The Department of Homeland Security has reason to celebrate today. For the first time since the agency was formed it 2003, it passed a clean financial audit.

Sen. Tom Carper (D-Del.), chairman of the Senate Homeland Security and Governmental Affairs Committee, called the achievement a milestone for the agency toward becoming a “responsible steward of taxpayer funds.”

“Given the size of the Department, the fact that it encompasses 22 separate agencies, and the scope and importance of its mission, producing a clean financial audit is no small task,” Carper said in a statement. “I credit the Department’s past and current leadership for making financial management a priority and taking the steps necessary to realize this important goal.”

In 2011, Carper and Sens. Scott Brown (R-Mass.) and Ron Johnson (R-Wis.) introduced legislation requiring DHS financial statements pass full audits. Today’s announcement means DHS is complying with that law for the first time. The Defense Department remains the only large department that has been unable to complete a financial audit.

Rep. Bennie G. Thompson (D-Miss), the ranking member of the House Homeland Security Committee, joined Carper in applauding DHS’ clean financial audit.

“DHS has now provided both Congress and the American public with greater confidence in its governance, financial compliance, and internal controls,” he said in a statement. “Its ability to provide independent auditors with enough relevant and reliable financial information to reach a clean audit is both a step in the right direction and a commendable achievement.”

DHS’ Office of Inspector General made the announcement about the clean audit in a report it released Tuesday.

Not all good news for DHS

Despite that positive news, public accounting firm KPMG LLP, which conducted the audit, issued an adverse opinion regarding the financial reporting of DHS’ financial statements.

“The Department has material weaknesses in internal control over financial reporting,” wrote Charles K. Edwards, DHS deputy IG, in a memorandum to DHS Acting Secretary Rand Beers. “In order to sustain the unmodified opinion, the Department must continue remediating the remaining control deficiencies.”

KPMG identified eight “significant deficiencies” to its internal control:

Significant Deficiencies KPMG Called ‘Material Weaknesses’

• “Financial Reporting
• “Information Technology Controls and Financial System Functionality
• “Property, Plant and Equipment
• “Budgetary Accounting”

Other Significant Deficiencies identified by KPMG

• “Entity Level Controls
• “Liabilities
• “Grants Management
• “Custodial Revenue and Drawback”

In addition to these deficiencies, KPMG identified four areas on noncompliance with the following laws and regulations:

• Federal Managers’ Financial Integrity Act of 1982 (FMFIA),
• Federal Financial Management Improvement Act of 1996 (FFMIA)
• Single Audit Act Amendments of 1996
• Anti-deficiency Act (ADA)

The report acknowledged that DHS has made progress in reducing its material weaknesses from Fiscal Years 2012 to 2013, but more work needs to be done.

“In FY 2014 and beyond, DHS’ continuing challenge will be to sustain its progress in achieving an unmodified opinion on its financial statements, and avoid slipping backwards,” the report stated. “The Department must continue remediation efforts, and stay focused, in order to sustain its clean opinion on the financial statements and achieve an unqualified opinion on its internal control over financial reporting.”

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