U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1 

39–010 

" ! SENATE 108TH CONGRESS

2d Session 

REPORT

2004

108–383 

Calendar No. 757 

EXECUTIVE BRANCH FINANCIAL 

ACCOUNTABILITY REPORTING ACT OF 2004 

R E P O R T 

OF THE

COMMITTEE ON GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

TO ACCOMPANY

S. 2688 

TO PROVIDE FOR A REPORT OF FEDERAL ENTITIES WITHOUT 

ANNUALLY AUDITED FINANCIAL STATEMENTS 

OCTOBER 4, 2004.—Ordered to be printed 


E:\Seals\Congress.#13
(II) 

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

MICHAEL D. BOPP, Staff Director and Chief Counsel 

BONNIE HEALD, Professional Staff Member 

HEATHER HOGG, Professional Staff Member, 

Financial Management, the Budget, and International Security Subcommittee 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

SUSAN E. PROPPER, Minority Counsel 

AMY B. NEWHOUSE, Chief Clerk 

Calendar No. 757 

108TH CONGRESS REPORT " ! SENATE 2d Session 108–383 

EXECUTIVE BRANCH FINANCIAL ACCOUNTABILITY 

REPORTING ACT OF 2004 

OCTOBER 4, 2004.—Ordered to be printed 

Ms. COLLINS, from the Committee on Governmental Affairs, 

submitted the following 

R E P O R T 

[To accompany S. 2688] 

The Committee on Governmental Affairs, to whom was referred 

the bill (S. 2688) to provide for a report of Federal entities without 

annually audited financial statements, having considered the same 

reports favorably thereon and recommends that the bill do pass. 

CONTENTS 

Page 

I. Purpose & Summary ..................................................................................... 1 

II. Background .................................................................................................... 2 

III. Legislative History ......................................................................................... 4 

IV. Section-by-Section Analysis .......................................................................... 4 

V. Evaluation of Regulatory Impact .................................................................. 5 

VI. CBO Cost Estimate ........................................................................................ 5 

VII. Changes in Existing Law .............................................................................. 6 

I. PURPOSE & SUMMARY

S. 2688, the Executive Branch Financial Accountability Reporting Act of 2004, is intended to ensure that Congress receives information on the financial management practices of the Executive 

Branch. The legislation instructs the Director of the Office of Management and Budget (OMB) to list for Congress: (1) each Federal 

entity that receives an exemption or waiver from the statutory requirement for an annually audited financial statement; and (2) 

other Federal entities, including special purpose entities, that do 

not prepare independently audited annual financial statements. 

S. 2688 also requires the OMB report to include assessments of: 

(1) the capability of the listed entities to prepare annual financial 

statements and have them independently audited; (2) how to reVerDate Aug 04 2004 11:15 Oct 09, 2004 Jkt 039010 PO 00000 Frm 00003 Fmt 6659 Sfmt 6601 E:\HR\OC\SR383.XXX SR383
2 

1The Department of Homeland Security (DHS) is currently not subject to the CFO Act. However, Congress currently is considering legislation to apply the CFO Act to DHS. The Federal 

Emergency Management Agency (FEMA) was one of the original 24 agencies covered, but is no 

longer since it is now part of the DHS. 2Public Law No. 107–289. 

3 Id. 

duce the costs of preparing the financial statements and performing independent audits by grouping together smaller entities 

and other methods by which the preparation and independent audits of financial statements could be made cost-effective; and (3) 

the benefits of improved financial oversight encompassing the entire Executive Branch, including recommendations for a plan to implement a requirement that the entire Executive Branch prepare 

annual independently audited financial statements. 

II. BACKGROUND

Financial statement audit requirements 

Congressional efforts to improve financial management and the 

efficiency of government spending began almost 25 years ago with 

the enactment of the Federal Managers Financial Integrity Act of 

1982, which strengthened internal controls and accounting systems. Since that time, Congress has passed several other financial 

management reforms, including the Chief Financial Officers Act 

(CFO) of 1990 and the Accountability of Tax Dollars Act (ATDA) 

of 2002. Together, these reform initiatives established important financial management positions in Cabinet departments and most 

major Federal agencies. In addition, the Government Management 

and Reform Act of 1994 substantially expanded the CFO Act by requiring the 24 CFO Act agencies to produce annually audited financial statements for all their accounts and associated activities. 

The CFO Act, among other things, created 24 Chief Financial Officer (CFO) and deputy CFO positions in Cabinet departments 1

and major Executive Branch agencies. 

The Accountability of Tax Dollars Act (ATDA) of 2002 2 amended 

the CFO Act to extend its requirements regarding the preparation 

and audit of financial statements to most Executive Branch agencies. According to OMB, the ATDA required an additional 76 agencies to prepare annual financial statements and have them audited. 

Currently, all Cabinet-level departments and most Executive 

Branch agencies are required by the ATDA to conduct annual audits of their financial statements. 

Provisions of the ATDA permitted the Director of OMB to exempt 

non-CFO Act entities from this requirement under certain conditions. The ATDA provided the OMB Director with the authority to 

exempt an agency with budget authority of $25 million or less if 

it is determined that an audited financial statement is not warranted ‘‘due to the absence of risks associated with the agency’s operations, the agency’s demonstrated performance, or other factors 

that the Director considers relevant.’’ 3 During the first two years 

of implementation, the Director could also waive the requirement 

to prepare an audited financial statement for any non-CFO Act 

agency. 

The ATDA required the OMB Director to notify Congress annually of each agency that has been exempted from its requirements, 

including the reason for such exemption. For FY 2003, 21 agencies 

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4 Agencies receiving a waiver or exemption included: Broadcasting Board of Governors, Central Intelligence Agency, Commission of Fine Arts, Court Services and Offender Supervision 

Agency for the District of Columbia, Defense Nuclear Facilities Safety Board, Federal Labor Relations Authority, Federal Maritime Commission, Japan-U.S. Friendship Commission, National 

Archives and Records Administration, National Endowment for the Humanities, National Labor 

Relations Board, Office of Special Counsel, Peace Corps, Securities and Exchange Commission, 

Selective Service System, U.S. Commission on Civil Rights, U.S. Commission for the Preservation of America’s Heritage Abroad, U.S. Commodity Futures Trading Commission, U.S. Consumer Product Safety Commission, and U.S. International Trade Commission. See Letter from 

OMB Director Joshua Bolten to the Senate Governmental Affairs Committee and the House 

Government Reform Committee dated October 23, 2003. 5 According to a February 2003 report entitled ‘‘The Budgetary Treatment of Leases and Public/Private Ventures,’’ the Congressional Budget Office defines a special purpose entity (SPE) as 

‘‘a corporation, partnership, limited liability company, grantor trust, or other trust*** that 

is created by public and private parties for a single specified purpose and whose activities are 

predetermined by the contracts and other arrangements between the parties involved.’’ A memorandum prepared by the Congressional Research Service (CRS) states that, in some instances, 

Federal agencies may use SPEs to keep a transaction off-budget, which may mask government 

liability. See CRS memorandum of February 10, 2004, which was prepared at the request of 

the Governmental Affairs Subcommittee on Financial Management, the Budget, and International Security of which Senators Peter G. Fitzgerald and Daniel K. Akaka are Chairman and 

Ranking Member, respectively. 

received an exemption due to: the need for additional time to develop sound financial practices; the lack of budgeted funds and a 

lack of alternative sources; and the need for more time to implement new financial systems.4

The reforms made by the CFO Act and the ATDA have improved 

the oversight and accountability of most Executive Branch departments and agencies. There currently are entities in the Executive 

Branch, however, that do not prepare financial statements, or if 

they do, their financial statements are not being audited. Some 

agencies, for example, have received an exemption from this requirement under provisions of the ATDA. In addition, Executive 

Branch agencies are increasingly establishing special purpose entities 5 that are not included in the agencies’ budgets and, therefore, 

are not subject to the scrutiny provided by an annual financial 

statement audit. 

The Committee believes it is imperative that every effort be 

made to ensure the financial integrity of all Executive Branch departments and agencies. Therefore, S. 2688 would require the Office of Management and Budget (OMB) to conduct a thorough assessment and submit a report to Congress regarding those Federal 

entities that are not currently required to prepare audited financial 

statements. The Committee further believes this study is necessary 

to ensure that OMB and Congress have an accurate and complete 

picture of the breadth and depth of the gaps in financial accountability within the Executive Branch to determine whether additional legislation is needed to close those gaps. 

Lack of financial information regarding all federal entities 

ATDA does not require the OMB Director to provide further information regarding the financial management practices of agencies receiving an exemption from the requirement for an annual financial statement audit; nor is the Director required to submit a 

comprehensive list of all entities in the Executive Branch—including temporary commissions, task forces, advisory boards, or special 

purpose entities—that do not prepare audited financial statements. 

This information would assist congressional efforts to review implementation of the ATDA and to improve the financial management 

of Federal entities within the Executive Branch. 

4 

S. 2688 would require OMB to submit a comprehensive list of entities that do not prepare audited financial statements. S. 2688 specifically requests information regarding entities, such as special 

purpose entities, that currently are not considered by OMB in its 

implementation of the ATDA. S. 2688 would also require OPM to 

provide additional information, such as budget and cost information for small Executive Branch entities, and would direct OMB to 

assess ways to improve financial reporting by these entities. This 

information is important to ensure that Federal funds are subject 

to the oversight provided by Federal financial management statutes. 

III. LEGISLATIVE HISTORY

S. 2688, the Executive Branch Financial Accountability Reporting Act of 2004, was introduced by Senators Fitzgerald and Akaka 

on July 19, 2004, and was referred to the Committee on Governmental Affairs. 

On July 21, 2004, the Committee met to consider pending legislation, including S. 2688. At that time, the Committee ordered the 

bill reported by voice vote without amendment. The following Senators were present: Collins, Voinovich, Specter, Fitzgerald, 

Lieberman, Akaka, Durbin, Carper, and Lautenberg. 

IV. SECTION-BY-SECTION ANALYSIS

Section 1—Short title 

This section provides that the Act may be cited as the ‘‘Executive 

Branch Financial Accountability Reporting Act of 2004.’’ 

Section 2—Definition 

This section defines the term ‘‘Federal entity’’ as any entity that 

is established in the Executive Branch, and includes any entity 

that administers a special purpose program or any other entity 

that is established by presidential or departmental directive. 

Section 3—Report of Federal entities without annually audited financial statements 

Subsection (a) requires the Director of the Office of Management 

and Budget within 60 days after the date of enactment of the Act 

to submit a report to the Senate Committee on Governmental Affairs and the House Committee on Government Reform. 

Paragraph (1) of subsection (b) requires the report in subsection 

(a) to include a list of each Federal entity that receives an exemption from the requirement for an annually audited financial statement under the Accountability of Tax Dollars Act. This list would 

include the entity’s budget authority and outlays for the previous 

and current fiscal years, as well as the projected budget authority 

for the upcoming year. 

Paragraph (2) requires the report to list any other Federal entities, including temporary commissions, advisory boards, task 

forces, or special purpose entities, that do not prepare annual financial statements and have them independently audited. This 

provision also requires the list to include the budget authority and 

outlays of these entities for the previous and current fiscal years, 

and the projected budget authority for the upcoming fiscal year. 

5 

Paragraph (3) states that the report shall include an assessment 

of the capability of the entities listed under paragraphs (1) and (2) 

to prepare annual financial statements and have them independently audited, as well as the costs that would be incurred to do so. 

Paragraph (4) requires the report to assess how the costs of preparing the financial statements and performing independent audits 

of those statements for the entities listed under paragraphs (1) and 

(2) may be reduced by grouping smaller entities together for the 

purpose of preparing and auditing the entities’ financial statements. This paragraph also requires an assessment of other means 

by which the preparation and audit of financial statements could 

be made cost-effective for the entities listed. 

Paragraph (5) requires the report to provide an assessment of the 

benefits of improved financial oversight of the entire Executive 

Branch, including the entities listed under paragraphs (1) and (2). 

This paragraph also requires the report to include recommendations for a plan to implement a requirement that the entire Executive Branch have annual financial statement audits. 

Section 4—Authorization of appropriations 

This section authorizes such sums as may be necessary to carry 

out the Act. 

V. EVALUATION OF REGULATORY IMPACT

Paragraph 11(b)(1) of rule XXVI of the Standing Rules of the 

Senate requires that each report accompanying a bill evaluate the 

‘‘regulatory impact which would be incurred in carrying out this 

bill.’’ The enactment of S. 2688 would have no regulatory impact. 

VI. CBO COST ESTIMATE

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, August 4, 2004. 

Hon. SUSAN M. COLLINS, 

Chairman, Committee on Governmental Affairs, 

U.S. Senate, Washington, DC. 

DEAR MADAM CHAIRMAN: As you requested, the Congressional 

Budget Office has prepared the enclosed cost estimate for S. 2688, 

the Executive Branch Financial Accountability Reporting Act of 

2004. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Matthew Pickford. 

Sincerely, 

ELIZABETH ROBINSON

(For Douglas Holtz-Eakin, Director). 

Enclosure. 

S. 2688—Executive Branch Financial Accountability Reporting Act 

of 2004 

S. 2688 would direct the Office of Management and Budget 

(OMB) to prepare a report on all executive branch entities and activities that are exempt from the requirement to undergo an annual financial audit. Such entities would include many federal commissions, task forces, advisory boards, and other special groups. 

6 

The report on those entities would include budget information and 

an assessment of cost to prepare independent audits for these entities. The bill would require OMB to submit the report to the Congress within 60 days of enactment. 

The cost to conduct such a study could vary depending on the 

level of detail included and the comprehensiveness of the analysis. 

Based on information from OMB, and the cost to prepare similar 

reports with short deadlines, CBO estimates that preparing and 

distributing this report would cost less than $500,000 in fiscal year 

2005, assuming the availability of appropriated funds. This estimate excludes any additional costs to prepare audits for entities 

that are currently exempt from auditing requirement. Subsequent 

legislation would be needed to authorize such audits. Enacting S. 

2688 would not affect direct spending or revenues. 

S. 2688 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act, and would 

not affect the budgets of state, local, or tribal governments. 

The CBO staff contact for this estimate is Matthew Pickford. 

This estimate was approved by Robert A. Sunshine, Assistant Director for Budget Analysis. 

VII. CHANGES TO EXISTING LAW

In compliance with paragraph 12 of rule XXVI of the Standing 

Rules of the Senate, there are no changes in existing law made by 

S. 2688 as reported. 

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