Management Report:

Improvements Needed in Controls over the Preparation of the U.S. Consolidated Financial Statements

GAO-10-757, Jul 30, 2010

Additional Materials:

Contact:

Gary T. Engel
(202) 512-8815
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Since GAO's first audit of the fiscal year 1997 consolidated financial statements of the U.S. government (CFS), material weaknesses in internal control and other limitations on the scope of GAO's work have prevented GAO from expressing an opinion on the consolidated financial statements, other than the Statement of Social Insurance (accrual-based consolidated financial statements). The Department of the Treasury (Treasury), in coordination with the Office of Management and Budget (OMB), is responsible for preparing the CFS. As part of the fiscal year 2009 CFS audit, GAO identified material weaknesses and other control deficiencies in Treasury's processes used to prepare the CFS that warrant management's attention and corrective action. The purpose of this report is to (1) provide details on new control deficiencies GAO identified during its audit of the fiscal year 2009 CFS that related to the preparation of the CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken to address GAO's previous 44 recommendations in this area.

During its audit of the fiscal year 2009 CFS, GAO identified continuing and new control deficiencies in the federal government's processes used to prepare the CFS. The control deficiencies GAO identified involved 1) enhancing policies and procedures for identifying and analyzing federal entities' reported restatements and changes in accounting principles; 2) establishing and documenting policies and procedures for disclosing significant accounting policies and related party transactions; 3) establishing and documenting procedures to assure the accuracy of Treasury staff's work in three areas: (1) social insurance, (2) legal contingencies, and (3) analytical procedures; and 4) various other control deficiencies identified in previous years' audits. These control deficiencies contribute 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 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 components of the budget deficit reported in Treasury's records, which are 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 entities' financial statements and underlying financial information and records. As a result of these and other material weaknesses, the federal government did not have effective internal control over financial reporting. Of the 44 open recommendations GAO reported in April 2009, 2 were closed and 42 remained open as of February 19, 2010, the date of GAO's report on its audit of the fiscal year 2009 CFS. GAO will continue to monitor the status of corrective actions taken to address the 10 new recommendations as well as the 42 open recommendations from prior years. GAO is making 10 new recommendations to Treasury to address control deficiencies identified during the fiscal year 2009 CFS audit related to the processes used to prepare the CFS. In commenting on GAO's draft report, Treasury and OMB stated that they concurred with GAO's findings.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To help assure that prior period adjustments are properly identified and reported in the CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance the SOP entitled "Analyzing Agency Restatements" to fully document all procedures related to identifying, analyzing, and reporting restated closing package data as well as changes in accounting principles.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: As of the completion of our fiscal year 2010 CFS audit, this recommendation was closed. During fiscal year 2010, Treasury fully documented its procedures related to identifying, analyzing and reporting restated closing package data as well as prior period adjustments due to changes in accounting principles.

    Recommendation: To help assure that prior period adjustments are properly identified and reported in the CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance the SOP entitled "Analyzing Agency Restatements" to clarify who is responsible for performing the procedures contained in the SOP.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: As of the completion of our fiscal year 2010 CFS audit, this recommendation was closed. During fiscal year 2010, Treasury ensured that its procedures related to identifying, analyzing and reporting restated closing package data as well as prior period adjustments due to changes in accounting principles, clarified the roles and responsibilities for the assigned Treasury staff.

    Recommendation: To help assure that prior period adjustments are properly identified and reported in the CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance the SOP entitled "Analyzing Agency Restatements" to include procedures for analyzing the overall impact of entities' restatements on the CFS and documenting the analysis and related conclusion.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: We found that during fiscal year 2011 Treasury enhanced its procedures for analyzing the impact of entities restatements on the CFS and documenting its analysis and related conclusions.

    Recommendation: To help assure complete and accurate disclosure of significant accounting policies and related party transactions in Note 1 to the CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop, implement, and document procedures for identifying, analyzing, compiling, and reporting all significant accounting policies and related party transactions at the governmentwide level.

    Agency Affected: Department of the Treasury

    Status: Open

    Comments: As of the completion of our fiscal year 2011 CFS audit, Treasury agreed that this recommendation remained open. Treasury stated that Treasury will fully implement its procedures for identifying, analyzing, compiling, and reporting all related party transactions at the governmentwide level in fiscal year 2012 by verifying the related party information received in the closing packages to the agencies underlying audited financial statements, and will document this verification procedure. In addition, Treasury will monitor the work of FASAB's Reporting Entity Task Force as it relates to related party disclosures. We will follow-up on progress made by the Treasury as part of our fiscal year 2012 CFS audit.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance the SOP entitled "Statement of Social Insurance, Social Insurance Note, and Required Supplemental Information" to implement and document procedures for assuring the accuracy of staff's work related to preparing the social insurance information for the CFS.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: As of the completion of our fiscal year 2010 CFS audit, this recommendation was closed. During fiscal year 2010, Treasury fully documented its procedures for assuring the accuracy of staff's work related to preparing the social insurance information for the CFS.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to implement and document procedures for assuring the accuracy of staff's work related to preparing the social insurance information for the CFS.

    Agency Affected: Department of the Treasury

    Status: Open

    Comments: As of the completion of our fiscal year 2011 CFS audit, Treasury agreed that this recommendation remained open. Treasury stated that in fiscal year 2012, Treasury will comply with its enhanced Statement of Social Insurance SOP to document that all the social insurance information in the CFS is consistent with the agencies social insurance information. We will follow-up on progress made by the Treasury as part of our fiscal year 2012 CFS audit.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance the SOP entitled "Federal Agency Legal Letter Analysis" to include procedures for assuring the accuracy of staff's work related to preparing the Schedule of Differences.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: As of the completion of our fiscal year 2010 CFS audit, this recommendation was closed. During fiscal year 2010, Treasury's SOP included procedures for assuring the accuracy of staff's work related to preparing the Schedule of Differences.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to implement and document such procedures for assuring the accuracy of staff's work related to preparing the Schedule of Differences noted in the SOP entitled "Federal Agency Legal Letter Analysis."

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: We found that in fiscal year 2011, Treasury improved the implementation and documentation of its procedures to help assure the accuracy of staffs work related to preparing the Schedule of Differences. Treasury documented its analysis of differences between agencies and DOJs legal assessment supporting reported contingent liability amounts in the Schedule of Differences.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to enhance the SOP entitled "Preparing the Financial Report of the U.S. Government" to include procedures for assuring the accuracy of staff's work related to performing analytical procedures.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: As of the completion of our fiscal year 2010 CFS audit, this recommendation was closed. During fiscal year 2010, Treasury included procedures for assuring the accuracy of staff's work related to performing analytical procedures.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to implement and document procedures for assuring the accuracy of staff's work related to performing analytical procedures noted in the SOP entitled "Preparing the Financial Report of the U.S. Government."

    Agency Affected: Department of the Treasury

    Status: Open

    Comments: As of the completion of our fiscal year 2011 CFS audit, Treasury agreed that this recommendation remained open. Treasury stated that during fiscal year 2012 Treasury will improve the implementation and documentation of its procedures to address remaining GAO issues related to assuring the accuracy of staff's work related to performing analytical procedures, specifically strengthening the explanations for all significant variances found during the yearend analyses. We will follow-up on progress made by the Treasury as part of our fiscal year 2012 CFS audit.