U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 232

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, 2019, and 2018, 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, 2019, and 2018.2

 Significant uncertainties (discussed in Note 22 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 2019 and 

2018 Statements of Long-Term Fiscal Projections;4 the 2019, 2018, 2017, 2016, and 2015 

Statements of Social Insurance;5 and the 2019 and 2018 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, 2019, and 2018, 

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 2018. 

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 2019 and 2018 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 (January 1 for 2015), and September 

30 for the Black Lung program. 
233 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 2019 and 2018 Statements of Long-Term Fiscal Projections. 

 Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 

2019. 

 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 

2019. 

This audit report discusses the following in more detail. 

 Our report on the accompanying consolidated financial statements, which includes (1) two 

emphasis of matters—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 required supplementary stewardship 

information (RSSI),7 and other information8 included with the consolidated financial statements in 

the Fiscal Year 2019 Financial Report of the United States Government (2019 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.9 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, 

2019, and 2018, and the sustainability financial statements, consisting of the 2019 and 2018 

Statements of Long-Term Fiscal Projections; the 2019, 2018, 2017, 2016, and 2015 Statements of 

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

section of the Fiscal Year 2019 Financial Report of the United States Government. 

7The RSSI consists of information on stewardship investments in the Required Supplementary Stewardship Information 

section of the Fiscal Year 2019 Financial Report of the United States Government. 

8Other information consists of information in the Fiscal Year 2019 Financial Report of the United States Government other 

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

United States. 

9The 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 234

Social Insurance; the 2019 and 2018 Statements of Changes in Social Insurance Amounts; and the 

related notes to the financial statements. 

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 and RSSI 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, RSI, 

and RSSI; 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, RSSI, 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, 2019, and 2018, 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.10 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. 

 

10Such limitations include (1) the Department of Defense and the Railroad Retirement Board both received disclaimers of 

opinion on their respective fiscal years 2019 and 2018 financial statements; (2) the Department of Housing and Urban 

Development received a qualified opinion on its fiscal year 2019 financial statements and a disclaimer of opinion on its fiscal

year 2018 financial statements; (3) the General Fund of the U.S. Government (General Fund) received a disclaimer of opinion 

on the Schedules of the General Fund for fiscal year 2018; the financial information for the General Fund was not audited for 

fiscal year 2019 to allow Treasury sufficient time to develop and begin to implement a remediation plan to address the issues 

we identified as part of the fiscal year 2018 audit; and (4) for fiscal years 2019 and 2018, the financial information for Security 

Assistance Accounts was unaudited. 
235 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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 have existed for 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 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 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 and on the management of federal government operations. 

Sustainability Financial Statements 

Significant uncertainties (discussed in Note 22 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 

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 2019 and 2018 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 2019 and 2018 Statements of Long-Term Fiscal Projections; the 

2019, 2018, 2017, 2016, and 2015 Statements of Social Insurance; the 2019 and 2018 Statements of 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 236

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 2019 and 2018 Statements of Long-Term Fiscal Projections and the 

2019, 2018, 2017, 2016, and 2015 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 2019, 2018, 2017, 2016, and 2015 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 

illustrative alternative projection in Note 22, exceeds the $42.2 trillion estimate in the 2019 

Statement of Social Insurance by $9.9 trillion. 

 

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

 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 2019 and 2018 

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 2019 Financial Report, the projections are very sensitive to 

changes in the health care cost growth assumption. 

As discussed in Notes 22 and 23 to the 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 2019 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 (1) 

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

limit on federal debt; (2) continued discretionary appropriations are assumed throughout the projection 

period; (3) scheduled Social Security and Medicare Part A benefit payments are assumed to occur 

beyond the projected point of trust fund depletion; and (4) many mandatory programs with expiration 

dates prior to the end of the 75-year projection period are assumed to be reauthorized. 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 consequences. 

The RSI section of the 2019 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. 

 

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 years 2015 and 2016, 

the Black Lung program projection period was through September 30, 2040. 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 238

As discussed in the unaudited RSI section of the 2019 Financial Report, the combined Social Security 

trust funds are projected to be depleted in 2035, and the Medicare Hospital Insurance (Part A) trust 

fund is, based on the achievement of the cost growth reductions discussed above, projected to be 

depleted in 2026, at which time the trust funds would be unable to pay the full amount of scheduled 

future benefits.16 For Social Security, future revenues were projected to be sufficient to pay 80 percent 

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

75 percent of scheduled benefits in 2093. For Medicare Hospital Insurance (Part A), future revenues 

were projected to be sufficient to pay 89 percent of scheduled benefits in 2026, the year of projected 

trust fund depletion, declining to 78 percent by 2043, and then gradually increasing to 83 percent of 

scheduled benefits in 2093.

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

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

continued, there will be differences between the estimates 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 2019 and 2018, 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 2019 and 2018, primarily because certain federal entities provided them insufficient or no 

representations. 

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, 2019, and 2018. 

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 

2019 and 2018; the Statements of Social Insurance for 2019, 2018, 2017, 2016, and 2015; and the 

Statements of Changes in Social Insurance Amounts for 2019 and 2018. Accordingly, we do not 

express an opinion on these sustainability financial statements. 

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 77 percent of scheduled benefits in 2034, the year of projected trust fund depletion, decreasing to 73 

percent in 2093. For the Federal Disability Insurance trust fund, future revenues were projected to be sufficient to pay 91 

percent of scheduled benefits in 2052, the year of projected trust fund depletion, decreasing to 87 percent in 2093. 
239 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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 2019 Financial Report into 

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

matters. 

Long-Term Fiscal Challenges 

The 2019 Statement of Long-Term Fiscal Projections and related information in Note 23 and in the 

unaudited RSI section of the 2019 Financial Report show that absent policy changes, the federal 

government continues to face an unsustainable long-term fiscal path. For the 2019 projections, debt-togross domestic product (GDP) at the end of the 75-year projection period was 474 percent. The budget 

deficit increased for the fourth consecutive year in fiscal year 2019 and is projected to continue to grow 

in almost all of the next 75 years. 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 deficit and 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 2019 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 effective 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 2019 Financial Report projections, spending 

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

becomes the largest category of spending in 2035. Net interest is projected to increase from 1.8 

percent of GDP in fiscal year 2019 to 7.0 percent in fiscal year 2039 to 23.2 percent in fiscal year 2094. 

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

debt held by the public rising as a share of GDP in the long term.17 GAO, CBO, and the 2019 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 11 to 14 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. 

 

17For more information on GAO’s simulations, see GAO, America’s Fiscal Future, accessed on February 19, 2020, 

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

The 2019 Long-Term Budget Outlook (Washington, D.C.: June 25, 2019). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 240

At the end of fiscal year 2019, debt held by the public reached about 79 percent of GDP, far above the 

post–World War II (since 1946) average of 46 percent. Debt held by the public at these high levels 

could limit the federal government’s flexibility to address 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. 

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 position. As of September 30, 2019, the federal 

government reported about $112 billion of investments in the GSEs, which is net of about $98 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, 2019, 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 

entities do not meet the criteria for consolidation.18 The ultimate role of the GSEs could affect the 

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

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

housing and mortgage markets. The Government National Mortgage Association (Ginnie Mae) 

guarantees the performance of about $2 trillion in securities backed by federally insured mortgages—

$1.2 trillion of which were insured by FHA and $0.8 trillion by other federal entities, such as the 

Department of Veterans Affairs. 

 

18For additional information on the GSE preferred stock purchase agreements and valuation of the investment in the GSEs, 

see Note 8 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 2019 Financial Report. 
241 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Other Matters 

Required Supplementary Information and Required Supplementary Stewardship Information 

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

Board (FASAB) require that the RSI and RSSI be presented in the 2019 Financial Report to 

supplement the financial statements. Although the RSI and RSSI are 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 and RSSI 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 or RSSI. 

Other Information 

Other information included in the 2019 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, RSI, 

or RSSI. 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 2019 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, RSSI, 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.19 The Federal Financial Management Improvement Act of 1996 (FFMIA) was 

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 substantially comply 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 substantially comply 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 2019, auditors of eight of the 24 CFO Act agencies reported that the agencies’ financial 

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

19The 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. 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 242

For fiscal year 2018, auditors of nine of the 24 CFO Act agencies reported that the agencies’ financial 

management systems did not substantially comply 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 2019 and 2018, agency management of seven of the 24 CFO Act agencies reported that 

their agencies’ financial management systems did not substantially comply 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 have contributed significantly to certain of the 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).20

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. 

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

financial reporting for fiscal year 2019 that come to our attention as a result of our audit.21 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. 

2031 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 internal control and accounting systems and on actions to 

correct significant problems. 

21A 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. 
243 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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 three 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, 

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

on an ongoing basis, and 

 effectively implement internal controls over estimating the cost of credit programs and determining 

the value of loans receivable and loan guarantee liabilities. 

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, 

 federal grants management, and 

 Medicare social insurance information. 

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

 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 244

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. 

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

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 

February 19, 2020 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 246

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, 2019, and 2018, 

and (2) sustainability financial statements, which consist of the 2019 and 2018 Statements of LongTerm Fiscal Projections; the 2019, 2018, 2017, 2016, and 2015 Statements of Social Insurance; and 

the 2019 and 2018 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.22 GMRA 

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

statements.23 The Accountability of Tax Dollars Act of 2002 (ATDA) requires most other executive 

branch entities to prepare financial statements annually and have them audited.24 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 2019 consolidated financial statements, 

including the 24 CFO Act agencies.25 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 accrualbased 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 2018.26 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, 2019, and 2018.27 In fiscal years 

2019 and 2018, IRS collected about $3.6 trillion and $3.5 trillion, respectively, in tax payments and 

paid about $452 billion and $464 billion, respectively, in refunds and outlays to taxpayers. For fiscal 

year 2019, 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 2019 with provisions of applicable laws, 

regulations, contracts, and grant agreements we tested. 

2231 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). 

23GMRA, Pub. L. No. 103-356, § 405(c), 108 Stat. 3410, 3416-17 (Oct. 13, 1994), codified at 31 U.S.C. § 331(e)(2). 

24ATDA, Pub. L. No. 107-289, 116 Stat. 2049 (Nov. 7, 2002), codified at 31 U.S.C. § 3515. 

25See app. A of the Fiscal Year 2019 Financial Report of the United States Government for a list of the 40 entities. 

26GAO, Financial Audit: Fiscal Years 2018 and 2017 Consolidated Financial Statements of the U.S. Government, GAO-19-

294R (Washington, D.C.: Mar. 28, 2019). 

27GAO, Financial Audit: IRS’s FY 2019 and FY 2018 Financial Statements, GAO-20-159 (Washington, D.C.: Nov. 8, 2019). 
247 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

 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, 

2019, and 2018.28 For these 2 fiscal years, the schedules reported 

(1) approximately $16.8 trillion (2019) and $15.8 trillion (2018) of federal debt held by the public,29

(2) about $5.9 trillion (2019) and $5.7 trillion (2018) of intragovernmental debt holdings,30 and (3) 

about $404 billion (2019) and $357 billion (2018) 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, 2019. In addition, we reported that we found no reportable 

noncompliance for fiscal year 2019 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, 2019, and 2018.31 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, 2019. In addition, we reported that we found no reportable noncompliance 

for either SEC or IPF for fiscal year 2019 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, 2019, and 2018.32

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

financial reporting as of September 30, 2019. In addition, we reported that we found no reportable 

noncompliance for fiscal year 2019 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, 2019, and 2018.33 We also reported that OFS maintained, in all material 

respects, effective internal control over financial reporting for TARP as of September 30, 2019. In 

addition, we reported that we found no reportable noncompliance for fiscal year 2019 with 

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

28GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2019 and FY 2018 Schedules of Federal Debt, GAO-20-117

(Washington, D.C.: Nov. 8, 2019). 

29Debt 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. 

30Intragovernmental 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. 

31GAO, Financial Audit: Securities and Exchange Commission’s FY 2019 and FY 2018 Financial Statements, GAO-20-204R

(Washington, D.C.: Nov. 15, 2019). 

32GAO, Financial Audit: Federal Housing Finance Agency’s FY 2019 and FY 2018 Financial Statements, GAO-20-198R

(Washington, D.C.: Nov. 19, 2019). 

33GAO, Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) FY 2019 and FY 2018 Financial 

Statements, GAO-20-160R (Washington, D.C.: Nov. 8, 2019). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 248

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

Protection’s (BCFP)34 financial statements as of and for the fiscal years ended 

September 30, 2019, and 2018.35 We also reported that BCFP maintained, in all material respects, 

effective internal control over financial reporting as of September 30, 2019. In addition, we reported 

that we found no reportable noncompliance for fiscal year 2019 with provisions of applicable laws, 

regulations, contracts, and grant agreements we tested. 

 We audited and expressed a disclaimer of opinion on the Schedules of the General Fund36 as of 

and for the fiscal year ended September 30, 2018.37 The underlying scope limitations, which were 

the basis for our disclaimer of opinion on the Schedules of the General Fund, primarily related to (1) 

readily identifying and tracing transactions to determine whether they were properly recorded in the 

Schedules of the General Fund, (2) evaluating and resolving differences with entity reported 

amounts, and (3) supporting the beginning liability for fund balance with Treasury. The Schedules of 

the General Fund as of and for the fiscal year ended September 30, 2019, 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. 

In addition, we considered the significant entities’ fiscal years 2019 and 2018 financial statements and 

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

prepared. Financial statements and audit reports for these entities provide information about the 

entities’ operations. We did not audit, and we do not express an opinion on, any of these individual 

federal entity financial statements. 

Our audit approach included performing 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. 

We also 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, 2019, and 2018.38 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. The DOD OIG also reported 25 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 eliminations; (6) financial statement compilation; and (7) financial management 

systems and information technology. 

34The 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), codified at 12 U.S.C. § 5491(a), 

is often referred to as the Consumer Financial Protection Bureau (CFPB). 

35GAO, Financial Audit: Bureau of Consumer Financial Protection’s FY 2019 and FY 2018 Financial Statements, GAO-20-

192R (Washington, D.C.: Nov. 15, 2019). 

36The 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). 

37GAO, 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). 

38Department of Defense, United States Department of Defense Agency Financial Report for Fiscal Year 2019, (Alexandria, 

Va.: Nov. 15, 2019). 
249 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Our audit approach for the 2019 and 2018 Statements of Long-Term Fiscal Projections focused 

primarily on assuring that the information relating to the Statements of Social Insurance is properly 

reflected therein and testing the methodology used as well as evaluating key assumptions. 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 these two federal entities. For each federal entity preparing a 

Statement of Social Insurance and Statement of Changes in Social Insurance Amounts,39 we 

considered the entity’s 2019, 2018, 2017, 2016, and 2015 Statements of Social Insurance and the 2019 

and 2018 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. 

39These entities are SSA, HHS, the Railroad Retirement Board, and the Department of Labor. 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 250

Appendix II 

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

Consolidated Financial Statements 

The material weaknesses discussed below contributed to our disclaimer of opinion on the federal 

government’s accrual-based consolidated financial statements.40 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. 

Liabilities and Commitments and Contingencies 

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

certain liabilities. For example, DOD was not able to estimate with assurance key components of its 

environmental and disposal liabilities. In addition, 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 DODmanaged military treatment facilities provided. 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, 

and 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.

40The 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 2019 and 2018 Statements of Long-Term Fiscal Projections. 
251 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Cost of Government Operations and Disbursement Activity 

Reported net costs were affected by the previously discussed material weaknesses in reporting assets 

and liabilities; material weaknesses in financial statement preparation, as discussed below; and the lack 

of adequate disbursement reconciliations at certain federal entities. 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. 

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

control deficiencies in reconciling disbursement activity. For fiscal years 2019 and 2018, 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. 

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 2019, Treasury continued to actively work with significant 

component entities to provide information and assistance to aid them in resolving intragovernmental 

differences. Treasury’s quarterly scorecard process41 highlights differences needing the entities’ 

attention, identifies differences that need to be resolved through a formal dispute resolution process,42

and reinforces the entities’ responsibilities to resolve intragovernmental differences. Treasury continued 

to perform procedures for identifying and monitoring systemic root causes of intragovernmental 

41For 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. 

42When 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 252

differences and related corrective action plans to address the root causes. In addition, Treasury worked 

with DOD concerning its material weakness in intragovernmental activity and balances. Further, over 

the past few years, Treasury has made significant progress by (1) improving the accounting for and 

reporting of General Fund transactions and balances, (2) working to resolve significant differences 

between the General Fund of the U.S. Government (General Fund) and federal entity trading partners, 

and (3) including differences involving General Fund activity and balances in the quarterly scorecard 

process.43 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 material 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, auditors reported that the DOD accounting systems were unable to capture 

intradepartmental and intragovernmental data at the transaction level for reconciliation and reporting, 

which resulted in a high risk of material misstatement for all financial statement line items. 

The federal government’s ability to determine the effect of the intragovernmental deficiencies discussed 

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

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

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 report.44 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 2019 audit, deficiencies in the preparation of the consolidated 

financial statements included the following. 

 For fiscal year 2019, auditors reported internal control deficiencies at several component entities 

regarding 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 an 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 

43The 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). 

44Most of the issues we identified in fiscal year 2019 existed in fiscal year 2018, and many have existed for a number of years. 

Most recently, in September 2019, 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-19-624 (Washington, D.C.: Sept. 4, 2019). 
253 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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 2019, 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. 

 For fiscal year 2019, Treasury did not have sufficient procedures, as part of its new process for 

preparing the consolidated financial statements, to reasonably assure that certain information was 

adequately supported by audited entity-level financial information. For example, Treasury recorded 

significant adjustments to federal entities’ dedicated collection information, but such adjustments 

were not based on audited entity-level financial information. Some amounts in the draft 

consolidated financial statements were materially incorrect and the supporting documentation was 

not sufficient. Treasury corrected the amounts and provided additional support after the preparation 

of the first draft. 

 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 2019 and 2018 consolidated financial statements balance, 

Treasury recorded a net decrease of $1.6 billion and a net increase of $2.4 billion, respectively, to 

net operating cost on the Statements of Operations and Changes in Net Position, which were 

identified as “Unmatched transactions and balances.”45 Treasury recorded an additional net $4.5 

billion and $1.3 billion of unmatched transactions in the Statements of Net Cost for fiscal years 2019 

and 2018, respectively. The material weakness in the federal government’s ability to account for 

intragovernmental activity and balances, discussed above, significantly contributes to this issue. 

 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 continued working with entities to improve reporting of 

commitments and contingencies related to treaties and other international agreements. 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 2019 

DOD auditors reported that DOD did not properly recognize and disclose property transfers that 

occurred in connection with the Military Housing Privatization Initiative. 

 

45Although Treasury was unable to determine how much of the unmatched transactions and balances relates to net operating 

cost, it reported this amount as a component of net operating cost in the accompanying consolidated financial statements. 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 254

In fiscal year 2019, Treasury continued to make progress with corrective actions intended to resolve 

internal control deficiencies in the processes used to prepare the consolidated financial statements. For 

example, Treasury designed and implemented additional tools to consistently report restatements, 

reclassifications, and adjustments to beginning net position in the consolidated financial statements. 

Treasury also made improvements to the processes and procedures for obtaining and assessing legal 

contingency information, such as enhancing the schedule submitted by entities summarizing the 

contingencies included in their legal representation letters. 

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. In recent years, Treasury has continued to improve its 

systems and processes for preparing the consolidated financial statements. 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 

actual budget receipts (receipts).46 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. For example, 

during fiscal year 2019, Treasury implemented procedures and developed 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 consolidated financial statements. 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. Such limitations primarily related to (1) readily identifying and 

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

Fund, (2) evaluating and resolving differences with entity-reported amounts, and (3) supporting the 

beginning liability for fund balance with Treasury.47 One of the two General Fund schedules provides 

information supporting the Statements of Changes in Cash Balance from Budget and Other Activities. 

Treasury developed and began 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. Because of the nature and 

complexity of issues identified, some of the control deficiencies are expected to be remediated over 

several years. 

 

46The budget deficit, receipts, and outlays amounts are reported in Treasury’s Monthly Treasury Statement and the President’s 

Budget.

47GAO, 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). 
255 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

As of the end of fiscal year 2019, 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 2019, 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.48 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 accrualbased consolidated financial statements. Treasury also reports the budget deficit in its Combined 

Statement of Receipts, Outlays, and Balances and in other federal government publications.49

48Statement of Federal Financial Accounting Standards 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 the entity’s net 

outlays on a budgetary basis and the net cost of operations during the period. 

49Treasury’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. 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 256

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 

the following three other material weaknesses in internal control. 

Improper Payments50 

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.51 The Improper Payments Information Act of 2002 (IPIA), as 

amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper 

Payments Elimination and Recovery Improvement Act of 2012 (IPERIA),52 requires federal executive 

agencies53 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. 

Agency improper payment estimates totaled about $175 billion for fiscal year 2019, based on improper 

payment estimates reported by federal program or activity.54 This represents about 4 percent of the 

federal government’s reported outlays for fiscal year 2019 of $4.4 trillion. The government-wide total of 

reported estimated improper payments, among programs and activities that reported estimates, 

50Since the conclusion of fiscal year 2019, Congress passed the Payment Integrity Information Act of 2019 (PIIA). S. 375, 

116th Cong. This bill would repeal IPIA, IPERA, and IPERIA and would enact a new Subchapter in Title 31 of the U.S. Code, 

containing substantially similar provisions. Under PIIA, some details would change; however, the core structure of executive 

agency assessment, estimation, and reporting of improper payments would remain consistent with the statutory framework in 

effect during fiscal year 2019, as described in this report. 

51Under the Improper Payments Information Act of 2002, as amended, an improper payment is statutorily defined 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. Office of Management and Budget guidance also provides that when an agency's review is unable to 

discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be 

considered an improper payment. 

52IPIA, Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002), as amended by IPERA, Pub. L. No. 111-204, 124 Stat. 2224 (July 

22, 2010), and IPERIA, Pub. L. No. 112-248, 126 Stat. 2390 (Jan. 10, 2013), and reprinted in 31 U.S.C. § 3321 note. 

53IPIA, as amended, statutorily defines agencies as executive agencies as that term is defined under 31 U.S.C. § 102 to mean 

departments, agencies, or instrumentalities in the executive branch of the United States. 

54As in fiscal years 2017 and 2018, the Fiscal Year 2019 Financial Report of the United States Government did not include a 

government-wide improper payment estimate or improper payment rate (also sometimes referred to as an error rate). From 

fiscal year 2003 through fiscal year 2016, a government-wide estimate and error rate had been reported in financial reports 

based on the programs and activities that reported estimates. 
257 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

increased by about $24 billion from the prior year estimate of about $151 billion. While decreases in 

estimated improper payments were reported for several programs and activities, these were offset by 

increases for certain other programs and activities.55 For example, the Department of Health and 

Human Services (HHS) reported an increase of estimated improper payments in excess of $21 billion 

for Medicaid in fiscal year 2019. Also, estimated improper payments of about $9 billion for two 

Department of the Treasury (Treasury) tax programs were reported for the first time. It is important to 

note that reported improper payment estimates include overpayments, underpayments, and payments 

for which the agency could not find sufficient documentation, and 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. Federal agencies reported about $75 billion of the government-wide estimate as monetary 

loss, an amount that should not have been paid and in theory should or could be recovered. 

The specific programs and activities included in the government-wide total of reported improper 

payment estimates may change from year to year. For example, four agencies did not report fiscal year 

2019 estimated improper payment amounts for six programs and activities that were identified by the 

agency or OMB as risk-susceptible, including HHS’s Temporary Assistance for Needy Families 

(TANF).56 Further, various inspectors general reported deficiencies related to 

 

55For fiscal year 2019, agencies reported decreases in total estimated improper payments in excess of $1 billion for five 

programs and activities and increases in total estimated improper payments in excess of $1 billion for six programs and 

activities. The five programs and activities with a decrease in excess of $1 billion were the Department of Education’s 

(Education) Pell Grant activity; Education’s Direct Loan activity; the Department of Health and Human Services’ (HHS) 

Medicare Fee-for-Service; the Social Security Administration’s (SSA) Old-Age, Survivors, and Disability Insurance; and the 

Department of the Treasury’s (Treasury) Earned Income Tax Credit (EITC). The six programs and activities with increases in 

excess of $1 billion were HHS’s Medicaid; Treasury’s Additional Child Tax Credit (ACTC); the Department of Defense’s (DOD) 

Military Pay; Treasury’s American Opportunity Tax Credit (AOTC); HHS’s Children’s Health Insurance Program (CHIP); and 

HHS’s Medicare Advantage (Part C). 

56The six programs and activities were (1) HHS's TANF, (2) HHS's Advance Premium Tax Credit, (3) Treasury’s Premium Tax 

Credit, (4) the Department of Agriculture’s (USDA) Summer Food Service Program, (5) the Department of Housing and Urban 

Development’s (HUD) Rental Housing Assistance Program (RHAP) – Tenant-Based Rental Assistance, and (6) HUD’s RHAP 

– Project-Based Rental Assistance. In addition, for fiscal year 2019, the Department of Labor (Labor) reported that it did not 

report an improper payment estimate for the National Disaster Workforce Grants program, and the Department of Homeland 

Security reported that it did not report improper payment estimates for 10 disaster relief programs. These programs were 

subject to improper payment reporting because in fiscal year 2017 or fiscal year 2018, or both, they received supplemental 

appropriations for disaster relief and expended more than $10 million of such funds in one fiscal year, thus meeting the 

appropriations’ criteria for determining programs’ susceptibility to significant improper payments for the purposes of the IPIA. 

See Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2017, Pub. L. No. 115-72, div. A, § 305(b), 

131 Stat. 1224, 1228 (Oct. 26, 2017), as amended by the Further Additional Supplemental Appropriations for Disaster Relief 

Requirements Act, 2018, Pub. L. No. 115-123, div. B, §§ 21207, 21208(a)(2), (b), 132 Stat. 64, 108 (Feb. 9, 2018). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 258

compliance with the criteria listed in IPERA for fiscal year 2018 at their respective agencies,57 including 

risk-susceptible programs and activities that did not report improper payment estimates, estimation 

methodologies that may not produce reliable estimates, and risk assessments that may not accurately 

assess the risk of improper payment. For example, the Department of Defense (DOD) Office of 

Inspector General reported that DOD did not ensure that all required payments were included in certain 

programs’ improper payment estimates, and as a result, DOD published unreliable estimates of 

improper payments for fiscal year 2018.58

For fiscal year 2019, agencies reported estimated improper payment rates of 10 percent or greater for 

22 risk-susceptible programs and activities,59 accounting for about 59 percent of the government-wide 

total of reported estimated improper payments.60 Under IPERA, if an agency’s inspector general 

determines that the entity is not in compliance with the criteria listed in IPERA, 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. 

Further, agency auditors continued to report internal control deficiencies over financial reporting in their 

fiscal year 2019 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 President’s fiscal years 2019 and 2020 budgets included program integrity proposals at multiple 

agencies aimed at reducing improper payments. Also, efforts continue to implement IPERIA 

requirements in order to better identify and prevent improper payments, waste, fraud, and abuse, as 

well as to recover overpayments. Among other things, IPERIA established the statutory Do Not Pay 

initiative, requiring 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 

57IPERA established a requirement for agency inspectors general to report annually on their respective agencies’ compliance 

with criteria listed in section three of IPERA. The six criteria are that the agency has (1) published an annual financial 

statement and accompanying materials in the form and content that OMB requires for the most recent fiscal year and posted 

that report on the agency website; (2) conducted a risk assessment for each specific program or activity that conforms with 

IPIA, as amended; (3) published estimates of improper payments for all programs and activities identified as susceptible to 

significant improper payments under the agency’s risk assessment; (4) published corrective action plans for programs and 

activities assessed to be at risk for significant improper payments; (5) published and met annual reduction targets for all 

programs and activities assessed to be at risk for significant improper payments; and (6) reported a gross improper payment 

rate of less than 10 percent for each program and activity for which an improper payment estimate was published. The most 

recent inspector general reports on compliance with the criteria listed in IPERA were issued in 2019 for fiscal year 2018. 

Pursuant to the OMB implementing guidance in OMB Memorandum M-18-20, appendix C to OMB Circular No. A-123, 

Requirements for Payment Integrity Improvement (June 26, 2018), inspector general reports are due by May 15 of the 

following year (or the next business day if May 15 falls on a weekend). Therefore, inspector general reports on fiscal year 2019 

compliance with the criteria listed in IPERA are expected to be issued no later than May 15, 2020. 

58Department of Defense, Office of Inspector General, Audit of the DoD’s FY 2018 Compliance with the Improper Payments 

Elimination and Recovery Act Requirements, Report No. DODIG-2019-087 (Alexandria, Va.: May 15, 2019). 

59The improper payment rate reflects the estimated improper payments as a percentage of total annual outlays. 

60The 22 programs and activities that reported estimated improper payment rates of 10 percent or greater for fiscal year 2019 

were (1) the Department of Veterans Affairs’ (VA) Purchased Long Term Services and Support; (2) VA’s Community Care; (3) 

VA’s Medical Care Contracts and Agreements; (4) VA’s Communications, Utilities, and Other Rent; (5) the Corporation for 

National and Community Service’s (CNCS) Retired and Senior Volunteer; (6) CNCS’s Senior Companion; (7) CNCS’s Foster 

Grandparent; (8) Treasury’s AOTC; (9) Treasury’s EITC; (10) USDA’s Farm Service Agency (FSA) Noninsured Crop Disaster 

Assistance; (11) VA’s Supplies and Materials; (12) VA’s Beneficiary Travel; (13) USDA’s FSA Livestock Forage Disaster; (14) 

CNCS’s AmeriCorps; (15) USDA’s FSA Agriculture Risk and Price Loss Coverage; (16) USDA’s FSA Hurricane Harvey – 

Emergency Conservation; (17) HHS’s CHIP; (18) Treasury’s ACTC; (19) HHS’s Medicaid; (20) the Federal Communications 

Commission’s Rural Health Care; (21) Labor’s Unemployment Insurance; and (22) USDA’s Food and Nutrition Service (FNS) 

School Breakfast.
259 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

federal funds. IPERIA also directs 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 annually submit a program report to its inspector general and make the 

report available to the public.61 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.62 

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 

1997.63 During our fiscal year 2019 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. Eighteen 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 2019. 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. A primary reason 

for these deficiencies is that federal entities generally have not yet fully institutionalized comprehensive 

security management programs, which are critical to identifying information security control 

deficiencies, resolving information security problems, and managing information security risks on an 

ongoing basis. Until agencies identify and resolve these deficiencies and effectively manage 

information security risks on an ongoing basis, federal data and systems, including financial 

information, will remain at risk. 

61OMB has designated high-priority programs as those programs and activities with improper payment estimates that exceed 

$2 billion annually. The 14 programs and activities with reported improper payment estimates greater than $2 billion in fiscal 

year 2019 were (1) HHS’s Medicaid; (2) HHS’s Medicare Fee-for-Service; (3) Treasury’s EITC; (4) HHS’s Medicare 

Advantage; (5) DOD’s Military Pay; (6) Treasury’s ACTC; (7) VA’s Community Care; (8) SSA’s Supplemental Security Income; 

(9) USDA’s FNS Supplemental Nutrition Assistance; (10) Labor’s Unemployment Insurance; (11) HHS’s CHIP; (12) SSA’s Old 

Age, Survivors, and Disability Insurance; (13) VA’s Purchased Long Term Services and Support; and (14) Treasury’s AOTC. 

62According to OMB Circular No. A-136, Financial Reporting Requirements (rev. June 28, 2019), at II.4.5., “monetary loss” 

represents an amount that should not have been paid and in theory should or could be recovered. 

63We have also reported information security as a government-wide high-risk area since 1997. For more information, see 

GAO, High-Risk Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas, 

GAO-19-157SP (Washington, D.C.: Mar. 6, 2019). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 260

Loans Receivable and Loan Guarantee Liabilities 

Internal control deficiencies were identified at certain federal entities that accounted for a majority of the 

reported balances of loans receivable and loan guarantee liabilities.64 The deficiencies related to credit 

program cost estimation, associated control activities, and financial reporting processes. These 

deficiencies and complexities associated with estimating the costs of loan and loan guarantee 

programs and related financing activities 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. 

64Entities contributing to the material weakness for loans receivable and loan guarantee liabilities include the Department of 

Education, Department of Housing and Urban Development, Department of Transportation, Department of Veterans Affairs, 

and Small Business Administration. 
261 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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 2019, 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 by the public 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 2019, several federal entities’ auditors continued to identify internal control deficiencies 

related to grants management.65 Reported deficiencies primarily related to monitoring of grant activities, 

accounting for grants, and untimely recognition of grant expenses. 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 2019, 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 used in HHS’s preparation of its Statement of Social Insurance for 

the Medicare program. Such control deficiencies could result in misstatements to the Statement of 

Social Insurance. 

65Key entities contributing to the significant deficiency for federal grants management include the Departments of Homeland 

Security, Housing and Urban Development, and Transportation.