This is the accessible text file for GAO report number GAO-06-169 
entitled 'Financial Audit: Bureau of the Public Debt's Fiscal Years 
2005 and 2004 Schedules of Federal Debt' which was released on November 
7, 2005. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to the Secretary of the Treasury: 

November 2005: 

Financial Audit: 

Bureau of the Public Debt's Fiscal Years 2005 and 2004 Schedules of 
Federal Debt: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-169]: 

GAO Highlights: 

Highlights of GAO-06-169, a report to the Secretary of the Treasury: 

Why GAO Did This Study: 

GAO is required to audit the consolidated financial statements of the 
U.S. government. Due to the significance of the federal debt held by 
the public to the governmentwide financial statements, GAO has also 
been auditing the Bureau of the Public Debts (BPD) Schedules of 
Federal Debt annually. The audit of these schedules is done to 
determine whether, in all material respects, (1) the schedules are 
reliable and (2) BPD management maintained effective internal control 
relevant to the Schedule of Federal Debt. Further, we test compliance 
with selected provisions of significant laws related to the Schedule of 
Federal Debt. 

Federal debt managed by BPD consists of Treasury securities held by the 
public and by certain federal government accounts, referred to as 
intragovernmental debt holdings. The level of debt held by the public 
reflects how much of the nations wealth has been absorbed by the 
federal government to finance prior federal spending in excess of 
federal revenues. Intragovernmental debt holdings represent balances of 
Treasury securities held by federal government accounts, primarily 
federal trust funds such as Social Security, that typically have an 
obligation to invest their excess annual receipts over disbursements in 
federal securities. 

What GAO Found: 

In GAOs opinion, BPDs Schedules of Federal Debt for fiscal years 2005 
and 2004 were fairly presented in all material respects and BPD 
maintained effective internal control related to the Schedule of 
Federal Debt as of September 30, 2005. GAO also found no instances of 
noncompliance in fiscal year 2005 with selected provisions of the 
statutory debt limit and debt issuance suspension period laws we 
tested. 

As of September 30, 2005 and 2004, federal debt managed by BPD totaled 
about $7,918 billion and $7,379 billion, respectively. At the end of 
fiscal year 2005, debt held by the public as a percentage of the U.S. 
economy is estimated at 37.5 percent, compared to 33.0 percent at the 
end of fiscal year 2001. Further, certain trust funds (e.g., Social 
Security) continue to run surpluses, resulting in increased 
intragovernmental debt holdings. These debt holdings are backed by the 
full faith and credit of the U.S. government and represent a priority 
call on future budgetary resources. As a result, total gross federal 
debt has increased 37 percent between the end of fiscal years 2001 and 
2005. During fiscal year 2005, a debt issuance suspension period was 
invoked to avoid breaching the statutory debt limit. On November 19, 
2004, legislation was enacted to raise the debt limit by $800 billion 
to $8,184 billion. 

As shown below, total federal debt increased over each of the last 4 
fiscal years. Debt held by the public increased during this 4-year 
period primarily as a result of annual unified budget deficits. 
Intragovernmental debt holdings steadily increased during this 4-year 
period primarily due to excess receipts over disbursements in federal 
trust funds. 

[See PDF for image] 

[End of figure] 

www.gao.gov/cgi-bin/getrpt?GAO-06-169. 

For a fuller understanding of GAOs opinion on BPDs fiscal years 2005 
and 2004 Schedules of Federal Debt, readers should refer to the 
complete audit report, available by clicking the link above, which 
includes information on audit objectives, scope, and methodology. For 
more information, contact Gary T. Engel at (202) 512-3406 or 
engelg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Auditor's Report: 

Opinion on Schedules of Federal Debt: 

Opinion on Internal Control: 

Compliance with Laws and Regulations: 

Consistency of Other Information: 

Objectives, Scope, and Methodology: 

Agency Comments: 

Overview, Schedules, and Notes: 

Overview on Federal Debt Managed by the Bureau of the Public Debt: 

Schedules of Federal Debt: 

Notes to the Schedules of Federal Debt: 

Appendixes: 

Appendix I: Comments from the Bureau of the Public Debt: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Abbreviations: 

BPD: Bureau of the Public Debt: 

GDP: gross domestic product: 

OMB: Office of Management and Budget: 

TIPS: Treasury Inflation Protected Securities: 

Letter November 7, 2005: 

The Honorable John W. Snow: 
The Secretary of the Treasury: 

Dear Mr. Secretary: 

The accompanying auditor's report presents the results of our audits of 
the Schedules of Federal Debt Managed by the Bureau of the Public Debt 
for the fiscal years ended September 30, 2005 and 2004. The Schedules 
of Federal Debt present the beginning balances, increases and 
decreases, and ending balances for (1) Federal Debt Held by the Public 
and Intragovernmental Debt Holdings, (2) the related Accrued Interest 
Payables, and (3) the related Net Unamortized Premiums and Discounts 
managed by the bureau.[Footnote 1] 

The auditor's report contains our (1) opinion on the Schedules of 
Federal Debt for the fiscal years ended September 30, 2005 and 2004, 
(2) opinion on the effectiveness of related internal control as of 
September 30, 2005, (3) conclusion on the bureau's compliance in fiscal 
year 2005 with selected provisions of laws we tested, and (4) 
conclusion on the consistency between information in the Schedules of 
Federal Debt and the accompanying Overview on Federal Debt Managed by 
the Bureau of the Public Debt. 

As of September 30, 2005 and 2004, federal debt managed by the bureau 
totaled about $7,918 billion and $7,379 billion, respectively, for 
moneys borrowed to fund the federal government's operations. As shown 
on the Schedules of Federal Debt, these balances consisted of 
approximately (1) $4,601 billion as of September 30, 2005, and $4,307 
billion as of September 30, 2004, of debt held by the public and about 
(2) $3,317 billion as of September 30, 2005, and $3,072 billion as of 
September 30, 2004, of intragovernmental debt holdings. 

The level of debt held by the public reflects how much of the nation's 
wealth has been absorbed by the federal government to finance prior 
federal spending in excess of federal revenues. It best represents the 
cumulative effect of past federal borrowing on today's economy and the 
federal budget. To finance a cash deficit, the federal government 
borrows from the public. When a cash surplus occurs, the annual excess 
funds can then be used to reduce debt held by the public. In other 
words, annual cash deficits or surpluses generally approximate the 
annual net change in the amount of federal government borrowing from 
the public. 

Cash surpluses during fiscal years 1998 through 2001 enabled Treasury 
to reduce debt held by the public by $476 billion, from $3,815 billion 
as of September 30, 1997, to $3,339 billion as of September 30, 2001. 
Treasury reduced this debt by redeeming maturing debt, reducing the 
number of auctions and size of new debt issues, conducting "buybacks" 
of debt before its maturity date, and redeeming callable securities 
when the opportunities arose.[Footnote 2] However, because of the 
return to deficits, in fiscal years 2002 through 2005, debt held by the 
public increased by $1,262 billion, with about $294 billion of this 
increase occurring in fiscal year 2005. Treasury issued more debt by 
increasing the number of auctions and the size of new debt issues. 
During fiscal year 2003, Treasury reintroduced the 3-year note, which 
will be offered every quarter. In addition, Treasury increased the 
offerings of the 5-year note from quarterly to monthly; the 10-year 
note from an offering every quarter to eight offerings a year; and the 
10-year Treasury Inflation-Protected Security (TIPS) from three 
offerings a year to an offering every quarter. During fiscal year 2004, 
Treasury introduced a 20-year TIPS, first issued on July 30, 2004, and 
a 5-year TIPS, first issued on October 29, 2004. Both securities will 
be offered semiannually. During fiscal year 2005, Treasury announced 
the reintroduction of the 30-year bond, which was suspended in October 
2001. The 30-year bond will be issued semi-annually with the first 
issuance to be on February 15, 2006. Notwithstanding the increases in 
fiscal years 2002 through 2005, debt held by the public as a percentage 
of total federal debt has decreased from approximately 71 percent as of 
September 30, 1997, the first year the Schedule of Federal Debt was 
audited, to approximately 58 percent as of September 30, 2005. 

Intragovernmental debt holdings represent balances of Treasury 
securities held by federal government accounts, primarily federal trust 
funds, that typically have an obligation to invest their excess annual 
receipts over disbursements in federal securities. Most federal trust 
funds invest in special U.S. Treasury securities that are guaranteed 
for principal and interest by the full faith and credit of the U.S. 
government. These securities are nonmarketable; however, they represent 
a priority call on future budgetary resources. Certain of these trust 
funds, such as the Social Security and federal civilian employee 
retirement trust funds, have been running cash surpluses, which are 
loaned to the Treasury and reduce the current need for the federal 
government to borrow from the public in order to finance current 
operations. As a result of total trust fund surpluses, 
intragovernmental debt holdings have increased by approximately $1,734 
billion during fiscal years 1998 through 2005, from $1,583 billion as 
of September 30, 1997, to $3,317 billion as of September 30, 2005, with 
about $245 billion of this increase occurring in fiscal year 2005. 
Intragovernmental debt holdings as a percentage of total federal debt 
have increased from approximately 29 percent as of September 30, 1997, 
to approximately 42 percent as of September 30, 2005. 

The transactions relating to the use of the federal government 
accounts' surpluses net out on the federal government's consolidated 
financial statements because, in effect, they represent loans from one 
part of the federal government to another. Importantly, these 
intragovernmental debt holdings also constitute future obligations of 
the Treasury since the Treasury must provide cash to redeem these 
securities in order for the individual accounts to pay their benefits 
or other obligations as they come due. When this occurs, if sufficient 
cash surpluses are not available to redeem the securities, the federal 
government would either need to increase borrowing from the public, 
raise future taxes, reduce future spending, retire less debt (if the 
budget as a whole is in surplus), or some combination thereof. It also 
should be noted that the surpluses in the federal government accounts 
could have served to reduce interest rates on the debt held by the 
public as compared to what the rates might have been had these 
surpluses not been available. 

While both are important, debt held by the public and intragovernmental 
debt holdings are very different. Debt held by the public approximates 
the federal government's competition with other sectors in the credit 
markets. Federal borrowing absorbs resources available for private 
investment and may put upward pressure on interest rates. In addition, 
interest on debt held by the public is paid in cash and represents a 
burden on current taxpayers. It reflects the amount the federal 
government pays to its outside creditors. In contrast, 
intragovernmental debt holdings perform an accounting function but 
typically do not require cash payments from the current budget or 
represent a burden on the current economy. In addition, from the 
perspective of the budget as a whole, interest payments to federal 
government accounts by the Treasury are entirely offset by the income 
received by such accounts--in effect, one part of the federal 
government pays the interest and another part receives it. This 
intragovernmental debt and the interest on it represents a claim on 
future resources and hence a burden on future taxpayers and the future 
economy when it has to be redeemed to meet obligations under the 
respective programs. However, these intragovernmental debt holdings do 
not fully reflect the federal government's total future commitment to 
trust fund financed programs. They primarily represent the cumulative 
historical surpluses of those trust funds and also reflect future 
priority claims on the U.S. Treasury. They do not have the current 
economic effects of borrowing from the public and do not currently 
compete with the private sector for available funds in the credit 
markets. However, when trust funds redeem Treasury securities to obtain 
cash to fund expenditures, and Treasury borrows from the public to 
finance these redemptions, there is competition with the private sector 
and thus an effect on the economy. 

During fiscal year 2005, Treasury faced the challenge of managing the 
debt within the statutory debt limit. On October 14, 2004, Treasury 
entered into a debt issuance suspension period. A debt issuance 
suspension period is any period for which the Secretary of the Treasury 
has determined that obligations of the United States may not be issued 
without exceeding the debt limit.[Footnote 3] Actions taken by 
Treasury, which were consistent with legal authorities provided to the 
Secretary, included suspending investment of receipts of the Government 
Securities Investment Fund (G-Fund) of the federal employees' Thrift 
Savings Plan, the Exchange Stabilization Fund, and the Civil Service 
Retirement and Disability Trust Fund (Civil Service fund); redeeming 
Civil Service fund securities early; suspending the sales of State and 
Local Government Series nonmarketable Treasury securities; exchanging 
Treasury securities for Federal Financing Bank securities; and 
postponing an auction of Treasury bills. On November 19, 2004, 
legislation was enacted to raise the statutory debt limit by $800 
billion to $8,184 billion.[Footnote 4] Subsequently, Treasury restored 
all losses to the G-Fund and Civil Service fund in accordance with 
legal authorities provided to the Secretary of the Treasury. 

During our audits, we have noted certain trends--the increase in the 
amount of Treasury securities held by foreign and international 
investors and the increased costs to finance the federal government's 
growing debt. Foreign and international investors are a major holder of 
debt held by the public. Over the last 3 years, foreign and 
international holdings have significantly increased. According to 
amounts reported in the September 2005 Treasury Bulletin, Treasury 
estimates that the amount of Treasury securities held by foreign and 
international investors has increased from about $1,135 billion as of 
June 30, 2002, to $2,030 billion as of June 30, 2005, or $895 billion. 
As of June 30, 2005, this represents an estimated 45 percent of total 
debt held by the public. During the same 3-year period, debt held by 
the public increased by $1,064 billion, from about $3,464 billion to 
$4,528 billion. Based on amounts reported in the September 2005 
Treasury Bulletin, the estimated increase in holdings by foreign and 
international investors represents about 84 percent of the increase in 
debt held by the public over the same period. The United States 
benefits from foreign purchases of Treasury securities because foreign 
investors fill part of the U.S. government's borrowing needs. However, 
to service this foreign-held debt, the U.S. government must send 
interest payments abroad, which adds to the incomes of residents of 
other countries rather than to the incomes of U.S. residents. In 
addition, this increasing reliance on foreign investors to finance the 
deficits of the U.S. government presents a potential risk to the U.S. 
economy, especially since the U.S. gross national saving rate is low by 
U.S. historical standards and averages well below that of other major 
industrialized nations. 

Rising interest rates on Treasury securities--although relatively low 
by historical standards--are contributing to an increased cost to 
finance the federal government's growing debt. The interest rate for 13-
week Treasury bills increased from a low of 1.68 percent during fiscal 
year 2005 to 3.44 percent as of September 29, 2005. Also during fiscal 
year 2005, the interest rate on 2-year Treasury notes increased from a 
low of 2.50 percent as of November 1, 2004, to 4.00 percent as of 
September 30, 2005. About $2,130 billion, or 46 percent, of marketable 
Treasury securities held by the public as of September 30, 2005, will 
mature at least once during the next 2 years. The Congressional Budget 
Office projects that interest rates on Treasury securities, especially 
short-term rates, will continue to increase. As such, as the Treasury 
securities mature over the next 2 years and are replaced by new debt, 
the interest rates on the majority of the new issuances will likely be 
higher than the September 30, 2005, rates and result in continued 
increased cost to finance the federal government's debt. Thus, the 
combined effect of greater levels of debt and higher interest rates 
will likely place increasing pressure on the federal budget in the 
years ahead. 

The challenge of managing the federal debt is not likely to diminish 
any time soon. Debt held by the public continues to grow at a faster 
pace than the economy. At the end of fiscal year 2005, debt held by the 
public as a share of gross domestic product (GDP) is estimated at 37.5 
percent, compared to 33.0 percent at the end of fiscal year 2001--the 
lowest ratio since 1983. In addition, gross federal debt has increased 
37 percent during the same period, from $5,792 billion as of September 
30, 2001, to $7,918 billion as of September 30, 2005. Further, interest 
on debt held by the public grew more rapidly than any other major 
spending category in 2005, rising 14 percent above the 2004 level. 
While growth in the debt held by the public-to-GDP measure does not 
necessarily create problems in the short term, continued growth in the 
long term would reduce budgetary flexibility and ultimately lead to an 
unsustainable fiscal path. 

In fact, GAO's long-range fiscal policy simulations show that the 
nation's current fiscal condition is but a prelude to a much more 
daunting long-term fiscal challenge.[Footnote 5] The pending retirement 
of the Baby Boom generation and rising health care costs will place 
unprecedented and long-lasting stress on the federal budget, raising 
debt held by the public to unprecedented levels as a share of GDP. 
These projected trends are compounded by the presence of near-term 
deficits that have arisen from new discretionary and mandatory spending 
as well as lower revenues as a share of the economy. Absent significant 
changes on the spending and/or revenue sides of the budget, these long- 
term deficits will encumber a growing share of federal resources and 
test the capacity of current and future generations to afford both 
today's and tomorrow's commitments. Continuing on this unsustainable 
path will gradually erode, if not suddenly damage, our economy, our 
standard of living and ultimately our national security. 

As discussed earlier, federal debt managed by the bureau totaled about 
$7.9 trillion at the end of the fiscal year, or more than $26,000 for 
every man, woman, and child in this country today. But that number 
excludes many items, including the gap between future promised and 
funded Social Security and Medicare benefits, veterans' health care, 
and a range of other commitments and contingencies that the federal 
government has pledged to support. If these items are factored in, the 
present value of the total burden is about $46 trillion. Stated 
differently, the total burden for every American is more than $150,000-
-and every day that burden becomes larger. Our long-term budget 
simulations show that without action by 2040, the federal government 
may have to either cut federal spending by 60 percent or raise taxes to 
about 2.5 times today's level to pay for the mounting cost of the 
federal government's long-term commitments. Either option would be 
devastating to the economy and the future standard of living for 
Americans. 

Addressing the nation's long-term fiscal imbalance constitutes a major 
transformational challenge that may take a generation or more to 
resolve. Given the size of the projected deficit, the U.S. government 
will not be able to grow its way out of this problem--tough choices 
will be required. Traditional incremental approaches to budgeting will 
need to give way to more fundamental and periodic reexaminations of the 
base of government. New reporting approaches, budget control 
mechanisms, and metrics are also needed to better assess the impact of 
spending and tax policies over the long term. While prompted by fiscal 
necessity, such a fundamental review could serve to update the federal 
government's programs and priorities to meet current and future 
challenges. Our report, 21ST Century Challenges: Reexamining the Base 
of the Federal Government, is intended to support the Congress in 
identifying issues and options that could help address these fiscal 
pressures.[Footnote 6] 

We are sending copies of this report to the Chairmen and Ranking 
Minority Members of the Senate Committee on Appropriations; the Senate 
Committee on Homeland Security and Governmental Affairs; the Senate 
Committee on the Budget; the Subcommittee on Transportation, Treasury, 
the Judiciary, Housing and Urban Development, and Related Agencies, 
Senate Committee on Appropriations; the Subcommittee on Federal 
Financial Management, Government Information, and International 
Security, the Senate Committee on Homeland Security and Governmental 
Affairs; the House Committee on Appropriations; the House Committee on 
Government Reform; the House Committee on the Budget; the Subcommittee 
on Transportation, Treasury, and Housing and Urban Development, The 
Judiciary, District of Columbia, House Committee on Appropriations; and 
the Subcommittee on Government Management, Finance, and Accountability, 
House Committee on Government Reform. We are also sending copies of 
this report to the Commissioner of the Bureau of the Public Debt, the 
Inspector General of the Department of the Treasury, the Director of 
the Office of Management and Budget, and other agency officials. In 
addition, the report will be available at no charge on the GAO Web site 
at [Hyperlink, http://www.gao.gov]. If I can be of further assistance, 
please call me at (202) 512-5500. This report was prepared under the 
direction of Gary T. Engel, Director, Financial Management and 
Assurance. Should you or members of your staff have any questions 
concerning this report, please contact Mr. Engel at (202) 512-3406 or 
[Hyperlink, engelg@gao.gov]. Staff acknowledgments are provided in 
appendix II. 

Sincerely yours, 

Signed by: 

David M. Walker: 
Comptroller General of the United States: 

[End of section] 

Auditor's Report: 

To the Commissioner of the Bureau of the Public Debt: 

In connection with fulfilling our requirement to audit the financial 
statements of the U.S. government,[Footnote 7] we audited the Schedules 
of Federal Debt Managed by the Bureau of the Public Debt (BPD) because 
of the significance of the federal debt to the federal government's 
financial statements. 

This auditor's report presents the results of our audits of the 
Schedules of Federal Debt Managed by BPD for the fiscal years ended 
September 30, 2005 and 2004. The Schedules of Federal Debt present the 
beginning balances, increases and decreases, and ending balances for 
(1) Federal Debt Held by the Public and Intragovernmental Debt 
Holdings, (2) the related Accrued Interest Payables, and (3) the 
related Net Unamortized Premiums and Discounts managed by BPD.[Footnote 
8] 

In our audits of the Schedules of Federal Debt for the fiscal years 
ended September 30, 2005 and 2004, we found the following: 

* the Schedules of Federal Debt are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles; 

* BPD had effective internal control over financial reporting and 
compliance with laws and regulations related to the Schedule of Federal 
Debt as of September 30, 2005; and: 

* no reportable noncompliance in fiscal year 2005 with selected 
provisions of laws we tested. 

The following sections discuss, in more detail, (1) these conclusions 
and our conclusion on the Overview on Federal Debt Managed by the 
Bureau of the Public Debt and (2) the scope of our audits. 

Opinion on Schedules of Federal Debt: 

The Schedules of Federal Debt including the accompanying notes present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, the balances as of September 30, 2005, 
2004, and 2003, for Federal Debt Managed by BPD; the related Accrued 
Interest Payables and Net Unamortized Premiums and Discounts; and the 
related increases and decreases for the fiscal years ended September 
30, 2005 and 2004. 

Opinion on Internal Control: 

BPD maintained, in all material respects, effective internal control 
relevant to the Schedule of Federal Debt related to financial reporting 
and compliance with applicable laws and regulations as of September 30, 
2005, that provided reasonable assurance that misstatements, losses, or 
noncompliance material in relation to the Schedule of Federal Debt 
would be prevented or detected on a timely basis. Our opinion is based 
on criteria established under 31 U.S.C.  3512 (c), (d) (commonly 
referred to as the Federal Managers' Financial Integrity Act) and the 
Office of Management and Budget (OMB) Circular A-123, revised June 21, 
1995, Management Accountability and Control. 

We found matters involving information security controls that we 
consider not to be reportable conditions.[Footnote 9] We will 
communicate these matters to BPD's management, along with our 
recommendations for improvement, in a separate letter to be issued at a 
later date. 

Compliance with Laws and Regulations: 

Our tests for compliance in fiscal year 2005 with selected provisions 
of laws disclosed no instances of noncompliance that would be 
reportable under U.S. generally accepted government auditing standards 
or OMB audit guidance. However, the objective of our audit of the 
Schedule of Federal Debt for the fiscal year ended September 30, 2005, 
was not to provide an opinion on overall compliance with laws and 
regulations. Accordingly, we do not express such an opinion. 

Consistency of Other Information: 

BPD's Overview on Federal Debt Managed by the Bureau of the Public Debt 
contains information, some of which is not directly related to the 
Schedules of Federal Debt. We do not express an opinion on this 
information. However, we compared this information for consistency with 
the schedules and discussed the methods of measurement and presentation 
with BPD officials. Based on this limited work, we found no material 
inconsistencies with the schedules. 

Objectives, Scope, and Methodology: 

Management is responsible for the following: 

* preparing the Schedules of Federal Debt in conformity with U.S. 
generally accepted accounting principles; 

* establishing, maintaining, and assessing internal control to provide 
reasonable assurance that the broad control objectives of the Federal 
Managers' Financial Integrity Act are met; and: 

* complying with applicable laws and regulations. 

We are responsible for obtaining reasonable assurance about whether (1) 
the Schedules of Federal Debt are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles and (2) management maintained effective related internal 
control as of September 30, 2005, the objectives of which are the 
following: 

* Financial reporting: Transactions are properly recorded, processed, 
and summarized to permit the preparation of the Schedule of Federal 
Debt for the fiscal year ended September 30, 2005, in conformity with 
U.S. generally accepted accounting principles. 

* Compliance with laws and regulations: Transactions related to the 
Schedule of Federal Debt for the fiscal year ended September 30, 2005, 
are executed in accordance with laws governing the use of budget 
authority and with other laws and regulations that could have a direct 
and material effect on the Schedule of Federal Debt. 

We are also responsible for testing compliance with selected provisions 
of laws and regulations that have a direct and material effect on the 
Schedule of Federal Debt. Further, we are responsible for performing 
limited procedures with respect to certain other information appearing 
with the Schedules of Federal Debt. 

In order to fulfill these responsibilities, we: 

* examined, on a test basis, evidence supporting the amounts and 
disclosures in the Schedules of Federal Debt; 

* assessed the accounting principles used and any significant estimates 
made by management; 

* evaluated the overall presentation of the Schedules of Federal Debt; 

* obtained an understanding of internal control relevant to the 
Schedule of Federal Debt as of September 30, 2005, related to financial 
reporting and compliance with laws and regulations (including execution 
of transactions in accordance with budget authority); 

* tested relevant internal controls over financial reporting and 
compliance, and evaluated the design and operating effectiveness of 
internal control related to the Schedule of Federal Debt as of 
September 30, 2005; 

* considered the process for evaluating and reporting on internal 
control and financial management systems under the Federal Managers' 
Financial Integrity Act; and: 

* tested compliance in fiscal year 2005 with the (1) statutory debt 
limit (31 U.S.C.  3101(b), as amended by Pub. L. No. 107-199,  1, 116 
Stat. 734 (2002), Pub. L. No. 108-24, 117 Stat. 710 (2003), and Pub. L. 
No. 108-415,  1, 118 Stat. 2337 (2004)), (2) suspension and early 
redemption of investments from the Civil Service Retirement and 
Disability Trust Fund (5 U.S.C.  8348(j)(k)), and (3) suspension of 
investments from the G-Fund (5 U.S.C.  8438(g)). 

We did not evaluate all internal controls relevant to operating 
objectives as broadly described by the Federal Managers' Financial 
Integrity Act, such as those controls relevant to preparing statistical 
reports and ensuring efficient operations. We limited our internal 
control testing to controls over financial reporting and compliance. 
Because of inherent limitations in internal control, misstatements due 
to error or fraud, losses, or noncompliance may nevertheless occur and 
not be detected. We also caution that projecting our evaluation to 
future periods is subject to the risk that controls may become 
inadequate because of changes in conditions or that the degree of 
compliance with controls may deteriorate. 

We did not test compliance with all laws and regulations applicable to 
BPD. We limited our tests of compliance to selected provisions of laws 
that have a direct and material effect on the Schedule of Federal Debt 
for the fiscal year ended September 30, 2005. We caution that 
noncompliance may occur and not be detected by these tests and that 
such testing may not be sufficient for other purposes. 

We performed our work in accordance with U.S. generally accepted 
government auditing standards and applicable OMB audit guidance. 

Agency Comments: 

In commenting on a draft of this report, BPD concurred with the 
conclusions in our report. The comments are reprinted in appendix I. 

Signed by: 

David M. Walker: 
Comptroller General of the United States: 

October 25, 2005: 

[End of section] 

Overview, Schedules, and Notes: 

Overview on Federal Debt Managed by the Bureau of the Public Debt: 

Overview on Federal Debt Managed by the Bureau of the Public Debt Gross 
Federal Debt Outstanding[NOTE 1]: 

Federal debt managed by the Bureau of the Public Debt comprises debt 
held by the public and debt held by certain federal government 
accounts, the latter of which is referred to as intragovernmental debt 
holdings. As of September 30, 2005 and 2004, outstanding gross federal 
debt managed by the bureau totaled $7,918 and $7,379 billion, 
respectively. The increase in gross federal debt of $539 billion during 
fiscal year 2005 was due to an increase in gross intragovernmental debt 
holdings of $245 billion and an increase in gross debt held by the 
public of $294 billion. As Figure 1 illustrates, both intragovernmental 
debt holdings and debt held by the public have steadily increased since 
fiscal year 2001. The primary reason for the increases in 
intragovernmental debt holdings is the annual surpluses in the Federal 
Old-Age and Survivors Insurance Trust Fund, Civil Service Retirement 
and Disability Fund, Federal Hospital Insurance Trust Fund, Federal 
Disability Insurance Trust Fund, and Military Retirement Fund. The 
increases in debt held by the public are due primarily to total federal 
spending exceeding total federal revenues. As of September 30, 2005, 
gross debt held by the public totaled $4,601 billion and gross 
intragovernmental debt holdings totaled $3,317 billion. 

Figure 1: Total Gross Federal Debt Outstanding (in billions): 

[See PDF for image] 

[End of figure] 

NOTE: 

[1] Federal debt outstanding reported here differs from the amount 
reported in the Financial Report of the United States Government 
because of the securities not maintained or reported by the bureau and 
which are issued by the Federal Financing Bank and other federal 
government agencies. 

Interest Expense: 

Interest expense incurred during fiscal year 2005 consists of (1) 
interest accrued and paid on debt held by the public or credited to 
accounts holding intragovernmental debt during the fiscal year, (2) 
interest accrued during the fiscal year, but not yet paid on debt held 
by the public or credited to accounts holding intragovernmental debt, 
and (3) net amortization of premiums and discounts. The primary 
components of interest expense are interest paid on the debt held by 
the public and interest credited to federal government trust funds and 
other federal government accounts that hold Treasury securities. The 
interest paid on the debt held by the public affects the current 
spending of the federal government and represents the burden in 
servicing its debt (i.e., payments to outside creditors). Interest 
credited to federal government trust funds and other federal government 
accounts, on the other hand, does not result in an immediate outlay of 
the federal government because one part of the government pays the 
interest and another part receives it. However, this interest 
represents a claim on future budgetary resources and hence an 
obligation on future taxpayers. This interest, when reinvested by the 
trust funds and other federal government accounts, is included in the 
programs' excess funds not currently needed in operations, which are 
invested in federal securities. During fiscal year 2005, interest 
expense incurred totaled $355 billion, interest expense on debt held by 
the public was $181 billion, and $174 billion was interest incurred for 
intragovernmental debt holdings. As Figure 2 illustrates, total 
interest expense decreased each year from fiscal year 2001 through 
2003, but increased in fiscal years 2004 and 2005. Average interest 
rates on principal balances outstanding as of fiscal year end are 
disclosed in the Notes to the Schedules of Federal Debt. 

Figure 2: Total Interest Expense (in billions): 

[See PDF for image] 

[End of figure] 

Debt Held by the Public: 

Debt held by the public reflects how much of the nation's wealth has 
been absorbed by the federal government to finance prior federal 
spending in excess of total federal revenues. As of September 30, 2005 
and 2004, gross debt held by the public totaled $4,601 billion and 
$4,307 billion, respectively (see Figure 1), an increase of $294 
billion. The borrowings and repayments of debt held by the public 
decreased from fiscal year 2004 to 2005 primarily due to Treasury's 
decision to finance current operations using more long-term securities. 

As of September 30, 2005, $4,066 billion, or 88 percent, of the 
securities that constitute debt held by the public were marketable, 
meaning that once the government issues them, they can be resold by 
whoever owns them. Marketable debt is made up of Treasury bills, 
Treasury notes, Treasury bonds, and Treasury Inflation-Protected 
Securities (TIPS) with maturity dates ranging from less than 1 year out 
to 30 years. Of the marketable securities currently held by the public 
as of September 30, 2005, $2,728 billion or 67 percent will mature 
within the next 4 years (see Figure 3). As of September 30, 2005 and 
2004, notes and TIPS held by the public maturing within the next 10 
years totaled $2,558 billion and $2,274 billion, respectively, an 
increase of $284 billion. 

Figure 3: Maturity Dates [NOTE 2] of Marketable Debt Held by the Public 
as of September 30, 2005: 

[See PDF for image] 

[End of figure] 

NOTE: 

[2] Callable securities mature between fiscal years 2011 and 2015, but 
are reported by their call date. 

The government also issues to the public, state and local governments, 
and foreign governments and central banks nonmarketable securities, 
which cannot be resold, and have maturity dates from on demand to more 
than 10 years. As of September 30, 2005, nonmarketable securities 
totaled $535 billion, or 12 percent of debt held by the public. As of 
that date, nonmarketable securities primarily consisted of savings 
securities totaling $204 billion and special securities for state and 
local governments totaling $225 billion. 

The Federal Reserve Banks (FRBs) act as fiscal agents for Treasury, as 
permitted by the Federal Reserve Act. As fiscal agents for Treasury, 
the FRBs play a significant role in the processing of marketable book- 
entry securities and paper U.S. savings bonds. For marketable book- 
entry securities, selected FRBs receive bids, issue book-entry 
securities to awarded bidders and collect payment on behalf of 
Treasury, and make interest and redemption payments from Treasury's 
account to the accounts of security holders. For paper U.S. savings 
bonds, selected FRBs sell, print, and deliver savings bonds; redeem 
savings bonds; and handle the related transfers of cash. 

Intragovernmental Debt Holdings: 

Intragovernmental debt holdings represent balances of Treasury 
securities held by over 230 individual federal government accounts with 
either the authority or the requirement to invest excess receipts in 
special U.S. Treasury securities that are guaranteed for principal and 
interest by the full faith and credit of the U.S. Government. 
Intragovernmental debt holdings primarily consist of balances in the 
Social Security, Medicare, Military Retirement, and Civil Service 
Retirement and Disability trust funds. [NOTE 3] As of September 30, 
2005, such funds accounted for $2,928 billion, or 88 percent, of the 
$3,317 billion intragovernmental debt holdings balances (see Figure 4). 
As of September 30, 2005 and 2004, gross intragovernmental debt 
holdings totaled $3,317 billion and $3,072 billion, respectively (see 
Figure 1), an increase of $245 billion. 

The majority of intragovernmental debt holdings are Government Account 
Series (GAS) securities. GAS securities consist of par value securities 
and market-based securities, with terms ranging from on demand out to 
30 years. Par value securities are issued and redeemed at par (100 
percent of the face value), regardless of current market conditions. 
Market-based securities, however, can be issued at a premium or 
discount and are redeemed at par value on the maturity date or at 
market value if redeemed before the maturity date. 

Figure 4: Components of Intragovernmental Debt Holdings as of September 
30, 2005: 

[See PDF for image] 

[End of figure] 

NOTE: 

[3] The Social Security trust funds consist of the Federal Old-Age and 
Survivors Insurance Trust Fund and the Federal Disability Insurance 
Trust Fund. In addition, the Medicare trust funds are made up of the 
Federal Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund. 

Significant Events in FY 2005 Statutory Debt Ceiling Raised: 

From October 14 to November 19, 2004, Treasury faced a debt issuance 
suspension period that required it to depart from its normal debt 
management procedures and to invoke legal authorities to avoid 
breaching the statutory debt limit. During this period, actions taken 
by Treasury included suspending investment of receipts of the 
Government Securities Investment Fund (G-Fund) of the federal employees 
Thrift Savings Plan, the Exchange Stabilization Fund (ESF), and the 
Civil Service Retirement and Disability Fund (Civil Service Fund); 
redeeming Civil Service Fund securities early; suspending the sales of 
State and Local Government Series securities; exchanging Government 
Account Series nonmarketable Treasury securities for Federal Financing 
Bank securities not reported on these schedules; and postponing an 
auction of Treasury bills. On November 19, 2004, Public Law 108-415 was 
enacted, which raised the statutory debt ceiling by $800 billion to 
$8,184 billion. 

TreasuryDirect: 

Marketable Securities Offered in TreasuryDirect: 

Since 1986, individuals buying marketable securities directly from the 
Treasury have been able to buy and hold these securities through Legacy 
Treasury Direct. Because this system pre-dated the Internet, it does 
not operate in a completely paper-free, online manner, although it does 
permit certain online electronic transactions, such as purchases and 
reinvestments, through Electronic Services for Treasury Bills, Notes, 
and Bonds. Savings bonds are not available in Legacy Treasury Direct. 

In 2002, Treasury launched a new TreasuryDirect program through the 
Bureau of the Public Debt that allows investors to manage their 
accounts electronically for savings bonds as well as marketable 
securities. Since the introduction of this new program, account holders 
have only been able to purchase Series I and EE U.S. Savings Bonds. 
Beginning with the October 3, 2005 auction of 13 and 26 week Treasury 
bills, individuals with TreasuryDirect online accounts were able to 
submit noncompetitive bids to purchase marketable Treasury securities 
(bills, notes, bonds, and TIPS). For the first time, TreasuryDirect 
account holders were able to purchase and hold savings bonds and 
marketable securities in a single, online account, providing 24/7 
convenience for tracking and managing all Treasury consumer securities. 
The regulations that allow the marketable securities to be offered in 
TreasuryDirect were published on September 30, 2005. 

Paper Savings Bond Conversions: 

Electronic Series I savings bonds, the first securities offered in 
TreasuryDirect, were introduced in October 2002, and electronic Series 
EE savings bonds were added in May 2003. Since December 2004, owners of 
paper Series EE, E and I bonds have been able to convert their paper 
securities to electronic form and hold them in a TreasuryDirect 
account. To manage the influx of transactions, the opportunity to 
convert has initially been extended by invitation to TreasuryDirect 
account holders. As of September 30, 2005, 190,250 paper bonds have 
been converted to electronic form. 

Legacy Treasury Direct: 

Federal Reserve Bank Consolidation: 

Recognizing that the growth of TreasuryDirect would reduce the number 
of transactions processed by the Federal Reserve Banks, the Bureau of 
the Public Debt announced in December 2003 that all savings bond and 
Legacy Treasury Direct processing would be consolidated from seven FRBs 
to FRB Minneapolis and FRB Pittsburgh. These two banks, designated as 
Treasury Retail Securities processing sites, were tasked with planning 
and executing the consolidation with assistance as needed from the 
Bureau of the Public Debt. Based on these consolidations, the Bureau of 
the Public Debt began updating the Public Debt Accounting and Reporting 
System to refine the reporting entities' access. This process was 
ongoing throughout fiscal year 2005. 

Regulations Signed for Legacy Treasury Direct: 

The regulations published on September 30, 2005, included changes in 
the appearance of the name for the existing direct-access system for 
book-entry marketable securities. The name was formerly presented as 
legacy TreasuryDirect, but will now appear as Legacy Treasury Direct. 
These regulations were needed to distinguish the legacy system which 
was introduced in 1986 from the new system which was launched in 2002. 
The new system is trademarked as TreasuryDirect. In addition, the 
regulations state that competitive bidding will no longer be allowed 
for securities held in Legacy Treasury Direct. 

New Rate Structure for Series EE Bonds: 

On April 4, 2005, Treasury announced that Series EE bonds with issue 
dates of May 2005 and later would earn fixed rates of interest. 
Previous EE bonds earned interest at a variable rate that was adjusted 
every 6 months. The new fixed rate applies for the 30-year life of each 
bond, including a 10-year extended maturity period, unless a different 
rate or rate structure is announced for the extension period. Rates for 
new issues are announced each May 1 and November 1. Treasury guarantees 
that, at a minimum, the value of a Series EE bond issued May 2005 or 
later will double after 20 years. If a bond does not double in value as 
a result of applying the fixed rate for 20 years, Treasury will make a 
one-time adjustment at original maturity to make up the difference. The 
initial fixed rate, announced on May 2, 2005, and effective for bonds 
issued May through October 2005, is 3.50%. 

New SLGS Regulations Published: 

On June 30, 2005, final regulations on the State and Local Government 
Series (SLGS) securities were published in the Federal Register and 
became effective on August 15, 2005. The regulations address certain 
practices of SLGS market participants that Treasury considers to be an 
inappropriate use of the SLGS securities program. A significant change 
was to reduce the basis point differential to 1 basis point below the 
current Treasury borrowing rates. Other significant changes include 
prohibiting the cancellation of subscriptions, disallowing issue date 
changes, restricting the change of principal subscribed for to 10 
percent, and requiring the mandatory use of SLGSafe for all SLGS 
transactions. SLGSafe is the Internet application available to 
investors in SLGS securities. 

Implementation of Daily GAS Accruals: 

Beginning July 1, 2005, the Bureau of the Public Debt began posting 
daily interest accruals and amortization of discounts and premiums for 
the Government Account Series (GAS) securities. Previously, this 
posting was monthly. This effort is in support of the strategic 
objective to produce daily financial statements by fiscal year 2007. 

Thirty-Year Nominal Issuance: 

The reintroduction of the thirty-year bond diversifies funding and 
increases the investor base. Reintroduction of the bond will halt the 
decline in the average maturity of debt outstanding and modestly lower 
Treasury's rollover need. Treasury plans to issue the first 30-year 
bond in February 2006 on a February/August cycle with the first bond 
maturing on February 15, 2036. 

Early Release of CUSIPS: 

Beginning on December 17, 2004, Treasury released the CUSIPS for all 
securities scheduled for the following week. The early release of 
CUSIPS will improve efficiency of Treasury market transactions at the 
time of auction announcements. CUSIPS for scheduled auctions will be 
announced every Friday at 10:30 a.m. and posted on the Bureau of the 
Public Debt's website. 

Historical Perspective: 

Federal debt outstanding is one of the largest legally binding 
obligations of the federal government. Nearly all the federal debt has 
been issued by the Treasury with a small portion being issued by other 
federal government agencies. Treasury issues debt securities for two 
principal reasons, (1) to borrow needed funds to finance the current 
operations of the federal government and (2) to provide an investment 
and accounting mechanism for certain federal government accounts' 
excess receipts, primarily trust funds. Total gross federal debt 
outstanding has dramatically increased over the past 25 years from $908 
billion as of September 30, 1980 to $7,918 billion as of September 30, 
2005 (see Figure 5). Large budget deficits emerged during the 1980's 
due to tax policy decisions and increased outlays for defense and 
domestic programs. Through fiscal year 1997, annual federal deficits 
continued to be large and debt continued to grow at a rapid pace. As a 
result, total federal debt increased more than five fold between 1980 
and 1997. 

Figure 5: Total Gross Federal Debt Outstanding: 

[See PDF for image] 

[End of figure] 

However, by fiscal year 1998, federal debt held by the public was 
beginning to decline. In fiscal years 1998 through 2001, the amount of 
debt held by the public fell by $476 billion, from $3,815 billion to 
$3,339 billion. As a consequence of the changes in the federal 
government's financing needs, resulting from increased federal outlays, 
tax policy decisions, and the deterioration of overall economic 
performance, from fiscal year 2001 to 2005 debt held by the public rose 
by $1,262 billion, from $3,339 billion to $4,601 billion. 

Even in those years where debt held by the public declined, total 
federal debt increased because of increases in intragovernmental debt 
holdings. Over the past 4 fiscal years, intragovernmental debt holdings 
increased by $864 billion, from $2,453 billion as of September 30, 
2001, to $3,317 billion as of September 30, 2005. By law, trust funds 
have the authority or are required to invest surpluses in federal 
securities. As a result, the intragovernmental debt holdings balances 
primarily represent the cumulative surplus of funds due to the trust 
funds' cumulative annual excess of tax receipts, interest credited, and 
other collections compared to spending. 

As shown in Figure 6, interest rates have fluctuated over the past 25 
years. The average interest rates reflected here represent the original 
issue weighted effective yield on securities outstanding at the end of 
the fiscal year. 

Figure 6 Average Interest Rates of Federal Debt Outstanding 
(Unaudited): 

[See PDF for image] 

[End of figure] 

As of September 30: 

Schedules of Federal Debt: 

Schedules of Federal Debt Managed by the Bureau of the Public Debt: 

For the Fiscal Years Ended September 30, 2005 and 2004 (Dollars in 
Millions): 

Balance as of September 30, 2003: 

[See PDF for image] 

[End of table] 

The accompanying notes are an integral part of these schedules. 

Notes to the Schedules of Federal Debt Managed by the Bureau of the 
Public Debt For the Fiscal Years Ended September 30, 2005 and 2004: 

(Dollars in Millions): 

Note 1. Significant Accounting Policies: 

Basis of Presentation: 

The Schedules of Federal Debt Managed by the Bureau of the Public Debt 
(BPD) have been prepared to report fiscal year 2005 and 2004 balances 
and activity relating to monies borrowed from the public and certain 
federal government accounts to fund the U.S. government's operations. 
Permanent, indefinite appropriations are available for the payment of 
interest on the federal debt and the redemption of Treasury securities. 

Reporting Entity: 

The Constitution empowers the Congress to borrow money on the credit of 
the United States. The Congress has authorized the Secretary of the 
Treasury to borrow monies to operate the federal government within a 
statutory debt limit. Title 31 U.S.C. authorizes Treasury to prescribe 
the debt instruments and otherwise limit and restrict the amount and 
composition of the debt. BPD, an organizational entity within the 
Fiscal Service of the Department of the Treasury, is responsible for 
issuing Treasury securities in accordance with such authority and to 
account for the resulting debt. In addition, BPD has been given the 
responsibility to issue Treasury securities to trust funds for trust 
fund receipts not needed for current benefits and expenses. BPD issues 
and redeems Treasury securities for the trust funds based on data 
provided by program agencies and other Treasury entities. 

Basis of Accounting: 

The schedules were prepared in conformity with U.S. generally accepted 
accounting principles and from BPD's automated accounting system, 
Public Debt Accounting and Reporting System. Interest costs are 
recorded as expenses when incurred, instead of when paid. Certain 
Treasury securities are issued at a discount or premium. These 
discounts and premiums are amortized over the term of the security 
using an interest method for all long term securities and the straight 
line method for short term securities. The Department of the Treasury 
also issues Treasury Inflation-Protected Securities (TIPS). The 
principal for TIPS is adjusted over the life of the security based on 
the Consumer Price Index for all Urban Consumers. 

Note 2. Federal Debt Held by the Public: 

As of September 30, 2005 and 2004, Federal Debt Held by the Public 
consisted of the following: 

[See PDF for image] 

[End of table] 

Treasury issues marketable bills at a discount and pays the par amount 
of the security upon maturity. The average interest rate on Treasury 
bills represents the original issue effective yield on securities 
outstanding as of September 30, 2005 and 2004, respectively. Treasury 
bills are issued with a term of one year or less. 

Treasury issues marketable notes and bonds as long-term securities that 
pay semi-annual interest based on the securities' stated interest rate. 
These securities are issued at either par value or at an amount that 
reflects a discount or a premium. The average interest rate on 
marketable notes and bonds represents the stated interest rate adjusted 
by any discount or premium on securities outstanding as of September 
30, 2005 and 2004. Treasury notes are issued with a term of 2 - 10 
years and Treasury bonds are issued with a term of more than 10 years. 
Treasury also issues TIPS that have interest and redemption payments, 
which are tied to the Consumer Price Index, the leading measurement of 
inflation. TIPS are issued with a term of more than 5 years. At 
maturity, TIPS are redeemed at the inflation-adjusted principal amount, 
or the original par value, whichever is greater. TIPS pay a semi-annual 
fixed rate of interest applied to the inflation-adjusted principal. 

Note 2. Federal Debt Held by the Public (continued): 

As of September 30, 2005, nonmarketable securities primarily consisted 
of $203,690 million in U.S. Savings Securities, $225,283 million in 
securities issued to State and Local Governments, $3,086 million in 
Foreign Series Securities, and $29,995 million in Domestic Series 
Securities. As of September 30, 2004, nonmarketable securities 
primarily consisted of $204,246 million in U.S. Savings Securities, 
$158,214 million in securities issued to State and Local Governments, 
$5,881 million in Foreign Series Securities, and $29,995 million in 
Domestic Series Securities. Treasury issues nonmarketable securities at 
either par value or at an amount that reflects a discount or a premium. 
The average interest rate on the nonmarketable securities represents 
the original issue weighted effective yield on securities outstanding 
as of September 30, 2005 and 2004. Nonmarketable securities are issued 
with a term of on demand to more than 10 years. 

Government Account Series (GAS) securities are nonmarketable securities 
issued to federal government accounts. Federal Debt Held by the Public 
includes GAS securities issued to certain federal government accounts. 
These accounts consist of GAS Held by the Public of $67,961 million and 
$58,528 million as of September 30, 2005 and 2004, respectively. One 
example is the GAS securities held by the Government Securities 
Investment Fund (G-Fund) of the federal employees' Thrift Savings Plan. 
Federal employees and retirees who have individual accounts own the GAS 
securities held by the fund. For this reason, these securities are 
considered part of the Federal Debt Held by the Public rather than 
Intragovernmental Debt Holdings. The GAS securities held by the G-Fund 
consist of overnight investments redeemed one business day after their 
issue. The net increase in amounts borrowed from the fund during fiscal 
years 2005 and 2004 are included in the respective Borrowings from the 
Public amounts reported on the Schedules of Federal Debt. 

Federal Debt Held by the Public includes federal debt held outside of 
the U. S. government by individuals, corporations, Federal Reserve 
Banks (FRB), state and local governments, and foreign governments and 
central banks. The FRB owned $733 billion and $698 billion of Federal 
Debt Held by the Public as of September 30, 2005 and 2004, 
respectively. These securities are held in the FRB System Open Market 
Account (SOMA) for the purpose of conducting monetary policy. 

Note 3. Intragovernmental Debt Holdings: 

As of September 30, 2005 and 2004, Intragovernmental Debt Holdings are 
owed to the following: 

[See PDF for image] 

[End of table] 

These amounts include marketable Treasury securities as well as GAS 
securities as follows: 

As of September 30,2004: 

GAS Securities Marketable Total Treasury Securities: 

Civil Service Retirement and Disability Fund Federal Disability 
Insurance Trust Fund: 

[See PDF for image] 

[End of table] 

The marketable securities held by the Civil Service Retirement and 
Disability Fund and the Federal Disability Insurance Trust Fund were 
called on February 15, 2005. The proceeds were rolled over as 
investments in GAS securities. 

Social Security Administration (SSA); Office of Personnel Management 
(OPM); Department of Health and Human Services (HHS); Department of 
Defense (DOD); Department of Labor (DOL); Department of Energy (DOE); 
Federal Deposit Insurance Corporation (FDIC); Department of Housing and 
Urban Development (HUD); Department of the Treasury (Treasury); 
Department of State (DOS); Department of Veterans Affairs (VA); 
Department of Transportation (DOT). 

Note 3. Intragovernmental Debt Holdings (continued): 

Intragovernmental Debt Holdings primarily consist of GAS securities. 
Treasury issues GAS securities at either par value or at an amount that 
reflects a discount or a premium. The average interest rates for fiscal 
years 2005 and 2004 were 5.2 percent and 5.4 percent, respectively. The 
average interest rate represents the original issue weighted effective 
yield on securities outstanding as of September 30, 2005 and 2004. GAS 
securities are issued with a term of on demand to 30 years. 

Note 4. Interest Expense: 

Interest expense on Federal Debt Managed by BPD for fiscal years 2005 
and 2004 consisted of the following: 

[See PDF for image] 

[End of table] 

The Fund Balance with Treasury, a non-entity, intragovernmental 
account, is not included on the Schedules of Federal Debt and is 
presented for informational purposes. 

[End of section] 

Appendixes: 

Appendix I: Comments from the Bureau of the Public Debt: 

DEPARTMENT OF THE TREASURY: 
BUREAU OF THE PUBLIC DEBT:
WASHINGTON, DC 20239-0001: 

NOV 02 2005: 

Mr. Gary T. Engel: 
Director: 
U.S. General Accounting Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Engel: 

This letter is our response to your audit of the Schedules of Federal 
Debt Managed by the Bureau of the Public Debt for the fiscal years 
ended September 30, 2005, and 2004. We agree with your audit report's 
conclusions. 

As we conclude the ninth consecutive year of our professional 
relationship, thank you for conducting a thorough audit of these 
schedules. Through our combined efforts, the usability of these 
financial reports continues to develop. The experience and courteous 
attitude of your audit team is greatly appreciated and we look forward 
to continuing this productive and successful collaboration. 

Sincerely, 

Signed by: 

Van Zeck: 
Commissioner: 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Gary Engel, (202) 512-3406: 

Acknowledgments: 

In addition to the individual named above, Dawn B. Simpson, Assistant 
Director; Erik A. Braun; Dean D. Carpenter; Dennis L. Clarke; Thomas F. 
Dawson; Chau L. Dinh; Mickie E. Gray; James S. Maziasz; Jay McTigue; 
Timothy J. Murray; Lori B. Ryza; Zakia Simpson; and Jason O. Strange 
made key contributions to this report. 

(198318): 

FOOTNOTES 

[1] Intragovernmental Debt Holdings represent federal debt issued by 
Treasury and held by certain federal government accounts, such as the 
Social Security and Medicare trust funds. 

[2] During this period, Treasury eliminated the 3-year note and the 52- 
week bill. 

[3] 5 U.S.C.  8348(j)(5)(B), 8438(g)(6)(B). 

[4] Pub. L. No. 108-415, 1, 118 Stat. 2337 (Nov. 19, 2004). 

[5] See GAO, Our Nation's Fiscal Outlook: The Federal Government's Long-
Term Budget Imbalance, http://www.gao.gov/special.pubs/longterm. 

[6] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005). 

[7] 31 U.S.C.  331(e). 

[8] Intragovernmental Debt Holdings represent federal debt issued by 
Treasury and held by certain federal government accounts, such as the 
Social Security and Medicare trust funds. 

[9] Reportable conditions are matters coming to our attention that, in 
our judgment, should be communicated because they represent significant 
deficiencies in the design or operation of internal control, which 
could adversely affect the organization's ability to meet the internal 
control objectives described in the Objectives, Scope, and Methodology 
section of this report. 

GAO's Mission: 

The Government Accountability Office, the investigative arm of 
Congress, exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading. 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548: 

To order by Phone: 

Voice: (202) 512-6000: 

TDD: (202) 512-2537: 

Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov 

Automated answering system: (800) 424-5454 or (202) 512-7470: 

Public Affairs: 

Jeff Nelligan, managing director, 

NelliganJ@gao.gov 

(202) 512-4800 

U.S. Government Accountability Office, 

441 G Street NW, Room 7149 

Washington, D.C. 20548: