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Highlights

What GAO Found

To operate as effectively and efficiently as possible, Congress, the administration, and federal managers must have ready access to reliable and complete financial and performance information—both for individual federal entities and for the federal government as a whole. GAO’s report on the U.S. government’s consolidated financial statements for fiscal years 2017 and 2016 underscores that much work remains to improve federal financial management. 

GAO found the following:

  • Certain material weaknesses in internal control over financial reporting and other limitations on the scope of its work resulted in conditions that prevented GAO from expressing an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2017, and 2016. About 38 percent of the federal government’s reported total assets as of September 30, 2017, and approximately 20 percent of the federal government’s reported net cost for fiscal year 2017 relate to significant federal entities that as of the date of GAO’s audit report, were unable to issue audited financial statements, were unable to receive audit opinions on the complete set of financial statements, or received a disclaimer of opinion on their fiscal year 2017 financial statements.
  • Significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth, prevented GAO from expressing an opinion on the sustainability financial statements, which consist of the 2017 and 2016 Statements of Long-Term Fiscal Projections; the 2017, 2016, 2015, 2014, and 2013 Statements of Social Insurance; and the 2017 and 2016 Statements of Changes in Social Insurance Amounts. About $33.7 trillion, or 68.7 percent, of the reported total present value of future expenditures in excess of future revenue presented in the 2017 Statement of Social Insurance relates to Medicare programs reported in the Department of Health and Human Services’ 2017 Statement of Social Insurance, which received a disclaimer of opinion. A material weakness in internal control also prevented GAO from expressing an opinion on the 2017 and 2016 Statements of Long-Term Fiscal Projections.
  • Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 2017.
  • Material weaknesses and other scope limitations discussed in the audit report limited tests of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year 2017.

Three major impediments continued to prevent GAO from rendering an opinion on the federal government’s accrual-based consolidated financial statements: (1) serious financial management problems at the Department of Defense (DOD) that prevented its financial statements from being auditable, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal entities, and (3) the federal government’s ineffective process for preparing the consolidated financial statements. Efforts are under way to resolve these issues, but strong and sustained commitment by DOD and other federal entities, as well as continued leadership by the Department of the Treasury (Treasury) and the Office of Management and Budget (OMB), are necessary to implement needed improvements. 

Material weaknesses, including those underlying these three major impediments, have continued to (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost as well as the financial and nonfinancial performance of certain programs and activities; (3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable financial information to operate in an efficient and effective manner.

In addition to the three major impediments, GAO identified other material weaknesses. These are the federal government’s inability to (1) determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce them, (2) identify and resolve information security control deficiencies and manage information security risks on an ongoing basis, and (3) effectively manage its tax collection activities.

The comprehensive long-term fiscal projections presented in the Statement of Long-Term Fiscal Projections and related information show that absent policy changes, the federal government continues to face an unsustainable long-term fiscal path. GAO plans to issue an update to its report on the fiscal health of the federal government.

Why GAO Did This Study

The Secretary of the Treasury, in coordination with the Director of OMB, is required to annually submit audited financial statements for the U.S. government to the President and Congress. GAO is required to audit these statements. The Government Management Reform Act of 1994 has required such reporting, covering the executive branch of government, beginning with financial statements prepared for fiscal year 1997. Treasury and OMB include the legislative and judicial branches in the consolidated financial statements as well.

View Decision

WASHINGTON, D.C. (February 15, 2018) — The U.S. Government Accountability Office (GAO) was unable to render an opinion on the federal government’s consolidated financial statements for fiscal year 2017. GAO cited shortcomings that have plagued the financial statements in past years, including persistent problems with the Department of Defense’s (DOD) financial management and auditability, the federal government’s inability to account for and reconcile certain transactions, and an ineffective process for preparing the consolidated financial statements. Such deficiencies undermine the federal government’s ability to accurately report much of its financial information.

“It’s essential that the federal government be able to adequately track all revenues and expenses, along with its assets and liabilities. It is critical to improving the accountability, effectiveness and efficiency of government operations,” said Gene L. Dodaro, Comptroller General of the United States and head of the GAO.  “GAO’s audit report makes clear the continuing challenges to providing policymakers with the accurate and complete financial information needed for ensuring accountability and making difficult policy decisions.”

For 2017, with few exceptions, all of the 24 Chief Financial Officers Act agencies received unmodified or "clean" opinions on their respective individual entities' fiscal year 2017 financial statements. However, about 38 percent of the federal government’s reported total assets as of September 30, 2017, and approximately 20 percent of the federal government’s reported net cost for FY 2017, involved federal entities that were unable to issue audited financial statements, unable to receive audit opinions on the complete set of financial statements, or unable to receive an opinion on their FY 2017 financial statements. Notably, DOD, the Department of Housing and Urban Development, and the Department of Agriculture have continuing impediments to receiving a clean opinion on their financial statements.

GAO also could not render an opinion on the sustainability financial statements due to significant uncertainties about achieving projected reductions in Medicare cost growth and a material weakness in internal control over financial reporting. These sustainability financial statements consist of the 2017 and 2016 Statements of Long-Term Fiscal Projections; the 2017, 2016, 2015, 2014, and 2013 Statements of Social Insurance; and the 2017 and 2016 Statements of Changes in Social Insurance Amounts.

Acknowledging ongoing efforts to resolve the government’s financial management challenges, Dodaro called for strong and sustained commitment by DOD and other federal entities, along with continued leadership by the U.S. Department of the Treasury and the Office of Management and Budget, to achieve more accurate and complete financial reporting. 

Dodaro also raised concerns about the problem of improper payments by federal agencies, which GAO reported as a material weakness. Such payments are estimated at about $141 billion for FY 2017. Other material weaknesses reported by GAO this year included information security across government and tax collection activities.

Dodaro said he was pleased by the recent actions which will allow the federal government to continue to borrow funds to finance the decisions already enacted by Congress and the President. He emphasized the importance of safeguarding the full faith and credit of the United States and noted that GAO has recommended the Congress change how it deals with the debt limit so that decisions about borrowing are tied to the spending and revenue decisions at the time when those decisions are made.

Dodaro added that the Financial Report, and simulations by CBO and GAO, all show that the federal government currently is on an unsustainable long-term fiscal path. He noted GAO has recommended that the Congress develop a plan to address this long-term outlook, even as it must respond to near-term economic and national priorities.

Dodaro thanked the Inspectors General throughout government for their hard work and professionalism in auditing the annual financial statements of their respective departments and agencies.

GAO's audit report on the U.S. government's consolidated financial statements is included in the 2017 Financial Report of the United States Government, which is prepared by the Department of the Treasury in coordination with the Office of Management and Budget. GAO's audit report is available on GAO's website at www.gao.gov/products/GAO-18-316R.

GAO has also updated its guide to the Financial Report of the United States Government. The guide is intended to help those who seek to obtain a better understanding of the Financial Report and is available on GAO’s website at www.gao.gov/products/GAO-18-239SP.

For more information, contact Chuck Young, Managing Director of Public Affairs, at (202) 512-4800.

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The Government Accountability Office, known as the investigative arm of Congress, is an independent, nonpartisan agency that exists to support Congress in meeting its constitutional responsibilities. GAO also works to improve the performance of the federal government and ensure its accountability to the American people. The agency 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 provides Congress with timely information that is objective, fact-based, nonideological, fair, and balanced. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability.

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Recommendations

 

Based on prior financial statement audits, GAO made numerous recommendations to Treasury and OMB to address internal control deficiencies. GAO will continue to monitor and will report separately on Treasury’s and OMB’s progress in implementing prior recommendations that remain open. Consistent with past practice, GAO will also be separately reporting on internal control deficiencies in processes used to prepare the consolidated financial statements and providing Treasury and OMB, as appropriate, recommendations for corrective actions to address them.

In commenting on a draft of this report, Treasury and OMB officials expressed their continuing commitment to addressing the problems this report outlines.

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