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Management Report: Improvements Needed in Controls over the Processes Used to Prepare the U.S. Consolidated Financial Statements

GAO-17-524 Published: Jul 12, 2017. Publicly Released: Jul 12, 2017.
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Highlights

What GAO Found

During its audit of the fiscal year 2016 consolidated financial statements of the U.S. government (CFS), GAO identified control deficiencies in the Department of the Treasury's (Treasury) and the Office of Management and Budget's (OMB) processes used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control that involve the federal government's inability to

adequately account for and reconcile intragovernmental activity and balances between federal entities;

reasonably assure that the consolidated financial statements are (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles; and

reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Unified Budget Deficit and (2) Statements of Changes in Cash Balance from Unified Budget and Other Activities is complete and consistent with the underlying information in the audited entities' financial statements and other financial data.

During its audit of the fiscal year 2016 CFS, GAO identified three new internal control deficiencies.

Treasury did not have sufficient procedures and metrics for monitoring the federal government's year-to-year progress in resolving intragovernmental differences at the federal entity level.

Treasury did not have a sufficient process for working with federal entities to reduce or resolve the need for significant adjustments to federal entity data submitted for the CFS.

Three of Treasury and OMB's corrective action plans did not include sufficient information to effectively address related control deficiencies involving processes used to prepare the CFS.

In addition, GAO found that various other control deficiencies identified in previous years' audits with respect to the processes used to prepare the CFS were resolved or continued to exist. For 7 of the 24 recommendations from GAO's prior reports regarding control deficiencies in the processes used to prepare the CFS, Treasury implemented corrective actions during fiscal year 2016 that resolved the related control deficiencies, and as a result, these recommendations were closed. GAO closed 1 additional recommendation that related to corrective action plans, by making a new recommendation that is better aligned with the remaining internal control deficiency in this area. While progress was made, 16 of the 24 recommendations remained open as of January 4, 2017, the date of GAO's report on its audit of the fiscal year 2016 CFS. GAO will continue to monitor the status of corrective actions taken to address the 3 new recommendations made in this report as well as the 16 open recommendations from prior years as part of its fiscal year 2017 CFS audit.

Why GAO Did This Study

Treasury, in coordination with OMB, prepares the Financial Report of the United States Government , which contains the CFS. Since GAO's first audit of the fiscal year 1997 CFS, certain material weaknesses and other limitations on the scope of its work have prevented GAO from expressing an opinion on the accrual-based consolidated financial statements. As part of the fiscal year 2016 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 provide (1) details on new control deficiencies GAO identified related to the processes used to prepare the CFS, along with related recommendations, and (2) the status of corrective actions Treasury and OMB have taken to address GAO's prior recommendations relating to the processes used to prepare the CFS that remained open at the beginning of the fiscal year 2016 audit.

Recommendations

GAO is making three new recommendations—two to Treasury and one to both Treasury and OMB—to address the control deficiencies identified during the fiscal year 2016 CFS audit. In commenting on GAO's draft report, although Treasury neither agreed nor disagreed with GAO's recommendations, Treasury provided information on actions that it plans to take to address two recommendations, but stated that its current corrective action plans were effective for the third recommendation. GAO continues to believe that actions for this recommendation are needed as discussed in the report. OMB generally agreed with the findings in the report.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of the Treasury
Priority Rec.
The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop and implement procedures and metrics for monitoring the federal government's year-to-year progress in resolving intragovernmental differences for significant federal entities at the reciprocal category and trading partner levels.
Closed – Implemented
As of the completion of our fiscal year 2017 consolidated financial statements (CFS) audit, this recommendation is closed. Treasury enhanced its processes to ensure that appropriate and effective metrics were deployed to measure and monitor agency performance.
Department of the Treasury
Priority Rec.
The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop and implement a sufficient process for working with federal entities to reduce or resolve the need for significant adjustments to federal entity data submitted for the CFS.
Closed – Implemented
As of the completion of our fiscal year 2018 CFS audit, this recommendation is closed. Treasury developed and implemented a process to reduce the need for significant adjustments to federal entity data. With this process in place, the number of adjustments has decreased each year since 2016.
Department of the Treasury
Priority Rec.
The Secretary of the Treasury should direct the Fiscal Assistant Secretary, working in coordination with the Controller of OMB, to improve corrective action plans for (1) treaties and international agreements, (2) additional audit procedures for intragovernmental activity and balances, and (3) the Reconciliation Statements so that they include sufficient information to address the control deficiencies in these areas effectively.
Closed – Implemented
As of the completion of our fiscal year 2020 audit of the consolidated financial statements of the U.S. government (CFS), we determined that this recommendation is closed. Treasury added tasks to the corrective action plans that, if implemented, include sufficient information to address the control deficiencies identified. For example, Treasury added corrective actions for reviewing treaties and international agreements and for providing guidance to component entities related to the Reconciliation Statements. Also, Treasury continues to monitor the status of corrective action plans in place for these three areas as part of its annual remediation plan update process.

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Topics

Accounting standardsFederal agenciesFinancial managementFinancial reportingFinancial statementsInternal controlsInternational agreementsPolicies and proceduresRegulatory agenciesReporting requirementsMaterial weaknessesConsolidated Financial Statements of the U.S. Government