U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

19–010

" ! SENATE 107TH CONGRESS

2d Session

REPORT

2002

107–331

Calendar No. 733

ACCOUNTABILITY OF TAX DOLLARS ACT

OF 2002

R E P O R T

OF THE

COMMITTEE ON GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

TO ACCOMPANY

S. 2644

TO AMEND CHAPTER 35 OF TITLE 31, UNITED STATES CODE, TO

EXPAND THE TYPES OF FEDERAL AGENCIES THAT ARE REQUIRED TO PREPARE AUDITED FINANCIAL STATEMENTS

NOVEMBER 4, 2002.—Ordered to be printed

Filed under authority of the order of the Senate of October 17, 2002
(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

JIM BUNNING, Kentucky

PETER G. FITZGERALD, Illinois

JOYCE A. RECHTSCHAFFEN, Staff Director and Counsel

SUSAN E. PROPPER, Counsel

RICHARD A. HERTLING, Minority Staff Director

MASON C. ALINGER, Minority Professional Staff Member

DARLA D. CASSELL, Chief Clerk
(III)

C O N T E N T S

Page

I. Purpose and Summary .................................................................................. 1

II. Background .................................................................................................... 1

III. Discussion of Legislation ............................................................................... 2

IV. Legislative History ......................................................................................... 4

V. Section by Section Analysis .......................................................................... 4

VI. Evaluation of Regulatory Impact .................................................................. 5

VII. CBO Cost Estimate ........................................................................................ 5

VIII. Changes to Existing Law .............................................................................. 6

Calendar No. 733

107TH CONGRESS REPORT

2d Session " ! SENATE 107–331

ACCOUNTABILITY OF TAX DOLLARS ACT OF 2002

NOVEMBER 4, 2002.—Ordered to be printed

Filed under authority of the order of the Senate of October 17, 2002

Mr. LIEBERMAN, from the Committee on Governmental Affairs,

submitted the following

R E P O R T

[To accompany S. 2644]

The Committee on Governmental Affairs, to which was referred

the bill (S. 2644) to amend chapter 35 of title 31, United States

Code, to expand the types of Federal agencies that are required to

prepare audited financial statements, reports favorably thereon

with an amendment in the nature of a substitute and recommends

that the bill as amended do pass.

I. PURPOSE AND SUMMARY

S. 2644 is a bill to amend title 31, United States Code, to expand

the requirement to conduct annual audits of the agency’s finances

to all executive branch agencies in the federal government. Currently, only the 24 major departments and agencies covered by the

Chief Financial Officers (CFO) Act (31 U.S.C. 3515) are required by

law to prepare audited financial statements each year, although

several independent agencies such as the Federal Communications

Commission and the Federal Trade Commission have been doing so

voluntarily.

II. BACKGROUND

Congress enacted the CFO Act in 1990 to improve Federal financial management. The Act requires 24 federal agencies to have

Chief Financial Officers and Deputy Chief Financial Officers, and

lays out their authority and functions. In 1994, Congress passed

the Government Management Reform Act (GMRA), which expanded the CFO Act by establishing requirements for the prepara-
2

tion and audit of the 24 CFO Act agencies’ financial statements. A

report on the audit by the agency Inspector General or an independent auditor, which is often the General Accounting Office

(GAO), must be submitted to the head of the agency.

GMRA also required the Department of Treasury to prepare a

consolidated financial statement for these 24 agencies, which is audited by the Comptroller General. The government-wide statement

reflects the overall financial position of the executive branch, including assets, liabilities, and results of operations of the executive

branch. The statement also provides useful financial information

on the workings of the federal government to the President, Congress, and the American public.

The financial reporting requirements of GMRA have prompted

improvement in federal financial accountability. There has been

steady progress at federal agencies toward achieving unqualified,

or ‘‘clean,’’ audit opinions. Only 6 of the 24 CFO Act agencies received clean opinions for fiscal year 1996, the first year GMRA was

effective. For fiscal year 2001, 18 of the 24 agencies received clean

opinions, and all of the CFO Act agencies met the statutory reporting deadline for the second year in a row.

In 2001, GAO surveyed 26 executive branch agencies not covered

by the CFO Act to learn their views on having audited financial

statements. Survey Results of Selected Non-CFO Act Agencies’

Views on Having Audited Financial Statements, GAO–02–281R.

These agencies all had budget authority for FY 1999 of at least $10

million. Of the 26 agencies surveyed, 12 had conducted financial

statements audits within the previous 5 years. Overall, the agencies reported that ‘‘they either achieved significant benefits or

would anticipate achieving such benefits from having audited financial statements.’’ Testimony of Gary T. Engel, Director, Financial Management and Assurance, GAO, Before the Subcommittee

on Government Efficiency, Financial Management and Intergovernmental Relations, House Committee on Government Reform, May

14, 2002. Benefits cited included enhancing accountability, identifying inefficiencies and weaknesses, improving internal control, and

monitoring assets and liabilities.

III. DISCUSSION OF LEGISLATION

S. 2644 extends the requirement to prepare and have audited annual financial statements to all executive branch agencies, not just

those covered by the CFO Act. This requirement goes into effect on

March 1, 2003. A substitute amendment filed by Senator Fitzgerald

and adopted by the Committee at its October 9, 2002 markup allows the Office of Management and Budget (OMB) to exempt a

non-CFO Act agency from this requirement if the agency’s budget

authority for the fiscal year does not exceed $25 million and the

OMB Director determines that requiring an audited financial statement from the agency for that fiscal year is unwarranted based on

the agency’s demonstrated performance, the absence of risks associated with the agency’s operations, or other factors the Director considers relevant. The OMB Director must notify the Senate Committee on Governmental Affairs and the House Committee on Government Reform of each agency that receives an exemption for a

fiscal year and the reasons for the exemption.
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Under S. 2644, the OMB Director may also waive the requirement to prepare an audited financial statement for any non-CFO

Act agency for the first two fiscal years after this Act becomes effective.

Non-CFO Act agencies that will be covered by the requirement

to prepare audited financial statements under this legislation, unless they are exempted in a fiscal year by OMB, include:

• Advisory Council on Historic Preservation • Armed Forces Retirement Home • Commission on Civil Rights • Commodity Futures Trading Commission • Consumer Product Safety Commission • Defense Nuclear Facilities Safety Board • Denali Commission • Equal Employment Opportunity Commission • Farm Credit Administration • Federal Communications Commission • Federal Election Commission • Federal Emergency Management Agency • Federal Energy Regulatory Commission • Federal Housing Finance Board • Federal Labor Relations Authority • Federal Mediation and Conciliation Service • Federal Mine Safety and Health Review Commission • Federal Reserve • Federal Retirement Thrift Investment Board • Federal Trade Commission • Holocaust Memorial Museum • Institute of Museum and Library Services • Inter-American Foundation • International Broadcasting Bureau • International Trade Commission • Merit Systems Protection Board • National Archives and Records Administration • National Capital Planning Commission • National Commission on Libraries and Information Science • National Council on Disability • National Credit Union Administration • National Foundation on the Arts and the Humanities • National Indian Gaming Commission • National Labor Relations Board • National Mediation Board • National Transportation Safety Board • Navajo and Hopi Indian Relocation Commission • Nuclear Waste Technical Review Board • Occupational Safety and Health Review Commission • Office of Government Ethics • Office of Special Counsel • Peace Corps • Postal Rate Commission

• Presidio Trust

• Railroad Retirement Board

• Securities Exchange Commission

• Selective Service System

• Trade and Development Agency
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• Voice of America

IV. LEGISLATIVE HISTORY

S. 2644 was introduced by Senator Fitzgerald on June 19, 2002

and was referred to the Committee on Governmental Affairs. At

the Committee’s markup on October 9, 2002, S. 2644 was reported

out with a Fitzgerald substitute amendment by a rollcall vote of 9–

0. Members present were Levin, Akaka, Durbin, Torricelli, Cleland,

Carper, Carnahan, Dayton and Lieberman. Senator Fitzgerald’s

substitute conformed the provisions of S. 2644 to those of H.R.

4685 as passed by the House of Representatives.

The companion bill, H.R. 4685, was introduced in the House of

Representatives by Representative Toomey on May 9, 2002. The

bill was co-sponsored by a bipartisan group of 11 Representatives.

On May 14, 2002, the Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations of the Committee on Government Reform held a hearing on H.R. 4685. Witnesses included Representative Toomey; Gary T. Engel, Director,

Financial Management and Assurance, GAO; Mark A. Reger, Chief

Financial Officer, Federal Communications Commission; Alison L.

Doone, Deputy Staff Director for Management, Federal Election

Commission; Frederick J. Zirkel, Inspector General, Federal Trade

Commission, and Paul Brachfeld, Inspector General, National Archives and Records Administration. On June 18, 2002, the Subcommittee marked up H.R. 4685, with a manager’s amendment.

On October 7, 2002, the House considered H.R. 4685 under suspension of the rules with a substitute amendment offered by Representative Horn. The substitute deleted the bill’s requirement that

non-CFO Act agencies also comply with the Federal Financial Management Improvement Act. H.R. 4685 as amended passed the

House by voice vote.

V. SECTION-BY-SECTION ANALYSIS

Section 1 entitles the Act as the ‘‘Accountability of Tax Dollars

Act of 2002.’’

Section 2(a) amends section 3515 of title 31, United States Code.

It changes the list of agencies covered by section 3515’s requirement to prepare annual audited financial statements by deleting

the cross-reference to CFO Act agencies and replacing that reference with ‘‘each covered executive agency.’’ It replaces the instruction to prepare such reports beginning in 1997 with 2003. It

also adds new subsections (e) and (f) to section 3515.

New subsection (e) provides that the Director of OMB may exempt an agency from the requirement to prepare an audited financial statement in a fiscal year in which that agency’s budget authority does not exceed $25 million and the OMB Director determines that requiring the agency to prepare such a statement is not

warranted because of the absence of risks associated with the agency’s operations, the agency’s demonstrated performance, or other

factors that the Director considers relevant. The Director is required to notify the House Committee on Government Reform and

the Senate Committee on Governmental Affairs of each agency that

has received an exemption and the reasons for each exemption.
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New subsection (f) defines the term ‘‘covered executive agency’’ to

mean any executive agency that is not required by another provision of law to prepare and submit to Congress and OMB an audited

financial statement for each fiscal year. The definition excludes a

corporation, agency, or instrumentality subject to chapter 91 of title

31. The government corporations covered by that chapter are listed

in section 9101 of title 31 and include entities such as the Federal

Deposit Insurance Corporation, the Government National Mortgage

Association, and the Pension Benefit Guaranty Corporation.

Section 2(b) allows OMB to waive the application of this legislation to any non-CFO Act agency for the first two fiscal years after

the enactment of this legislation. This provision responds to concerns that agencies that have not previously been required to prepare audited financial statements need time to train and engage in

other necessary preparations.

VI. 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 this legislation will not have significant regulatory impact.

VII. CBO COST ESTIMATE

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, October 23, 2002.

Hon. JOSEPH I. LIEBERMAN, Chairman, Committee on Governmental Affairs,

U.S. Senate, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 2644, the Accountability of

Tax Dollars Act of 2002.

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

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

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

S. 2644—Accountability of Tax Dollars Act of 2002

S. 2644 would amend title 31 of the United States Code to expand the number of federal agencies that are required to prepare

audited financial statements. Under the bill, all executive agencies

with budget authority of $25 million or more would be required to

submit audited financial statements to the Congress and the Office

of Management and Budget (OMB) by March 1, 2003. The bill also

would allow OMB to waive the audit requirement for an additional

two years.

S. 2644 would expand the requirements of the Chief Financial

Officers Act to more than 20 additional executive agencies. Based

on a recent report by the General Accounting Office concerning

agency auditing costs, and on information from OMB, CBO esti-
6

mates that implementing S. 2644 would cost about $5 million annually beginning in 2005, subject to the availability of appropriated

funds. (This estimate assumes that OMB would exercise the option

to waive the audit requirement for two years.) In addition, enacting

the bill would not affect direct spending or revenues.

The use of audited financial statements could help agencies

strengthen accountability, better monitor assets and liabilities, enhance cost controls, and identify inefficiencies. Improved financial

information also could reduce waste and fraud, but we have no

basis for estimating any potential savings from these actions.

S. 2644 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 Peter H. Fontaine, Deputy Assistant Director for Budget Analysis.

VIII. CHANGES TO EXISTING LAW

In compliance with paragraph 12 of rule XXVI of the Standing

Rules of the Senate, changes in existing law made by S. 2644 as

reported are shown as follows (existing law proposed to be omitted

is enclosed in brackets, new matter is printed in italic, and existing

law in which no change is proposed is shown in roman):

UNITED STATES CODE

TITLE 31—MONEY AND FINANCE

* * * * * * *

CHAPTER 35—ACCOUNTING AND COLLECTION

* * * * * * *

§ 3515. Financial statements of agencies

(a) øNot later¿ (1) Except as provided in subsection (e), not later

than March 1 of ø1997¿ 2003 and each year thereafter, the head

of øeach executive agency identified in section 901(b) of this title¿

each covered executive agency shall prepare and submit to the Congress and the Director of the Office of Management and Budget an

audited financial statement for the preceding fiscal year, covering

all accounts and associated activities of each office, bureau, and activity of the agency.

(b) Each audited financial statement of øan executive agency¿ a

covered executive agency under this section shall reflect—

(1) the overall financial position of the offices, bureaus, and

activities covered by the statement, including assets and liabilities thereof; and

(2) results of operations of those offices, bureaus, and activities.

(c) The Director of the Office of Management and Budget shall

identify components of øexecutive agencies¿ covered executive agencies that shall be required to have audited financial statements

meeting the requirements of subsection (b).
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(d) The Director of the Office of Management and Budget shall

prescribe the form and content of the financial statements of øexecutive agencies¿ covered executive agencies under this section, consistent with applicable accounting and financial reporting principles, standards, and requirements.

(e)(1) The Director of the Office of Management and Budget may

exempt a covered executive agency, except an agency described in

section 901(b), from the requirements of this section with respect to

a fiscal year if— (A) the total amount of budget authority available to the agency for the fiscal year does not exceed $25,000,000; and

(B) the Director determines that requiring an annual audited

financial statement for the agency with respect to the fiscal year

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.

(2) The Director shall annually notify the Committee on Government Reform of the House of Representatives and the Committee on

Governmental Affairs of the Senate of each agency the Director has

exempted under this subsection and the reasons for each exemption.

(f) The term ‘‘covered executive agency’’—

(1) means an executive agency that is not required by another

provision of Federal law to prepare and submit to Congress and

the Director of the Office of Management and Budget an audited financial statement for each fiscal year, covering all accounts and associated activities of each office, bureau, and activity of the agency; and

(2) does not include a corporation, agency, or instrumentality

subject to chapter 91 of this title.

Æ