Audit Report 

OIG-04-006 

Report on the Schedule of Loans Receivable from Federal Entities

and Related Interest Receivable Serviced by the Treasury Bureau 

of the Public Debt at September 30, 2003 

November 17, 2003 

Office of 

Inspector General 

Department of the Treasury 
OFFICE OF 

INSPECTOR GENERAL 

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

November 17, 2003 

MEMORANDUM FOR VAN ZECK, COMMISSIONER 

BUREAU OF THE PUBLIC DEBT 

FROM : William H. ~ugh, 0% %4!44 

Deputy Assistant Inspector ~eneral 

for Financial Management and Information 

Technology Audits 

SUBJECT : Report on the Schedule of Loans Receivable from 

Federal Entities and Related Interest Receivable 

Serviced by the Treasury Bureau of the Public Debt 

at September 30, 2003 

I am pleased to transmit the attached Report on the Schedule of 

Loans Receivable from Federal Entities and Related Interest 

Receivable Serviced by the Treasury Bureau of the Public Debt 

(BPD) at September 30, 2003 (Schedule of Loans Receivable). We 

contracted with the independent certified public accounting firm 

of KPMG LLP, an Independent Public Accountant (IPA), to audit the 

Schedule of Loans Receivable at September 30, 2003. The Schedule 

of Loans Receivable represents an intragovernmental receivable. 

These receivables arise from certain Federal entities that have 

been granted specific legislative authority to borrow from the 

Department of the Treasury. Using the funds borrowed, these 

entities make loans to various nonfederal borrowers, such as 

students and farmers. The BPD is responsible for the accounting 

and servicing of loans made to Federal entities. The audited 

Schedule of Loans Receivable presents the September 30, 2003, 

balances of Federal loans receivable and related interest 

receivable that are serviced by the BPD. 

The contract required that the audit be performed in accordance 

with generally accepted government auditing standards; applicable 

provisions of OMB's bulletin, Audit Requirements for Federal 

Financial Statements; and the GAO/PCIE Financial Audit Manual.

The following IPA reports are incorporated in the attachment: 

Independent Auditors' Report on Schedule; 
Page 2 

• Independent Auditors’ Report on Internal Control over 

Financial Reporting; and 

• Independent Auditors’ Report on Compliance with Laws and 

Regulations. 

In its audit of BPD’s Schedule of Loans Receivable, KPMG LLP 

found: 

• the Schedule of Loans Receivable presents fairly, in all 

material respects, the loans receivable from Federal 

entities and related interest receivable serviced by the BPD 

at September 30, 2003, in conformity with accounting 

principles generally accepted in the United States of 

America, 

• no matters involving internal control and its operation that 

are considered material weaknesses in internal control, and 

• no instances of reportable noncompliance with laws and 

regulations tested. 

In connection with the contract, we reviewed KPMG LLP’s report 

and related documentation and inquired of its representatives. 

Our review, as differentiated from an audit in accordance with 

generally accepted government auditing standards, was not 

intended to enable us to express, and we do not express, an 

opinion on BPD’s Schedule of Loans Receivable or conclusions 

about the effectiveness of internal control; or a conclusion on 

compliance with laws and regulations. KPMG LLP is responsible 

for the attached auditor’s report dated October 31, 2003 and the 

conclusions expressed in the report. However, our review 

disclosed no instances where KPMG LLP did not comply, in all 

material respects, with generally accepted government auditing 

standards. 

Should you have any questions, please contact me at 

(202) 927-5430, or a member of your staff may contact 

Mike Fitzgerald, Director, Financial Audits at (202) 927-5789. 

Attachment
U.S. Department of the Treasury 

Schedule of Loans Receivable from Federal Entities and Related 

Interest Receivable 

Serviced by the Bureau of the Public Debt 

At September 30, 2003 
U.S. Department of the Treasury 

Schedule of Loans Receivable 

from Federal Entities and Related Interest Receivable 

Serviced by the Bureau of the Public Debt 

At September 30, 2003

Table of Contents

Description Page

I. Independent Auditors’ Report on Schedule 1 

II. Independent Auditors’ Report on Internal Control over Financial Reporting 2 

III. Independent Auditors’ Report on Compliance with Laws and Regulations 4 

IV. Schedule of Loans Receivable from Federal Entities and Related Interest 

Receivable Serviced by the Bureau of the Public Debt 5 

V. Notes to the Schedule of Loans Receivable from Federal Entities and Related 

 Interest Receivable Serviced by the Bureau of the Public Debt 6 
1 

Independent Auditors’ Report on Schedule 

Inspector General, U.S. Department of the Treasury and 

Commissioner, Bureau of the Public Debt: 

We have audited the accompanying Schedule of Loans Receivable from Federal Entities 

and Related Interest Receivable serviced by the Bureau of the Public Debt (BPD) at 

September 30, 2003 (the Schedule). The Schedule is the responsibility of BPD’s 

management. Our responsibility is to express an opinion on the Schedule based on our 

audit. 

We conducted our audit in accordance with auditing standards generally accepted in the 

United States of America; the standards applicable to financial audits contained in 

Government Auditing Standards, issued by the Comptroller General of the United States; 

and applicable provisions of Office of Management and Budget (OMB) Bulletin No. 01-

02, Audit Requirements for Federal Financial Statements. Those standards and OMB 

Bulletin No. 01-02 require that we plan and perform the audit to obtain reasonable 

assurance about whether the Schedule is free of material misstatement. An audit includes 

examining, on a test basis, evidence supporting the amounts and disclosures in the 

Schedule. An audit also includes assessing the accounting principles used and significant 

estimates made by management, as well as evaluating the overall Schedule presentation. 

We believe that our audit provides a reasonable basis for our opinion. 

In our opinion, the Schedule referred to above presents fairly, in all material respects, the 

loans receivable from Federal entities and related interest receivable serviced by the BPD 

at September 30, 2003, in conformity with accounting principles generally accepted in 

the United States of America. 

In accordance with Government Auditing Standards, we have also issued reports dated 

October 31, 2003, on our consideration of the BPD’s internal control over financial 

reporting related to the Schedule and BPD’s compliance with certain provisions of laws 

and regulations related to the Schedule. Those reports are an integral part of an audit 

performed in accordance with Government Auditing Standards, and should be read in 

conjunction with this report in considering the results of our audit. 

October 31, 2003

2001 M Street NW

Washington, DC 20036

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is

a member of KPMG International, a Swiss association.
Independent Auditors’ Report on Internal Control over Financial Reporting 

Inspector General, U.S. Department of the Treasury and 

Commissioner, Bureau of the Public Debt:

We have audited the accompanying Schedule of Loans Receivable from Federal Entities

and Related Interest Receivable serviced by the Bureau of the Public Debt (BPD) at 

September 30, 2003 (the Schedule) and have issued our report thereon dated October 31, 

2003. We have conducted our audit in accordance with auditing standards generally 

accepted in the United States of America; the standards applicable to financial audits 

contained in Government Auditing Standards, issued by the Comptroller General of the 

United States; and applicable provisions of Office of Management and Budget (OMB) 

Bulletin No. 01-02, Audit Requirements for Federal Financial Statements. 

In planning and performing our audit, we considered BPD’s internal control over 

financial reporting by obtaining an understanding of BPD’s internal controls related to 

the Schedule, determining whether internal controls had been placed in operation, 

assessing control risk, and performing tests of controls in order to determine our auditing 

procedures for the purpose of expressing our opinion on the Schedule. We limited our 

internal control testing to those controls necessary to achieve the objectives described in 

OMB Bulletin No. 01-02, as applicable to the Schedule, and Government Auditing 

Standards. We did not test all internal controls as relevant to operating objectives as 

broadly defined by the Federal Manager's Financial Integrity Act of 1982. The objective 

of our audit was not to provide assurance on the internal controls over financial reporting 

related to the Schedule. Consequently, we do not provide an opinion thereon. 

Our consideration of internal control over financial reporting would not necessarily 

disclose all matters in the internal control over financial reporting that might be material 

weaknesses under standards issued by the American Institute of Certified Public 

Accountants. Material weaknesses are conditions in which the design or operation of one 

or more of the internal control components does not reduce to a relatively low level the 

risk that misstatements, in amounts that would be material in relation to the Schedule 

being audited, may occur and not be detected within a timely period by employees in the 

normal course of performing their assigned functions. Because of inherent limitations in 

any internal controls, misstatements due to error or fraud may occur and not be detected. 

However, we noted no matters involving internal control and its operation that we 

considered to be material weaknesses as defined above. 

2

2001 M Street NW

Washington, DC 20036

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is

a member of KPMG International, a Swiss association.
3 

This report is intended solely for the information and use of BPD management, the U.S. 

Department of the Treasury Office of Inspector General, General Accounting Office, and 

the U. S. Congress, and is not intended to be and should not be used by anyone other than 

these specified parties. 

October 31, 2003 
Independent Auditors’ Report on Compliance with Laws and Regulations 

Inspector General, U.S. Department of the Treasury and 

Commissioner, Bureau of the Public Debt: 

We have audited the accompanying Schedule of Loans Receivable from Federal Entities 

and Related Interest Receivable serviced by the Bureau of the Public Debt (BPD) at 

September 30, 2003 (the Schedule) and have issued our report thereon dated October 31, 

2003. We have conducted our audit in accordance with auditing standards generally 

accepted in the United States of America; the standards applicable to financial audits 

contained in Government Auditing Standards, issued by the Comptroller General of the 

United States; and applicable provisions of Office of Management and Budget (OMB) 

Bulletin No. 01-02, Audit Requirements for Federal Financial Statements. 

The management of BPD is responsible for complying with laws and regulations 

applicable to the Schedule. As part of obtaining reasonable assurance about whether the 

Schedule is free of material misstatement, we performed tests of BPD’s compliance with 

certain provisions of laws and regulations related to the Schedule, noncompliance with 

which could have a direct and material effect on the determination of the Schedule 

amounts, and certain provisions of other laws and regulations specified in OMB Bulletin 

No. 01-02. We limited our tests of compliance to the provisions described in the 

preceding sentence, and we did not test compliance with all laws and regulations 

applicable to the Schedule. However, providing an opinion on compliance with 

applicable provisions of laws and regulations was not an objective of our audit, and, 

accordingly, we do not express such an opinion. 

The results of our tests of compliance with laws and regulations described in the 

preceding paragraph disclosed no instances of noncompliance that are required to be 

reported herein under Government Auditing Standards or OMB Bulletin No. 01-02. 

 

Federal Financial Management Improvement Act (FFMIA) of 1996. Based on 

discussions with the Office of Management and Budget, the preparation of the Schedule 

referred to above is not subject to the requirements of FFMIA and, accordingly, our test 

work did not encompass the FFMIA requirements. 

This report is intended solely for the information and use of BPD management, the U.S. 

Department of the Treasury Office of Inspector General, General Accounting Office, and 

the U. S. Congress, and is not intended to be and should not be used by anyone other than 

these specified parties. 

October 31, 2003 

4

2001 M Street NW

Washington, DC 20036

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is

a member of KPMG International, a Swiss association.
5 

U.S. Department of the Treasury 

Schedule of Loans Receivable 

from Federal Entities and Related Interest Receivable 

Serviced by the Bureau of the Public Debt 

At September 30, 2003 

(Dollars in Millions) 

Loans Receivable from Federal Entities $224,468 

Interest Receivable from Federal Entities $1,357 

The accompanying notes are an integral part of this schedule. 
6 

U.S. Department of the Treasury 

Notes to the Schedule of Loans Receivable 

from Federal Entities and Related Interest Receivable 

Serviced by the Bureau of the Public Debt 

At September 30, 2003 

Note 1. Significant Accounting Policies 

A. Reporting Entity 

Loans and interest receivable from federal entities represent intragovernmental 

receivables. These receivables arise from certain federal entities who have been 

granted specific legislative authority to borrow from the U.S. Department of the 

Treasury (Treasury). Using the funds borrowed, these entities make loans to 

nonfederal borrowers, such as students and farmers. 

B. Basis of Presentation 

The Schedule of Loans Receivable from Federal Entities and Related Interest 

Receivable serviced by the Bureau of the Public Debt (Schedule) has been 

prepared to report the balance outstanding at September 30, 2003 of amounts 

loaned by Treasury to federal entities and the related interest receivable. The 

Schedule has been prepared in accordance with accounting principles generally 

accepted in the United States of America. 

C. Basis of Accounting 

The amounts included in the accompanying schedule are presented on the accrual 

basis of accounting. Under the accrual basis of accounting, loan borrowings are 

recognized when they are issued, loan repayments are recognized when they are 

received, and interest is recognized when it is earned. 

D. Loans Receivable Write-offs / Forgiveness 

When a federal entity borrows from Treasury, the federal entity records an 

intragovernmental payable and Treasury records an intragovernmental receivable. 

In some cases, federal entities are unable to fully repay such loans. When this 

occurs, the federal entity requests an appropriation to repay the debt or obtains 

Congressional approval to forgive the debt. If the debt is forgiven, Treasury’s 

intragovernmental receivable is written down, as well as the federal entity’s 

intragovernmental payable. Since agencies have permanent indefinite budget 

authority, an allowance for uncollectible loans and interest receivable is 

unnecessary. 
7 

U.S. Department of the Treasury 

Notes to the Schedule of Loans Receivable 

from Federal Entities and Related Interest Receivable 

Serviced by the Bureau of the Public Debt 

At September 30, 2003 

Note 2. Loans Receivable from Federal Entities 

At September 30, 2003, loans receivable from various federal entities related to the 

following programs and funds (dollars in millions) are as follows: 

Agency/Entity Program/Fund Balance

Education: Federal Direct Student Loan Program $91,787

Treasury: Federal Financing Bank Revolving Fund $36,657

Agriculture: Farm Service Agency: 

 Commodity Credit Corporation $20,126

Housing and Urban 

Development: 

Federal Housing Administration and Housing 

for the Elderly 

$11,434

Agriculture: Rural Housing Service: 

 Rural Housing Insurance Fund $10,300

 Rural Utilities Service: 

Rural Electrification and 

Telecommunications Fund $10,093

Export-Import Bank: Export-Import Service: 

 Export-Import Bank $7,281

Small Business 

Administration: Disaster Loan Fund $5,081

Federal Communications 

Commission: Federal Communications Commission $5,065

Other: Other programs and funds $26,644

Total loans receivable from federal entities $224,468
8 

U.S. Department of the Treasury 

Notes to the Schedule of Loans Receivable 

from Federal Entities and Related Interest Receivable 

Serviced by the Bureau of the Public Debt 

At September 30, 2003 

Note 3. Interest Revenue 

During the year ended September 30, 2003, interest earned on loans from federal entities 

totaled $13,130 million. Netted in this amount is a realized loss of $519 million from an 

exchange transaction between the Bureau of the Public Debt (BPD) and the Federal 

Financing Bank (FFB). This realized loss resulted from BPD exchanging $15,045 million 

of Specified Treasury Special Securities issued by BPD at par value with related interest 

of $139 million as payment for $15,412 million of loans receivable and $291 million of 

interest receivable due from FFB.