Summary
For the past 10 years, since GAO's first audit of the consolidated financial statements of the U.S. government (CFS), certain material weaknesses in internal control and in selected accounting and financial reporting practices have prevented GAO from expressing an opinion on the CFS. GAO has consistently reported that the U.S. government did not have adequate systems, controls, and procedures to properly prepare the CFS. GAO's December 2006 disclaimer of opinion on the fiscal year 2006 CFS included a discussion of continuing weaknesses related to the preparation of the CFS. The purpose of this report is to (1) provide details of continuing and new weaknesses, (2) recommend improvements, and (3) describe the status of corrective actions on GAO's previous 143 recommendations related to the preparation of the CFS.
GAO identified continuing and new weaknesses during its audit of the federal government's process for preparing the fiscal year 2006 CFS. Such weaknesses impair the U.S. government's ability to ensure that the CFS is consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles. The weaknesses GAO identified during its tests of the fiscal year 2006 CFS preparation process involved the following areas: reconciling and reporting undistributed offsetting receipts (component of the budget deficit); directly linking audited federal agencies' financial statements to the CFS; reporting unexpended budget balances; reporting operating cash; reporting and disclosing legal contingencies; reconciling intragovernmental activity and balances; preparing and auditing certain information in federal agencies' closing packages; conformity with U.S. generally accepted accounting principles; and various other internal control weaknesses that were identified in previous years' audits but remained in fiscal year 2006. Of the 143 open recommendations GAO reported in April 2006 regarding the process for preparing the CFS, 70 remained open as of December 1, 2006, when GAO completed its fieldwork for the audit of the fiscal year 2006 CFS. Of the 73 recommendations that were closed, 53 were closed based on the issuance in fiscal year 2006 of Statement of Federal Financial Accounting Standards No. 32, Consolidated Financial Report of the United States Government Requirements: Implementing Statement of Federal Financial Accounting Concepts 4 "Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States Government." This standard eliminated or lessened the disclosure requirements for the consolidated financial statements related to certain information that the Department of the Treasury (Treasury) had not been reporting. GAO will continue to monitor the status of corrective actions to address the 11 new recommendations and the new remaining balance of 81 open recommendations during its fiscal year 2007 audit of the CFS.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
Gary T. Engel
Government Accountability Office: Financial Management and Assurance
(202) 512-8815
Recommendations for Executive Action
Recommendation: The Director of the Office of Management and Budget (OMB) and the Secretary of the Treasury should direct the Controller of the Office of Federal Financial Management and Fiscal Assistant Secretary, respectively, to develop formal processes and procedures for identifying and either resolving or explaining any material differences in undistributed offsetting receipt amounts between Treasury's central accounting records and information reported in agency financial statements and underlying agency financial information and records.
Agency Affected: Department of the Treasury
Status: In process
Comments: As of the completion of our fiscal year 2007 CFS audit, this recommendation remained open. Treasury's procedures remained incomplete.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: In process
Comments: As of the completion of our fiscal year 2007 CFS audit, this recommendation remained open. Treasury's procedures remained incomplete.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop formal processes and procedures for ensuring that intragovernmental activity and balances, including intragovernmental interest, are fully eliminated in the calculation of the budget deficit.
Agency Affected: Department of the Treasury
Status: In process
Comments: As of the completion of our fiscal year 2007 CFS audit, this recommendation remained open. Treasury's procedures remained incomplete.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB's Office of Federal Financial Management, to develop processes and procedures for collecting all the necessary information that would enable the proper reporting of unexpended budget balances in the CFS.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: During fiscal year 2007, Treasury changed its disclosure for unexpended budget balances in the CFS by reporting the fiscal years 2006 and 2005 actual amounts rather than reporting fiscal year 2006 actual amounts and estimating the fiscal year 2007 amounts.
Recommendation: The Director of OMB should direct the Controller of OMB's Office of Federal Financial Management to continue to work with federal agencies to resolve internal control issues regarding differences and the lack of effective reconciliation between the unexpended budget balances reported in agencies' financial statements and amounts reported in agencies' SF-133s.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: Implemented
Comments: During fiscal year 2007, Treasury changed its disclosure for unexpended budget balances in the CFS by reporting the fiscal years 2006 and 2005 actual amounts rather than reporting fiscal year 2006 actual amounts and estimating the fiscal year 2007 amounts.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop and implement processes and procedures for identifying and either resolving or explaining the differences that exist between operating cash reported in certain federal agencies' financial statements and the operating cash balance reported in the CFS.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: In fiscal year 2007, Treasury removed "operating cash" as a reporting category because it is not required by GAAP. Instead, Treasury ensured that agency cash amounts were categorized as either restricted or nonrestricted cash amounts in Note 2, Cash and Other Monetary Assets, in the fiscal year 2007 CFS, as only these two categories are required by GAAP.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary, working in coordination with the Controller of OMB's Office of Federal Financial Management, to establish effective processes and procedures to ensure that appropriate information regarding litigation and claims is included in the governmentwide legal representation letter.
Agency Affected: Department of the Treasury
Status: In process
Comments: As of the completion of our fiscal year 2007 CFS audit, this recommendation remained open. In fiscal year 2007, OMB informally discussed with GAO possible solutions for addressing this issue. As a result of these discussions, OMB started working with Justice on possible solutions. For fiscal year 2008, OMB will continue working with Justice to establish effective processes and procedures so that appropriate information regarding litigation and claims is included in the governmentwide legal representation letter. OMB will also continue its communications with GAO.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary, working in coordination with the Controller of OMB's Office of Federal Financial Management, to develop a process for obtaining sufficient information from federal agencies to enable Treasury and OMB to adequately monitor agencies' efforts to reconcile intragovernmental activity and balances with their trading partners. This information should include (1) the nature and a detailed description of the significant differences that exist between trading partners' records of intragovernmental activity and balances, (2) detailed reasons why such differences exist, (3) details of steps taken or being taken to work with the agencies' trading partners to resolve the differences, and (4) the potential outcome of such steps.
Agency Affected: Department of the Treasury
Status: In process
Comments: As of the completion of our fiscal year 2007 CFS audit, this recommendation remained open. Treasury and OMB's process did not provide them with sufficient information to adequately monitor federal agencies' efforts to reconcile intragovernmental activity and balances with their trading partners.
Recommendation: The Director of OMB should direct the Controller of the Office of Federal Financial Management, in coordination with the Treasury Fiscal Assistant Secretary, to establish additional procedures to ensure that agencies prepare their closing packages and have them audited in accordance with the requirements specified in the closing package instructions.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: Implemented
Comments: During fiscal year 2007, federal agencies prepared closing packages and had them audited in accordance with the requirements. The procedures OMB established should be used every year to ensure that federal agencies continue to follow these requirements.
Recommendation: The Director of OMB should direct the Controller of the Office of Federal Financial Management to work with the significant agency that did not provide in its closing package the required information that Treasury uses to allocate costs in the consolidated Statement of Net Cost to ensure that such information is reported by the agency in future years.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: Implemented
Comments: During fiscal year 2007, OMB ensured the significant agency provided the information required by Treasury.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish procedures to ensure that the CFS include required consolidated totals in the Statement Of Social Insurance or document the specific rationale for excluding such disclosure.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: Treasury acted on our recommendation and reported a consolidated total, along with summary totals for the open (i.e., current and future participants) and closed (i.e., those age 14 and over on January 1 of the valuation year) groups, in the 2007 consolidated SOSI.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to disclose the balance of foreign currencies held at fiscal year end in the Cash and Other Monetary Assets footnote to the CFS.
Agency Affected: Department of the Treasury
Status: In process
Comments: As of the completion of our fiscal year 2007 CFS audit, this recommendation remained open. Treasury requested this information from federal agencies and presented foreign currencies balances in Note 2, Cash and Other Monetary Assets, in the fiscal year 2007 CFS. According to Treasury, further discussions with federal agencies will take place in fiscal year 2008 to ensure proper and complete disclosure of this information.
