DHS gets first 'clean' audit

An independent auditor handed the Department of Homeland Security the first clean financial audit in the department's history last week but said officials still need to get a better handle on financial controls, including some supporting IT functions.

KPMG, the independent auditor contracted by the DHS inspector general, issued an "unmodified opinion" on the department's balance sheet for fiscal 2013, which ended Sept. 30.

"The department continued to improve financial management in FY 2013 and has achieved a significant milestone," wrote Charles Edwards, DHS deputy inspector general, in a Dec. 11 memo to acting DHS Secretary Rand Beers. "This is the first year the department has received an unmodified (clean) opinion on all financial statements."

Edwards noted, however, that along with the good news, KPMG had identified deficiencies in some internal controls and highlighted four -- including IT controls and financial system functionality -- as being "material weaknesses." As a result, KPMG issued an adverse opinion on DHS' internal control over financial reporting for fiscal 2013. 

The unmodified opinion is important for DHS because it has been on the Government Accountability Office's high-risk list since 2003, when it began melding 22 component agencies into one department. Some of those agencies had "major management challenges," GAO said.

In March, GAO reported that DHS had made some progress in fully addressing its high-risk status but needed to further strengthen its financial, human capital, acquisition and IT management functions.

The new KPMG audit defined material weakness as a deficiency or a combination of deficiencies in internal control over financial reporting that could create the reasonable possibility of a material misstatement of the entity's financial statements that might not be prevented, detected and corrected on a timely basis.

Despite KPMG's caveat, congressional watchdogs saw the report as good news. Sen. Tom Carper (D-Del.), chairman of the Homeland Security and Governmental Affairs Committee, called it a milestone for the department and praised DHS' "past and current leadership for making financial management a priority and taking the steps necessary to realize this important goal."