This is the accessible text file for GAO report number GAO-10-501R 
entitled 'Briefing on the Results of GAO's Audit of the Fiscal Years 
2009 and 2008 U.S. Government's Consolidated Financial Statements' 
which was released on March 23, 2010. 

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GAO-10-503R: 

United States Government Accountability Office: 
Washington, DC 20548: 

March 22, 2010: 

The Honorable Thomas R. Carper: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Subcommittee on Federal Financial Management, Government Information, 
Federal Services, and International Security: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Subject: Briefing on the Results of GAO's Audit of the Fiscal Years 
2009 and 2008 U.S. Government's Consolidated Financial Statements: 

This letter formally transmits the enclosed briefing slides we 
provided in a briefing to the subcommittee majority staff on March 1, 
2010. Our briefing highlighted the results of the Government 
Accountability Office (GAO) audit of the Consolidated Financial 
Statements of the U.S. Government (CFS) for fiscal years 2009 and 
2008. GAO is required by the Government Management Reform Act of 1994 
to perform an annual audit of the CFS. 

This report, along with the Financial Report of the United States 
Government, which includes our complete audit report, will be 
available at no charge on GAO's Web site at [hyperlink, 
http://www.gao.gov]. We look forward to continuing to work with you 
and your staff to help further financial management reform in the 
federal government. If you or your staff have any questions concerning 
our audit or results, please contact me on (202) 512-3406 or 
engelg@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. 

Signed by: 

Gary T. Engel: 
Director Financial Management and Assurance: 

Enclosure: 

[End of section] 

Enclosure: Briefing slides: 

Audit Report on the U.S. Government's Consolidated Financial 
Statements for Fiscal Years 2009 and 2008: 

Briefing to the Subcommittee on Federal Financial Management, 
Government Information, Federal Services, and International Security,
Committee on Homeland Security and Governmental Affairs, U.S. Senate: 

March 4, 2010: 

Results of GAO’s FY 2009 Audit Work: 

We are unable to, and we do not, express an opinion on the U.S. 
government's accrual-based consolidated financial statements for 
fiscal years 2009 and 2008 because of the federal government's 
inability to demonstrate the reliability of significant portions of 
its accrual-based consolidated financial statements, principally 
resulting from limitations related to certain material weaknesses in 
internal control over financial reporting and other limitations on the 
scope of our work. 

We rendered unqualified opinions on the Statements of Social Insurance 
for 2009, 2008, and 2007, marking 3 consecutive years for this 
achievement. 

Material weaknesses resulted in ineffective internal control over the 
federal government's financial reporting. 

Our work to test compliance with selected provisions of laws and 
regulations in fiscal year 2009 was limited by the material weaknesses 
and other scope limitations discussed in our audit report. 

Significant Matters of Emphasis: 

Key items were emphasized in order to put the information contained in 
the consolidated financial statements and the Management's Discussion 
and Analysis section of the 2009 Financial Report of the United States 
Government into context: 

* The Federal Government's Actions to Stabilize Financial Markets and 
to Promote Economic Recovery; 

* Uncertainties Regarding Certain Asset and Liability Valuations; 

* Long-Term Fiscal Challenges; 

* Equity Interests in Certain Financial Organizations and Commercial 
Entities. 

Major Impediments to an Opinion on the Accrual-Based Consolidated 
Financial Statements: 

The following major impediments continue to prevent us from rendering 
an opinion on the accrual-based consolidated financial statements: 

* Serious financial management problems at the Department of Defense 
(DOD) that have prevented DOD's financial statements from being 
auditable; 

* The federal government's inability to adequately account for and 
reconcile intragovernmental activity and balances between federal 
entities; 

* The federal government's ineffective process for preparing the 
consolidated financial statements. 

Material Weaknesses Contributing to Our Disclaimer of Opinion on the 
Accrual-Based Consolidated Financial Statements: 

Material weaknesses that contributed to our disclaimer of opinion on 
the accrual-based consolidated financial statements relate to the 
following areas: 

* Property, Plant, and Equipment and Inventories and Related Property; 

* Liabilities and Commitments and Contingencies; 

* Cost of Government Operations and Disbursement Activity; 

* Accounting for and Reconciliation of Intragovernmental Activity and 
Balances; 

* Preparation of Consolidated Financial Statements; 

* Components of the Budget Deficit. 

Other Limitations on the Scope of Our Work: 

* There were limitations on the scope of our work in addition to the 
material weaknesses that contributed to our disclaimer of opinion on 
the accrual-based consolidated financial statements. 

* The Department of Treasury (Treasury) and the Office of Management 
and Budget (OMB) were unable to provide us with adequate 
representations regarding the U.S. government's accrual-based 
consolidated financial statements for fiscal years 2009 and 2008. 

* The federal government was also unable to provide us with adequate 
legal representations regarding the U.S. government's accrual-based 
consolidated financial statements for fiscal year 2009. 

Other Material Weaknesses: 

In addition to the material weaknesses that contributed to our 
disclaimer of opinion on the accrual-based consolidated financial 
statements, we found three other material weaknesses in internal 
control relating to the following areas: 

* Improper Payments; 

* Information Security; 

* Tax Collection Activities. 

Significant Deficiencies: 

We also identified three significant deficiencies in internal control 
relating to the following areas: 

* Loans Receivable, Mortgage-Backed Securities, and Loan Guarantee 
Liabilities; 

* Verification Procedures for Data Input for the Troubled Asset Relief
Program (TARP) Equity Investment and Direct Loan Valuations; 

* Preparation of the Statement of Social Insurance. 

Individual federal entity financial statement audit reports identify 
additional control deficiencies that were reported by the entity's 
auditors as either material weaknesses or significant deficiencies at 
the individual entity level. We do not consider these additional 
deficiencies to represent material weaknesses or significant 
deficiencies at the governmentwide level. 

Compliance with Laws and Regulations: 

Although certain individual entity audit reports contain instances of 
noncompliance with laws and regulations, none of these instances were 
deemed to be reportable noncompliance with regard to the U.S. 
government's consolidated financial statements. 

Our objective was not to, and we do not, express an opinion on 
compliance with laws and regulations. 

* Our work to test compliance with selected provisions of laws and 
regulations that have a direct and material effect on the financial 
statements was limited by the material weaknesses and other scope 
limitations discussed in our audit report. 

CFO Act Agency Financial Management Systems: 

Long-standing financial management systems weaknesses at several large 
CFO Act agencies along with the size and complexity of the federal 
government continue to present a formidable management challenge in 
providing accountability to the nation's taxpayers and have 
contributed significantly to our inability to determine the 
reliability of the accrual-based consolidated financial statements. 

* For fiscal years 2009 and 2008, auditors for 10 and 14 of the 24 CFO 
Act agencies, respectively, reported that the agencies' financial 
management systems did not substantially comply with one or more of 
the three Federal Financial Management Improvement Act of 1996 (FFMIA) 
requirements. 

* A fewer number of agency heads (7 in 2009 and 9 in 2008) reported 
that their agencies' systems were not in substantial compliance with 
one or more of the three FFMIA requirements. 

Objectives, Scope, and Methodology: 

As required by the Government Management Reform Act of 1994, we 
performed our annual audit of the U.S. government's consolidated 
financial statements for fiscal year 2009. 

Our work was performed in coordination and cooperation with the 
inspectors general and independent public accountants for the 35 
entities identified by OMB and Treasury as significant to the U.S. 
government's consolidated financial statements. 

Our audit approach regarding the accrual-based consolidated financial 
statements focused primarily on determining the current status of the 
material weaknesses we had previously identified in our report on the 
consolidated financial statements for fiscal year 2008. 

Our work included separately auditing the financial statements of the 
following significant federal entities and federal agency components: 

* Treasury's Internal Revenue Service; 

* Schedule of Federal Debt Managed by Treasury's Bureau of the Public 
Debt; 

* Securities and Exchange Commission; 

* Federal Housing Finance Agency (1st year audit); 

* Treasury's Office of Financial Stability for TARP (1St year audit); 

* Federal Deposit Insurance Corporation (December 31, 2008) 

In planning and performing our audit, we considered internal control 
over financial reporting; however, we do not express an opinion on 
internal control over financial reporting because the purpose of our 
work was to determine our procedures for auditing the financial 
statements, not to express an opinion on internal control. 

Based on the scope of our work and the effects of the other 
limitations on the scope of our audit, our internal control work would 
not necessarily identify all deficiencies in internal control 
including those that might be material weaknesses or significant 
deficiencies. 

Our audit approach regarding the Statement of Social Insurance focused 
primarily on the Social Security Administration and the Department of 
Health and Human Services because of the significance of the amounts 
included from these agencies in the consolidated Statement of Social 
Insurance. 

We believe our audit, including internal control and substantive audit 
procedures, reperformance procedures, and review of the other 
auditors' Statement of Social Insurance-related audit work, provides a 
reasonable basis for our opinions on the 2009, 2008, and 2007 
Statements of Social Insurance. 

We considered the CFO Act agencies' and certain other federal 
entities' fiscal year 2009 and 2008 financial statements and the 
related auditors' reports prepared by the inspectors general or 
contracted independent public accountants. 

* We did not audit, and we do not express an opinion on, any of these 
individual federal entity financial statements. 

We considered DOD's assertion that DOD management had prepared and 
submitted pursuant to the provisions of the National Defense 
Authorization Act for Fiscal Year 2002. In accordance with section 
1008 of this act, DOD reported that certain major deficiencies related 
to noncompliant systems and noncompliant processes continued to impact 
the department's ability to prepare reliable financial statements. 

We performed our audit of the U.S. government's consolidated financial 
statements for fiscal years 2009 and 2008 (as well as 2007 and 2006 
with respect to the Statements of Social Insurance) in accordance with 
U.S. generally accepted government auditing standards. 

[End of enclosure] 

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