Financial Audit:
Material Weaknesses in Internal Control over the Processes Used to Prepare the Consolidated Financial Statements of the U.S. Government
GAO-08-748, Jun 17, 2008
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For the past 11 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 2007 disclaimer of opinion on the fiscal year 2007 accrual basis consolidated financial statements included a discussion of continuing control deficiencies related to the preparation of the CFS. The purpose of this report is to (1) provide details of continuing material weaknesses, (2) recommend improvements, and (3) provide the status of corrective actions taken to address the 81 open recommendations related to the preparation of the CFS that GAO reported in July 2007.
GAO identified continuing and new control deficiencies during its audit of the fiscal year 2007 CFS that relate to the federal government's processes used to prepare the CFS. These control deficiencies contribute to material weaknesses in internal control regarding the U.S. government's inability to (1) adequately account for and reconcile intragovernmental activity and balances between federal agencies; (2) ensure that the CFS was consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles; and (3) identify and either resolve or explain material differences that exist between certain components of the budget deficit reported in the Department of the Treasury's records, used to prepare the Reconciliation of Net Operating Cost and Unified Budget Deficit and Statement of Changes in Cash Balance from Unified Budget and Other Activities, and related amounts reported in federal agencies' financial statements and underlying financial information and records. The control deficiencies GAO identified during its tests of the processes used to prepare the fiscal year 2007 CFS involved the following areas: documenting a key standard operating procedure for preparing the CFS, reporting in conformity with U.S. generally accepted accounting principles, reconciling distributed offsetting receipts, maintaining adequate control over spreadsheets used in preparing the CFS, monitoring internal control over the processes used to prepare the CFS, using interim financial information in the CFS preparation process, and various other control deficiencies that were identified in previous years' audits but remained in fiscal year 2007. Of the 81 open recommendations GAO reported in July 2007 regarding the processes used to prepare the CFS, 35 were closed and 46 remained open as of December 10, 2007, the date of our report on our audit of the fiscal year 2007 CFS. GAO will continue to monitor the status of corrective actions taken to address the 10 new recommendations and the new remaining balance of 56 open recommendations during its fiscal year 2008 audit of the CFS.
Status Legend:
- Review Pending
- Open
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
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 and implement alternative solutions to performing almost all of the compilation effort at the end of the year, including obtaining and utilizing interim financial information from federal agencies.
Agency Affected: Department of the Treasury
Status: Open
Comments: As of the completion of our fiscal year 2011 CFS audit, this recommendation remained open. Treasury noted that they are leading a subgroup with governmentwide participation on the OMB A-136 subcommittee to determine what information can be obtained during the third and fourth quarters of fiscal year 2012 to facilitate the year-end CFS preparation process. Depending on the results of this effort, Treasury will consider what additional requirements related to third quarter information in fiscal year 2013 are needed to facilitate the yearend compilation effort. We will follow-up on actions taken as part of our fiscal year 2012 CFS audit.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance and fully document all practices referred to in the standard operating procedure (SOP) entitled "Standard Operating Procedures for Preparing the Financial Report of the U.S. Government" to better ensure that practices are proper, complete, and can be consistently applied by staff members.
Agency Affected: Department of the Treasury
Status: Open
Comments: As of the completion of our fiscal year 2011 CFS audit, this recommendation remained open. Treasury noted that it will document all of its current practices for preparing the CFS in the SOP. We will follow-up on actions taken as part of our fiscal year 2012 CFS audit.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance its checklist or design an alternative and use it to adequately and timely document Treasury's assessment of the relevance, usefulness, or materiality of information reported by the federal agencies for use at the governmentwide level.
Agency Affected: Department of the Treasury
Status: Closed - Implemented
Comments: Over the past few years, Treasury has taken several actions to address this recommendation. In fiscal year 2011, Treasury further enhanced the SOP to include procedures to periodically update the CFS disclosure checklist to reflect new and amended disclosure requirements and document preparer sign-offs and managerial approvals. These actions have improved the CFS disclosure checklist and Treasury's ability to identify GAAP disclosure requirements and assess disclosure at the governmentwide level. To provide recommendations that are better aligned with the current status of remaining deficiencies related to this area, we have (1) closed this recommendation based on Treasury's significant progress and (2) included new recommendations for corrective actions for the remaining deficiencies in GAO-12-529 CFS management report under "Timely Review and Approval of the Financial Reporting Disclosure Checklist".
Recommendation: The Director of OMB should direct the Controller of OMB's Office of Federal Financial Management, in coordination with Treasury's Fiscal Assistant Secretary, to develop formal processes and procedures for identifying and resolving any material differences in distributed offsetting receipt amounts included in the net outlay calculation of federal agencies' Statement of Budgetary Resources (SBRs) and the amounts included in the computation of the budget deficit in the CFS.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: Open
Comments: As of the completion of our fiscal year 2011 CFS audit, this recommendation remained open. Treasury noted that they will work with OMB to perform this analysis and to develop policies and procedures, as part of developing its reconciliation methodology, to resolve these differences. OMB and Treasury, as applicable, will continue their efforts to implement the completed methodology. Treasury will also be working with OMB to further identify and define all sources of distributed offsetting receipts reported to Treasury's Central Accounting and Reporting System. We will follow-up on actions taken as part of our fiscal year 2012 CFS audit.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish effective internal control to ensure the spreadsheets used to compile the CFS are protected from inadvertent change.
Agency Affected: Department of the Treasury
Status: Closed - Implemented
Comments: In fiscal year 2008, Treasury implemented password protection on spreadsheets used to compile the CFS to protect files from inadvertent change.
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 and implement effective processes for monitoring and assessing the effectiveness of internal control over the processes used to prepare the CFS.
Agency Affected: Department of the Treasury
Status: Open
Comments: As of the completion of our fiscal year 2011 CFS audit, this recommendation remained open. Treasury noted that it is in the process of reviewing its documentation of internal control procedures, as completed during fiscal year 2011, to determine what internal control design gaps remain and what further controls are needed related to new or revised procedures. We will follow-up on actions taken as part of our fiscal year 2012 CFS audit.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance its checklist or design an alternative and use it to adequately and timely document Treasury's consideration of relevant accounting standards other than those issued by the Federal Accounting Standards Advisory Board (FASAB).
Agency Affected: Department of the Treasury
Status: Closed - Implemented
Comments: During fiscal year 2008, Treasury redesigned its checklist to consider accounting standards other than those issued by the Federal Accounting Standards Advisory Board when preparing the CFS.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance its checklist or design an alternative and use it to adequately and timely document Treasury's final decisions regarding the inclusion or exclusion of federal agencies' disclosure information in the existing notes to the CFS.
Agency Affected: Department of the Treasury
Status: Closed - Implemented
Comments: In fiscal year 2008, Treasury began documenting in the checklist its final decisions regarding the inclusion or exclusion of federal agencies' disclosure information in the existing notes to the fiscal year 2008 CFS.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish effective internal control to ensure the spreadsheets used to compile the CFS are documented to facilitate detection and tracking of changes to key formulas and data.
Agency Affected: Department of the Treasury
Status: Closed - Implemented
Comments: During fiscal year 2008, Treasury established and implemented a process to detect, track, and approve changes made to the spreadsheets used to compile the CFS.
Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to ensure that columns within key spreadsheets used to compile the CFS are labeled and properly aligned to reflect the data contained within.
Agency Affected: Department of the Treasury
Status: Closed - Implemented
Comments: During fiscal year 2008, Treasury revised the format of key spreadsheets used to compile the CFS to identify the section in the CFS to which the data pertained.