
875 15th Street, N.W.
Washington, DC 20005
Mr. Jay Shambaugh
Under Secretary for International Affairs
Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220
In planning and performing our audit of the financial statements of the Department of the Treasury Exchange
Stabilization Fund (ESF) as of and for the year September 30, 2023, in accordance with auditing standards
generally accepted in the United States of America and the standards applicable to financial audits contained in
Government Auditing Standards issued by the Comptroller General of the United States, and Office of
Management and Budget (OMB) Bulletin No. 24-01, Audit Requirements for Federal Financial Statements, we
considered the ESF’s internal control over financial reporting (internal control) as a basis for designing audit
procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the ESF’s internal control.
Accordingly, we do not express an opinion on the effectiveness of the ESF’s internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was
not designed to identify all deficiencies in internal control that might be material weaknesses and/or significant
deficiencies and therefore, material weaknesses and/or significant deficiencies may exist that were not
identified. In accordance with Government Auditing Standards, we issued our report dated December 19, 2023,
on our consideration of the ESF’s internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. During our audit, we identified a deficiency in internal control which is
described in Appendix A.
ESF’s written response to the deficiency identified in our audit is outlined in Appendix A. Management’s
response has not been subjected to the auditing procedures applied in the audit of the ESF financial
statements, and accordingly, we express no opinion on it.
This purpose of this letter is solely to describe the deficiency in internal control identified during our audit.
Accordingly, this letter is not suitable for any other purpose.
Very truly yours,
KPMG LLP, a Delaware limited liability partnership and a member firm of
the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee.
Appendix A
THE EXCHANGE STABILIZATION FUND
Management Letter
Ineffective Procedures over the Budget and Accrual Reconciliation (BAR)
ESF management did not properly present intra-governmental and other than intra-governmental activity in
accordance with Statements of Federal Financial Accounting Standards and OMB Circular A-136. Specifically,
ESF management did not initially present interest income and interest expense activity related to the Treasury
Bureau of Fiscal Service as intra-governmental transactions. This resulted in the misclassification of costs
(income) for the Intra-Governmental and Other Than Intra-Governmental activities within the BAR disclosure.
ESF management did not have effective policies and procedures in place to review the classification of intra-
governmental and other than intra-governmental costs (income) when preparing the BAR disclosure.
Specifically, when determining if activity was intra-governmental or other than intra-governmental, management
leveraged a schedule from the Treasury Information Executive Repository Financial System (TFS) which
eliminates intra-Treasury activity. Treasury uses TFS system for consolidated group reporting. However, for
purposes of the ESF standalone report, these costs (income) should be included and considered as intra-
governmental activity.
Without properly documented policies and procedures, ESF management may not prevent and detect errors in
the reporting classification of intra-governmental and other than intra-governmental activities within the financial
statements and related note disclosures. For FY 2023, the ineffective procedures resulted in a known
misstatement of approximately $624 million between the Intra-Governmental and Other Than Intra-
Governmental columns on the BAR disclosure for the caption Total Net Cost (Income) of ESF Operations. The
total column was still correct for the caption Total Net Cost (Income) of ESF Operations.
Recommendation
We recommend that ESF management document policies and procedures, such as updating the financial
statement disclosure checklists, in order to review the classification of intra-governmental and other than intra-
governmental activities in the financial statements and BAR disclosure.
Management Response
Management concurred with this finding and recommendation. ESF management will document policies and
procedures in order to review the classification of intra-governmental and other than intra-governmental
activities in the BAR disclosure. ESF management has already taken action to correct the issue and will utilize
the correct information within the TFS report. Further, management is looking into establishing an additional tie-
point to validate the information throughout the ESF Financial Statements and Notes.
REPORT WASTE, FRAUD, AND ABUSE
Submit a complaint regarding Treasury OIG Treasury Programs and Operations
using our online form: https://oig.treasury.gov/report-fraud-waste-and-abuse
TREASURY OIG WEBSITE
Access Treasury OIG reports and other information online: https://oig.treasury.gov/
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