Improvements Needed in Controls over the Preparation of the U.S. Consolidated Financial Statements
GAO-11-525, May 26, 2011
The Department of the Treasury (Treasury), in coordination with the Office of Management and Budget (OMB), is primarily responsible for preparing the financial report of the U.S. government, which contains the consolidated financial statements of the U.S. government (CFS). Since GAO's first audit of the fiscal year 1997 CFS, certain material weaknesses in internal control and other limitations on the scope of GAO's work have prevented GAO from expressing an opinion on the CFS, exclusive of the Statement of Social Insurance (SOSI). Also, GAO was unable to express an opinion on the 2010 SOSI because of significant uncertainties primarily related to the achievement of projected reductions in Medicare cost growth reflected in the 2010 SOSI. As part of the fiscal year 2010 CFS audit, GAO identified material weaknesses and other control deficiencies in the processes used to prepare the CFS. The purpose of this report is to (1) provide details on new financial statement preparation control deficiencies GAO identified during its audit of the fiscal year 2010 CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken to address GAO's recommendations in this area that remained open at the end of the fiscal year 2009 audit.
During its audit of the fiscal year 2010 CFS, GAO identified new and continuing control deficiencies in the federal government's processes used to prepare the CFS. New control deficiencies GAO identified involved (1) the need to enhance policies and procedures for carrying out and documenting that certain amounts and disclosures were reported consistently and in conformity with Statement of Federal Financial Accounting Standards No. 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates, which became effective in fiscal year 2010; and (2) the need to fully develop procedures for carrying out and documenting certain other information related to the federal government's financial management reported in appendixes to the 2010 Financial Report of the United States Government. In addition, GAO found that various other control deficiencies identified in previous years' audits with respect to the CFS preparation continued to exist. These control deficiencies contributed to material weaknesses in internal control over the federal government's ability to (1) adequately account for and reconcile intragovernmental activity and balances between federal entities; (2) ensure that the federal government's accrual-based consolidated financial statements were consistent with the underlying audited entities' financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles; and (3) identify and either resolve or explain material differences between certain components of the budget deficit reported in Treasury's central accounting records and related amounts reported in federal entities' financial statements and underlying financial information and records. The budget deficit reported in Treasury's central accounting records is used to prepare the Reconciliation of Net Operating Cost and Unified Budget Deficit, the Statement of Changes in Cash Balance from Unified Budget and Other Activities, and the Fiscal Projections for the U.S. Government. As a result of these and other material weaknesses, the federal government did not have effective internal control over financial reporting.
- Review Pending
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
Recommendation: To help assure that Federal Employee and Veteran Benefits Payable (FEVBP) amounts are properly reported in the CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary to (1) enhance the applicable standard operating procedures to include required steps for assuring conformity with Statement of Federal Financial Accounting Standards No. 33 and the consistency of amounts between the statement of net cost and the FEVBP note disclosure, and (2) implement and document such steps.
Agency Affected: Department of the Treasury
Status: Closed - Implemented
Comments: We found that Treasury has taken several actions to address this recommendation. 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 in improving procedures for ensuring consistency between the FEVBP amounts reported in the statement of net cost and the FEVBP note as required by SFFAS No. 33 and (2) included a new recommendation for corrective actions for the remaining deficiencies in the FY 2011 CFS management report [GAO-12-529] under the section "Review of Federal Entities' Financial Information for Inclusion in the CFS".
Recommendation: To help assure the accuracy of the appendixes to the Financial Report prepared by OMB, the Director of OMB should direct the Controller of OMB to enhance its procedures for preparing the appendixes to include required steps to (1) assure the accuracy and consistency of the accompanying information presented in the appendixes to the Financial Report related to the federal government's financial management, and (2) maintain documentation supporting such information.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: Closed - Not Implemented
Comments: OMB stated that during fiscal year 2011, OMB reported this information on the newly released Performance.gov website and no longer included this in the Other Accompanying Information section of the Financial Report. No accomplishment report was prepared as OMB removed the appendixes from the Financial Report.