INDEPENDENT AUDITORS ' REPORT - Department of Commerce

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Independent Auditors’ ReportInternal Controls over Performance MeasuresOur tests of internal control over performance measures, as described in theResponsibilities section of this report, disclosed no deficiencies involving the design ofthe internal control over the existence and completeness assertions related to keyperformance measures.Compliance and Other MattersOur tests of compliance with certain provisions of laws, regulations, contracts, and grantagreements, as described in the Responsibilities section of this report, exclusive of thosereferred to in the Federal Financial Management Improvement Act of 1996 (FFMIA),disclosed instances of noncompliance with the Anti-Deficiency Act (ADA) that arerequired to be reported herein under Government Auditing Standards or OMB BulletinNo. 07-04, and are described below.Anti-Deficiency Act. As reported in the prior year, we were informed bythe National Oceanic and Atmospheric Administration (NOAA) thatduring fiscal year 2005, 82 real property agreements, with the earliestsigned in 1923, included indemnification clauses or provisions involvingan indeterminate liability, or both. The Office of General Counsel (OGC)determined that these clauses or provisions were prima facie violations ofthe ADA, because those clauses constituted open-ended obligations of theU.S. Government, even though no liability claims were filed against theagreements. As of November 8, 2007, the date of our fiscal year 2007Independent Auditors’ Report, 79 agreements have been amended,terminated or expired, thereby eliminating future ADA concerns, andcorrective actions are underway on the remaining 3 agreements, which arebeing renegotiated to remove the clauses. Plans are also being made torelocate the equipment covered by one of the remaining leases to anothersite in fiscal year 2008, because the lessor did not agree to make thenecessary amendment.Additional Concern. In fiscal year 2007, The United States Patent andTrademark Office informed us that in fiscal year 2005, obligations relatedto the processing of patent applications temporarily exceeded feescollected related to these applications. As a result, fees intended for use inprocessing trademark registrations were used temporarily to fund patentobligations. The OGC is reviewing this matter to determine whether aviolation of the ADA and the Patent and Trademark Fee Fairness Act of1999 occurred, but a conclusion has not yet been reached. Since OGC’sreview is not complete, the outcome of this matter, and any resultingramifications, is not presently known.The results of our tests of compliance as described in the Responsibilities section of thisreport, exclusive of those referred to in FFMIA, disclosed no other instances of280F Y 2 0 0 7 P E R F O R M A N C E A N D A C C O U N T A B I L I T Y R E P O R T
Independent Auditors’ Reportnoncompliance or other matters that are required to be reported herein under GovernmentAuditing Standards or OMB Bulletin No. 07-04.The results of our tests of FFMIA disclosed no instances in which the Department’sfinancial management systems did not substantially comply with the three requirementsdiscussed in the Responsibilities section of this report.ResponsibilitiesManagement’s Responsibilities. The United States Code, Title 31, Sections 3515 and9106 require agencies to report annually to Congress on their financial status and anyother information needed to fairly present their financial position and results ofoperations. To meet these reporting requirements, the Department prepares and submitsfinancial statements in accordance with OMB Circular No. A-136.Management is responsible for the consolidated financial statements, including:Preparing the consolidated financial statements in conformity with U.S. generallyaccepted accounting principles;Preparing the Management Discussion and Analysis (including the performancemeasures), Required Supplementary Stewardship Information, and RequiredSupplementary Information;Establishing and maintaining effective internal control; andComplying with laws, regulations, contracts, and grant agreements applicable to theDepartment, including FFMIA.In fulfilling this responsibility, management is required to make estimates and judgmentsto assess the expected benefits and related costs of internal control policies.Auditors’ Responsibilities. Our responsibility is to express an opinion on the fiscal year2007 and 2006 consolidated financial statements of the Department based on our audits.We conducted our audits in accordance with auditing standards generally accepted in theUnited States of America; the standards applicable to financial audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States;and OMB Bulletin No. 07-04. Those standards and OMB Bulletin No. 07-04 require thatwe plan and perform the audits to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement. An audit includesconsideration of internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Department’s internal control overfinancial reporting. Accordingly, we express no such opinion.F Y 2 0 0 7 P E R F O R M A N C E A N D A C C O U N T A B I L I T Y R E P O R T281
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INDEPENDENT AUDITORS ' REPORT - Department of Commerce

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