The Financial Report of the U.S. Government provides a comprehensive view of government finances, including revenues and costs, assets and liabilities, long-term sustainability, and—this year—the financial impact of the federal COVID-19 response.
We audit the financial statements in that report each year, but we haven't yet been able to determine if they fairly present the government's finances. This year, it was due in part to:
Serious financial management problems at the Defense Department and Small Business Administration
Unresolved differences in balances between federal agencies
Weaknesses in the process for preparing the statements
2020 Net Costs of the U.S. Government ($7.4 trillion)
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 2020 and 2019 discusses progress that has been made but also 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 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, 2020, and 2019.
- 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 2020 and 2019 Statements of Long-Term Fiscal Projections; the 2020, 2019, 2018, 2017, and 2016 Statements of Social Insurance; and the 2020 and 2019 Statements of Changes in Social Insurance Amounts. A material weakness in internal control also prevented GAO from expressing an opinion on the 2020 and 2019 Statements of Long-Term Fiscal Projections.
- Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 2020.
- Material weaknesses and other scope limitations, discussed above, limited tests of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year 2020.
Three major impediments have 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, (2) the federal government’s inability to adequately account for intragovernmental activity and balances between federal entities, and (3) weaknesses in the federal government’s process for preparing the consolidated financial statements. In addition, the Small Business Administration (SBA), which had substantial activity related to the COVID-19 pandemic response, received a disclaimer of opinion on its fiscal year 2020 financial statements, after years of receiving clean opinions. Efforts are under way to resolve these issues.
The material weaknesses underlying these three major impediments, as well as the new weaknesses identified at SBA, 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, useful, and timely financial information to operate effectively and efficiently.
GAO also identified two 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 and (2) identify and resolve information security control deficiencies and manage information security risks on an ongoing basis.
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 in which debt is projected to grow faster than gross domestic product. Since 2017, GAO has stated that a plan is needed to ensure that the United States remains in a strong economic position to meet its social and security needs, as well as to preserve flexibility to address unforeseen events. Once the pandemic recedes and the economy substantially recovers, Congress and the administration should quickly pivot to developing an approach to place the federal government on a sustainable long-term fiscal path.
In commenting on a draft of this report, Department of the Treasury (Treasury) and Office of Management and Budget (OMB) officials provided technical comments that GAO incorporated as appropriate. Treasury and OMB officials expressed their continuing commitment to addressing the problems this report outlines.
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. The consolidated financial statements include the legislative and judicial branches.