U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 226

Independent Auditor’s Report

The President

The President of the Senate

The Speaker of the House of Representatives

In our audits of the U.S. government’s consolidated financial statements as of and for the fiscal years 

ended September 30, 2020, and 2019, we found the following:

• Certain material weaknesses1 in internal control over financial reporting and other limitations on the 

scope of our work resulted in conditions that continued to prevent us from expressing an opinion on 

the accompanying accrual-based consolidated financial statements as of and for the fiscal years 

ended September 30, 2020, and 2019.2

• Significant uncertainties (discussed in Note 23 to the consolidated financial statements), primarily 

related to the achievement of projected reductions in Medicare cost growth, prevented us from 

expressing an opinion on the sustainability financial statements,3 which consist of the 2020 and 

2019 Statements of Long-Term Fiscal Projections;4 the 2020, 2019, 2018, 2017, and 2016 

Statements of Social Insurance;5 and the 2020 and 2019 Statements of Changes in Social 

1A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there 

is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected 

and corrected, on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, 

misstatements on a timely basis.

2The accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2020, and 2019, 

consist of the (1) Statements of Net Cost, (2) Statements of Operations and Changes in Net Position, 

(3) Reconciliations of Net Operating Cost and Budget Deficit, (4) Statements of Changes in Cash Balance from Budget and 

Other Activities, and (5) Balance Sheets, including the related notes to these financial statements. Most revenues are recorded 

on a modified cash basis. We previously reported that certain material weaknesses and, for some years, other limitations on 

the scope of our work prevented us from expressing an opinion on the accrual-based consolidated financial statements of the 

U.S. government for fiscal years 1997 through 2019.

3The sustainability financial statements are based on projections of future receipts and spending, while the accrual-based 

consolidated financial statements are based on historical information, including the federal government’s assets, liabilities, 

revenue, and net cost.

4The 2020 and 2019 Statements of Long-Term Fiscal Projections present, for all the activities of the federal government, the 

present value of projected receipts and non-interest spending under current policy without change, the relationship of these 

amounts to projected gross domestic product (GDP), and changes in the present value of projected receipts and non-interest 

spending from the prior year. These statements also present the fiscal gap, which is the combination of non-interest spending 

reductions and receipts increases necessary to hold debt held by the public as a share of GDP at the end of the projection 

period to its value at the beginning of the period. The valuation date for the Statements of Long-Term Fiscal Projections is 

September 30.

5Statements of Social Insurance are presented for the current year and each of the 4 preceding years as required by U.S. 

generally accepted accounting principles. For the Statements of Social Insurance, the valuation date is January 1 for the 

Social Security and Medicare programs, October 1 for the Railroad Retirement program, and September 30 for the Black Lung 

program. 
227 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Insurance Amounts. A material weakness in internal control also prevented us 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.

This audit report discusses the following in more detail.

• Our report on the accompanying consolidated financial statements, which includes (1) three 

emphasis of matters—the federal government’s response to the Coronavirus Disease 2019 

(COVID-19) pandemic, long-term fiscal challenges, and equity investments in the Federal National 

Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 

Mac); (2) required supplementary information (RSI),6 and other information7 included with the 

consolidated financial statements in the Fiscal Year 2020 Financial Report of the United States 

Government (2020 Financial Report); and (3) information on Chief Financial Officers Act of 1990 

(CFO Act) agency financial management systems.

• Our report on internal control over financial reporting. 

• Our report on compliance with laws, regulations, contracts, and grant agreements. 

• The Department of the Treasury’s (Treasury) and the Office of Management and Budget’s (OMB) 

comments on a draft of this audit report.

Appendix I discusses our audit objectives, scope, and methodology. 

Report on the Consolidated Financial Statements 

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.8 As noted above, the consolidated financial statements consist of the 

accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 

2020, and 2019, and the sustainability financial statements, consisting of the 2020 and 2019 

Statements of Long-Term Fiscal Projections; the 2020, 2019, 2018, 2017, and 2016 Statements of 

Social Insurance; the 2020 and 2019 Statements of Changes in Social Insurance Amounts; and the 

related notes to the financial statements. 

6The RSI consists of Management’s Discussion and Analysis and information in the Required Supplementary Information 

section of the Fiscal Year 2020 Financial Report of the United States Government. 

7Other information consists of information in the Fiscal Year 2020 Financial Report of the United States Government other 

than the consolidated financial statements, RSI, auditor’s report, and Statement of the Comptroller General of the United 

States.

8The 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. 31 U.S.C. § 331(e). The consolidated financial

statements include the legislative and judicial branches.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 228

We performed sufficient audit work to provide this report on the consolidated financial statements. We 

considered the limitations on the scope of our work regarding the accrual-based consolidated financial 

statements and the sustainability financial statements in forming our conclusions. We performed our 

work in accordance with U.S. generally accepted government auditing standards.

Management’s Responsibility

Management of the federal government is responsible for (1) the preparation and fair presentation of 

annual consolidated financial statements of the U.S. government in accordance with U.S. generally 

accepted accounting principles; (2) preparing, measuring, and presenting the RSI in accordance with 

U.S. generally accepted accounting principles; (3) preparing and presenting other information included 

in documents containing the consolidated financial statements and auditor’s report, and ensuring the 

consistency of that information with the consolidated financial statements and RSI; and (4) maintaining 

effective internal control over financial reporting, including the design, implementation, and 

maintenance of internal control relevant to the preparation and fair presentation of financial statements 

that are free from material misstatement, whether due to fraud or error. 

Auditor’s Responsibility

Our responsibility is to express opinions on these consolidated financial statements based on 

conducting the audit in accordance with U.S. generally accepted government auditing standards. We 

are also responsible for applying certain limited procedures to the RSI and other information included 

with the consolidated financial statements. Because of the matters discussed below, we were unable to 

obtain sufficient appropriate evidence to provide a basis for audit opinions on the consolidated financial 

statements.

Basis for Disclaimers of Opinion on the Consolidated Financial Statements

Accrual-Based Consolidated Financial Statements 

The federal government is not able to demonstrate the reliability of significant portions of the 

accompanying accrual-based consolidated financial statements as of and for the fiscal years ended 

September 30, 2020, and 2019, principally because of limitations related to certain material 

weaknesses in internal control over financial reporting and other limitations affecting the reliability of 

these financial statements and the scope of our work, as discussed below.9 As a result of these 

limitations, readers are cautioned that amounts reported in the accrual-based consolidated financial 

statements and related notes may not be reliable.

The federal government did not maintain adequate systems or have sufficient appropriate evidence to 

support certain material information reported in the accompanying accrual-based consolidated financial 

statements. The underlying material weaknesses in internal control, which generally have existed for 

9Such limitations include (1) the Department of Defense received disclaimers of opinion on its fiscal year 2020 and 2019 

financial statements; (2) the Small Business Administration received a disclaimer of opinion on its fiscal year 2020 financial 

statements; (3) the Department of Housing and Urban Development received a qualified opinion on its fiscal year 2019 

financial statements (a qualified opinion arises when the auditor is able to express an opinion on the financial statements 

except for specific areas where the auditor was unable to obtain sufficient and appropriate evidence); (4) as of the date of this 

audit report, the audited Schedules of the General Fund of the U.S. Government for fiscal year 2020 were not issued (the 

fiscal year 2019 Schedules of the General Fund were not audited to allow Treasury sufficient time to develop and begin to 

implement a remediation plan to address the issues we identified as part of our audit of the fiscal year 2018 Schedules of the 

General Fund); and (5) for fiscal years 2020 and 2019, the financial information for Security Assistance Accounts was 

unaudited.
229 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

years, contributed to our disclaimer of opinion on the accrual-based consolidated financial statements. 

Specifically, these weaknesses concerned the federal government’s inability to

• satisfactorily determine that property, plant, and equipment and inventories and related property, 

primarily held by the Department of Defense (DOD), were properly reported in the accrual-based 

consolidated financial statements; 

• reasonably estimate the value of loans receivable and loan guarantee liabilities, most notably at the 

Small Business Administration (SBA);10

• reasonably estimate or adequately support amounts reported for certain liabilities, such as 

environmental and disposal liabilities, or determine whether commitments and contingencies were 

complete and properly reported; 

• support significant portions of the reported total net cost of operations, most notably related to DOD 

and SBA, and adequately reconcile disbursement activity at certain federal entities;

• adequately account for intragovernmental activity and balances between federal entities; 

• reasonably assure that the consolidated financial statements are (1) consistent with the underlying 

audited entities’ financial statements, (2) properly balanced, and (3) in accordance with U.S. 

generally accepted accounting principles; and 

• reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Budget 

Deficit and (2) Statements of Changes in Cash Balance from Budget and Other Activities is 

complete, properly supported, and consistent with the underlying information in the audited entities’ 

financial statements and other financial data. 

These material weaknesses 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. Because of these material weaknesses and other limitations on the scope of our work 

discussed below, additional issues may exist that were not identified and could affect the accrual-based 

consolidated financial statements. Appendix II describes these material weaknesses in more detail and 

highlights the primary effects of these material weaknesses on the accompanying accrual-based 

consolidated financial statements, the sustainability financial statements, and the management of 

federal government operations.

Sustainability Financial Statements

Significant uncertainties (discussed in Note 23 to the consolidated financial statements), which primarily 

relate to the achievement of projected reductions in Medicare cost growth, affect the sustainability 

financial statements. In addition, the material weakness related to the Reconciliations of Net Operating 

10A material weakness over loans receivable and loan guarantee liabilities existed in fiscal year 2019 but did not contribute to 

our disclaimer of opinion on the accrual-based consolidated financial statements. In fiscal year 2020, because of the 

disclaimer of opinion and material weaknesses at SBA, the material weakness over loans receivable and loan guarantee 

liabilities contributed to our disclaimer of opinion.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 230

Cost and Budget Deficit and the Statements of Changes in Cash Balance from Budget and Other 

Activities, discussed above, hampers the federal government’s ability to demonstrate the reliability of 

historical budget information used for certain key inputs to the 2020 and 2019 Statements of Long-Term 

Fiscal Projections. As a result of these significant uncertainties and this material weakness, readers are 

cautioned that amounts reported in the 2020 and 2019 Statements of Long-Term Fiscal Projections; the 

2020, 2019, 2018, 2017, and 2016 Statements of Social Insurance; the 2020 and 2019 Statements of 

Changes in Social Insurance Amounts; and the related notes to these financial statements may not 

fairly present, in all material respects, the sustainability information for those years in accordance with 

U.S. generally accepted accounting principles.

These significant uncertainties primarily relate to the following:

• Medicare projections in the 2020 and 2019 Statements of Long-Term Fiscal Projections and the 

2020, 2019, 2018, 2017, and 2016 Statements of Social Insurance were based on benefit formulas 

under current law and included a significant reduction in Medicare payment rate updates for 

productivity improvements for most categories of Medicare providers,11 based on full 

implementation of the provisions of the Patient Protection and Affordable Care Act, as amended 

(PPACA),12 and physician payment updates specified by the Medicare Access and CHIP 

Reauthorization Act of 2015 (MACRA).13

• Management has noted that actual future costs for Medicare are likely to exceed those shown by 

the projections under current law presented in the 2020, 2019, 2018, 2017, and 2016 Statements of 

Social Insurance because of, for example, the likelihood of changes to the scheduled reductions in 

Medicare payment rate updates for productivity adjustments relating to most categories of Medicare 

providers and the specified physician payment updates. The extent to which actual future costs 

exceed the amounts projected under current law because of changes to the scheduled reductions 

in Medicare payment rate updates for productivity adjustments and specified physician payment 

updates depends on both the specific changes that might be enacted and whether enacted 

legislation would include further provisions to help offset such costs. Consequently, there are 

significant uncertainties concerning the achievement of these projected reductions in Medicare 

payment rate updates.

• Management has developed an illustrative alternative projection intended to provide additional 

context regarding the long-term sustainability of the Medicare program and to illustrate the 

uncertainties in the Statement of Social Insurance projections. The present value of future 

estimated expenditures in excess of future estimated revenue for Medicare, included in the 

11Under the Patient Protection and Affordable Care Act’s productivity adjustment provisions, productivity improvements are 

expected to result in lower overall Medicare spending because of smaller annual increases in the Medicare payment rates paid 

to many health care providers. This is often referred to as a reduction in Medicare payment rate updates. The health care 

provider categories affected include, but are not limited to, inpatient/outpatient hospital services, skilled nursing facilities, home 

health care, ambulance, ambulatory surgical centers, durable medical equipment, and prosthetics.

12PPACA, Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation 

Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010). In this report, references to PPACA include any 

amendments made by the Health Care and Education Reconciliation Act of 2010.

13MACRA, Pub. L. No. 114-10, title I, § 101, 129 Stat. 87, 89 (Apr. 16, 2015). MACRA included many provisions that affect 

Medicare, including the repeal of the sustainable growth rate formula for calculating annual updates to Medicare 

reimbursement payment rates to physicians and certain non-physician medical providers, and established an alternative set of 

annual updates.
231 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

illustrative alternative projection in Note 23, exceeds the $45.7 trillion estimate in the 2020 

Statement of Social Insurance by $9.3 trillion. 

• Management noted that these significant uncertainties about projected reductions in health care 

cost growth also affect the projected Medicare and Medicaid costs reported in the 2020 and 2019 

Statements of Long-Term Fiscal Projections.

Projections of Medicare costs are sensitive to assumptions about future policymaker decisions and 

about consumer, employer, and health care provider behavioral responses as policy, incentives, and 

the health care sector change over time. Such secondary effects are not fully reflected in the 

sustainability financial statements but could be expected to influence the excess cost growth rate used 

in the projections.14 Key drivers of uncertainty about the excess cost growth rate include the future 

development and deployment of medical technology, the evolution of personal income, and the cost 

and availability of insurance, as well as federal policy changes, such as the implementation of PPACA. 

As discussed in the RSI section of the 2020 Financial Report, the projections are very sensitive to 

changes in the health care cost growth assumption.

As discussed in Notes 23 and 24 to the consolidated financial statements, the sustainability financial 

statements are based on management’s assumptions. These sustainability financial statements present 

the present value of the U.S. government’s estimated future receipts and future spending using a 

projection period sufficient to illustrate long-term sustainability.15 The sustainability financial statements 

are intended to aid users in assessing whether future resources will likely be sufficient to sustain public 

services and to meet obligations as they come due. 

In preparing the sustainability financial statements, management selects assumptions and data that it 

believes provide a reasonable basis to illustrate whether current policy is sustainable. As discussed in 

the 2020 Financial Report, current policy is based on current law but includes several adjustments. In 

the Statements of Long-Term Fiscal Projections, notable adjustments to current law include

• projected spending, receipts, and borrowing levels assume raising or suspending the current 

statutory limit on federal debt; 

• continued discretionary appropriations are assumed throughout the projection period; 

• scheduled Social Security and Medicare Part A benefit payments are assumed to occur beyond the 

projected point of trust fund depletion; 

• many mandatory programs with expiration dates prior to the end of the 75-year projection period 

are assumed to be reauthorized; and 

• tax changes under the Tax Cuts and Jobs Act (Public Law 115-97) are assumed to continue 

beyond 2025. 

In the Statements of Social Insurance, the one adjustment to current law is that scheduled Social 

Security and Medicare Part A benefit payments are assumed to occur beyond the projected point of 

trust fund depletion. Assumptions underlying such sustainability information do not consider changes in 

policy or all potential future events that could affect future revenue and expenditures and, hence, 

sustainability. Also, the projections assume that debt could continuously rise without severe economic 

14The excess cost growth rate is the increase in health care spending per person relative to the growth of GDP per person 

after removing the effects of demographic changes on health care spending.

15The projection period used for the Social Security, Medicare, and Railroad Retirement social insurance programs is 75 years. 

Beginning in fiscal year 2017, the Black Lung program has a rolling 25-year projection period. For fiscal year 2016, the Black 

Lung program projection period was through September 30, 2040.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 232

consequences. The RSI section of the 2020 Financial Report includes unaudited information on how 

changes in various assumptions would affect the Statements of Long-Term Fiscal Projections and 

Statements of Social Insurance. The sustainability financial statements are not forecasts or predictions. 

The sustainability financial statements are based on the economic assumptions that underlie the Social 

Security Trustees’ Report, and those assumptions were developed using data available as of January 

1, 2020, prior to the economic downturn. At this time, management cannot reasonably estimate the

potential effects of the COVID-19 pandemic on the projections or other sustainability measures (such as 

projected depletion dates for Social Security and Medicare Hospital Insurance Trust Fund discussed 

below), which could be significant.

As discussed in the unaudited RSI section of the 2020 Financial Report, the combined Social Security 

trust funds are projected to be depleted in 2035.16 Further, based on the achievement of the cost 

growth reductions discussed above, the Medicare Hospital Insurance (Part A) trust fund is projected to 

be depleted in 2026. After depletion, the trust funds would be unable to pay the full amount of 

scheduled future benefits. For Social Security, future revenues were projected to be sufficient to pay 79 

percent of scheduled benefits in 2035, the year of projected trust funds (combined) depletion, and 

decreasing to 73 percent of scheduled benefits in 2094. For Medicare Hospital Insurance (Part A), 

future revenues were projected to be sufficient to pay 90 percent of scheduled benefits in 2026, the 

year of projected trust fund depletion, declining to 78 percent by 2044, and then increasing to 90 

percent of scheduled benefits in 2094.

Because of the large number of factors that affect the sustainability financial statements and the fact 

that future events and circumstances cannot be projected with certainty, even if current policy is 

continued, there will be differences between the projections in the sustainability financial statements 

and the actual results, and those differences may be material.

Other Limitations on the Scope of Our Work

For fiscal years 2020 and 2019, there were other limitations on the scope of our work, in addition to the 

material weaknesses and significant uncertainties noted above, that contributed to our disclaimers of 

opinion on the consolidated financial statements. Such limitations primarily relate to our ability to obtain 

adequate representations from management. Treasury and OMB depend on representations from 

certain federal entities to provide their representations to us regarding the U.S. government’s 

consolidated financial statements. Treasury and OMB were unable to provide us with adequate 

representations regarding the U.S. government’s accrual-based consolidated financial statements for 

fiscal years 2020 and 2019, primarily because certain federal entities provided them insufficient or no 

representations.

16The combined Social Security trust funds consist of the Federal Old-Age and Survivors Insurance trust fund and the Federal 

Disability Insurance trust fund. For the Federal Old-Age and Survivors Insurance trust fund, future revenues were projected to 

be sufficient to pay 76 percent of scheduled benefits in 2034, the year of projected trust fund depletion, decreasing to 71 

percent in 2094. For the Federal Disability Insurance trust fund, future revenues were projected to be sufficient to pay 92 

percent of scheduled benefits in 2065, the year of projected trust fund depletion, decreasing to 90 percent in 2094.
233 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Disclaimers of Opinion on the Consolidated Financial Statements

Accrual-Based Consolidated Financial Statements 

Because of the significance of the related matters described in the Basis for Disclaimers of Opinion on 

the Consolidated Financial Statements section above, we were not able to obtain sufficient appropriate 

audit evidence to provide a basis for an audit opinion on the accrual-based consolidated financial 

statements. Accordingly, we do not express an opinion on the accrual-based consolidated financial 

statements as of and for the fiscal years ended September 30, 2020, and 2019.

Sustainability Financial Statements

Because of the significance of the related matters described in the Basis for Disclaimers of Opinion on 

the Consolidated Financial Statements above, we were not able to obtain sufficient appropriate audit 

evidence to provide a basis for an audit opinion on the Statements of Long-Term Fiscal Projections for 

2020 and 2019; the Statements of Social Insurance for 2020, 2019, 2018, 2017, and 2016; and the 

Statements of Changes in Social Insurance Amounts for 2020 and 2019. Accordingly, we do not 

express an opinion on these sustainability financial statements.

Emphasis of Matters

The following key items deserve emphasis in order to put the information in the consolidated financial 

statements and the Management’s Discussion and Analysis section of the 2020 Financial Report into 

context. However, our disclaimers of opinion noted above are not modified with respect to these 

matters.

The Federal Government’s Response to the COVID-19 Pandemic

The federal government took unprecedented actions in response to the Coronavirus Disease 2019 

(COVID-19) pandemic to protect public health and reduce economic impacts on individuals and 

businesses in fiscal year 2020. These efforts are reflected in the assets, liabilities, net cost, and the 

budget deficit reported in the U.S. government’s consolidated financial statements for fiscal year 2020. 

Significant assets as of September 30, 2020, resulting from the federal government’s response to the 

COVID-19 pandemic include 

• equity investments in special purpose vehicles of $108 billion, which the Federal Reserve 

established to enhance the liquidity of the U.S. financial system;17

• advances of $173 billion to state, local, territorial, and tribal governments and Medicare providers; 

• almost all of the $181 billion in disaster loans; and 

• cash and other monetary assets of $1,927 billion, up from $525 billion as of September 30, 2019.18

In addition, loan guarantee liabilities increased to $520 billion as of September 30, 2020, from $22 

billion as of September 30, 2019, primarily because of Paycheck Protection Program (PPP) lending 

17As discussed in Note 26 to the consolidated financial statements, these special purpose vehicles are not consolidated into 

the government’s consolidated financial statements. Treasury and OMB have determined that these entities do not meet the 

criteria for consolidation.

18As discussed in Note 2 of the 2020 Financial Report, the increase in cash and other monetary assets was due to Treasury 

maintaining an elevated cash balance to maintain prudent liquidity in light of the size and relative uncertainty of COVID-19-

related outflow.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 234

established in response to the COVID-19 pandemic. Because the valuation of certain of these assets 

and liabilities is based on assumptions and estimates that are inherently subject to uncertainty, actual 

results may be materially different from the reported amounts.

Major increases in net cost resulting from the federal government’s response to the COVID-19 

pandemic include costs related to small business loan guarantees, primarily PPP, of $527 billion; 

economic impact payments of $275 billion; and income maintenance program costs of $461 billion, 

primarily due to unemployment benefits. COVID-19 pandemic-related budget expenditures totaled $1.6 

trillion during fiscal year 2020, increasing the budget deficit. Because of the ongoing deficit, increases in 

cash and other monetary assets, and COVID-19 pandemic-related spending, federal debt held by the 

public increased by $4.2 trillion during fiscal year 2020. 

The actions the federal government has taken to combat the pandemic and their effects on the financial 

statements are discussed throughout the 2020 Financial Report and summarized in Note 28 to the 

consolidated financial statements. 

Subsequent to fiscal year 2020, further legislation was enacted containing provisions that provided 

additional relief to address the continued impact of the COVID-19 pandemic.19 The effects of this 

subsequent legislation are not reflected in the U.S. government’s consolidated financial statements for 

fiscal year 2020. The ultimate cost of these actions and any future actions in response to the pandemic 

and their impact on the federal government’s financial condition will not be fully known for some time.

Long-Term Fiscal Challenges

The 2020 Statement of Long-Term Fiscal Projections and related information in Note 24 and in the 

unaudited RSI section of the 2020 Financial Report show that absent policy changes, the federal 

government continues to face an unsustainable long-term fiscal path. At the end of fiscal year 2020, 

debt held by the public reached about 100 percent of gross domestic product (GDP), far above the 

post–World War II (since 1946) average of 47 percent. For the 2020 projections, debt-to-GDP at the 

end of the 75-year projection period is projected to be 623 percent. Annual budget deficits are projected 

to continue throughout the 75-year projection period. Over the long term, the imbalance between 

spending and revenue that is built into current policy and law is projected to lead to continued growth of 

the debt held by the public as a share of GDP. This situation—in which debt grows faster than GDP—

means the current federal fiscal path is unsustainable. 

Under the 2020 Financial Report projections, spending for the major health and retirement programs 

will increase more rapidly than GDP in the coming decades, in part because of an aging population and 

projected continued increases in health care costs. These projections for Social Security and Medicare 

are based on the same assumptions underlying the information presented in the Statement of Social 

Insurance and assume that the provisions enacted in PPACA designed to slow the growth of Medicare 

costs are sustained and remain in effect throughout the projection period. The projections also reflect 

the effects of MACRA, which, among other things, revised the methodology for determining physician 

payment rates. If, however, the Medicare cost containment measures and physician payment rate 

methodology are not sustained over the long term—concerns expressed by the Trustees of the 

Medicare trust funds, the Centers for Medicare & Medicaid Services’ Chief Actuary, the Congressional 

Budget Office (CBO), and others—spending on federal health care programs will grow more rapidly 

than assumed in the projections. In addition, based on the 2020 Financial Report projections, spending 

on net interest (primarily interest on debt held by the public) will surpass Social Security spending and 

19Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1182 (Dec. 27, 2020); and American Rescue Plan Act 

of 2021, Pub. L. No. 117-2, 135 Stat. 4 (Mar. 11, 2021).
235 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

becomes the largest category of spending in 2034. Net interest is projected to increase from 1.6 

percent of GDP in fiscal year 2020 to 8.0 percent in fiscal year 2039 and to 28.2 percent in fiscal year 

2095. 

GAO and CBO also prepare long-term federal fiscal simulations, which continue to show federal debt 

held by the public rising as a share of GDP in the long term.20 GAO, CBO, and the 2020 Financial 

Report all project that debt held by the public as a share of GDP will surpass its historical high (106 

percent in 1946) within the next 4 to 10 years. Each of these long-term projections uses somewhat 

different assumptions, but their overall conclusions are the same: absent policy changes, the federal 

government’s fiscal path is unsustainable.

Further, the projections do not fully account for emerging issues and unforeseen challenges, such as 

another economic downturn or large-scale disaster. These unforeseen events, also known as fiscal 

risks or fiscal exposures, place additional pressure on the federal budget. They result in responsibilities, 

programs, and activities that may legally commit or create expectations for future federal spending 

based on current policy, past practices, or other factors. A more complete understanding of them can 

help policymakers anticipate changes in future spending and can enhance oversight of federal 

resources. 

Currently, policymakers are understandably focused on dealing with the pandemic and its effect on the 

economy. However, once these issues are addressed, policymakers will need to turn their attention to 

the serious long term challenges of addressing the federal government’s large and growing structural 

deficits that are driven primarily by rising health care costs and known demographic trends. To address 

these challenges, policymakers would need to consider policy changes, including revenue increases, 

spending cuts, or a combination of both. The projections show that the longer policy changes are 

delayed, the greater such changes will need to be.

Equity Investments in Fannie Mae and Freddie Mac

In 2008, during the financial crisis, the federal government placed Fannie Mae and Freddie Mac under 

conservatorship and entered into preferred stock purchase agreements with these governmentsponsored enterprises (GSE) to help ensure their financial stability. The agreements with the GSEs 

could affect the federal government’s financial condition. As of September 30, 2020, the federal 

government reported about $109 billion of investments in the GSEs, which is net of about $118 billion in 

valuation losses. The reported maximum remaining contractual commitment to the GSEs, if needed, is 

$254.1 billion.

In valuing these equity investments, management considered and selected assumptions and data that 

it believed provided a reasonable basis for the estimated values reported in the accrual-based 

consolidated financial statements. However, as discussed in Note 1 to the consolidated financial

statements, there are many factors affecting these assumptions and estimates that are inherently 

subject to substantial uncertainty arising from the uniqueness of the transactions and the likelihood of 

future changes in general economic, regulatory, and market conditions. As such, there will be 

differences between the estimated values as of September 30, 2020, and the actual results, and such 

differences may be material. Also, as discussed in Note 1 to the consolidated financial statements, the 

assets, liabilities, and results of operations of Fannie Mae and Freddie Mac are not consolidated into 

the government’s consolidated financial statements. Treasury and OMB have determined that these 

20For more information on GAO’s simulations, see GAO, America’s Fiscal Future, accessed on Mar. 17, 2021, 

https://www.gao.gov/americas_fiscal_future. For more information on CBO’s simulations, see Congressional Budget Office, 

The 2021 Long-Term Budget Outlook (Washington, D.C.: Mar. 4, 2021). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 236

entities do not meet the criteria for consolidation.21 The ultimate role of the GSEs could affect the 

federal government’s financial condition and the financial condition of certain federal entities, including 

the Federal Housing Administration (FHA), which in the past expanded its lending role in distressed 

housing and mortgage markets. In addition, the Government National Mortgage Association (Ginnie 

Mae) guarantees the performance of about $2.1 trillion in securities backed by federally insured 

mortgages—$1.2 trillion of which were insured by FHA and $0.9 trillion by other federal entities, such 

as the Department of Veterans Affairs.

Other Matters

Required Supplementary Information

U.S. generally accepted accounting principles issued by the Federal Accounting Standards Advisory 

Board (FASAB) require that the RSI be presented in the 2020 Financial Report to supplement the 

financial statements. Although the RSI is not a part of the financial statements, FASAB considers this 

information to be an essential part of financial reporting for placing the financial statements in 

appropriate operational, economic, or historical context. We were unable to apply certain limited 

procedures to the RSI in accordance with U.S. generally accepted government auditing standards 

because of the material weaknesses and other scope limitations discussed in this audit report. We did 

not audit and do not express an opinion or provide any assurance on the RSI. 

Other Information

Other information included in the 2020 Financial Report contains a wide range of information, some of 

which is not directly related to the consolidated financial statements. This information is presented for 

purposes of additional analysis and is not a required part of the consolidated financial statements or 

RSI. We read the other information included with the consolidated financial statements in order to 

identify material inconsistencies, if any, with the consolidated financial statements. We did not audit and 

do not express an opinion or provide any assurance on the other information in the 2020 Financial 

Report.

Readers are cautioned that the material weaknesses, significant uncertainties, and other scope 

limitations discussed in this audit report may affect the reliability of certain information contained in the 

RSI and other information that is taken from the same data sources as the accrual-based consolidated 

financial statements and the sustainability financial statements.

CFO Act Agency Financial Management Systems

The federal government’s ability to efficiently and effectively manage and oversee its day-to-day 

operations and programs relies heavily on the ability of entity financial management systems to 

produce complete, reliable, timely, and consistent financial information for use by executive branch 

agencies and Congress.22 The Federal Financial Management Improvement Act of 1996 (FFMIA) was 

21For additional information on the GSE preferred stock purchase agreements and valuation of the investment in the GSEs, 

see Note 9 to the consolidated financial statements. For additional information on the criteria used to determine which federal 

entities are included in the reporting entity for the consolidated financial statements, as well as the reasons for not including 

certain entities, such as Fannie Mae and Freddie Mac, see app. A of the 2020 Financial Report. 

22The Federal Financial Management Improvement Act of 1996, which is reprinted in 31 U.S.C. § 3512 note, defines “financial 

management systems” to include the financial systems and the financial portions of mixed systems necessary to support 

financial management, including automated and manual processes, procedures, controls, data, hardware, software, and 

support personnel dedicated to the operation and maintenance of system functions.
237 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

designed to lead to system improvements that would result in CFO Act agency managers routinely 

having access to reliable, useful, and timely financial information with which to measure performance 

and increase accountability throughout the year. 

The 24 CFO Act agencies are responsible for implementing and maintaining financial management 

systems that comply substantially with FFMIA requirements. FFMIA requires auditors, as part of the 24 

CFO Act agencies’ financial statement audits, to report whether those agencies’ financial management 

systems comply substantially with (1) federal financial management systems requirements, (2) 

applicable federal accounting standards, and (3) the federal government’s U.S. Standard General 

Ledger at the transaction level.

For fiscal year 2020, auditors of nine of the 24 CFO Act agencies reported that the agencies’ financial 

management systems did not comply substantially with one or more of the three FFMIA requirements. 

For fiscal year 2019, auditors of eight of the 24 CFO Act agencies reported that the agencies’ financial 

management systems did not comply substantially with one or more of the three FFMIA requirements. 

Agency management at the 24 CFO Act agencies also annually report on FFMIA compliance. For both 

fiscal years 2020 and 2019, agency management of seven of the 24 CFO Act agencies reported that 

their agencies’ financial management systems did not comply substantially with one or more of the 

three FFMIA requirements. Based on agency financial reports, differences in the assessments of 

substantial compliance between the auditors and agency management reflect differences in 

management’s and auditors’ views regarding the effect of reported deficiencies on agencies’ financial 

management systems. 

Long-standing financial management systems weaknesses at several large CFO Act agencies, along 

with the size and complexity of the federal government, continue to present a formidable management 

challenge in providing accountability and contribute significantly to certain material weaknesses and 

other limitations discussed in this audit report.

Report on Internal Control over Financial Reporting

Management’s Responsibility

Management of the federal government is responsible for (1) maintaining effective internal control over 

financial reporting, including the design, implementation, and maintenance of internal control relevant to 

the preparation and fair presentation of financial statements that are free from material misstatement, 

whether due to fraud or error, and (2) evaluating the effectiveness of internal control over financial 

reporting, based on criteria established under the Federal Managers’ Financial Integrity Act (FMFIA).23

Auditor’s Responsibility

The purpose of an audit of financial statements is to express an opinion on the financial statements. An 

audit of financial statements includes considering internal control over financial reporting to design audit 

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion 

on the effectiveness of internal control over financial reporting. Accordingly, we do not express an 

opinion on the effectiveness of internal control over financial reporting. We did not consider all internal 

controls relevant to operating objectives as broadly established under FMFIA, such as those controls 

relevant to preparing performance information and ensuring efficient operations. 

2331 U.S.C. § 3512(c), (d) (commonly referred to as FMFIA). This act requires executive agency heads to evaluate and report 

annually to the President and Congress on the adequacy of their agencies’ internal control and accounting systems and on 

actions to correct significant problems. 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 238

Our responsibility is to report any material weaknesses or significant deficiencies in internal control over 

financial reporting for fiscal year 2020 that come to our attention as a result of our audit.24 Based on the 

scope of our work and the effects of the other limitations on the scope of our audit noted throughout this 

audit report, our internal control work was not designed to, and would not necessarily, identify all 

deficiencies in internal control, including those that might be material weaknesses or significant 

deficiencies. Therefore, additional material weaknesses or significant deficiencies may exist that were 

not identified. We performed our work in accordance with U.S. generally accepted government auditing 

standards.

Definitions and Inherent Limitations of Internal Control over Financial Reporting

An entity’s internal control over financial reporting is a process effected by those charged with 

governance, management, and other personnel, the objectives of which are to provide reasonable 

assurance that (1) transactions are properly recorded, processed, and summarized to permit the 

preparation of financial statements in accordance with U.S. generally accepted accounting principles, 

and assets are safeguarded against loss from unauthorized acquisition, use, or disposition, and (2) 

transactions are executed in accordance with provisions of applicable laws (including those governing 

the use of budget authority), regulations, contracts, and grant agreements, noncompliance with which 

could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent, or detect 

and correct, misstatements due to fraud or error.

Material Weaknesses Resulted in Ineffective Internal Control over Financial Reporting 

The material weaknesses discussed in this audit report resulted in ineffective internal control over 

financial reporting. Consequently, the federal government’s internal control did not provide reasonable 

assurance that a material misstatement of the consolidated financial statements would be prevented, or 

detected and corrected, on a timely basis. 

In addition to the material weaknesses that contributed to our disclaimers of opinion on the accrualbased consolidated financial statements and the sustainability financial statements, which were 

discussed previously, we found two other material weaknesses in internal control. These other material 

weaknesses were the federal government’s inability to 

• determine the full extent to which improper payments occur and reasonably assure that appropriate 

actions are taken to reduce them and 

• identify and resolve information security control deficiencies and manage information security risks 

on an ongoing basis.

These material weaknesses are discussed in more detail in appendix III, including the primary effects of 

the material weaknesses on the accrual-based consolidated financial statements and on the 

management of federal government operations.

We also found three significant deficiencies in the federal government’s internal control related to 

implementing effective internal controls at certain federal entities for the following areas:

• taxes receivable,

24A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less 

severe than a material weakness yet important enough to merit attention by those charged with governance. 
239 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

• federal grants management, and 

• Medicare social insurance information.

These significant deficiencies are discussed in more detail in appendix IV.

Further, individual federal entity financial statement audit reports identified additional control 

deficiencies that the entities’ auditors reported as either material weaknesses or significant deficiencies 

at the individual entity level. We do not consider these additional deficiencies to represent material 

weaknesses or significant deficiencies with respect to the U.S. government’s consolidated financial 

statements.

Intended Purpose of Report on Internal Control over Financial Reporting

The purpose of this report on internal control over financial reporting is solely to describe the scope of 

our consideration of internal control over financial reporting, and the results of our procedures, and not 

to provide an opinion on the effectiveness of internal control over financial reporting. This report on 

internal control over financial reporting is an integral part of an audit performed in accordance with U.S. 

generally accepted government auditing standards. Accordingly, this report on internal control over 

financial reporting is not suitable for any other purpose.

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

Management’s Responsibility

Management of the federal government is responsible for the federal government’s compliance with 

laws, regulations, contracts, and grant agreements. 

Auditor’s Responsibility

An audit of federal financial statements includes testing compliance with selected provisions of 

applicable laws, regulations, contracts, and grant agreements that have a direct effect on the 

determination of material amounts and disclosures in the financial statements, and performing certain 

other limited procedures. Accordingly, we did not test the federal government’s compliance with all 

laws, regulations, contracts, and grant agreements. Because of the limitations discussed below and the 

scope of our procedures, noncompliance may occur and not be detected by these tests. 

Our objective was not to provide an opinion on the federal government’s compliance with laws, 

regulations, contracts, and grant agreements. Accordingly, we do not express such an opinion. We 

performed our work in accordance with U.S. generally accepted government auditing standards.

Results of Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements

Our work to test compliance with selected provisions of applicable laws, regulations, contracts, and 

grant agreements was limited by certain of the material weaknesses and other scope limitations

discussed in this audit report. U.S. generally accepted government auditing standards and OMB 

guidance require auditors to report on entities’ compliance with selected provisions of applicable laws, 

regulations, contracts, and grant agreements. Certain component entity audit reports contain instances 

of noncompliance. None of these instances were deemed to be reportable noncompliance with regard 

to the accompanying U.S. government’s consolidated financial statements.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 240

Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

The purpose of this report on compliance with laws, regulations, contracts, and grant agreements is 

solely to describe the scope of our testing of compliance with selected provisions of applicable laws, 

regulations, contracts, and grant agreements, and the results of that testing, and not to provide an 

opinion on compliance. This report on compliance with laws, regulations, contracts, and grant 

agreements is an integral part of an audit performed in accordance with U.S. generally accepted 

government auditing standards in considering compliance. Accordingly, this report on compliance with 

laws, regulations, contracts, and grant agreements is not suitable for any other purpose.

Agency Comments

We provided a draft of this audit report to Treasury and OMB officials, who provided technical 

comments that we have incorporated as appropriate. Treasury and OMB officials expressed their 

continuing commitment to addressing the problems this report outlines. 

Robert F. Dacey

Chief Accountant

U.S. Government Accountability Office

March 17, 2021
241 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Appendix I

Objectives, Scope, and Methodology

Our objectives were to audit the consolidated financial statements consisting of the (1) accrual-based 

consolidated financial statements as of and for the fiscal years ended September 30, 2020, and 2019, 

and (2) sustainability financial statements, which consist of the 2020 and 2019 Statements of LongTerm 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. Our objectives also included 

reporting on internal control over financial reporting and on compliance with selected provisions of 

applicable laws, regulations, contracts, and grant agreements. 

The Chief Financial Officers Act of 1990 (CFO Act), as expanded by the Government Management 

Reform Act of 1994 (GMRA), requires the inspectors general of the 24 CFO Act agencies to be 

responsible for annual audits of agency-wide financial statements prepared by these agencies.25

GMRA requires GAO to be responsible for the audit of the U.S. government’s consolidated financial 

statements.26 The Accountability of Tax Dollars Act of 2002 (ATDA) requires most other executive 

branch entities to prepare financial statements annually and have them audited.27 The Office of 

Management and Budget and the Department of the Treasury (Treasury) have identified 40 federal 

entities that are significant to the U.S. government’s fiscal year 2020 consolidated financial statements, 

including the 24 CFO Act agencies.28 We consider these 40 entities to be significant component entities 

for purposes of our audit of the consolidated financial statements. 

For the significant component entities audited by inspectors general and independent public 

accountants, we performed our work in coordination and cooperation with them to achieve our 

respective audit objectives. Our audit approach regarding the accrual-based consolidated financial 

statements primarily focused on determining the current status of the material weaknesses that 

contributed to our disclaimer of opinion on the accrual-based consolidated financial statements and the 

other material weaknesses affecting internal control that we reported in our report on the consolidated 

financial statements for fiscal year 2019.29 We also separately audited the financial statements of 

certain component entities, and parts of a significant component entity, including the following. 

• We audited and expressed an unmodified opinion on the Internal Revenue Service’s (IRS) financial 

statements as of and for the fiscal years ended September 30, 2020, and 2019.30 In fiscal years 

2020 and 2019, IRS collected about $3.5 trillion and $3.6 trillion, respectively, in tax payments and 

paid about $736 billion and $452 billion, respectively, in refunds and outlays to taxpayers. For fiscal 

year 2020, we also reported that although internal controls could be improved, IRS maintained, in 

all material respects, effective internal control over financial reporting. In addition, we reported that 

we found no reportable noncompliance for fiscal year 2020 with provisions of applicable laws, 

regulations, contracts, and grant agreements we tested. 

2531 U.S.C. § 3521(e). GMRA authorized the Office of Management and Budget to designate agency components that also 

must report financial statements and have them audited. See 31 U.S.C. § 3515(c).

26GMRA, Pub. L. No. 103-356, § 405(c), 108 Stat. 3410, 3416-17 (Oct. 13, 1994), codified at 31 U.S.C. § 331(e)(2). 

27ATDA, Pub. L. No. 107-289, 116 Stat. 2049 (Nov. 7, 2002), codified at 31 U.S.C. § 3515.

28See app. A of the Fiscal Year 2020 Financial Report of the United States Government for a list of the 40 entities.

29GAO, Financial Audit: FY 2019 and FY 2018 Consolidated Financial Statements of the U.S. Government, GAO-20-315R

(Washington, D.C.: Feb. 27, 2020). 

30GAO, Financial Audit: IRS’s FY 2020 and FY 2019 Financial Statements, GAO-21-162 (Washington, D.C.: Nov. 10, 2020). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 242

• We audited and expressed an unmodified opinion on the Schedules of Federal Debt managed by 

Treasury’s Bureau of the Fiscal Service (Fiscal Service) for the fiscal years ended September 30, 

2020, and 2019.31 For these 2 fiscal years, the schedules reported (1) approximately $21.0 trillion 

(2020) and $16.8 trillion (2019) of federal debt held by the public,32 (2) about $5.9 trillion (2020 and 

2019) of intragovernmental debt holdings,33 and (3) about $371 billion (2020) and $404 billion 

(2019) of interest on federal debt held by the public. We also reported that although internal controls 

could be improved, Fiscal Service maintained, in all material respects, effective internal control over 

financial reporting relevant to the Schedule of Federal Debt as of September 30, 2020. In addition, 

we reported that we found no reportable noncompliance for fiscal year 2020 with provisions of 

applicable laws, regulations, contracts, and grant agreements we tested related to the Schedule of 

Federal Debt.

• We audited and expressed unmodified opinions on the U.S. Securities and Exchange 

Commission’s (SEC) and its Investor Protection Fund’s (IPF) financial statements as of and for the 

fiscal years ended September 30, 2020, and 2019.34 We also reported that SEC maintained, in all 

material respects, effective internal control over financial reporting for both the entity as a whole and 

IPF as of September 30, 2020. In addition, we reported that we found no reportable noncompliance 

for either SEC or IPF for fiscal year 2020 with provisions of applicable laws, regulations, contracts, 

and grant agreements we tested. 

• We audited and expressed an unmodified opinion on the Federal Housing Finance Agency’s 

(FHFA) financial statements as of and for the fiscal years ended September 30, 2020, and 2019.35

We also reported that FHFA maintained, in all material respects, effective internal control over 

financial reporting as of September 30, 2020. In addition, we reported that we found no reportable 

noncompliance for fiscal year 2020 with provisions of applicable laws, regulations, contracts, and 

grant agreements we tested.

• We audited and expressed an unmodified opinion on the Office of Financial Stability’s (OFS) 

financial statements for the Troubled Asset Relief Program (TARP) as of and for the fiscal years 

ended September 30, 2020, and 2019.36 We also reported that OFS maintained, in all material 

respects, effective internal control over financial reporting for TARP as of September 30, 2020. In 

addition, we reported that we found no reportable noncompliance for fiscal year 2020 with 

provisions of applicable laws, regulations, contracts, and grant agreements we tested.

31GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2020 and FY 2019 Schedules of Federal Debt, GAO-21-124

(Washington, D.C.: Nov. 9, 2020). 

32Debt held by the public on the Schedules of Federal Debt represents federal debt that Treasury issued and that is held by

investors outside of the federal government, including individuals, corporations, state or local governments, the Federal 

Reserve, and foreign governments.

33Intragovernmental debt holdings represent federal debt that Treasury owes to federal government accounts, primarily federal 

trust funds, such as those established for Social Security and Medicare.

34GAO, Financial Audit: Securities and Exchange Commission’s FY 2020 and FY 2019 Financial Statements, GAO-21-192R

(Washington, D.C.: Nov. 16, 2020).

35GAO, Financial Audit: Federal Housing Finance Agency’s FY 2020 and FY 2019 Financial Statements, GAO-21-201R

(Washington, D.C.: Nov. 16, 2020). 

36GAO, Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) FY 2020 and FY 2019 Financial 

Statements, GAO-21-173R (Washington, D.C.: Nov. 10, 2020). 
243 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

• We audited and expressed an unmodified opinion on the Bureau of Consumer Financial 

Protection’s (BCFP)37 financial statements as of and for the fiscal years ended September 30, 2020, 

and 2019.38 We also reported that BCFP maintained, in all material respects, effective internal 

control over financial reporting as of September 30, 2020. In addition, we reported that we found no 

reportable noncompliance for fiscal year 2020 with provisions of applicable laws, regulations,

contracts, and grant agreements we tested. 

We performed work over Treasury processes and controls used to prepare the consolidated financial 

statements. We also considered our ongoing audit work on the General Fund of the U.S. 

Government.39

We considered the significant entities’ fiscal years 2020 and 2019 financial statements and the related 

auditors’ reports that the inspectors general or contracted independent public accountants prepared. 

We did not audit, and we do not express an opinion on, any of these individual federal entity financial 

statements. 

We considered the disclaimers of opinion issued by the Department of Defense (DOD) Office of 

Inspector General (OIG) on DOD’s department-wide financial statements as of and for the fiscal years 

ended September 30, 2020, and 2019.40 The disclaimers of opinion were partially based on the 

disclaimers of opinion for multiple DOD components, including the Army, Navy, Air Force, U.S. Marine 

Corps, Defense Health Program, Defense Logistics Agency, U.S. Transportation Command, and U.S. 

Special Operations Command. DOD OIG also reported 26 material weaknesses in internal control over 

financial reporting, including those related to (1) property, plant, and equipment; (2) inventory and 

related property; (3) environmental and disposal liabilities; (4) reconciliations of disbursement activity; 

(5) intragovernmental transactions; and (6) financial management systems and information security. 

We considered the disclaimer of opinion issued by the Small Business Administration’s (SBA) 

independent auditor on SBA’s consolidated financial statements as of and for the fiscal year ended 

September 30, 2020.41 The disclaimer of opinion was based on SBA’s inability to provide adequate 

evidential matter in support of a significant number of transactions and account balances related to the 

Paycheck Protection Program and the expanded Economic Injury Disaster Loan program under the 

CARES Act and related Coronavirus Disease 2019 (COVID-19) relief laws enacted in fiscal year 2020, 

because of inadequate processes and controls. The independent auditor also reported seven material 

weaknesses in internal control over financial reporting pertaining to these programs, related to loans 

receivable and loan guarantee liabilities.

Our audit approach for the 2020 and 2019 Statements of Long-Term Fiscal Projections focused 

primarily on determining whether the information relating to the Statements of Social Insurance is 

properly reflected therein and testing the methodology used, as well as evaluating key assumptions. 

37The Bureau of Consumer Financial Protection, which was established by the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. No. 111-203, Title X, § 1011(a), 124 Stat. 1376, 1964 (July 21, 2010), classified at 12 U.S.C. § 5491(a), 

is often referred to as the Consumer Financial Protection Bureau.

38GAO, Financial Audit: Bureau of Consumer Financial Protection’s FY 2020 and FY 2019 Financial Statements, GAO-21-

174R (Washington, D.C.: Nov. 16, 2020). 

39The General Fund of the U.S. Government is a component of Treasury’s central accounting function. It is a stand-alone 

reporting entity that comprises the activities fundamental to funding the federal government (e.g., issued budget authority, 

cash activity, and debt financing activities). 

40Department of Defense, United States Department of Defense Agency Financial Report for Fiscal Year 2020 (Arlington, Va.: 

Nov. 16, 2020).

41Small Business Administration, Agency Financial Report for Fiscal Year 2020 (Washington, D.C.: Dec. 18, 2020).
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 244

We also evaluated whether the internal control deficiencies related to the accrual-based consolidated 

financial statements affected certain key inputs used in generating the projections.

Because of the significance of the amounts presented in the Statements of Social Insurance and 

Statements of Changes in Social Insurance Amounts related to the Social Security Administration 

(SSA) and the Department of Health and Human Services (HHS), our audit approach regarding these

statements focused primarily on reviewing audit work performed with respect to these two federal 

entities. For each federal entity preparing a Statement of Social Insurance and Statement of Changes 

in Social Insurance Amounts,42 we considered the entity’s 2020, 2019, 2018, 2017, and 2016 

Statements of Social Insurance and the 2020 and 2019 Statements of Changes in Social Insurance 

Amounts, as well as the related auditor’s reports that the inspectors general or contracted independent 

public accountants prepared. 

We performed sufficient audit work to provide our reports on (1) the consolidated financial statements; 

(2) internal control over financial reporting; and (3) compliance with selected provisions of applicable 

laws, regulations, contracts, and grant agreements. We considered the limitations on the scope of our 

work regarding the accrual-based consolidated financial statements and the sustainability financial 

statements in forming our conclusions. We performed our work in accordance with U.S. generally 

accepted government auditing standards. 

42These entities are SSA, HHS, the Railroad Retirement Board, and the Department of Labor.
245 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Appendix II

Material Weaknesses Contributing to Our Disclaimer of Opinion on the Accrual-Based 

Consolidated Financial Statements

This appendix describes material weaknesses that contributed to our disclaimer of opinion on the 

federal government’s accrual-based consolidated financial statements and highlights the primary 

effects of these material weaknesses on the accompanying accrual-based consolidated financial 

statements, the sustainability financial statements, and the management of federal government 

operations.43 The federal government did not have sufficient appropriate evidence to support 

information reported in the accompanying accrual-based consolidated financial statements, as 

described below. 

Property, Plant, and Equipment and Inventories and Related Property 

The federal government could not satisfactorily determine that property, plant, and equipment (PP&E) 

and inventories and related property were properly reported in the accrual-based consolidated financial 

statements. Most of the PP&E and inventories and related property are the responsibility of the 

Department of Defense (DOD). As in past years, DOD did not maintain adequate systems or have 

sufficient records to provide reliable information on these assets. Certain other entities’ auditors 

reported continued deficiencies in internal control procedures and processes related to PP&E.

Deficiencies in internal control over PP&E and inventories and related property could affect the federal

government’s ability to fully know the assets it owns, including their location and condition. They can 

also affect the government’s ability to effectively (1) safeguard assets from physical deterioration, theft, 

or loss; (2) account for acquisitions and disposals of such assets and reliably report asset balances; 

(3) ensure that the assets are available for use when needed; (4) prevent unnecessary storage and 

maintenance costs or purchase of assets already on hand; and (5) determine the full costs of programs 

that use these assets.

Loans Receivable and Loan Guarantee Liabilities44

The auditor of the Small Business Administration (SBA), which had substantial activity related to the 

Coronavirus Disease 2019 (COVID-19) pandemic response, reported new internal control deficiencies 

in fiscal year 2020 related to SBA’s implementation of provisions in the CARES Act and related COVID19 relief laws enacted in fiscal year 2020, including deficiencies associated with the Paycheck 

Protection Program and the Economic Injury Disaster Loan program. SBA’s auditor reported 

deficiencies in the areas of loan and loan guarantee approvals, reporting and estimating costs for loan 

guarantees, and overseeing service providers for both programs. In addition, the auditor reported that 

SBA did not properly design and implement effective entity-level controls to establish an internal control 

system that produces reliable and accurate financial reporting. These internal control deficiencies 

significantly increased the risks of misstatements, noncompliance, fraud, and improper payments.

43The material weakness related to the Reconciliations of Budget Deficit to Net Operating Cost and Changes in Cash Balance 

also contributed to our disclaimer on the 2020 and 2019 Statements of Long-Term Fiscal Projections.

44A material weakness over loans receivable and loan guarantee liabilities existed in fiscal year 2019, but did not contribute to 

our disclaimer of opinion on the accrual-based consolidated financial statements. In fiscal year 2020, due to the disclaimer of 

opinion and material weaknesses at the Small Business Administration, the material weakness over loans receivable and loan 

guarantee liabilities contributed to our disclaimer of opinion.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 246

In addition, internal control deficiencies continued to exist at several other federal entities. These 

deficiencies were associated with accounting and reporting for credit programs and the related 

financing activities, including estimating the cost of credit programs and determining the value of loans 

receivable and loan guarantee liabilities.

These deficiencies, and the complexities associated with accounting and reporting for credit programs, 

significantly increase the risk that misstatements in federal entity and government-wide financial 

statements could occur and go undetected. Further, these deficiencies can adversely affect the entities’ 

ability to support annual budget requests for these programs, make future budgetary decisions, 

manage program costs, and measure the performance of lending activities.

Liabilities and Commitments and Contingencies 

The federal government could not reasonably estimate or adequately support amounts reported for 

certain liabilities. For example, the DOD auditor was not able to substantiate the completeness and 

accuracy of its environmental and disposal liabilities. In addition, the DOD auditor reported that DOD 

could not support a significant amount of its estimated military postretirement health benefits liabilities 

included in federal employee and veteran benefits payable. These unsupported amounts relate to the 

cost of direct health care that DOD-managed military treatment facilities provided. In addition, auditors 

reported internal control deficiencies at several other federal entities that related to material liabilities. 

Further, the federal government could not determine whether commitments and contingencies, 

including any related to treaties and other international agreements entered into to further the federal 

government’s interests, were complete and properly reported. 

Problems in accounting for liabilities affect the determination of the full cost of the federal government’s 

current operations and the extent of its liabilities. Also, deficiencies in internal control supporting the 

process for estimating environmental and disposal liabilities could result in improperly stated liabilities. 

They also could adversely affect the federal government’s ability to determine priorities for cleanup and 

disposal activities and to appropriately consider future budgetary resources needed to carry out these 

activities. In addition, to the extent disclosures of commitments and contingencies are incomplete or 

incorrect, reliable information is not available about the extent of the federal government’s obligations.

Cost of Government Operations and Disbursement Activity 

Reported net cost was affected by the other material weaknesses that contributed to our disclaimer of 

opinion on the accrual-based consolidated financial statements. As a result, the federal government 

was unable to support significant portions of the reported total net cost of operations, most notably 

those related to DOD and SBA.

With respect to disbursements, auditors of DOD and certain other federal entities reported continued 

control deficiencies in reconciling disbursement activity. For fiscal years 2020 and 2019, inadequate 

reconciliations of disbursement activity included (1) unreconciled differences between federal entities’ 

and the Department of the Treasury’s (Treasury) records of disbursements and (2) unsupported federal 

entity adjustments, which could also affect the balance sheet.

Unreliable cost information affects the federal government’s ability to control and reduce costs, assess 

performance, evaluate programs, and set fees to recover costs where required or authorized. If 

disbursements are improperly recorded, this could result in misstatements in the financial statements 

and in certain data that federal entities provide for inclusion in The Budget of the United States 

Government (President’s Budget) concerning obligations and outlays. 
247 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Intragovernmental Activity and Balances 

Significant progress has been made over the past few years, but the federal government continues to 

be unable to adequately account for intragovernmental activity and balances between federal entities. 

Federal entities are responsible for properly accounting for and reporting their intragovernmental 

activity and balances in their entity financial statements. When preparing the consolidated financial 

statements, intragovernmental activity and balances between federal entities should be in agreement 

and must be subtracted out, or eliminated, from the financial statements. If the two federal entities 

engaged in an intragovernmental transaction do not both record the same intragovernmental 

transaction in the same year and for the same amount, the intragovernmental transactions will not be in 

agreement, and if not properly resolved, would result in errors (i.e., differences or unmatched amounts) 

in the consolidated financial statements. The Office of Management and Budget (OMB) and Treasury 

have issued guidance directing component entities to reconcile intragovernmental activity and balances 

with their trading partners and resolve identified differences. In addition, the guidance directs the chief 

financial officers (CFO) of significant component entities to report to Treasury, their respective 

inspectors general, and GAO on the extent and results of their intragovernmental activity and balance 

reconciliation efforts as of the end of the fiscal year.

To support this process during fiscal year 2020, Treasury continued to provide information and 

assistance to significant component entities to aid in resolving their intragovernmental differences. 

Treasury also issued additional guidance to entities for specific types of trading partner transactions, 

including adding new categories and account coding. In addition, Treasury’s quarterly scorecard 

process45 highlights differences needing the entities’ attention, identifies differences that need to be 

resolved through a formal dispute resolution process,46 and reinforces the entities’ responsibilities to 

resolve intragovernmental differences. Treasury continued to identify and monitor systemic root causes 

of intragovernmental differences and related corrective action plans to address the root causes. As a 

result of these and other actions, a significant number of intragovernmental differences were identified 

and resolved. 

While progress was made, we continued to note that amounts reported by federal entity trading 

partners to Treasury were not in agreement by significant amounts. Reasons for the differences that 

several CFOs cited included differing accounting methodologies, accounting errors, and timing 

differences. Auditors for several significant component entities continued to report that the entities did 

not have effective processes for reconciling intragovernmental activity and balances with their trading 

partners. For example, the DOD auditor reported that DOD, which has a substantial amount of 

intragovernmental activity and balances, did not have accounting systems that were able to capture the 

trading partner data required to eliminate intradepartmental and intragovernmental transactions, which 

resulted in a risk of material misstatements. In addition, other material weaknesses reported by the 

auditor of DOD could contribute to this material weakness. 

The federal government’s ability to determine the effect of intragovernmental differences on the 

accrual-based consolidated financial statements is significantly impaired. Addressing the 

intragovernmental transactions problem remains a difficult challenge and will require federal entities’ 

45For each quarter, Treasury produces a scorecard for each significant entity, as well as any other component entity reporting 

significant intragovernmental balances or differences, that reports various aspects of the entity’s intragovernmental differences 

with its trading partners, including the composition of the differences by trading partner and category. Pursuant to Treasury

guidance, entities are expected to resolve, with their respective trading partners, the differences identified in their scorecards. 

46When an entity and its respective trading partner cannot resolve an intragovernmental difference, Treasury guidance directs 

the entity to request that Treasury resolve the dispute. Treasury will review the dispute and issue a decision on how to resolve 

the difference, which the entities must follow.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 248

strong and sustained commitment to resolving differences with their trading partners timely, as well as 

Treasury’s and OMB’s continued strong leadership. 

Preparation of Consolidated Financial Statements

Treasury, in coordination with OMB, has implemented corrective actions in recent years related to the 

preparation of the consolidated financial statements. Corrective actions included improving systems 

and implementing new processes for preparing the consolidated financial statements, enhancing 

guidance for collecting data from component entities, and implementing procedures to address certain 

internal control deficiencies detailed in our previously issued management reports.47 However, the 

federal government’s systems, controls, and procedures were not adequate to reasonably assure that 

the consolidated financial statements are consistent with the underlying audited entity financial 

statements, properly balanced, and in accordance with U.S. generally accepted accounting principles 

(U.S. GAAP). During our fiscal year 2020 audit, deficiencies in the preparation of the consolidated 

financial statements included the following.

• For fiscal year 2020, auditors reported internal control deficiencies at several component entities

related to their entity-level controls, including the control environment, risk assessment, information 

and communication, and monitoring components of internal control, that could affect Treasury’s 

ability to obtain reliable financial information from federal entities for consolidation. For example, 

DOD did not have sufficient entity-level controls to establish a comprehensive internal control 

system that will produce reliable financial reporting. Also, the Department of Veterans Affairs (VA) 

lacked an effective entity-level control system, which, coupled with a decentralized reporting 

structure and legacy system issues, has led to systemic and pervasive control deficiencies that 

impede VA’s ability to process, summarize, and report reliable financial information in a timely 

manner.

• For fiscal year 2020, auditors reported internal control deficiencies at several component entities 

related to the entities’ financial reporting processes that could affect information included in the 

consolidated financial statements. For example, DOD could not demonstrate that its financial 

statements were consistent with underlying records. 

• While progress has been made, Treasury is unable to properly balance the accrual-based 

consolidated financial statements because of its inability to fully eliminate intragovernmental activity 

and balances. To make the fiscal years 2020 and 2019 consolidated financial statements balance, 

Treasury recorded unmatched transactions and balances in the Statements of Operations and 

Changes in Net Position, Balance Sheets, and Statements of Net Cost. Unmatched transactions 

and balances primarily represent unresolved differences in intragovernmental activity and balances 

between federal entities. The Statement of Operations and Changes in Net Position and the 

Balance Sheet include specific lines for the unmatched transactions and balances, while the 

unmatched transactions and balances are recorded in existing lines in the Statement of Net Cost. 

Specifically, Treasury recorded net decreases of $11.6 billion and $0.4 billion to net operating cost 

on the Statements of Operations and Changes in Net Position for fiscal years 2020 and 2019, 

respectively. Treasury recorded $3.1 billion and $14.7 billion of unmatched transactions and 

balances on the Balance Sheets as of September 30, 2020 and 2019, respectively. Treasury 

47Most of the issues we identified in fiscal year 2020 existed in fiscal year 2019, and many have existed for a number of years. 

Most recently, in August 2020, we reported on the status of the issues we identified to Treasury and OMB and provided 

recommendations for corrective action. See GAO, Management Report: Improvements Needed in Controls over the 

Processes Used to Prepare the U.S. Consolidated Financial Statements, GAO-20-586 (Washington, D.C.: Aug. 25, 2020). 
249 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

recorded an additional net $1.8 billion and $4.5 billion of unmatched transactions in the Statements 

of Net Cost for fiscal years 2020 and 2019, respectively. Unresolved intragovernmental differences 

(i.e., unmatched transactions and balances) result in errors in the consolidated financial statements. 

The ultimate effect on the accrual-based financial statements of resolving and correcting these 

differences cannot be determined and could be material. 

• Over the past several years, Treasury has taken significant actions to help ensure that financial 

information is reported or disclosed in the consolidated financial statements in accordance with U.S. 

GAAP. For example, Treasury has developed and implemented U.S. GAAP compliance operating 

procedures and checklists. Also, Treasury, along with the Department of State, is implementing a 

multiphase approach to review existing treaties and other international agreements to determine 

which of these agreements may result in commitments or contingencies. However, Treasury’s 

reporting of certain financial information required by U.S. GAAP continues to be impaired. Because 

of certain control deficiencies noted in this audit report—for example, commitments and 

contingencies related to treaties and other international agreements—Treasury is precluded from 

determining if U.S. GAAP requires additional disclosure in the consolidated financial statements, 

and we are precluded from determining whether the omitted information is material. Further, 

Treasury’s ability to report information in accordance with U.S. GAAP will also remain impaired until 

federal entities can provide Treasury with the complete and reliable information required to be 

reported in the consolidated financial statements. For example, in fiscal year 2020 the DOD auditor 

reported that DOD lacked U.S. GAAP compliant policies and procedures to account for and report 

the Military Housing Privatization Initiative Program. 

In fiscal year 2020, Treasury continued to take corrective actions intended to resolve internal control 

deficiencies in the processes used to prepare the consolidated financial statements. For example, 

Treasury improved its accounting and reporting policies related to the Statement of Operations and 

Changes in Net Position and Funds from Dedicated Collections note. Treasury also made 

improvements to the processes and procedures for reporting corrections of errors and changes in 

accounting principle.

However, until these internal control deficiencies have been fully addressed, the federal government’s 

ability to reasonably assure that the consolidated financial statements are consistent with the 

underlying audited federal component entities’ financial statements, properly balanced, and in 

accordance with U.S. GAAP will be impaired. It is important that Treasury (1) continues to improve its 

systems and processes and (2) remains committed to maintaining the progress that has been made in 

this area and building on that progress to make needed improvements that fully address the magnitude 

of the financial reporting challenges it faces. Resolving the remaining internal control deficiencies 

continues to be a difficult challenge and will require a strong and sustained commitment from Treasury, 

OMB, and federal entities.

Reconciliations of Budget Deficit to Net Operating Cost and Changes in Cash Balance 

The Reconciliations of Net Operating Cost and Budget Deficit and the Statements of Changes in Cash 

Balance from Budget and Other Activities (Reconciliation Statements) reconcile (1) the accrual-based 

net operating cost to the primarily cash-based budget deficit and (2) the budget deficit to changes in 

cash balances. The budget deficit is calculated by subtracting actual budget outlays (outlays) from 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 250

actual budget receipts (receipts).48 The outlays and receipts are key inputs to the Statements of LongTerm Fiscal Projections. 

Treasury continued to develop its process for preparing the Reconciliation Statements. One of the two 

Schedules of the General Fund provides information supporting the Statements of Changes in Cash 

Balance from Budget and Other Activities.49 However, as reported in our disclaimer of opinion on the 

fiscal year 2018 Schedules of the General Fund, Treasury was unable to timely provide sufficient 

appropriate evidence to support certain information reported in the Schedules of the General Fund.

With regard to the Reconciliation Statements, such limitations primarily related to readily identifying and 

tracing transactions to determine whether they were properly recorded in the Schedules of the General 

Fund. Specifically, certain amounts are netted and recorded at a summarized level thus preventing 

Treasury from readily obtaining the necessary details, at the transaction level, to support financial 

reporting for certain line items in the Statements of Changes in Cash Balance from Budget and Other 

Activities. During fiscal year 2020, Treasury continued to implement procedures and develop new 

transaction codes to improve the accounting for and reporting of General Fund transactions and 

balances that Treasury uses to compute the budget deficit reported in the Reconciliation Statements.50

Because of the nature and complexity of the issues identified, some of the control deficiencies are 

expected to be remediated over several years. 

As of the end of fiscal year 2020, Treasury’s processes and procedures for preparing the reconciliation 

statements were not effective in (1) identifying and reporting all the items in the Reconciliation 

Statements, (2) properly supporting amounts used in calculating the budget deficit, and (3) reasonably 

assuring that the information in these statements was fully consistent with the underlying information in 

the significant component entities’ audited financial statements and other financial data. Consequently, 

there may be misstatements in the Reconciliation Statements.

In fiscal year 2020, we again noted that several entities’ auditors reported internal control deficiencies 

related to monitoring, accounting, reconciliation, and reporting of budgetary transactions, including 

deficiencies related to federal entities’ budget and accrual reconciliations.51 These control deficiencies 

could affect the reporting and calculation of the net outlay amounts in the entities’ Statements of 

Budgetary Resources. In addition, such deficiencies may also affect the entities’ ability to report reliable 

budgetary information to Treasury and OMB and may affect the budget deficit reported in the 

Reconciliation Statements. Treasury also reports the budget deficit in its Combined Statement of 

Receipts, Outlays, and Balances and in other federal government publications.52

48The budget deficit, receipts, and outlays amounts are reported in Treasury’s Monthly Treasury Statement and the President’s 

Budget.

49The General Fund of the U.S. Government is a component of Treasury’s central accounting function. It is a stand-alone 

reporting entity that comprises the activities fundamental to funding the federal government (e.g., issued budget authority, 

cash activity, and debt financing activities).

50GAO, Financial Audit: Bureau of the Fiscal Service’s Fiscal Year 2018 Schedules of the General Fund, GAO-19-185

(Washington, D.C.: May 15, 2019). As of the date of this audit report, the audited Schedules of the General Fund of the U.S. 

Government for fiscal year 2020 were not issued. The fiscal year 2019 Schedules of the General Fund were not audited to 

allow Treasury sufficient time to develop and begin to implement a remediation plan to address the issues we identified as part 

of our audit of the fiscal year 2018 Schedules of the General Fund.

51Statement of Federal Financial Accounting Standards (SFFAS) 53, Budget and Accrual Reconciliation: Amending SFFAS 7, 

and 24, and Rescinding SFFAS 22, became effective for periods beginning after September 30, 2018, and provides for the 

budget and accrual reconciliation (BAR) to replace the statement of financing. The BAR explains the relationship between an 

entity’s net outlays on a budgetary basis and its net cost of operations during the period. 

52Treasury’s Combined Statement of Receipts, Outlays, and Balances presents budget results and cash-related assets and 

liabilities of the federal government with supporting details. According to Treasury, this report is the recognized official 

publication of receipts and outlays of the federal government based on entity reporting.
251 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Appendix III

Other Material Weaknesses

Material weaknesses in internal control discussed in this audit report resulted in ineffective controls 

over financial reporting. In addition to the material weaknesses discussed in appendix II that contributed 

primarily to our disclaimer of opinion on the accrual-based consolidated financial statements, we found 

two other material weaknesses in internal control. This appendix describes these weaknesses and 

highlights their primary effects on the accrual-based consolidated financial statements and on the 

management of federal government operations.

Improper Payments 

We have reported improper payments—payments that should not have been made or that were made 

in an incorrect amount—as a material deficiency or material weakness in internal control in our audit 

reports on the U.S. government’s consolidated financial statements since fiscal year 1997. The federal 

government is unable to determine the full extent to which improper payments occur and reasonably 

assure that appropriate actions are taken to reduce them. Reducing improper payments is critical to 

safeguarding federal funds.53 The Payment Integrity Information Act of 2019 (PIIA)54 requires federal 

executive agencies55 to do the following:

1. Review all programs and activities. 

2. Identify those that may be susceptible to significant improper payments. 

3. Estimate the annual amount of improper payments for those programs and activities identified as 

susceptible to significant improper payments. 

4. Implement actions to reduce improper payments and set reduction targets with respect to the risksusceptible programs and activities. 

5. Report on the results of addressing the foregoing requirements.56

Twenty-one agencies reported improper payment estimates totaling about $206 billion for fiscal year 

2020, based on improper payment estimates reported individually by 98 federal programs or activities 

in www.paymentaccuracy.gov.57 The fiscal year 2020 government-wide total of reported estimated 

improper payments, among programs and activities that reported estimates, increased by about $31 

53The Payment Integrity Information Act of 2019 statutorily defines an improper payment as any payment that should not have 

been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, 

contractual, administrative, or other legally applicable requirements. It includes any payment to an ineligible recipient, any 

payment for an ineligible good or service, any duplicate payment, any payment for a good or service not received (except for 

such payments where authorized by law), and any payment that does not account for credit for applicable discounts. 31 U.S.C. 

§ 3351(4). Further, when an executive agency’s review is unable to discern, because of lacking or insufficient documentation, 

whether a payment was proper, the agency must treat the payment as improper in producing an improper payment estimate. 

31 U.S.C. § 3352(c)(2). This requirement was enacted into the U.S. Code by PIIA, but it is consistent with prior law under the 

Improper Payments Information Act, as amended, and Office of Management and Budget (OMB) guidance previously required 

agencies to treat payments with insufficient or lacking documentation as improper. 

54PIIA, Pub. L. No. 116-117, 134 Stat. 113 (Mar. 2, 2020), which is codified at 31 U.S.C. §§ 3351-58.

55An “executive agency,” as it is defined under title 31 of the U.S. Code, is a department, agency, or instrumentality in the 

executive branch of the United States government. 31 U.S.C. § 102.

56See 31 U.S.C. § 3352. 

57An official U.S. government website managed by OMB, www.Paymentaccuracy.gov contains, among other things, 

information about current and historical rates and amounts of improper payments.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 252

billion from the fiscal year 2019 estimate of about $175 billion.58 However, the specific programs and 

activities included in the government-wide total of reported improper payment estimates may change 

from year to year. While decreases in estimated improper payments were reported for several 

programs and activities, these were more than offset by increases for certain other programs and 

activities.59 For example, the Department of Health and Human Services (HHS) reported an increase of 

estimated improper payments of about $29 billion for Medicaid in fiscal year 2020. 

It is important to note that reported improper payment estimates include overpayments, 

underpayments, and payments for which the agency could not find sufficient documentation. Estimates 

may also be based on payment data and sampling drawn from periods that do not coincide with the 

fiscal year for which the estimates are reported. It is also important to note that the $206 billion of 

reported improper payment estimates for fiscal year 2020 generally do not include estimates related to 

the reported $1.6 trillion in fiscal year 2020 budget expenditures to fund response and recovery efforts 

for the COVID-19 pandemic.60 In addition, we identified some risk-susceptible programs for which 

agencies did not report fiscal year 2020 estimated improper payment amounts, including HHS’s 

Temporary Assistance for Needy Families and HHS’s Advance Premium Tax Credit.

If an agency’s inspector general determines that the entity is not in compliance with the criteria listed in 

PIIA, such as reporting an improper payment rate of 10 percent or greater for any risk-susceptible 

program or activity, that agency must submit a plan to Congress describing the actions that it will take 

to come into compliance. For example, the Department of Defense (DOD) Office of Inspector General 

(OIG) reported in May 2020 that DOD did not comply with two criteria for fiscal year 2019.61

Specifically, DOD OIG reported that DOD did not publish reliable improper payment estimates for five 

of its eight programs, and did not meet its improper payment reduction targets. For fiscal year 2020, 

agencies reported estimated improper payment rates of 10 percent or greater for 24 risk-susceptible 

58Under PIIA, the Director of OMB is required to annually submit a report to Congress and the Comptroller General of the 

United States that includes a government-wide estimate of improper payments for the preceding fiscal year. A report that 

includes a government-wide estimate of improper payments for fiscal year 2020 has not yet been submitted. See 31 U.S.C. § 

3352(f).

59For fiscal year 2020, agencies reported decreases in total estimated improper payments in excess of $1 billion for four 

programs and activities and increases in total estimated improper payments in excess of $1 billion for six programs and 

activities. The four programs and activities with decreases in excess of $1 billion were the Department of Defense’s (DOD) 

Military Pay; the Department of Health and Human Services’ (HHS) Medicare Fee-for-Service; the Department of the 

Treasury’s (Treasury) Earned Income Tax Credit (EITC); and Treasury’s Additional Child Tax Credit (ACTC). The six programs 

and activities with increases in excess of $1 billion were DOD’s Civilian Pay; DOD’s Military Pay-Army; DOD’s Military Pay-Air 

Force; HHS’s Medicaid; HHS’s Children’s Health Insurance Program (CHIP); and the Department of Labor’s (Labor) 

Unemployment Insurance program. DOD ceased reporting an overall estimate for Military Pay but began reporting improper 

payment estimates for military pay by branch, including the Army and the Air Force.

60See the Payment Integrity enclosure to GAO, COVID-19: Urgent Actions Needed to Better Ensure an Effective Federal 

Response, GAO-21-191 (Washington, D.C.: Nov. 30, 2020), for our matter for congressional consideration and 

recommendation to OMB related to estimating improper payments for COVID-19 relief funds.

61The DOD OIG report is reporting DOD’s fiscal year 2019 compliance with criteria required under the repealed Improper 

Payments Elimination and Recovery Act of 2010 (Public Law 111-204), which was in effect for fiscal year 2019. The criteria 

remain the same under PIIA for agencies reporting improper payment estimates for fiscal year 2020 and going forward. See 

31 U.S.C. § 3351(2).
253 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

programs and activities,62 accounting for about 61 percent of the government-wide total of reported 

estimated improper payments.63

Further, agency auditors continued to report internal control deficiencies over financial reporting in their 

fiscal year 2020 financial statement audit reports, such as financial system limitations and information 

system control weaknesses. Such deficiencies could significantly increase the risk that improper 

payments may occur and not be detected promptly. 

The fiscal year 2020 President’s Budget included program integrity proposals at multiple agencies 

aimed at reducing improper payments. Also, efforts continue to implement PIIA requirements to better 

identify and prevent improper payments, waste, fraud, and abuse, as well as to recover overpayments. 

In addition, the statutory Do Not Pay initiative under PIIA requires agencies to review prepayment and 

pre-award procedures and ensure a thorough review of available databases to determine program or 

award eligibility before the release of any federal funds. PIIA also directs the Office of Management and 

Budget (OMB) to annually identify a list of high-priority federal programs for greater levels of oversight 

and review and requires each agency responsible for administering one of these high-priority programs 

to submit a program report to its inspector general annually and make the report available to the 

public.64

In addition, in March 2018, the President’s Management Agenda outlined a long-term vision for 

modernizing federal operations and improving agencies’ ability to achieve outcomes that included a 

Getting Payments Right initiative. OMB’s current goals for this initiative are to (1) build trust in 

government by better understanding the nature of improper payments and their relationship to payment 

integrity and (2) demonstrate stewardship of taxpayer dollars by focusing on getting government 

payments right the first time they are made and preventing monetary loss. Under this initiative, the 

federal government, through the chief financial officers community, has identified five strategies to 

reduce monetary loss and prevent improper payments: 

• clarify and streamline requirements, 

• identify monetary loss root causes, 

62The improper payment rate reflects the estimated improper payments as a percentage of total annual outlays.

63The 24 programs and activities that reported estimated improper payment rates of 10 percent or greater for fiscal year 2020 

were (1) United States Department of Agriculture’s (USDA) Food and Nutrition Service (FNS) School Breakfast; (2) USDA’s 

Farm Service Agency (FSA) Hurricane Harvey – Emergency Conservation; (3) USDA’s Hurricane Harvey – Wildfires and 

Hurricane Indemnity Program; (4) USDA’s FSA Livestock Forage Disaster; (5) USDA’s FSA Noninsured Crop Disaster 

Assistance; (6) the Corporation for National and Community Service’s (CNCS) Foster Grandparent Program; (7) CNCS’s 

Retired and Senior Volunteer program; (8) CNCS’s Senior Companion; (9) the Federal Communications Commission’s 

Universal Service Fund (USF)-Lifeline; (10) Department of Education’s (Education) Emergency Impact Aid for Displaced 

Students; (11) Education’s Restart; (12) HHS’s CHIP; (13) HHS’s Medicaid; (14) Department of Homeland Security’s (DHS) 

Public Assistance – Disaster Supplemental Funds; (15) DHS’s Urban Search & Rescue – Disaster Supplemental Funds; 

(16) Small Business Administration’s Disaster Loan Disbursements; (17) Treasury’s ACTC; (18) Treasury’s American 

Opportunity Tax Credit (AOTC); (19) Treasury’s EITC; (20) the Department of Veterans Affairs’ (VA) Beneficiary Travel; 

(21) VA’s Communications, Utilities, and Other Rent; (22) VA’s Community Care; (23) VA’s Medical Care Contracts and 

Agreements; and (24) VA’s Purchased Long Term Services and Support. 

64See 31 U.S.C. § 3352. OMB has designated high-priority programs as those programs and activities with improper payment 

estimates that exceed $2 billion annually. The 15 programs and activities with reported improper payment estimates greater 

than $2 billion in fiscal year 2020 were (1) USDA’s FNS Supplemental Nutrition Assistance; (2) DOD’s Civilian Pay; (3) DOD’s 

Military Pay-Army; (4) HHS’s CHIP; (5) HHS’s Medicaid; (6) HHS’s Medicare Fee-for-Service; (7) HHS’s Medicare Advantage; 

(8) Labor’s Unemployment Insurance; (9) Social Security Administration’s (SSA) Supplemental Security Income; (10) SSA’s 

Old Age, Survivors, and Disability Insurance; (11) Treasury’s ACTC; (12) Treasury’s AOTC; (13) Treasury’s EITC; (14) VA’s 

Community Care; and (15) VA’s Purchased Long Term Services and Support.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 254

• strategic data use (using data to prevent improper payments), 

• mitigation strategies (using non-data methods to prevent improper payments), and 

• strengthen state partnerships. 

Finally, the federal government reported recovery of approximately $22 billion in overpayments for 

fiscal year 2020.

Until the federal government has implemented effective processes to determine the full extent to which 

improper payments occur and has taken appropriate actions across agencies and programs and 

activities to effectively reduce improper payments, it will not have reasonable assurance that the use of 

federal funds is adequately safeguarded. 

Information Security 

GAO has reported information security as a government-wide material weakness since fiscal year 

1997.65 During our fiscal year 2020 audit, we found that serious and widespread information security 

control deficiencies continued to place federal assets at risk of inadvertent or deliberate misuse, 

financial information at risk of unauthorized modification or destruction, sensitive information at risk of 

inappropriate disclosure, and critical operations at risk of disruption. Sixteen of the 24 agencies covered 

by the Chief Financial Officers Act of 1990 reported information security as a material weakness or 

significant deficiency for fiscal year 2020. Specifically, control deficiencies were identified related to (1) 

security management; (2) access to computer data, equipment, and facilities; (3) changes to and 

configuration of information system resources; (4) segregation of incompatible duties; and (5) 

contingency planning. Such information security control deficiencies increase the risk of unauthorized 

access to, modification of, or disclosure of sensitive data and programs and disruptions of critical 

operations. 

Security management is the foundation of a security-control structure and reflects senior management’s 

commitment to addressing security risks. Security management programs should provide a framework 

and continuous cycle of activity for managing risk, developing and implementing effective security 

policies, assigning responsibilities, and monitoring the adequacy of the entity’s information system 

controls. Without a well-designed security management program, security controls may be inadequate; 

responsibilities may be unclear, misunderstood, or improperly implemented; and controls may be 

inconsistently applied. Such conditions may lead to insufficient protection of sensitive or critical 

resources and disproportionately high expenditures for controls over low-risk resources. Nearly all of 

the agencies that reported information security as a material weakness or significant deficiency for 

fiscal year 2020 identified weaknesses related to their security management programs.

Recent events highlight the urgent need for agencies to identify and resolve weaknesses in their 

security management programs. In December 2020, the Cybersecurity & Infrastructure Security Agency 

(CISA) issued an emergency directive and supplemental guidance explaining that an advanced 

persistent threat66 actor had been observed leveraging, among other techniques, a software supply 

65We have also designated information security as a government-wide high-risk area since 1997. For more information, see 

GAO, High-Risk Series: Dedicated Leadership Needed to Address Limited Progress in Most High-Risk Areas, GAO-21-119SP

(Washington, D.C.: Mar. 2, 2021).

66An advanced persistent threat is a type of cyberattack campaign where an adversary that possesses sophisticated levels of 

expertise and significant resources can attack by using multiple means (e.g., cyber, physical, or deception) to generate 

opportunities to achieve its objectives which are typically to establish and extend its presence within the information 

technology infrastructure of organizations for purposes of continually exfiltrating information.
255 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

chain67 compromise of an enterprise network management software suite to conduct a cyberattack 

campaign against U.S. government agencies, critical infrastructure entities, and private sector 

organizations. According to CISA, this threat poses a grave risk to the federal, state, local, tribal, and 

territorial governments, as well as critical infrastructure entities and other private sector organizations. 

Additionally, in December 2020, the Federal Bureau of Investigation, CISA, and the Office of the 

Director of National Intelligence formed a Cyber Unified Coordination Group to coordinate a 

government-wide response to the significant and ongoing cyberattack campaign.

Until agencies identify and resolve these weaknesses and effectively manage information security risks 

on an ongoing basis, federal data and systems, including financial information, will remain at risk.

67The National Institute of Standards and Technology has defined “supply chain” as a set of organizations, people, activities, 

information, and resources that create and move a product or service from suppliers to an organization's customers.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 256

Appendix IV

Significant Deficiencies

In addition to the material weaknesses discussed in appendixes II and III, we found three significant 

deficiencies in the federal government’s internal control related to maintaining effective internal controls 

at certain federal entities, as described below. 

Taxes Receivable

During fiscal year 2020, a significant deficiency continued to affect the federal government’s ability to 

manage its taxes receivable effectively. While the Department of the Treasury’s Internal Revenue 

Service (IRS) made necessary and appropriate adjustments derived from a statistical estimation 

process to correct its financial statements, IRS’s underlying records did not always reflect the correct 

amount of taxes owed to the federal government at interim periods and year-end because of financial 

system limitations and other control deficiencies that led to errors in taxpayers’ accounts. Such 

inaccurate tax records impair management’s ability to effectively manage taxes receivable throughout 

the year and place an undue burden on taxpayers who may be compelled to respond to IRS inquiries 

caused by errors in taxpayer accounts.

Federal Grants Management

In fiscal year 2020, several federal entities’ auditors continued to identify internal control deficiencies 

related to grants management.68 Reported deficiencies primarily related to monitoring of grant activities, 

accounting for grants, and conducting grant close-out. These internal control deficiencies could 

adversely affect the federal government’s ability to provide reliable financial statements as well as 

reasonable assurance that grants are awarded properly, recipients are eligible, and federal grant funds 

are used as intended. 

Medicare Social Insurance Information

In fiscal year 2020, auditors for the Department of Health and Human Services (HHS) identified internal 

control deficiencies in certain controls related to the sufficiency of the review of methodologies and 

related calculations and estimates that HHS used to prepare its Statement of Social Insurance for the 

Medicare program. Specifically, HHS’s auditor identified formula errors in certain spreadsheets that 

HHS’s monitoring and review function did not detect. Such control deficiencies could result in 

misstatements to the Statement of Social Insurance.

68Key entities contributing to the significant deficiency for federal grants management include the Departments of Homeland 

Security, Housing and Urban Development, and Health and Human Services.