An independent audit of the Federal Election Commission’s 2004 financial statements turned up “material weaknesses” in the areas of financial reporting and information technology, according to the accounting firm that performed the review, Clifton Gunderson LLP.

The audit, which covered the agency’s financial accounting systems, was the first undertaken since passage of the Accountability of Tax Dollars Act of 2002. The 16-page report was issued to little fanfare in December.

On a positive note, Clifton Gunderson concluded that the FEC’s balance sheet accurately reflected the agency’s financial position.

But the independent auditor also found “several misstatements and/or misclassifications” resulting from problems with the preparation and reporting process for financial statements.

“These errors or omissions … have consumed significant FEC resources in researching and correcting,” Clifton Gunderson concluded. “The resources expended could have been devoted to the normal daily business operations of the FEC.”

The firm also found problems with the agency’s information security management.

“If effective information security practices are not in place, FEC’s data and systems are at risk of inadvertent or deliberate misuse, fraud, improper disclosure, or destruction — possibly without detection,” the audit report stated.

FEC management downplayed the unflattering findings in memos attached to the final audit report. The report and the memos are posted on the agency’s Web site.

John O’Brien, the FEC’s acting deputy staff director for management, acknowledged in a memo to FEC Inspector General Lynne McFarland that the agency’s March 31, 2004, financial reports did include misstatements.

But in the memo, O’Brien rejected the notion that its preparation process for quarterly and annual financial statements was so ineffective that it warrants classification as a material weakness.

Clifton Gunderson said the FEC “has attained a major achievement by having its financial statements audited for the first time,” but added that the commission “had to expend a tremendous amount of effort to ‘clean up’ its accounting records in order to prepare auditable financial statements.”

The auditors said the agency should implement new accounting procedures to improve the FEC’s financial management process, as well as implement a framework of policies and standards to “mitigate risks associated with information resources management.”

O’Brien, however, rejected many of the auditors’ recommendations, arguing that the FEC in many instances has already recognized and taken corrective actions, “some of which pre-date the audit.”

FEC Chairman Scott Thomas, a Democrat, said the FEC has formed a new operations review committee to “oversee the audit process.”

“We have asked for staff to give us their recommendations on what in fact the agency is going to need to follow up on, and we’re going to basically use this committee to make sure that those things do get done,” he said.