Financial Report

of the

United States Government

1998
A Mes sage from the Sec re tary of the Treasury ................................... . 1

Man age ment’s Dis cus sion and Anal y sis......................................... . 3

General Accounting Office Report

Comp trol ler Gen eral’s State ment .............................................. . 15

Au di tor’s Re port ........................................................... . 19

Financial Statements

State ment of Op er a tions and Changes in Net Po si tion .............................. . 41

State ment of Net Cost ....................................................... . 42

Bal ance Sheet ............................................................. . 42

Stewardship Information (Unaudited)

Stew ard ship As sets:

Na tional De fense As sets.................................................... . 49

Stew ard ship Land......................................................... . 52

Her i tage As sets........................................................... . 54

Stew ard ship Re spon si bil ities:

So cial Se cu rity ........................................................... . 56

Medicare................................................................ . 57

Rail road Re tire ment ....................................................... . 58

Black Lung Ben e fits....................................................... . 59

Un em ploy ment In sur ance .................................................. . 60

Cur rent Ser vices As sess ment ................................................. . 61

Notes to the Financial Statements

Note 1 - Sum mary of Sig nif i cant Ac count ing Pol icies.............................. . 63

Note 2 - Cash and Other Mon e tary As sets ....................................... . 65

Note 3 - Loan Pro grams ..................................................... . 66

Note 4 - Taxes Re ceiv able.................................................... . 67

Note 5 - In ven tories and Re lated Prop erty ....................................... . 67

Note 6 - Prop erty, Plant and Equip ment ......................................... . 68

Note 7 - Other As sets ....................................................... . 69

Note 8 - Ac counts Pay able ................................................... . 69

Note 9 - Fed eral Debt Se cu ri ties Held by the Pub lic ............................... . 69

Note 10 - Fed eral Em ployee and Vet eran Ben e fits Pay able .......................... . 72

Note 11 - En vi ron men tal Li a bil i ties ............................................ . 75

Note 12 - Ben e fits Due and Pay able ............................................ . 75

Note 13 - Other Li a bil i ties ................................................... . 76

Note 14 - Prior Pe riod Ad just ments ............................................ . 76

Note 15 - Com mit ments and Con tin gencies ...................................... . 77

Note 16 - Un rec on ciled Trans ac tions Af fecting the Change in Net Po si tion ............. . 78

Note 17 - Ded i cated Col lec tions............................................... . 78

Note 18 - Indian Trust Funds ................................................. . 81

Supplemental Information (Unaudited)

Net Cost De tail ............................................................ . 83

Rec on cil i a tion of the Ex cess of Net Cost Over Rev e nue 

to the Unified Bud get Sur plus ............................................... . 89

Appendix

List of Sig nif i cant U.S. Gov ern ment En tities In cluded 

and En tities Ex cluded from these Fi nan cial State ments ........................... . 91

Con tents
A MES SAGE FROM THE

SEC RE TARY OF THE TREA SURY

Attached is the fiscal year 1998 Financial Report of the United States Government,

formerly known as the Consolidated Financial Statements of the U.S. Government.

The Administration initiated the development of this financial report in order to create

what we believe will be a useful management tool for policy-makers and a source of

useful information for the public. Last year, for the first time, the United States

Government prepared comprehensive financial statements covering all of its myriad

activities and subjected them to audit. This year, for the second time, the

Administration presents the Financial Report of the United States Government,

including audited financial statements that cover the Executive Branch, as well as

parts of the Legislative and Judicial branches of the United States Government. 

The publication of this second annual financial report represents one component of

the Clinton Administration’s continuing efforts to improve the management and

efficiency of the United States Government. In 1994, the Administration supported

the Government Management Reform Act, which mandated the issuance of these

audited financial statements. The Administration has supported the Federal

Accounting Standards Advisory Board in creating the accounting standards that form

the basis for the financial statements included in this financial report.

These accounting standards generally are based on the accrual basis of accounting,

which differs from the cash basis of accounting used in the reporting of budget results. 

The principal differences between these two accounting methods pertain to the timing

of the measurement and recognition of revenues and expenses and the inclusion of a

presentation of assets and liabilities. Each method is a useful tool for looking at the

government’s operations for different purposes.

A great deal of work has been done, but the de vel op ment of this new method of report ing is an im mense task and a great deal of ad di tional ef fort will be nec es sary to

cre ate and im ple ment an en tirely new sys tem of re port ing on the op er a tions of the

U.S. Gov ern ment. We are work ing hard to ward that goal to com ple ment our ex ist ing

bud get re port ing. The au dit re port from the Gen eral Ac count ing Of fice (GAO) discusses many ar eas in which the re li abil ity of the cur rent fi nan cial state ments must be

en hanced and im proved. As a re sult, the GAO was un able to ren der an opin ion on

these state ments. The Ad min is tra tion is com mit ted to con tin u ing its work with the

GAO, Fed eral agen cies, and other in ter ested par ties to achieve the Pres i dent’s goal of

re ceiv ing an un qual i fied opin ion from the GAO on the Fi nan cial Re port of the United

States Gov ern ment. We be lieve that the pub li ca tion of this fi nan cial re port is an impor tant step in pro vid ing the Amer i can pub lic with use ful in for ma tion about their govern ment’s as sets, li a bil i ties and op er a tions.

 

 Rob ert E. Ru bin
2 Dis cus sion and Analysis

Blank Page
Dis cus sion and Anal y sis 3

No other en tity in the world com -

pares in size and scope to the U.S.

Gov ern ment, which has con tin u ing

re spon si bil i ties for the gen eral wel -

fare of its cit i zens and for na tional de -

fense. The U.S. Gov ern ment's com -

pre hen sive fi nan cial re port, pre pared

in ac cor dance with Fed eral ac count -

ing stan dards, in cludes all of its ac tiv -

i ties.

Ef fec tive man age ment of the U.S.

Gov ern ment has been ham pered by a

lack of com pre hen sive fi nan cial in -

for ma tion. The Ad min is tra tion re -

mains com mit ted to pro vid ing re li -

able in for ma tion about the fi nan cial

po si tion of the U.S. Gov ern ment, the

cost of its op er a tions, and the fi nanc -

ing sources used to fund op er a tions.

Such in for ma tion will ul ti mately

prove ex tremely help ful to pol -

icy-makers and the pub lic.

To im prove the qual ity of fi nan cial

in for ma tion, in 1990 the Of fice of

Man age ment and Bud get (OMB),

Trea sury, and the U.S. Gen eral Ac -

count ing Of fice (GAO) es tab lished

the Fed eral Ac count ing Stan dards

Ad vi sory Board (FASAB) to de velop

ac count ing stan dards for the U.S.

Gov ern ment. In 1994, the Pres i dent

signed the Gov ern ment Man age ment

Re form Act, which re quires an nual

fi nan cial state ments for the 24 ma jor

agen cies and for the U.S. Gov ern -

ment as a whole.

The Ad min is tra tion ap pre ci ates the

work of the GAO in sub ject ing these

fi nan cial state ments to au dit and

looks for ward to work ing with the

GAO, Fed eral agen cies and other in -

ter ested par tiesin its con tin u ing ef fort

to im prove the re li abil ity of Fed eral

fi nan cial in for ma tion. The ef fort to

pro duce a com pre hen sive and re li able

set of fi nan cialstate mentsfor the U.S. 

Gov ern ment, which be gan in 1997, is

on go ing and im prove ments are

clearly nec es sary. Be cause of cur rent

lim i ta tions that are dis cussed in

GAO's Re port, the GAO is un able to

ren der an opin ion on these fi nan cial

state ments. The chal lenges in volved

in de vel op ing timely, re li able, and

com pre hen sive fi nan cial in for ma tion

should not, how ever, ob scure the

prog ress that has been made or the in -

sights pro vided by prep a ra tion and

au dit of these state ments. The Ad -

min is tra tion's ac com plish ments are

pre sented later in this dis cus sion and

anal y sis.

The Ad min is tra tion is com mit ted

to im prov ing the re li abil ity of the fi -

nan cial in for ma tion to achieve its

goal of an un qual i fied opin ion on the

fi nan cial state ments of in di vid ual

agen cies and the U.S. Gov ern ment.

The Ad min is tra tion's goals for in di -

vid ual agen cies are re flected in the

Fed eral Fi nan cial Man age ment Sta tus

Re port and Five-Year Plan is sued by

the OMB and the Governmentwide

Chief Fi nan cial Of fi cers (CFOs)

Coun cil. That doc u ment re flects the

dates by which agen cies are ex pected

to achieve the Ad min is tra tion's ob jec -

tives.

The ac com pa ny ing Fi nan cial Report is re quired by 31 United States

Code 331(e)(1) and con sists of Manage ment's Dis cus sion and Anal y sis

(MD&A), a State ment of Op er a tions

and Changes in Net Po si tion, a Statement of Net Cost, a Bal ance Sheet,

Stew ard ship In for ma tion, Notes to

the Financial State ments, and Sup ple -

men tal In for ma tion. Each sec tion is

pre ceded by a de scrip tion of the section's con tents. The Sup ple men tal Infor ma tion sec tion de scribes the ma jor 

func tions of the U.S. Gov ern ment.

Fi nan cial Report of the 

United States Gov ern ment, Fis cal 1998

 Management’s Discussion and Analysis

Introduction

“The Administration is

committed to

improving the reliability

of the financial

information . . .”
4 Dis cus sion and Analysis

Management’s Discussion and Analysis, cont.

Coverage

The fi nan cial state ments cover the

ex ec u tive branch, as well as parts of

the leg is la tive and ju di cial branches

of the U.S. Gov ern ment. A list of the

sig nif i cant en ti ties in cluded in these

fi nan cial state ments is in cluded in

the Ap pen dix. In for ma tion from the

leg is la tive and ju di cial branches is

lim ited be cause those en ti ties are not

re quired to pre pare com pre hen sive

fi nan cial state ments. In ad di tion,

Gov ern ment-sponsored en ter prises

(such as Fed eral Home Loan Banks

and the Fed eral Na tional Mort gage

As so ci a tion) are ex cluded be cause 

they are pri vately owned. The Federal Re serve Sys tem is also excluded be cause mon e tary pol icy is

con ducted sep a rately from and inde pend ently of the other cen tral

Gov ern ment func tions.

The MD&A ex plains the Fed eral re port ing en tity, the ba sis of ac count ing

used to pre pare these fi nan cial state ments, and pres ents se lected fi nan cial

and eco nomic in for ma tion in tended to as sist read ers in their as sess ment of

the U.S. Gov ern ment's fi nan cial op er a tions and sta tus. It also sum ma rizes finan cial man age ment ini tia tives de signed to con tinue im prov ing the re li abil -

ity of the fi nan cial state ments and to ad dress the is sues iden ti fied in GAO's

re port on the U.S. Gov ern ment's 1998 fi nan cial state ments.

Reporting Entity

and Basis

of Accounting

Accounting Standards

The ac count ing stan dards used in

the prep a ra tion of the ac com pa ny ing

fi nan cial state ments were de vel oped

by the Fed eral Ac count ing Stan dards

Ad vi sory Board (FASAB); ap proved 

by Trea sury, OMB and GAO as the

FASAB prin ci pals; and is sued by

OMB and GAO. The stan dards are

tai lored to the U.S. Gov ern ment’s

unique char ac ter is tics and spe cial

needs. For ex am ple, land not used in

U.S. Gov ern ment op er a tions (steward ship land) and weapon sys tems

and sup port prop erty used in the perfor mance of mil i tary mis sions and

ves sels held as part of the Na tional

De fense Re serve Fleet (na tional defense as sets) are re ported in the Steward ship In for ma tion sec tion rather

than on the Bal ance Sheet.

The fi nan cial state ments of the

U.S. Gov ern ment are pre pared gener ally on the ac crual ba sis of ac count -

ing. Un der the ac crual ba sis, trans ac -

tions are re ported when the events

giv ing rise to the trans ac tions oc cur,

rather than when cash is re ceived or

paid (cash ba sis). By con trast, Federal bud get ary re port ing is gen er ally

on the cash ba sis in ac cor dance with

ac cepted bud get con cepts and pol i -

cies.

The most sig nif i cant dif fer ence between these two bases in volves the

tim ing of rec og ni tion and mea sure -

ment of rev e nues and costs. For exam ple, Fed eral ac count ing stan dards

re quire rec og ni tion of li a bil i ties for

costs re lated to en vi ron men tal

cleanup when the events re sult ing in

such costs oc cur. By con trast, bud get

con cepts and pol i cies re quire the recog ni tion of such costs at the time

pay ment is made. The ef fects of these

dif fer ences are re flected in the “Recon cil i a tion of the Ex cess of Net Cost

Over Revenue to the Unified Bud get

Sur plus,” which is pre sented in the

Sup ple men tal In for ma tion sec tion of

this Fi nan cial Re port.

In fis cal 1998, there was a bud get

sur plus of $69.2 bil lion. The ex cess

of net cost over rev e nue fig ure contained in these fi nan cial state ments

for fis cal 1998 is $133.8 bil lion. This

dif fer ence is at trib ut able to fac tors

dis cussed im me di ately above. The

pri mary com po nents of the dif fer -

ence that have been iden ti fied are increases in ac crued vet eran com pen -

sa tion ben e fits, $109.4 bil lion;

in creases in ac tu ar ial ex penses for

Fed eral em ploy ees and mil i tary pensions and health ben e fits, $39.8 billion; and an in crease in en vi ron men -

tal li a bil i ties, $12.8 bil lion.

This Fi nan cial Re port does not include in for ma tion on nat u ral resources (depletable re sources, such

as min eral de pos its and pe tro leum or

re new able re sources, such as tim ber)

be cause stan dards have not yet been

de vel oped for rec og niz ing and measur ing these as sets.

Finally, a thor ough as sess ment of

the U.S. Gov ern ment’s fi nan cial status should rec og nize its sov er eign

pow ers to raise rev e nue and reg u late

com merce. These pow ers are not reflected in the ac com pa ny ing statements, but should be con sid ered in a

com pre hen sive as sess ment of the

U.S. Gov ern ment’s over all fi nan cial

con di tion.
Dis cus sion and Anal y sis 5

Implementation of New

Accounting Standards

While the FASAB com pleted work

on a ba sic set of ac count ing stan dards

in 1996, some stan dards did not become ef fec tive un til fis cal 1998.

Stan dards be com ing ef fec tive in fiscal 1998 re quire that the value of national de fense as sets be re moved

from the Balance Sheet and that infor ma tion about these as sets be reported in the Stew ard ship In for ma -

tion sec tion of the Financial Report.

These as sets were val ued at $655.2

bil lion when re ported on the fis cal

1997 Balance Sheet. FASAB has initi ated a pro ject to iden tify and research user in for ma tion needs for

na tional de fense as sets. 

In ad di tion, stan dards ef fec tive for

the first time in 1998 re quire cur rent

ser vices as sess ment in for ma tion

show ing both the short-term and medium-term di rec tion of cur rent programs. The cur rent ser vices as sess -

ment pres ents ac tual re ceipt and

out lay data for all pro grams for the

year for which the fi nan cial statements are pre pared (the base year)

and es ti mates for 6 years sub se quent

to the base year. This as sess ment will

thus fa cil i tate eval u a tion of the suf fi -

ciency of fu ture re sources to sus tain

pub lic ser vices and to meet cur rent

and fu ture ob li ga tions as they be come 

due.

Stan dards be com ing ef fec tive in

fu ture years re quire re port ing of annual Fed eral ex penses for stew ard -

ship in vest ments, which in clude:

• Non-Federal phys i cal prop erty:

the Fed eral in vest ment in prop er -

ties owned by State and lo cal govern ments (e.g., high ways and

air ports).

• Hu man cap i tal: in vest ments in

ed u ca tion and train ing pro grams

fi nanced by the U.S. Gov ern ment

for the ben e fit of the pub lic.

• Re search and de vel op ment: the

U.S. Gov ern ment’s in vest ments in

ba sic and ap plied re search and devel op ment.

The an nual ex pense re lated to these

in vest ments in cluded in the Statement of Net Cost will be sep a rately

Very strong eco nomic growth

con tin ued through fis cal 1998. The

Asian fi nan cial cri sis and weak ness

abroad had some neg a tive im pacts

on the U.S. econ omy, chiefly

through ex ports and vol a til ity in finan cial mar kets, but the do mes tic

econ omy surged for ward. Job gains

were very solid over the year end ing

in Sep tem ber and the un em ploy -

ment rate held near 28-year lows. At

the same time, in fla tion was very

well con tained, with the rate of infla tion drop ping to lev els not seen

since the mid-1960’s. Strong

growth in in comes and a ris ing

stock mar ket led to a boost in Federal tax re ceipts in fis cal 1998, contrib ut ing to the first Fed eral uni fied

bud get sur plus in 29 years.

The Economy

in Fiscal 1998

Real gross do mes tic prod uct

(GDP) grew by 3.5 per cent across the

four quar ters of fis cal 1998 (which

en com passes the fourth quar ter of

cal en dar 1997 through the third quar -

ter of cal en dar 1998). Over the past 3

fis cal years, real growth av er aged a

ro bust 3.7 per cent.

The house hold sec tor ac counted

for much of the gain in 1998, with

con sumer spend ing and res i den tial

in vest ment grow ing very rap idly.

Con sumer pur chases swelled by 4.7

per cent over the fis cal year, the most

rapid rate of ad vance in 15 years. In -

vest ment in new hous ing jumped by

12 per cent and the home own er ship

rate hit an all-time high. The gains in

spend ing were fu eled by ris ing em -

ploy ment and in come and by the

wealth ef fects of the rapid in creases

in stock prices over the past few

years.

Partly off set ting strength in the domes tic econ omy was a siz able de te ri -

Economic and 

Budgetary Results

Growth of Real GDP
6 Dis cus sion and Analysis

Budget Results

The uni fied Fed eral bud get was

in sur plus by $69.2 bil lion in fis -

cal 1998, the first Fed eral sur plus

since 1969. This rep re sented 0.8

per cent of GDP, the high est share

of GDP for a sur plusin more than

40 years, and re sulted in a re duc -

tion in the level of Fed eral debt

held by the pub lic for the first

time in 29 years. Pas sage of def i -

cit re duc tion pro grams in con -

junc tion with strong eco nomic

growth placed the bud get on its

path to ward sur plus af ter the an -

nual def i cit reached an all-time

high of $290 bil lion in fis cal

1992.

The ex pand ing econ omy over

the course of the year brought a

surge in tax rev e nue in 1998,

which far out paced mod est gains

in Fed eral out lays. Re ceipts in -

creased by 9.0 per cent in fis cal

1998 to $1,722 bil lion, faster than

gains over the pre vi ous sev eral

years. Growth was led by a more

than 12 per cent in crease in in di -

vid ual in come tax pay ments, re -

flect ing rapid job and in come

growth as well as high lev els of

cap i tal gains from the ris ing stock

mar ket. That was more than

enough to off set a slow down in

cor po rate prof its tax re ceipts,

which grew by 3-1/2 per cent in

fis cal 1998 com pared with 6 per -

cent in the prior year. Cor po rate

prof its weak ened a bit over the

year pri mar ily due to the im pacts

of the global sit u a tion on earn ings, 

par tic u larly among man u fac tur ing

firms.

Growth of out lays was held to

just 3.2 per cent in fis cal 1998,

with out lays ris ing to $1,653 bil -

lion. Out lays in re la tion to GDP

were the small est since 1974, dip -

ping to a 19.7 per cent share from

20.0 per cent in fis cal 1997. The

un der ly ing im prove ment over the

year was even greater than the

o ra tion in the for eign trade bal ance

due to weak en ing global fi nan cial and

eco nomic con di tions. U.S. ex ports in

real terms fell by 2.3 per cent over the

fis cal year, while im ports grew by 8.3

per cent. The wid en ing trade def i cit

acted as a con sid er able drag on real

GDP growth, par tic u larly in the first

half of cal en dar 1998 when it subtracted more than 2 per cent age points

from growth. U.S. ag ri cul tural and

man u fac tur ing in dus tries were most

af fected by the loss of ex ports and

other con se quences of the global sit u -

a tion. Man u fac turing pro duc tion and

ca pac ity uti li za tion slowed over the

year, and fac tory em ploy ment declined by 137,000 from March

through Sep tem ber.

Em ploy ment growth in other sectors of the econ omy was very strong

in fis cal 1998, and la bor mar kets contin ued to be very tight. About 3.1 million jobs were added dur ing the year,

the same as in the pre vi ous fis cal

year. The un em ploy ment rate held

be tween 4.3 and 4.7 per cent throughout the fis cal year, the low est readings in 28 years. The share of the

work ing-age pop u la tion with a job

av er aged 64 per cent, a new fiscal-year re cord, and long-term un em -

ploy ment fell. Workers en joyed an

ac cel er a tion in wage and sal ary

growth, which in creased by 4 per cent

over the fis cal year. This was con sid -

er ably faster than the rate of in fla tion

and re sulted in solid gains in real

wages and sal a ries. 

De spite strong eco nomic growth

and very low rates of un em ploy ment,

price pres sures did not build up dur -

ing the year. Falling prices for im -

ported goods, en ergy and food held

down growth in com mod ity prices

and the over all rate of in fla tion as

well. Con sumer prices edged up just

1.4 per cent over the fis cal year, the

small est in fla tion rate since the

mid-1960's. Ex clud ing the food and

en ergy com po nents, the un der ly ing

"core" rate of con sumer price in fla -

tion was 2.4 per cent, up a bit from 2.2

per cent in the pre vi ous fis cal year,

which had been the low est core rate

since the mid-1960's.

Unified Federal Budget Moves

from Deficit to Surplus

“The expanding

economy over the

course of the year

brought a surge in

tax revenue in 1998,

which far outpaced

modest gains in

Federal outlays.”
Dis cus sion and Anal y sis 7

sum mary fig ure sug gests, as out lays

in fis cal 1997 were held down by

large in flows to the de posit in sur ance

ac count which were not re peated in

fis cal 1998. (These in flows are

treated as neg a tive out lays in bud get

ac count ing.) Ex clud ing the de posit

in sur ance ac count and other sim i lar

fac tors, out laysin creased by lessthan

2-1/2 per cent in fis cal 1998.

De fense spend ing dipped slightly

in fis cal year 1998 af ter in creas ing by

$4.8 bil lion in the prior year. That in -

crease fol lowed 4 years of re duc tions

in de fense spend ing. Out lays for in -

come sup port (ex clud ing Fed eral

re tire ment pay ments) were smaller

than a year ago, re flect ing the ex pan -

sion of em ploy ment and ris ing in -

come in 1998. Net in ter est pay ments

de clined by $0.7 bil lion. Growth in

Medicare slowed sharply com pared

with pre vi ous years due in part to

slower pro cess ing of pay ments, but

ex panded use of man aged care plans

and lower-than-expected pay ments

for in pa tient hos pi tal ser vices also

con trib uted.

The uni fied bud get in fis cal 1999 is

ex pected to post a slightly larger sur -

plusthan the $69.2 bil lion re corded in

fis cal 1998. New pro jec tionsfrom the

Fis cal Year 2000 Bud get show sur -

pluses grow ing through out the fore -

cast ho ri zon, ac cu mu lat ing to $2.4

tril lion over the pe riod 2000-2009.

These re sults are sim i lar to the fore -

casts of the Con gres sio nal Bud get

Of fice, which yield an even larger cu -

mu la tive sur plus of $2.6 tril lion over

that 10-year span. 

Revenue

Non-exchange rev e nue is the U.S.

Gov ern ment's pri mary source of rev e -

nue, and to taled $1,712.8 bil lion in

1998. More than 95 per cent of this total came from tax re ceipts, with the remain der com ing from cus toms du ties

and other mis cel la neous re ceipts.

Earned rev e nues are in flows of resources that arise from ex change

trans ac tions. Ex change trans ac tions

oc cur when each party to the trans ac -

tion sac ri fices value and re ceives

value in re turn -- for ex am ple, when

the U.S. Gov ern ment sells goods or

ser vices to the pub lic. Dur ing 1998,

the U.S. Gov ern ment earned $168.9

bil lion in ex change rev e nue in clud ing

$2.8 bil lion from the sale of the Elk

Hills Na val Pe tro leum Re serve by the

De part ment of En ergy. Of these rev e -

nues, $161.5 billion are off set against

the gross cost of the re lated func tions

to ar rive at the func tion's net cost. The

U.S. Gov ern ment also earned $7.4 billion that was not off set against the cost

of any func tion, e.g., roy al ties on the

Outer Con ti nen tal Shelf lands.

Revenue and Expense Summary

 Components of

Non-exchange Revenue

by Major Source

Detail may not add to totals due to rounding.

Budget, cont.
8 Dis cus sion and Analysis

Expenses by Function

The net cost of U.S. Gov ern ment op er -

a tions was $1,854 bil lion for 1998. Net

cost rep re sents the gross cost of op er a -

tions less at trib ut able earned rev e nues. 

The State ment of Net Cost re flects the

cost in curred to carry out the na tional

pri or i ties iden ti fied by the Pres i dent

and the Con gress and how the net cost

was fi nanced. The func tions and

subfunctions used to ac cu mu late costs

as so ci ated with the na tional pri or i ties

are iden ti fied in the Pres i dent’s bud get

and de scribed in de tail in the Sup ple -

men tal In for ma tion sec tion of this re -

port. The ac com pa ny ing chart pres ents

the per cent age of the net cost of U.S.

Gov ern ment op er a tionsrep re sented by

each of the U.S. Gov ern ment’s ma jor

func tions.

Asset and Liability Summary

Assets

The as sets of the U.S. Gov ern ment

are the re sources avail able to pay li a -

bil i ties or to sat isfy fu ture ser vice

needs. The ac com pa ny ing chart depicts the ma jor cat e go ries of re ported

as sets as of Sep tem ber 30, 1998 as a

per cent age of re ported to tal as sets.

De tailed in for ma tion about the compo nents of these as set cat e go ries can

be found in the notes to the fi nan cial

state ments. The as sets pre sented on

the Balance Sheet are not a com pre -

hen sive list of Fed eral re sources. For

ex am ple, the U.S. Gov ern ment's most

im por tant fi nan cial re source, its ability to tax and reg u late com merce, cannot be quan ti fied and is not re flected.

Nat u ral re sources, stew ard ship land

(na tional parks, for ests and graz ing

lands), na tional de fense as sets and

her i tage as sets are other ex am ples of

re sources that are not in cluded in the

$852.8 bil lion of Fed eral as sets reported on the Bal ance Sheet at the end

of fis cal 1998.

Major Categories

of Assets

Detail may not add to totals due to rounding.

Detail may not add to totals due to rounding.

Net Cost

by Major Function
Dis cus sion and Anal y sis 9

Liabilities

At the end of fis cal 1998, the U.S.

Gov ern ment re ported li a bil i ties of

$6,987.2 bil lion. These li a bil i ties are

prob a ble and mea sur able fu ture outflows of re sources aris ing out of past

trans ac tions or events. The larg est

com po nent of these li a bil i ties

($3,717.7 bil lion) is rep re sented by

Fed eral debt se cu ri ties held by the

pub lic. The next larg est com po nent

($2,685.1 bil lion) re lates to pen sion,

dis abil ity and health care costs for

vet er ans, and Fed eral ci vil ian and

mil i tary em ploy ees. In cluded in this

com po nent is a De part ment of Veterans Af fairs pro gram whereby vet er -

ans or their de pend ents re ceive compen sa tion ben e fits if the vet eran was

dis abled or died from mil i tary service-connected causes. Changes in

the ac tu ar ial methodology and the inter est rate as sump tion re sulted in a lia bil ity in crease of $381 bil lion. This

li a bil ity in crease cou pled with the removal from the Balance Sheet of

$655.2 bil lion in na tional de fense assets were the ma jor fac tors in caus ing

the net po si tion of the U.S. Gov ern -

ment to de crease by $1.1 tril lion in

fis cal 1998. The na tional de fense assets were re moved from the Bal ance

Sheet as a re sult of im ple ment ing a

new ac count ing stan dard.

An other li a bil ity, which will likely

re quire sub stan tial fu ture bud get ary

re sources to liq ui date, is re lated to envi ron men tal cleanup costs. As of Septem ber 30, 1998, the cost of clean ing

up en vi ron men tal con tam i na tion was

es ti mated to be $224.5 bil lion. The

ac com pa ny ing chart pres ents the percent age of to tal Fed eral li a bil i ties repre sented by each of the cat e go ries of

li a bil i ties re ported on the Bal ance

Sheet. Ad di tional de tails about the

U.S. Gov ern ment's re ported li a bil i ties 

can be found in the notes to the fi nan -

cial state ments.

Future Commitments

The U.S. Gov ern ment has sub stan tial fu ture com mit ments to

its cit i zens, in clud ing the pro vi sion of so cial in sur ance through

the So cial Se cu rity and Medicare pro grams. The FASAB con tin -

ues to dis cuss the con tent and for mat for re port ing of these commit ments.

Financial Condition

of the Social Security Trust Funds

Two trust funds have been estab lished by law to fi nance the Social Se cu rity pro gram (OASDI):

Fed eral Old-Age and Sur vi vors

In sur ance (OASI) and Fed eral

Dis abil ity In sur ance (DI). OASI

pays re tire ment and sur vi vors

ben e fits , and DI pays ben e fits after a worker be comes dis abled.

OASDI rev e nues con sist pri mar -

ily of taxes on earn ings that are

paid by em ploy ees, their em ploy -

ers, and the self-employed.

OASDI also re ceives rev e nue

from tax a tion of part of So cial Secu rity ben e fits. Rev e nues that are

not needed to pay cur rent ben e fits

or ad min is tra tive ex penses are invested in Trea sury se cu ri ties to

earn in ter est for the trust funds.

The se cu ri ties is sued to the trust

funds are guar an teed as to both

prin ci pal and in ter est and backed

Major Categories

of Liabilities

Detail may not add to totals due to rounding.

“The Administration

intends to work

with Congress on a

bipartisan basis to

enact long-term

Social Security

solvency and

reform in 1999.”

“Another liability,

which will likely

require substantial

future budgetary

resources to liquidate,

is related to

environmental

cleanup costs.”
10 Dis cus sion and Analysis

Two trust funds have been estab lished to fi nance the Medicare

pro gram. The Medicare Part A

Hos pi tal In sur ance (HI) Trust

Fund is fi nanced by a 2.9 per cent

tax on wages and sal a ries re quired 

to be paid equally by em ploy ees

and em ploy ers. The Medicare Part

B Sup ple men tary Med i cal In sur -

ance (SMI) Trust Fund re ceives

pre mium pay ments on be half of

Medicare ben e fi cia ries who have

elected cov er age. The Bal anced

Bud get Act of 1997 pro vides

that the SMI pre mium is set at

25 per cent of pro gram costs.

The re main der of the costs is

funded by Con gres sio nal ap pro -

pri a tions.

The 1998 trust ees' re port projects that the HI trust fund's assets will be de pleted by 2008 using in ter me di ate or "best

es ti mate" as sump tions. Ad di -

tional in for ma tion about the

Medicare pro gram can be found

in the Stew ard ship In for ma tion

sec tion of this Fi nan cial Re port.

Financial

Condition 

of the 

Medicare 

Trust Funds

by the full faith and credit of the U.S.

Gov ern ment. 

The Board of Trustees of the OASI

and DI Trust Funds pro vides the Presi dent and the Con gress with

short-range (10 years) and long-range

(75 years) ac tu ar ial es ti mates of each

trust fund. Be cause of the in her ent

un cer tainty in es ti mates for as long as

75 yearsinto the fu ture, the So cial Secu rity Trustees use three al ter na tive

sets of eco nomic and de mo graphic

as sump tions to show a range of pos si -

bil i ties. Most an a lysts use the

Trustees' in ter me di ate or "best es ti -

mate" set of as sump tions to eval u ate

the fi nan cial con di tion of the So cial

Se cu rity pro gram.

The 75-year es ti mates as sume that

fu ture work ers (ex cept for those

work ing in types of em ploy ment not

mandatorily cov ered by the pro gram)

are cov ered by So cial Se cu rity once

they en ter the la bor force. The es ti -

mates re flect the im pact of the re tire -

ment of the baby boom ers, as well as

chang ing de mo graph ics (e.g., an increase in life ex pec tancy and a decline in the birth rate). For ex am ple,

in 1960, 5.1 work ers paid for ev ery

ben e fi ciary. To day, the ra tio of workers to ben e fi ciary is 3.4 to 1 and 32

years from now, when all of the baby

boom gen er a tion has re tired, the ra tio

will drop to ap prox i mately 2 to 1. The

re tire ment com po nent of the pro gram 

is fi nanced largely on a

"pay-as-you-go" ba sis, i.e., cur rent

re tire ment ben e fits are largely financed by cur rent pay roll con tri bu -

tions.

Un der cur rent leg is la tion and us ing 

in ter me di ate as sump tions, the

Trustees es ti mated in their 1998 report that by 2013 cash dis burse ments

for the pro grams will ex ceed cash receipts and by 2032 the com bined trust

fund as sets, pri mar ily in vest ments in

Trea sury se cu ri ties, will be exhausted. With no change in the program, in 2013 the trust funds are expected to be gin us ing in ter est on their

in vest ments to cover the cash shortfall and to pay ben e fits. Starting in

2021, they would be gin re deem ing

their in vest ments in Trea sury se cu ri -

ties to pro vide the needed fund ing. In

2032 trust fund as sets would be exhausted; at that time, ded i cated tax

rev e nues would be suf fi cient to pay

ap prox i mately 75 per cent of the bene fits due.

The Ad min is tra tion in tends to

work with Con gress on a bi par ti san

ba sis to en act long-term So cial Se cu -

rity sol vency and re form in 1999.

Acting sooner rather than later to address the long-term fi nanc ing needs

of the pro gram will make the re quired 

changes less se vere and dis rup tive

and en sure that So cial Se cu rity works

as well for fu ture gen er a tions as it has

for past gen er a tions. Ad di tional infor ma tion about the So cial Se cu rity

pro gram can be found in the Stew ard -

ship In for ma tion sec tion of this Finan cial Re port.

“With no change in

the program, in 2013

the trust funds are

expected to begin

using interest on their

investments to cover

the cash shortfall and

to pay benefits.”

Social Security,

cont.
Dis cus sion and Anal y sis 11

Accomplishments and Actions Taken

to Address Financial Reporting Issues

The Ad min is tra tion's Pri or ity

Man age ment Ob jec tives in cluded in

the fis cal 1999 and 2000 Bud gets of

the U.S. Gov ern ment in clude improv ing fi nan cial man age ment

information as part of its plan for

strength en ing Governmentwide manage ment. Au dits of agency fi nan cial

state ments dis close that agen cies

have made sub stan tial prog ress in

cor rect ing fi nan cial man age ment defi cien cies that im pede com pli ance

with Fed eral ac count ing stan dards

and, ac cord ingly, im proved fi nan cial

man age ment. The fol low ing ex hibit

il lus trates agency prog ress as measured by the in creas ing num ber of unqual i fied au dit opin ions on their finan cial state ments. (Au dits for all of

the 24 ma jor agen cies were not required un til fis cal 1996.)

While prog ress has been made, recent au dits dis closed that ma jor agencies con tinue to have se ri ous fi nan -

cial man age ment prob lems, which

pre clude com pli ance with nu mer ous

Fed eral ac count ing stan dards. These

agen cies must sat is fac to rily ad dress

these prob lems in or der to re ceive an

un qual i fied opin ion on their fi nan cial 

state ments and for the U.S. Gov ern -

ment to re ceive an un qual i fied opinion on its fi nan cial state ments. The

ex hibit on the fol low ing page cor re -

lates the most crit i cal prob lem ar eas

with the agen cies re spon si ble for taking cor rec tive ac tion. The ex hibit also

high lights that the De part ment of Defense has se ri ous de fi cien cies in all

but one is sue area and all agen cies

have prob lems with ac count ing for

intragovernmental trans ac tions.

With re spect to intragovernmental

trans ac tions, the prob lem per tains to

iden ti fy ing and eliminating transac -

tions be tween agen cies. The au dit of

the U.S. Gov ern ment's fi nan cial

state ments for fis cal 1997 dis closed

that agen cies can not ef fec tively identify trans ac tions with other agen cies

so they can be elim i nated for

governmentwide re port ing. If these

trans ac tions are not prop erly elim i -

nated, to tal U.S. Gov ern ment as sets,

li a bil i ties, rev e nues and ex penses

will be mis stated by the amount of

these trans ac tions.

The U.S. Gov ern ment's abil ity to

cor rectly iden tify these items improved in fis cal 1998. In ad di tion, the

Ad min is tra tion has or ga nized a task

force to ad dress the intragovernmental

trans ac tions is sue. The task force expects to com plete its work in the near

fu ture.

In ad di tion to the fore go ing ob sta -

cles, be cause the U.S. Gov ern ment

cal cu lates the bud get sur plus on the

ba sis of cash re ceipts and dis burse -

ments and cal cu lates op er at ing results for fi nan cial state ment pur poses

on the ac crual ba sis of ac count ing,

Trea sury must, but cur rently can not,

rec on cile these two amounts in or der

to fully ex plain to read ers why the reported amounts dif fer.

Number of Agencies with

or Anticipating Unqualified Audit Opinions

for the Fiscal Years Indicated

(Of 24 agencies covered)

1991 1993 1996 1997 1998* 1999* 2000*

1 1 6 11 13 20 23**

* An tic i pated re sults

** DOD does not an tic i pate an un qual i fied opin ion on its fi nan cial state ments be fore the year 2003.

“Audits of agency

financial statements

disclose that agencies

have made substantial

progress in correcting

financial management

deficiencies . . .”
12 Dis cus sion and Analysis

Ob sta cles to an Un qual i fied Opin ion

of the Fi nan cial State ments

of the U.S. Gov ern ment

En tity 

Prop erty,

Plant and

Equip ment In ven tory

Loans, 

Ac counts

Re ceiv able

and Loan

Guar an tees

En vi ronmen tal

Li a bil i ties

Pen sion,

Health

and Other

Li a bil i ties

Un rec on -

ciled Dis -

burse ments

In tragov ern -

men tal

Trans ac -

tions

USDA X X X

DOD X X X X X X

Education X X

HHS X X

HUD X X

Transportation

(FAA) X X

VA X X

OPM X

All other X

President’s Goal

and Direction

to Agencies

Discussion

with Agency

Officials

Ongoing

Monitoring 

and Assistance

Activities

The Pres i dent's Bud get for fis cal

1999 set as a goal an un qual i fied

opin ion on the U.S. Gov ern ment's

fi nan cial state ments. The Pres i dent

is sued a Mem o ran dum to the Heads

of Fed eral Agencies on May 26,

1998, ad vis ing them of the Ad min -

is tra tion's goal and di rect ing them to

de velop cor rec tive ac tion plans for

ad dress ing ob sta cles to achiev ing

the goal and to sub mit quar terly

prog ress re ports. All named agencies sub mit ted the re quired plans

and prog ress re ports.

A team of se nior man ag ers from

the OMB, the Trea sury, and the

GAO met with se nior agency of fi -

cials to dis cuss agency plans and

pros pects for suc cess fully meet ing

planned goals. The con clu sion of the

team is that, while prog ress has been

made since the March 1998 re lease

of the re port on au dit of the fis cal

1997 fi nan cialstate ments of the U.S.

Gov ern ment, much re mains to be

done in the ar eas pre sented in the

afore men tioned ex hibit.

The OMB, the Trea sury, and the

GAO are mon i tor ing agen cies’ progress by (1) re view ing quar terly progress re ports from all the agen cies

listed in the afore men tioned ex hibit

on their prog ress in meet ing the goals

and mile stones set out in the ac tion

plans re quired by the Pres i dent's May

26, 1998, Mem o ran dum; (2) meet ing

reg u larly with of fi cials of those agencies with the most for mi da ble ob sta -

cles to their prog ress in achiev ing

planned goals; and, (3) pro vid ing neces sary ad vice and as sis tance.
Dis cus sion and Anal y sis 13

Management Initiatives

Manage the Year 2000 (Y2K) Computer Problem

There is no more im me di ate manage ment chal lenge fac ing the U.S.

Gov ern ment and in dus try world wide

than the im pend ing shift of dates from

the year 1999 to the year 2000. The

Ad min is tra tion is com mit ted to ensur ing that Fed eral agen cies meet the

chal lenges posed by the Year 2000

(Y2K) com puter prob lem. Since Novem ber, the U.S. Gov ern ment has

made sub stan tial prog ress to ward fixing the prob lem. As of Feb ru ary 12,

1999:

• Of the 6,399 mis sion crit i cal

sys tems, 79 per cent are now fully

com pli ant, up from 61 per cent in

De cem ber. These com pli ant systems in clude sys tems that have

been re paired or re placed as well

as those that were al ready com pli -

ant.

• Of the re main ing 1,354 mis sion 

crit i cal sys tems that are not yet

com pli ant, 966 (71 per cent) are

be ing re paired, 270 (20 per cent)

are be ing re placed, and 118 (9

per cent) will be re tired.

• Of the 4,130 mis sion crit i cal

sys tems be ing re paired, 96 per cent 

have com pleted ren o va tion, 87

per cent have com pleted val i da tion 

and 76 per cent have com pleted

im ple men ta tion and are fully

com pli ant.

OMB, in co op er a tion with the Presi dent’s Coun cil on Year 2000 Conver sion, con tin ues to work closely

with in di vid ual agen cies. Since Decem ber, most agen cies have made

sig nif i cant prog ress to ward meet ing

the governmentwide goals, al though

sev eral agen cies re main be hind

sched ule. As of Feb ru ary 12, 1999:

• Five agen cies (the En vi ron men -

tal Pro tec tion Agency, Na tional

Sci ence Foun da tion, Nu clear Regu la tory Com mis sion, Small Business Ad min is tra tion and So cial

Se cu rity Ad min is tra tion) re port

that their mis sion crit i cal sys tems

are now 100 per cent com pli ant. 

• Three agen cies (the U.S.

Agency for In ter na tional De vel op -

ment, De part ment of Health and

Hu man Ser vices and De part ment

of Trans por ta tion) are not mak ing

ad e quate prog ress and have been

rated in Tier I.

Year 2000 Status

Mission Critical Systems

All Sys tems Sys tems Be ing Re paired

Agency Status

Y2K 

Com pli ant

As sess ment

Com plete

Ren o va tion

Com plete

Val i da tion

Complete

Im ple men ta tion

 Com plete

Tier III:

NASA, FEMA, Education,

OMB, HUD, Interior, GSA, VA,

SBA, EPA, NSF, NRC, SSA

96% 100% 100% 99% 96%

Tier II:

Agriculture, Commerce,

Defense, Energy, Justice,

Labor, State, Treasury

77% 100% 94% 83% 74%

Tier I:

U.S. Agency for International

Development, Health and

Human Services,

Transportation

63% 100% 98% 79% 42%

All agencies 79% 100% 96% 87% 76%
14 Dis cus sion and Analysis

Use Results

to Improve Program Management

The Gov ern ment Per for mance and

Re sults Act (GPRA) makes U.S.

Gov ern ment agen cies more ac count -

able by fo cus ing man ag ers and pol icy

mak ers on agency per for mance.

GPRA can fun da men tally change

how the U.S. Gov ern ment car ries out

its pro grams and makes fund ing de ci -

sions. GPRA re quires Fed eral agen -

cies to pe ri od i cally de velop

long-range stra te gic plans and an nu -

ally pre pare per for mance plans and

per for mance re ports. The an nual

plansset spe cific per for mance tar gets

for an agency's pro grams and ac tiv i -

ties. The com bi na tion of GPRA plans

and re ports in tro duces an un prec e -

dented de gree of man a ge rial and in -

sti tu tional ac count abil ity for ac com -

plish ing pro gram goals. Key to

achiev ing suc cessis mak ing the plans

use ful to Con gress, the Pres i dent,

and agency man age ment. 

In fis cal 2000, agen cies will sub -

mit toCon gress and the Pres i dent the

first of their an nual re ports on pro -

gram per for mance. These re ports,

cov er ing fis cal 1999, will com pare

ac tual per for mance to the per for -

mance tar get lev els in the an nual

plans for that year, and pro vide an

ex pla na tion for any goal not met.

With these re ports, the first phase of

GPRA im ple men ta tion will be com -

plete.

Dur ing fis cal 2000, agen cies will

also be re vis ing and up dat ing stra te -

gic plans forsub mis sion to Con gress

and OMB by Sep tem ber 2000. All

GPRA plans and re ports are pub licly

avail able, and can of ten be found on

in di vid ual agency web sites. 

Additional

Information

Ad di tional de tails about

the in for ma tion con tained in

these fi nan cial state ments can

be found in the fi nan cial

state ments of the in di vid ual

agen cies listed in the Ap pen -

dix. In ad di tion, re lated U.S.

Gov ern ment pub li ca tions

such as the "Bud get of the

United States Gov ern ment,"

the "Trea sury Bul le tin," the

"Monthly Trea sury State -

ment of Re ceipts and Out lays

of the United States Gov ern -

ment," the "Monthly State -

ment of the Pub lic Debt of the

United States," and the

Trustee's re ports for the So -

cial Se cu rity and Medicare

pro grams may be of in ter est.

Agencies now es ti mate that, from

Fis cal 1996 through Fis cal 2000, they

will spend $6.8 bil lion fix ing the

prob lem, an in crease from the Feb ru -

ary es ti mate of $6.4 bil lion. This increase is not un ex pected, and OMB

and the Con gress con tinue to work

closely with the agen cies to en sure

that they have ad e quate fund ing

through al lo ca tions from the sup ple -

men tal con tin gent emer gency reserve.

While agencies ex pect that their

mis sion crit i cal sys tems will be ready

by De cem ber 31, they also are de vel -

op ing busi ness con ti nu ity and con tin -

gency plans (BCCPs) to en sure program de liv ery in the event of a sys tem 

fail ure or mal func tion, whether

within or out side the agency. Ad di -

tionally, those agen cies that are

be hind sched ule are em pha siz ing

com ple tion of their re main ing mission crit i cal sys tems.

As agen cies com plete work on fixing their mis sion crit i cal sys tems,

they are now fo cus ing on dem on -

strat ing that pro grams and ser vices,

es pe cially those crit i cal to pub lic

safety, health and well-being, will be

op er a tional. In ad di tion, new guidance from OMB will di rect agen cies

to work with other Fed eral agen cies,

State and lo cal gov ern ments, the private sec tor, and oth ers to as sure the

readi ness of 40 high-impact pub lic

pro grams.
Gen eral Ac count ing Of fice Re port 15

Comp trol ler Gen eral

of the United States

Wash ing ton, D.C. 20548

B-282041

March 31, 1999

The Pres i dent

The Pres i dent of the Sen ate

The Speaker of the House of Rep re sen ta tives

Im ple men ta tion of im por tant leg is la tive re forms is un der way to promote greater ac count abil ity in man ag ing the fi nances of our na tional

gov ern ment. These re forms in clude re quire ments for an nual au dited

fi nan cial state ments for 24 ma jor de part ments and agen cies as well as

prep a ra tion of the fi nan cial state ments of the U.S. gov ern ment, which

GAO is re quired to au dit. The re port on our au dit of these fi nan cial

state ments for fis cal year 1998 is en closed.

These fi nan cial re port ing re quire ments are prompt ing steady im prove -

ments in fed eral fi nan cial ac count abil ity, and there has been prog ress

to ward meet ing the re lated leg is la tive ob jec tives. At the same time,

sev eral ma jor de part ments are not yet able to pro duce auditable fi nan -

cial state ments on a con sis tent ba sis. There are ma jor ob sta cles to

over come, both at the agency level and in pre par ing re li able fi nan cial

state ments for the U.S. gov ern ment.

The ex ec u tive branch rec og nizes the ex tent and se ver ity of the fi nan -

cial man age ment de fi cien cies and that ad dress ing them will re quire

con certed im prove ment ef forts across gov ern ment. The ad min is tra -

tion has set goals for com plet ing timely au dits and re ceiv ing un qual i -

fied opin ions for in di vid ual agen cies as well as the fi nan cial state-
16 Gen eral Ac count ing Of fice Report

ments of the U.S. gov ern ment. With a con certed ef fort, the fed eral

gov ern ment, as a whole, can con tinue to make prog ress to ward

achiev ing ac count abil ity and gen er at ing re li able fi nan cial and man age -

ment in for ma tion on a reg u lar ba sis. An nual fi nan cial au dits rep re sent 

an im por tant means to as sure con tin ued prog ress in con nec tion with

im prov ing fed eral fi nan cial man age ment.

While ob tain ing un qual i fied “clean” au dit opin ions on fed eral fi nan -

cial state ments is an im por tant ob jec tive, it is not an end in and of itself. The key is to take steps to con tin u ously im prove in ter nal con trols 

and un der ly ing fi nan cial and man age ment in for ma tion sys tems as a

means to as sure ac count abil ity, in crease the econ omy, im prove the effi ciency, and en hance the ef fec tive ness of gov ern ment. These sys tems 

must gen er ate timely, ac cu rate, and use ful in for ma tion on an on go ing

ba sis, not just as of the end of the fis cal year.

Re li able fi nan cial in for ma tion is es sen tial for an a lyz ing the gov ern -

ment’s fi nan cial con di tion and help ing in form bud get de lib er a tions by

pro vid ing ad di tional in for ma tion be yond that pro vided in the bud get. 

The bud get of the fed eral gov ern ment is pri mar ily for mu lated on a

cash ba sis which also is gen er ally the ba sis for cal cu lat ing the an nual

bud get sur plus or def i cit. The fi nan cial state ments are pre pared gen er -

ally on the ac crual ba sis of ac count ing. The most sig nif i cant dif fer -

ence is the tim ing of rec og ni tion and mea sure ment of rev e nues and

costs. Ac crual in for ma tion can be used with bud get ary in for ma tion to

pro vide a valu able per spec tive on the costs of agency pro grams and

the gov ern ment’s as sets and long-term com mit ments.

We ap pre ci ate the co op er a tion and as sis tance we re ceived from the

Chief Fi nan cial Of fi cers and In spec tors Gen eral through out gov ern -

ment, as well as De part ment of Trea sury and Of fice of Man age ment

and Bud get of fi cials, in car ry ing out our re spon si bil ity to au dit the

gov ern ment’s fi nan cial state ments. We look for ward to con tin u ing to

work with these of fi cials and the Con gress to achieve the goals and

ob jec tives as so ci ated with fi nan cial man age ment re form.

B-282041
Gen eral Ac count ing Of fice Re port 17

Our re port was pre pared un der the di rec tion of Gene L. Dodaro, As sis -

tant Comp trol ler Gen eral, and Rob ert F. Dacey, Di rec tor, Con sol i -

dated Au dit and Com puter Se cu rity Is sues. If you have any ques tions, 

please con tact me on (202) 512-5500 or them on (202) 512-3317.

Da vid M. Walker

Comp trol ler Gen eral

of the United States

B-282041
Blank page

18 Gen eral Ac count ing Of fice Report
Gen eral Ac count ing Of fice Re port 19

Comp trol ler Gen eral

of the United States

Wash ing ton, D.C. 20548

B-282041

The Pres i dent

The Pres i dent of the Sen ate

The Speaker of the House of Rep re sen ta tives

The Sec re tary of the Trea sury, in co or di na tion with the Di rec tor of

the Of fice of Man age ment and Bud get (OMB), is re quired to an nu -

ally sub mit fi nan cial state ments for the U.S. Gov ern ment to the Pres -

i dent and the Con gress. 

1

 GAO is re quired to au dit these state ments. 

This is our re port on our au dit of the fi nan cial state ments of the U.S.

gov ern ment for fis cal year 1998.

2

In sum mary, sig nif i cant fi nan cial sys tems weak nesses, prob lems

with fun da men tal recordkeeping and fi nan cial re port ing, in com plete

doc u men ta tion, and weak in ter nal con trols, in clud ing com puter con -

trols, con tinue to pre vent the gov ern ment from ac cu rately re port ing a

sig nif i cant por tion of its as sets, li a bil i ties, and costs. These de fi cien -

cies af fect the re li abil ity of the ac com pa ny ing fi nan cial state ments

and much of the re lated in for ma tion in the 1998 Fi nan cial Re port of

the United States Gov ern ment, as well as the un der ly ing fi nan cial in -

for ma tion. They also af fect the gov ern ment’s abil ity to ac cu rately

mea sure the full cost and fi nan cial per for mance of pro grams and

man age its op er a tions. Ma jor prob lems in cluded the fed eral gov ern -

ment’s in abil ity to: 

• prop erly ac count for and re port (1) bil lions of dol lars of

prop erty, equip ment, ma te ri als, and sup plies and (2) cer tain

stew ard ship as sets;

1

 The Gov ern ment Man age ment Re form Act of 1994 re quires such re port ing be gin -

ning with fi nan cial state ments pre pared for fis cal year 1997.

2 Our re port on the fis cal year 1997 fi nan cial state ments is en ti tled Fi nan cial Au dit:

1997 Con sol i dated Fi nan cial State ments of the United States Gov ern ment

(GAO/AIMD-98-127, March 31, 1998).
20 Gen eral Ac count ing Of fice Report

• prop erly es ti mate the cost of most ma jor fed eral credit pro grams and

the re lated loans re ceiv able and loan guar an tee li a bil i ties;

• es ti mate and re li ably re port ma te rial amounts of en vi ron men tal and

dis posal li a bil i ties and re lated costs;

• de ter mine the proper amount of var i ous re ported li a bil i ties, in clud ing 

postretirement health ben e fits for mil i tary em ploy ees, ac counts payable, and other li a bil i ties;

• ac cu rately re port ma jor por tions of the net cost of gov ern ment op er a -

tions;

• de ter mine the full ex tent of im proper pay ments that oc cur in ma jor

pro grams and that are es ti mated to in volve bil lions of dol lars an nu -

ally;

• en sure that all dis burse ments are prop erly re corded; and

• prop erly pre pare the fed eral gov ern ment’s fi nan cial state ments, includ ing bal anc ing the state ments, ac count ing for bil lions of dol lars of

trans ac tions be tween gov ern men tal en ti ties, and prop erly and con sis -

tently com pil ing the in for ma tion in the fi nan cial state ments. 

Such de fi cien cies pre vented us from be ing able to form an opin ion on the

re li abil ity of the ac com pa ny ing fi nan cial state ments. These de fi cien cies

sig nif i cantly im pair the fed eral gov ern ment’s abil ity to ad e quately safeguard as sets, prop erly re cord trans ac tions, and com ply with se lected provi sions of laws and reg u la tions re lated to fi nan cial re port ing. Ad di -

tionally, (1) se ri ous com puter se cu rity weak nesses ex pose the

gov ern ment’s fi nan cial and other sen si tive in for ma tion to in ap pro pri ate

dis clo sure, de struc tion, mod i fi ca tion, and fraud, and crit i cal op er a tions to

dis rup tion and (2) ma te rial con trol weak nesses af fect the gov ern ment’s

tax col lec tion ac tiv i ties. Fur ther, tests for com pli ance with se lected provi sions of laws and reg u la tions re lated to fi nan cial re port ing dis closed

ma te rial in stances of non com pli ance dis cussed later in this re port. Also,

the fi nan cial man age ment sys tems of al most all agen cies were found not

to be in com pli ance with the re quire ments of the Fed eral Fi nan cial Manage ment Im prove ment Act of 1996.

B-282041
Gen eral Ac count ing Of fice Re port 21

Our au dit and the In spec tors Gen eral (IG) au dits of ma jor com po nent

agen cies’ fi nan cial state ments for fis cal year 1998 con tinue to re sult in

(1) an iden ti fi ca tion and anal y sis of de fi cien cies in the gov ern ment’s

recordkeeping, fi nan cial re port ing, and con trol sys tems and (2) rec om -

men da tions to cor rect them. Fixing these prob lems rep re sents a sig nif i -

cant chal lenge be cause of the size and com plex ity of the gov ern ment

and the dis ci pline needed to fol low sound fi nan cial man age ment and report ing prac tices.

In re sponse to our re port on the fed eral gov ern ment’s fis cal year 1997 finan cial state ments, on which we also dis claimed an opin ion, the Pres i -

dent re quired heads of agen cies with sig nif i cant fi nan cial man age ment

de fi cien cies to sub mit cor rec tive ac tion plans to OMB. Fur ther, the

Pres i dent has des ig nated fi nan cial man age ment re form as a top man age -

ment pri or ity. Ac tion is un der way across gov ern ment to ad dress the perva sive, gen er ally long-standing prob lems dis cussed in this re port.

This re port pro vides our (1) dis claimer of opin ion on the gov ern ment’s

fis cal year 1998 fi nan cial state ments, (2) re port on in ter nal con trol, and

(3) re port on com pli ance with se lected pro vi sions of laws and reg u la -

tions re lated to fi nan cial re port ing. It also pres ents in for ma tion on the

Year 2000 com put ing chal lenge and high lights cer tain long-term fi nanc -

ing is sues fac ing gov ern ment. Our re port pro vides il lus tra tions of the

iden ti fied ma te rial de fi cien cies. A more com plete dis cus sion of these issues may be found in in di vid ual agency re ports. The ob jec tives, scope,

and meth od ol ogy of our work are dis cussed in the ap pen dix to this report. We pro vided a draft of this re port to De part ment of the Trea sury

and OMB of fi cials, who ex pressed their com mit ment to ad dress the de fi -

cien cies this re port out lines. Our work was done in ac cor dance with

gen er ally ac cepted gov ern ment au dit ing stan dards.

DISCLAIMER OF OPINION

Be cause we were un able to de ter mine the re li abil ity of sig nif i cant portions of the ac com pa ny ing fi nan cial state ments for the rea sons de scribed 

B-282041
22 Gen eral Ac count ing Of fice Report

above, we are un able to, and we do not, ex press an opin ion on the accom pa ny ing fi nan cial state ments for fis cal year 1998. How ever, we

were able to de ter mine that cer tain amounts re ported for en vi ron men tal

and dis posal li a bil i ties are un der stated by a ma te rial amount.

Be cause of the se ri ous de fi cien cies in the gov ern ment’s sys tems,

recordkeeping, doc u men ta tion, fi nan cial re port ing, and con trols,

amounts re ported in the fi nan cial state ments and re lated notes do not

pro vide a re li able source of in for ma tion for de ci sion-making by the govern ment or the pub lic. These de fi cien cies also af fect the re li abil ity of infor ma tion con tained in the ac com pa ny ing Man age ment’s Dis cus sion and

Anal y sis and any other fi nan cial man age ment in for ma tion—in clud ing

in for ma tion used to man age the gov ern ment day-to-day and cer tain budget in for ma tion re ported by agen cies—which is taken from the same

data sources as the fi nan cial state ments.

Fur ther, while we have not au dited and do not ex press an opin ion on the

Stew ard ship In for ma tion and Sup ple men tal In for ma tion in cluded in the

ac com pa ny ing Fi nan cial Re port, we noted cer tain ma te rial omis sions related to the pre sen ta tion of na tional de fense as sets and is sues re lated to

the rec on cil i a tion of the re sults of op er a tions to bud get re sults, which are

dis cussed be low.

Also, as dis cussed in note 14 to the fi nan cial state ments, the gov ern ment 

adopted cer tain ac count ing stan dards in fis cal year 1998, pri mar ily related to re port ing na tional de fense as sets, which in clude ma jor weap ons

sys tems, as part of Stew ard ship In for ma tion.

Material Deficiencies

The fol low ing sec tions de scribe ma te rial de fi cien cies we iden ti fied and

dis cuss their ef fects on the fi nan cial state ments and the man age ment of

gov ern ment op er a tions. Each of these de fi cien cies con sti tutes a ma te rial 

weak ness in in ter nal con trol.

3

3 A ma te rial weak ness is a con di tion in which the de sign or op er a tion of one or more of the in -

ter nal con trol com po nents does not re duce to a rel a tively low level the risk that mis state ments

caused by er rors, fraud, or non com pli ance in amounts that would be ma te rial to the fi nan cial

state ments may oc cur and not be de tected on a timely ba sis by em ploy ees in the nor mal course

of per form ing their du ties.

B-282041
General Property, Plant, and Equipment and Inventories

 and Related Property

The fed eral gov ern ment—one of the world’s larg est hold ers of phys i -

cal as sets—does not have ad e quate sys tems and con trols to en sure

the ac cu racy of in for ma tion about the amount of as sets held to support its do mes tic and global op er a tions. A ma jor ity of the $466 billion of these re ported as sets is not ad e quately sup ported by fi nan cial

and/or lo gis ti cal re cords. As sets that are not ad e quately sup ported include: (1) build ings, struc tures, fa cil i ties, and equip ment,

 (2) var i ous gov ern ment-owned as sets that are in the hands of pri vate

sec tor con trac tors, and (3) op er at ing ma te ri als and sup plies 

com prised largely of am mu ni tion, de fense re pair able items (such as

nav i ga tional com put ers, land ing gear, and trans mis sions), and other

mil i tary sup plies. Also, the gov ern ment can not en sure that all as sets

are re ported. Fur ther, na tional de fense as set unit in for ma tion reported as Stew ard ship In for ma tion was in com plete be cause it did not

in clude ma jor na tional de fense sup port equip ment, such as

uninstalled en gines, and na tional de fense as sets held by some mil i -

tary units were not re ported.

Be cause the gov ern ment lacks com plete and re li able in for ma tion to

sup port its as set hold ings, it could not sat is fac to rily de ter mine that all

as sets were in cluded in the fi nan cial state ments, ver ify that re ported

as sets ac tu ally ex ist, or sub stan ti ate the amounts at which they were

val ued. For ex am ple, pe ri odic phys i cal counts have shown that property re cords con tain sig nif i cant er ror rates. Fur ther, weak con trols

sig nif i cantly im pair the gov ern ment’s abil ity to de tect and in ves ti gate 

fraud or theft of as sets. Also, de ferred main te nance in for ma tion was

not re ported.

Ac cu rate as set in for ma tion is nec es sary for the gov ern ment to (1)

know the as sets it owns and their lo ca tion and con di tion, (2) safeguard its as sets from phys i cal de te ri o ra tion, theft, or loss, (3) ac count

for ac qui si tions and dis pos als of such as sets, (4) pre vent un nec es sary

stor age and main te nance costs or pur chase of as sets al ready on hand,

and (5) de ter mine the full costs of gov ern ment pro grams that use

these as sets.

Gen eral Ac count ing Of fice Re port 23

B-282041
24 Gen eral Ac count ing Of fice Report

Loans Receivable and Loan Guarantee Liabilities

Most fed eral credit agen cies re spon si ble for fed eral lend ing pro grams were

un able to prop erly es ti mate the cost of these pro grams in ac cor dance with

fed eral ac count ing stan dards and bud get ing re quire ments. As of the end of

fis cal year 1998, the gov ern ment re ported $167 bil lion of loans re ceiv able

and $38 bil lion of li a bil i ties for es ti mated losses re lated to es ti mated fu ture 

de faults of guar an teed loans. How ever, the net loan amounts ex pected to

be col lected and guar an tee amounts ex pected to be paid could not be reason ably es ti mated be cause of a lack of ad e quate his tor i cal data or other evi dence. Re li able in for ma tion about the cost of credit pro grams is im por -

tant in sup port ing an nual bud get re quests for these pro grams, mak ing

fu ture bud get ary de ci sions, man ag ing pro gram costs, and mea sur ing the

per for mance of credit ac tiv i ties. Fed eral credit pro grams in clude di rect

loans and loan guar an tees for farms, ru ral util i ties, low and mod er ate income hous ing, small busi nesses, vet er ans’ mort gages, and stu dent loans.

Environmental and Disposal Liabilities

Li a bil i ties for remediation of en vi ron men tal con tam i na tion and dis posal of

haz ard ous waste, re ported at $225 bil lion, were ma te ri ally un der stated by

at least tens of bil lions of dol lars pri mar ily be cause no es ti mate was reported for en vi ron men tal and dis posal li a bil i ties as so ci ated with cer tain

ma jor weap ons sys tems, such as air craft, mis siles, ships and sub ma rines,

and for am mu ni tion. Fur ther, only a small por tion of the to tal cost, es ti -

mated to be over $10 bil lion, to re move un ex ploded ord nance from training ranges has been re ported. Ad di tionally, sig nif i cant por tions of the

gov ern ment’s re ported li a bil ity for en vi ron men tal man age ment and leg acy

waste re lated to nu clear weap ons de vel op ment lacked ad e quate sup port,

were not com plete, and did not re flect ma te rial changes in cleanup scope,

costs, or sched ules. Properly stat ing these li a bil i ties and im prov ing in ter -

nal con trols sup port ing the pro cess for their es ti ma tion could as sist in deter min ing pri or i ties for cleanup and dis posal ac tiv i ties and al low for ap pro -

pri ate con sid er ation of fu ture bud get ary re sources needed to carry out

these ac tiv i ties.

B-282041
Gen eral Ac count ing Of fice Re port 25

Liabilities

Ad e quate sys tems and cost data were not avail able to ac cu rately es ti -

mate the re ported $223 bil lion mil i tary postretirement health ben e fits lia bil ity in cluded in fed eral em ployee and vet eran ben e fits pay able. Infor ma tion used to de velop such es ti mates did not in clude the full cost of

pro vid ing health care ben e fits. Also, some agen cies do not main tain

ad e quate re cords or have sys tems to en sure that ac cu rate and com plete

data were used to es ti mate a re ported $90 bil lion of ac counts pay able

and a re ported $155 bil lion in other li a bil i ties. For ex am ple, a li a bil ity

was not re ported for cer tain amounts owed to con trac tors that, un der the

terms of the con tracts, were held by the gov ern ment pend ing the ac cep -

tance of goods or ser vices. Fur ther, the gov ern ment was un able to provide ad e quate in for ma tion to de ter mine whether com mit ments and contin gen cies were com plete and prop erly re ported. These prob lems

sig nif i cantly af fect the de ter mi na tion of the full cost of the gov ern -

ment’s cur rent op er a tions, the value of its as sets, and the ex tent of its lia bil i ties.

Cost of Government Operations

The gov ern ment was un able to sup port sig nif i cant por tions of the more

than $1.8 tril lion re ported as the to tal net cost of gov ern ment op er a -

tions. The pre vi ously dis cussed ma te rial de fi cien cies in re port ing as sets 

and li a bil i ties and the lack of ef fec tive cash dis burse ment rec on cil i a -

tions, as dis cussed be low, af fect re ported net costs. Fur ther, we were

un able to de ter mine whether the amounts re ported in the in di vid ual net

cost cat e go ries on the State ment of Net Cost and in the subfunction detail in Sup ple men tal In for ma tion were prop erly clas si fied. Ac cu rate

cost in for ma tion is im por tant to the fed eral gov ern ment’s abil ity to control and re duce costs, as sess per for mance, eval u ate pro grams, and set

fees to re cover costs where re quired.

B-282041
26 Gen eral Ac count ing Of fice Report

Improper Payments

The gov ern ment is un able to de ter mine the full ex tent of im proper

pay ments—that is, pay ments made for other than valid, au tho rized

pur poses. Across gov ern ment, im proper pay ments oc cur in a va ri ety

of pro grams and ac tiv i ties, in clud ing those re lated to con tract man age -

ment, fed eral fi nan cial as sis tance, and tax re funds. Re ported es ti -

mates of im proper pay ments to tal bil lions of dol lars an nu ally. Such

pay ments can re sult from in com plete or in ac cu rate data used to make

pay ment de ci sions, in suf fi cient mon i tor ing and over sight, or other defi cien cies in agency in for ma tion sys tems and weak nesses in in ter nal

con trol. The risk of im proper pay ments is in creased in pro grams involv ing (1) com plex cri te ria for com put ing pay ments, (2) a sig nif i cant 

vol ume of trans ac tions, or (3) an em pha sis on ex pe dit ing pay ments. 

The rea sons for im proper pay ments range from in ad ver tent er rors to

fraud and abuse.

The full ex tent of im proper pay ments, how ever, is un known be cause

many agen cies have not es ti mated the mag ni tude of im proper payments in their pro grams, nor have they con sid ered this is sue in their

an nual per for mance plans. The use of ap pro pri ate per for mance measures re lat ing to im proper pay ments can pro vide man age ment fo cus

on re duc ing re lated losses. For ex am ple, the De part ment of Health

and Hu man Ser vices (HHS) has re ported a na tional es ti mate of improper pay ments in its Medicare fee-for-service ben e fits since fis cal

year 1996. For fis cal year 1998, the De part ment re ported es ti mated

im proper pay ments of $12.6 bil lion, or more than 7 per cent, of

Medicare fee-for-service ben e fits—down from about $20 bil lion, or

11 per cent, re ported for fis cal year 1997 and $23.2 bil lion, or 14 percent, for fis cal year 1996. Anal y sis of im proper Medicare pay ments

helped lead to the im ple men ta tion of sev eral ini tia tives in tended to reduce im proper pay ments. An nual es ti mates of im proper pay ments in

fu ture au dited fi nan cial state ments will pro vide in for ma tion on the

prog ress of these ini tia tives.

B-282041
Gen eral Ac count ing Of fice Re port 27

Cash Disbursement Activity

Sev eral ma jor agen cies are not ef fec tively rec on cil ing cash dis burse -

ments. These rec on cil i a tions are in tended to be a key con trol to de tect 

and cor rect er rors and other mis state ments in fi nan cial re cords in a

timely man ner—sim i lar in con cept to in di vid u als rec on cil ing per sonal

check books with a bank’s re cords each month. There con tin ued to be

bil lions of dol lars of un re solved gross dif fer ences be tween agen cies’

and Trea sury re cords of cash dis burse ments as of the end of fis cal year

1998. As a re sult, the gov ern ment is un able to en sure that all disburse ments are prop erly re corded. Im properly re corded dis burse -

ments could re sult in mis state ments in the fi nan cial state ments and in

cer tain data pro vided by agen cies for in clu sion in the Pres i dent’s budget con cern ing fis cal year 1998 ob li ga tions and out lays.

Preparation of Financial Statements

The gov ern ment does not have suf fi cient sys tems, con trols, or pro ce -

dures to prop erly pre pare fi nan cial state ments for the U.S. gov ern -

ment. Such de fi cien cies, de scribed be low, im pair the gov ern ment’s

abil ity to (1) prop erly bal ance the gov ern ment’s fi nan cial state ments

and ac count for bil lions of dol lars of trans ac tions be tween gov ern men -

tal en ti ties, (2) prop erly and con sis tently com pile the in for ma tion in

the fi nan cial state ments, and (3) ef fec tively rec on cile the re sults of oper a tions re ported in the fi nan cial state ments with bud get re sults.

Un rec on ciled Trans ac tions. To make the fi nan cial state ments balance, Trea sury re corded a net $24 bil lion item on the State ment of Oper a tions and Changes in Net Po si tion, which it la beled un rec on ciled

trans ac tions. Trea sury at trib utes this net out-of-balance amount to the

gov ern ment’s in abil ity to prop erly iden tify and elim i nate trans ac tions

be tween fed eral gov ern ment en ti ties and to agency ad just ments that

af fected net po si tion. Cer tain intragovernmental ac counts do not recon cile by a to tal of more than $250 bil lion.

Agencies’ ac counts can be out of bal ance with each other, for ex am -

ple, when one or the other of the af fected agen cies does not prop erly

B-282041
28 Gen eral Ac count ing Of fice Report

re cord a trans ac tion with an other agency or the agen cies re cord the transac tions in dif fer ent ac count ing pe ri ods. These out-of-balance con di tions

can be de tected and cor rected by in sti tut ing pro ce dures for rec on cil ing

trans ac tions be tween agen cies on a reg u lar ba sis and in a timely man ner. 

Gen erally, such rec on cil i a tions are not per formed. These un rec on ciled

trans ac tions re sult in ma te rial mis state ments of as sets, li a bil i ties, rev e nues, 

and/or costs.

Fi nan cial State ment Com pi la tion. The fed eral gov ern ment can not en sure

that the in for ma tion in the fi nan cial state ments of the U.S. gov ern ment is

prop erly and con sis tently com piled. To pre pare the fed eral gov ern ment’s

fi nan cial state ments, about 70 agen cies sub mit data to Trea sury on ap prox -

i mately 2,000 sep a rate re port ing com po nents, each hav ing many ac count

bal ances. How ever, sev eral ma jor agen cies were un able to pro vide as sur -

ance that all agency amounts in cluded in these fi nan cial state ments rec on -

ciled with their agency fi nan cial state ments. In ad di tion, ma te rial ad just -

ments and reclassifications were re quired to (1) make the fi nan cial

state ments more con sis tent with agency fi nan cial state ments, (2) cor rect

iden ti fied in con sis ten cies in re port ing sim i lar trans ac tions, (3) con form

foot note in for ma tion to re lated fi nan cial state ment line items, and (4) record other au dit ad just ments.

These prob lems are com pounded by the sub stan tial vol ume of in for ma tion

sub mit ted and lim i ta tions in the fed eral gov ern ment’s gen eral led ger account struc ture. As a re sult, ad di tional misclassifications and mis state -

ments in the gov ern ment’s fi nan cial state ments could ex ist.

Rec on ciling the Re sults of Op er a tions With Bud get Re sults. The fed eral

gov ern ment did not have a pro cess to ob tain in for ma tion to ef fec tively recon cile the re ported $134 bil lion ex cess of net cost over rev e nue and a reported uni fied bud get sur plus of $69 bil lion. Con se quently, it could not

iden tify all of the items needed to rec on cile these amounts. Cer tain dif fer -

ences are ex pected to oc cur be cause the fi nan cial state ments of the U.S.

gov ern ment are pre pared on the ac crual ba sis in ac cor dance with fed eral

ac count ing stan dards, which is a dif fer ent ba sis than the bud get. Un der accrual ac count ing, trans ac tions are re ported when the events giv ing rise to

the trans ac tions oc cur, rather than when cash is re ceived or paid. By conB-282041
Gen eral Ac count ing Of fice Re port 29

trast, fed eral bud get ary re port ing is gen er ally on the cash ba sis in ac cor -

dance with ac cepted bud get con cepts and pol i cies.

Be gin ning in fis cal year 1998, ma jor agen cies were re quired by fed eral ac -

count ing stan dards to rec on cile their re ported net costs to bud get in for ma -

tion, which could pro vide a ba sis for pre par ing the rec on cil i a tion in the

1998 Fi nan cial Re port of the United States Gov ern ment. How ever, sig nif -

i cant amounts re ported in cer tain agency rec on cil i a tions, in clud ing unliq ui dated ob li ga tions and cer tain other bud get in for ma tion, lacked ad e -

quate sup port ing in for ma tion and may be un re li able. For ex am ple, sig nif i -

cant weak nesses in De part ment of De fense (DOD) sys tems and con trols

re sulted in re ported ob li ga tions in curred that may have ex ceeded avail able

bud get au thor ity for cer tain ap pro pri a tions. Fur ther, sig nif i cant amounts

of De fense trans ac tions were not ap plied or were in cor rectly ap plied to

spe cific bud get ap pro pri a tions, which could mis state cer tain re ported bud -

get in for ma tion. Once the fed eral gov ern ment pro duces re li able fi nan cial

state ments, an ef fec tive rec on cil i a tion could help pro vide ad di tional as sur -

ance of the re li abil ity of bud get re sults.

INEFFECTIVE INTERNAL CONTROL

Be cause of the ef fects of the ma te rial weak nesses dis cussed be low, the

fed eral gov ern ment has not main tained ef fec tive in ter nal con trol to en sure

that (1) trans ac tions are prop erly re corded, pro cessed, and sum ma rized to

per mit the prep a ra tion of fi nan cial state ments and stew ard ship in for ma tion 

in ac cor dance with fed eral ac count ing stan dards, and as sets are safeguarded against loss from un au tho rized ac qui si tion, use, or dis po si tion and

(2) trans ac tions are ex e cuted in ac cor dance with laws gov ern ing the use of

bud get au thor ity and with other laws and reg u la tions that could have a direct and ma te rial ef fect on the fi nan cial state ments and other laws, reg u la -

tions, and governmentwide pol i cies iden ti fied by OMB Bul le tin 98-08.

4

In di vid ual agency fi nan cial state ment au dit re ports de scribe the ef fects of

4

 OMB Bul le tin 98-08, Au dit Re quire ments for Fed eral Fi nan cial State ments, Au gust 24, 1998,

as amended Jan u ary 25, 1999.

B-282041
30 Gen eral Ac count ing Of fice Report

such weak nesses on spe cific agen cies and iden tify ad di tional in ter nal control weak nesses, some of which are ma te rial to in di vid ual agen cies. 

In ad di tion to the ma te rial weak nesses re lated to the de fi cien cies dis cussed 

in our dis claimer on the fi nan cial state ments, we found that (1) wide spread 

and se ri ous com puter con trol weak nesses af fect vir tu ally all fed eral agencies and sig nif i cantly con trib ute to many of the ma te rial de fi cien cies discussed above and (2) ma te rial con trol weak nesses af fect the gov ern ment’s

tax col lec tion ac tiv i ties. Due to the de fi cien cies noted through out this report, ad di tional ma te rial weak nesses may ex ist that have not been re ported.

Computer Security Weaknesses

Con tinuing se ri ous and wide spread com puter se cu rity weak nesses are

plac ing enor mous amounts of fed eral as sets at risk of fraud and mis use, finan cial in for ma tion at risk of un au tho rized mod i fi ca tion or de struc tion,

sen si tive in for ma tion at risk of in ap pro pri ate dis clo sure, and crit i cal op er a -

tions at risk of dis rup tion. Sig nif i cant com puter se cu rity weak nesses in

sys tems that han dle the gov ern ment’s un clas si fied in for ma tion have been

re ported in each of the ma jor fed eral agen cies. The most se ri ous re ported

prob lem is in ad e quately re stricted ac cess to sen si tive data. Other types of

weak nesses per tain to not ad e quately seg re gat ing du ties to help en sure that

peo ple do not con duct un au tho rized ac tions with out de tec tion, pre vent ing

un au tho rized soft ware from be ing im ple mented, and mit i gat ing and recov er ing from un planned in ter rup tions in com puter ser vice. In to day’s

highly com put er ized and in ter con nected en vi ron ment, such weak nesses

are vul ner a ble to ex ploi ta tion by out side in trud ers as well as au tho rized users with ma li cious in tent.

The con se quences of com puter se cu rity weak nesses could be dev as tat ing

and costly—for in stance, plac ing bil lions of dol lars of pay ments and collec tions at risk of fraud and im pair ing mil i tary op er a tions. Also, iden ti fied 

weak nesses at fed eral en ti ties such as the In ter nal Rev e nue Ser vice (IRS),

the HHS’s Health Care Fi nancing Ad min is tra tion, the So cial Se cu rity Admin is tra tion (SSA), the De part ment of State, and the De part ment of Veterans Af fairs place tax, med i cal and other sen si tive re cords at risk of un au -

tho rized dis clo sure, mod i fi ca tion, and de struc tion.

B-282041
Gen eral Ac count ing Of fice Re port 31

The gov ern ment can not es ti mate the full mag ni tude of ac tual dam age and

loss re sult ing from fed eral com puter se cu rity weak nesses be cause it is

likely that many such in ci dents are ei ther not de tected or not re ported. 

How ever, GAO and agency re views and doc u mented in ci dents, such as the

fol low ing, il lus trate the po ten tial for neg a tive im pacts.

• At tackers have ac cessed sys tems and sto len, mod i fied, and de stroyed

both data and soft ware at DOD and shut down en tire sys tems. 

• We have been suc cess ful, as part of com puter se cu rity re views, in

readily gain ing un au tho rized ac cess to sys tems that would al low intrud ers to read, mod ify, or de lete data for what ever pur pose they had

in mind. Tests by agen cies have re vealed sim i lar re sults.

• SSA’s IG has re ported crim i nal con vic tions in volv ing SSA em ploy ees, 

most of which in volved cre at ing fic ti tious iden ti ties, fraud u lently selling SSA cards, mis ap pro pri at ing re funds, or abus ing ac cess to con fi -

den tial in for ma tion.

• IRS has iden ti fied in ci dents of em ploy ees brows ing tax payer data and

in ap pro pri ately us ing other sys tems con tain ing tax payer data.

GAO and the IGs have is sued nu mer ous re ports that iden tify in for ma tion

se cu rity weak nesses in the fed eral gov ern ment and made rec om men da -

tions to ad dress them. Also, GAO has re ported in for ma tion se cu rity as a

high-risk area across gov ern ment since Feb ru ary 1997.

5 Agencies need to

fully in sti tute a frame work for as sess ing risk and en sur ing that nec es sary

pol i cies and con trols are in place and re main ef fec tive on an on go ing basis.

Tax Col lec tion Ac tiv ities

The fed eral gov ern ment con tin ues to have ma te rial weak nesses in con trols

re lated to its tax col lec tion ac tiv i ties, which af fect its abil ity to ef fi ciently

and ef fec tively ac count for and col lect the gov ern ment’s rev e nue. This situ a tion re sults in the need for ex ten sive, costly, and time-consuming ad hoc

5 High-Risk Se ries: An Up date (GAO/HR-99-1, Jan u ary 1999), High-Risk Se ries: An Over view

(GAO/HR-97-1, Feb ru ary 1997), and High-Risk Se ries: In for ma tion Man age ment and Tech nol -

ogy (GAO/HR-97-9, Feb ru ary 1997).

B-282041
32 Gen eral Ac count ing Of fice Report

pro gram ming and anal y sis, as well as ma te rial au dit ad just ments, to prepare ba sic fi nan cial in for ma tion—an ap proach that can not be used to prepare such in for ma tion on a timely, rou tine ba sis to as sist in on go ing de ci -

sion-making. Ad di tionally, the se ver ity of the sys tem de fi cien cies that

give rise to the need to re sort to such pro ce dures for fi nan cial re port ing

pur poses, as well as de fi cient phys i cal safe guards, re sult in bur den to taxpay ers and lost rev e nue.

Se ri ous fi nan cial man age ment sys tem de fi cien cies con tinue to af fect the

fed eral gov ern ment’s abil ity to ef fec tively man age its taxes re ceiv able

and other un paid as sess ments.

6

 The lack of ap pro pri ate sub sid iary sys tems 

to track the sta tus of tax payer ac counts af fects the gov ern ment’s abil ity to

make in formed de ci sions about col lec tion ef forts. This weak ness has resulted in the gov ern ment pur su ing col lec tion ef forts against in di vid ual taxpay ers who had al ready paid their taxes in full. The fed eral gov ern ment

also con tin ues to be vul ner a ble to loss of tax rev e nue due to weak nesses in

pre ven tive con trols over dis burse ments for tax re funds. The gov ern ment

does not per form suf fi cient up-front ver i fi ca tion pro ce dures to en sure the

va lid ity of amounts claimed by tax pay ers as overpayments prior to mak ing 

dis burse ments for re funds. Ad di tionally, de lays in re cord ing tax amounts

owed re sult in lost op por tu ni ties to re tain or off set overpayments made by

a tax payer for one pe riod to col lect on out stand ing amounts owed for another pe riod, re sult ing in lost rev e nue. Finally, se ri ous de fi cien cies in

phys i cal con trols over cash, checks, and sen si tive data re ceived from taxpay ers in crease both the gov ern ment’s and the tax pay ers’ ex po sure to

losses and in creases the risk of tax pay ers be com ing vic tims of crimes

com mit ted through iden tity fraud.

6 Other un paid as sess ments con sist of amounts for which (1) nei ther the tax payer nor a court has

af firmed are owed or (2) the gov ern ment does not ex pect fur ther col lec tions due to fac tors such

as the tax payer’s death, bank ruptcy, or in sol vency.

B-282041
Gen eral Ac count ing Of fice Re port 33

NONCOMPLIANCE WITH

CERTAIN LAWS AND REGULATIONS

Our ob jec tive was not to, and we do not, ex press an opin ion on over all

com pli ance with laws and reg u la tions. Tests for com pli ance with se lected

pro vi sions of laws and reg u la tions re lated to fi nan cial re port ing dis closed

that, as dis cussed ear lier, the fed eral gov ern ment makes im proper payments in ma jor pro grams such as Medicare. Ad di tionally, as de scribed below, we noted that fed eral sys tems do not sub stan tially com ply with federal fi nan cial man age ment sys tems re quire ments. We cau tion that

non com pli ance other than that dis cussed in our re port may oc cur and not

be de tected by these tests and that our lim ited test ing may not be suf fi cient 

for other pur poses. Fur ther, the scope of our tests was lim ited by the mate rial de fi cien cies dis cussed above. Other in stances of non com pli ance,

some of which are ma te rial to in di vid ual fed eral agen cies, are re ported in

the in di vid ual agency fi nan cial state ment au dit re ports.

Noncompliance with the Federal Financial Management Improvement Act

of 1996

The Fed eral Fi nan cial Man age ment Im prove ment Act (FFMIA) of 1996

re quires au di tors per form ing fi nan cial au dits to re port whether agen cies’

fi nan cial man age ment sys tems com ply sub stan tially with fed eral ac count -

ing stan dards, fi nan cial sys tems re quire ments, and the gov ern ment’s standard gen eral led ger at the trans ac tion level. For fis cal year 1997, agency

fi nan cial au di tors re ported that 20 of 24 ma jor agen cies’ fi nan cial sys tems

did not com ply with the Act’s re quire ments. Sim i lar re sults are ex pected

for fis cal year 1998. Non com pli ance with FFMIA, which we fur ther discuss in our re port, Fi nan cial Man age ment: Fed eral Fi nan cial Man age ment 

Im prove ment Act Re sults for Fis cal Year 1997 (GAO/AIMD-98-268, Septem ber 30, 1998), is in dic a tive of the over all con tin u ing poor con di tion of

agency fi nan cial sys tems.

The ma jor ity of fed eral agen cies’ fi nan cial man age ment sys tems do not

meet sys tems re quire ments and can not pro vide re li able fi nan cial in for ma -

tion for man ag ing day-to-day gov ern ment op er a tions and hold ing man ag -

B-282041
34 Gen eral Ac count ing Of fice Report

ers ac count able. For many agen cies, the prep a ra tion of fi nan cial statements re quires con sid er able re li ance on ad hoc pro gram ming and anal y sis

of data pro duced by in ad e quate fi nan cial sys tems that are not in te grated,

rec on ciled, and of ten re quire sig nif i cant ad just ments. For ex am ple, the

DOD In spec tor Gen eral re ported that the De part ment re corded more than

$1.5 tril lion in ad just ments to com po nent fi nan cial state ments that were

not sup ported by ad e quate au dit trails or suf fi cient ev i dence to de ter mine

their va lid ity. The sig nif i cant fi nan cial man age ment de fi cien cies discussed through out this re port un der score the chal lenge.

YEAR 2000 COMPUTING CHALLENGE

The fed eral gov ern ment—with its wide spread de pend ence on large-scale,

com plex com puter sys tems to de liver vi tal pub lic ser vices and carry out its

mas sive op er a tions—faces an es pe cially enor mous and dif fi cult task. Unless ad e quately con fronted, Year 2000 com put ing chal lenges could lead to

se ri ous dis rup tions in key fed eral op er a tions, rang ing from na tional defense to ben e fit pay ments to air traf fic man age ment. Con se quently, in

Feb ru ary 1997, GAO des ig nated the Year 2000 com put ing chal lenge

across gov ern ment as a high-risk area.

In re sponse to a grow ing rec og ni tion of the chal lenge and urg ing from

con gres sio nal lead ers and oth ers, the ad min is tra tion strength ened the govern ment’s Year 2000 prep a ra tion. In Feb ru ary 1998, the Pres i dent took a

ma jor step in es tab lish ing the Pres i dent’s Coun cil on Year 2000 Con ver -

sion. He es tab lished the goal that no sys tem crit i cal to the fed eral gov ern -

ment’s mis sion ex pe ri ence dis rup tion be cause of the Year 2000 chal lenge,

and charged agency heads with en sur ing that this is sue re ceives the high est 

pri or ity at ten tion.

GAO has is sued over 90 re ports and tes ti mony state ments de tail ing specific find ings and made well over 100 rec om men da tions re lated to the

Year 2000 readi ness of the gov ern ment as a whole and of a wide range of

in di vid ual agen cies. In ad di tion, to help agen cies mit i gate their Year 2000

risk, we pro duced a se ries of guides on Year 2000 readi ness, busi ness conti nu ity and con tin gency plan ning, and test ing.

B-282041
Gen eral Ac count ing Of fice Re port 35

B-282041

While much has been ac com plished in ad dress ing the Year 2000 challenge, risks re main. Our re views of fed eral Year 2000 pro grams have

found un even prog ress; some ma jor agen cies are be hind sched ule. Complete and thor ough Year 2000 test ing is es sen tial to pro vid ing rea son able

as sur ance that new or mod i fied sys tems will be able to pro cess dates correctly and not jeop ar dize agen cies’ abil ity to per form core busi ness op er a -

tions. More over, ad e quate busi ness con ti nu ity and con tin gency plans

must be suc cess fully com pleted through out gov ern ment.

FINANCIAL STATEMENTS AND BUDGET DECISIONS:

ADDING THE LONG-TERM PERSPECTIVE

A view of the long-term sustainability of fis cal pol i cies can as sist

decisionmakers in con sid er ing the gov ern ment’s fi nan cial po si tion and

mak ing de ci sions about re source al lo ca tion. Such a view re quires pro jec -

tions of spend ing and rev e nues into the fu ture. In this con text, the sov er -

eign power to tax and the com mit ments of so cial in sur ance programs—such as So cial Se cu rity and Medicare—must be con sid ered.

Com mit ments for the So cial Se cu rity and Medicare pro grams are in cluded 

in the Stew ard ship In for ma tion ac com pa ny ing the fi nan cial state ments. 

The gov ern ment’s 75 year es ti mates of the pres ent value of ex pen di tures

in ex cess of con tri bu tions for the So cial Se cu rity (Old Age Sur vi vors and

Dis abil ity In sur ance (OASDI)) and Medicare (Part A) pro grams amounted

to $3.8 tril lion and $4.0 tril lion, re spec tively, as of Sep tem ber 30, 1998.

The gov ern ment’s pro jec tions also in di cate that So cial Se cu rity and health

care costs will ab sorb an in creas ing share of the fed eral bud get.

In fis cal year 1998, So cial Se cu rity trust funds sur pluses of $99 bil lion offset a $30 bil lion def i cit in the rest of the bud get, re sult ing in the $69 billion uni fied bud get sur plus. How ever, as dis cussed in the ac com pa ny ing

Stew ard ship In for ma tion, us ing the gov ern ment’s best es ti mates as of Septem ber 30, 1998, cash dis burse ments of the So cial Se cu rity trust funds

(OASDI) are ex pected to ex ceed cash re ceipts be gin ning in fis cal year

2013. Cash dis burse ments of Medicare’s Hos pi tal In sur ance Pro gram

(Part A) have ex ceeded re ceipts for sev eral years.
36 Gen eral Ac count ing Of fice Report

When re ceipts ex ceed dis burse ments, trust funds in vest the sur plus in

Trea sury se cu ri ties, which are as sets to the trust funds and li a bil i ties to the

Trea sury. As dis closed in note 9 and 17, both the in vest ments and li a bil i -

ties, which amounted to $1.8 tril lion at Sep tem ber 30, 1998, are net ted out

in the ac com pa ny ing fi nan cial state ments. 

Ex pected cash short falls in the trust funds will re quire them to re deem

their in vest ments in Trea sury se cu ri ties. When this oc curs, the gov ern -

ment must fund these re demp tions through use of fu ture sur pluses if available, lower rel a tive spend ing for other fed eral pro grams, higher rel a tive

taxes, and/or greater rel a tive bor row ing from the pub lic. Fur ther, un der

the gov ern ment’s Sep tem ber 30, 1998 pro jec tions, ab sent any pro gram or

fi nanc ing change, the Medicare Part A Trust Fund and So cial Se cu rity

trust funds will ex haust their Trea sury se cu rity hold ings in 2008 and 2032,

re spec tively.

There is gen eral rec og ni tion that the So cial Se cu rity and Medicare Hos pi -

tal In sur ance (Part A) pro grams re quire changes from their cur rent form.

This is why to day var i ous pro pos als are be ing con sid ered to deal with the

long-term sol vency and sustainability of these two pro grams. The fact that

Medicare is al ready draw ing down its Trea sury se cu ri ties hold ings, and

that it is ex pected that So cial Se cu rity will need to do so in less than 15

years, high lights the im por tance of act ing soon in or der to avoid more dramatic changes in the fu ture.

We are work ing with OMB, the Trea sury, and other agen cies across govern ment to pro vide rec om men da tions for fix ing the ma jor de fi cien cies

cited in our au dit. Con sid er able ef fort is now be ing ex erted to ad dress the

prob lems, and sev eral agen cies, such as SSA, have made good prog ress toward achiev ing fi nan cial man age ment re form goals. We have des ig nated

the most se ri ous sit u a tions as high-risk, in clud ing fi nan cial man age ment at

DOD, IRS, the For est Ser vice, and the Fed eral Avi a tion Ad min is tra tion, as

well as in for ma tion se cu rity and the Year 2000 chal lenge.

B-282041
Gen eral Ac count ing Of fice Re port 37

In ad di tion, the con tin ued co or di nated ef forts of Trea sury and OMB will

be re quired to pro vide so lu tions for cer tain governmentwide de fi cien cies,

such as the in abil ity to prop erly iden tify and elim i nate trans ac tions between fed eral en ti ties and the com pi la tion of the fi nan cial state ments. We

will con tinue to pro vide sug ges tions for re solv ing governmentwide problems and to eval u ate prog ress in over com ing them.

Da vid M. Walker

Comp trol ler Gen eral

of the United States

March 19, 1999

B-282041
38 Gen eral Ac count ing Of fice Report

OBJECTIVES, SCOPE, AND METHODOLOGY

The fed eral gov ern ment is re spon si ble for

• pre par ing the an nual fi nan cial state ments ac cu rately and in con for mity 

with the ba sis of ac count ing de scribed in note 1 to the fi nan cial statements;

• es tab lish ing, main tain ing, and as sess ing in ter nal con trol to pro vide

rea son able as sur ance that the broad con trol ob jec tives of the Fed eral

Man agers’ Fi nan cial In teg rity Act (FMFIA) are met

7

; and

• com ply ing with ap pli ca ble laws and reg u la tions.

Our ob jec tive was to au dit the fis cal year 1998 fi nan cial state ments. 

The Gov ern ment Man age ment Re form Act ex panded on the re quire ments

of the CFO Act by re quir ing that the IGs of 24 ma jor fed eral agen cies annu ally au dit agencywide fi nan cial state ments pre pared by these agen cies.

8

Our work was per formed in close co or di na tion and co op er a tion with the

IGs to achieve our joint au dit ob jec tives. This work in cluded sep a rate

GAO au dits of cer tain ma te rial agency com po nents, as dis cussed be low. 

Our au dit ap proach fo cused on the De part ments of the Trea sury, De fense,

and Health and Hu man Ser vices and the So cial Se cu rity Ad min is tra tion. 

These agen cies com prise a ma jor por tion of the amounts re ported in the

fed eral gov ern ment’s fi nan cial state ments. At other fed eral agen cies, we

fo cused largely on ac counts that are ma te rial to the fi nan cial state ments. 

Ad di tionally, for cer tain agen cies, in for ma tion has been in cluded in these

fi nan cial state ments but the agen cies have not, at this date, fi nal ized their

in di vid ual fi nan cial state ments for fis cal year 1998. There fore, we were

7

 The FMFIA re quires agency man ag ers to eval u ate and re port an nu ally to the Pres i dent and

the Con gress on the ad e quacy of their in ter nal con trols and ac count ing sys tems and what is

be ing done to cor rect the problems.

8 GMRA au tho rized OMB to des ig nate agency com po nents that also would re ceive a fi nan cial

state ment au dit.

APPENDIX APPENDIX
Gen eral Ac count ing Of fice Re port 39

un able to de ter mine the re li abil ity of the amounts in cluded in the ac com -

pa ny ing fi nan cial state ments for these agen cies. We per formed suf fi cient

au dit work to pro vide our re port on the fi nan cial state ments, in ter nal control, and com pli ance with laws and reg u la tions.

We sep a rately au dited the fol low ing ma te rial agency com po nents.

• We au dited and ex pressed an un qual i fied opin ion on the IRS Statement of Cus to dial Activity for fis cal year 1998. IRS was able to re li -

ably re port on the re sults of its cus to dial ac tiv i ties, in clud ing nearly

$1.8 tril lion of tax rev e nue, $151 bil lion of tax re funds, and $26 billion of net fed eral taxes re ceiv able. How ever, we is sued a qual i fied

opin ion on the IRS ad min is tra tive bal ance sheet, dis claimed an opinion on its ad min is tra tive state ments of net cost, changes in net po si -

tion, bud get ary re sources, and fi nanc ing, and re ported nu mer ous

ma te rial in ter nal con trol weak nesses.

9

• We au dited and ex pressed an un qual i fied opin ion on the Sched ule of

Fed eral Debt Man aged by Trea sury’s Bu reau of the Pub lic Debt for

the fis cal year ended Sep tem ber 30, 1998.

10

 This sched ule re ported

(1) $3.7 tril lion of fed eral debt held by the pub lic com pris ing in di vid u -

als, cor po ra tions, state or lo cal gov ern ments, the Fed eral Re serve System, and for eign gov ern ments and cen tral banks, (2) $1.8 tril lion of

fed eral debt held by fed eral en ti ties, such as the So cial Se cu rity trust

funds, and (3) $243 bil lion of in ter est on fed eral debt held by the public.

• We per formed au dit pro ce dures on cash bal ances main tained and inter nal con trols over the cash re ceipts and dis burse ments pro cessed by

Trea sury on be half of the fed eral gov ern ment. We pro vided the results of our work to the Trea sury Of fice of In spec tor Gen eral for

9 Fi nan cial Au dit: IRS’ Fis cal Year 1998 Fi nan cial State ments (GAO/AIMD-99-75, March 1,

1999).

10 Fi nan cial Au dit: Bu reau of the Pub lic Debt’s Fis cal Years 1998 and 1997 Sched ules of

Fed eral Debt (GAO/AIMD-99-70, March 1, 1999).

APPENDIX APPENDIX
40 Gen eral Ac count ing Of fice Report

con sid er ation in its au dit of Trea sury’s fis cal year 1998 departmentwide

fi nan cial state ments.

• We au dited and ex pressed un qual i fied opin ions on the De cem ber 31,

1997, fi nan cial state ments for the funds ad min is tered by the Fed eral

De posit In sur ance Cor po ra tion (FDIC), in clud ing the Bank In sur ance

Fund, the Sav ings As so ci a tion In sur ance Fund, and the FSLIC Res o lu -

tion Fund.

11

 In ad di tion, we per formed au dit pro ce dures and tests of

in ter nal con trols for cash, in vest ments, and other ma te rial bal ances of

the funds ad min is tered by FDIC as of Sep tem ber 30, 1998.

At the 24 CFO Act agen cies and other agen cies, we re viewed the fis cal

year 1998 fi nan cial state ment au dits per formed by the IGs or their con trac -

tors and, for cer tain agen cies, as sisted in the de vel op ment of au dit plans

for fis cal year 1998 au dits. Fi nan cial state ments and au dit re ports for

these agen cies pro vide ad di tional in for ma tion about the op er a tions of each

of these en ti ties. For ex am ple, these au dits have iden ti fied nu mer ous inter nal con trol and ac count ing sys tems weak nesses and non com pli ance,

some of which are ma te rial to the re spec tive agen cies or com po nents. Further, as of the com ple tion of our field work on March 19, 1999, 15 of the

24 CFO Act agen cies had re ceived au dit opin ions or dis claim ers on their

fis cal year 1998 fi nan cial state ments. Of the 15 agen cies, 7 re ceived unqual i fied opin ions. These agen cies are the

So cial Se cu rity Ad min is tra tion,

De part ment of La bor,

Gen eral Ser vices Ad min is tra tion,

Na tional Sci ence Foun da tion,

Na tional Aero nau tics and Space Ad min is tra tion,

Nu clear Reg u la tory Com mis sion, and

Fed eral Emer gency Man age ment Agency.

11 Fi nan cial Au dit: Fed eral De posit In sur ance Cor po ra tion’s 1997 and 1996 Fi nan cial Statements (GAO/AIMD-98-204, June 29, 1998).

APPENDIX APPENDIX
Fi nan cial State ments 41

Fi nan cial Statements 

of the United States Gov ern ment

for the Year Ended Sep tem ber 30, 1998

This State ment re ports the re sults of Govern ment op er a tions. This in cludes rev e nues

prin ci pally gen er ated by the Gov ern ment’s

sov er eign power to tax, levy du ties, and assess fines and pen al ties. The state ment cov ers 

the net cost of Gov ern ment op er a tions, net of

rev e nue earned from the sale of goods and

ser vices to the pub lic. It also in cludes any adjust ments and un rec on ciled trans ac tions that

af fect the net po si tion.

Statement

of Operations

and Changes

in Net Position

Revenue

The main source of rev e nue

for Gov ern ment op er a tions con -

sists of taxes and other rev e nue

the Fed eral Gov ern ment gen er -

ates un der its sovereign pow ers

or re ceives by do na tion.

“In di vid ual in come tax and

tax with hold ings” con sist of

Fed eral in come taxes, and Social Se cu rity and Medicare

taxes, net of re funds.

“Mis cel la neous earned rev e -

nue” con sists of earned rev e -

nues re ceived from the pub lic

with vir tu ally no as so ci ated

cost. This cat e gory in cludes

rev e nues gen er ated from spectrum auc tions and rents and royal ties on the Outer Continental

Shelf Lands.

Net Cost

of Government

Operations

The State ment of Net Cost

pres ents the “Net cost of Govern ment op er a tions,” which is

gross cost mi nus earned rev e -

nue.

Unreconciled

Transactions

“Un rec on ciled trans ac tions”

are ad just ments made to bal ance 

the change in Net Po si tion. 

Net Po si tion—

Be gin ning of Pe riod

The “Net po si tion—be gin -

ning of pe riod” re flects the net

po si tion re ported on the prior year’s

Bal ance Sheet.

Prior Period Adjustments

“Changes in ac count ing prin ci -

ples” is the ret ro ac tive ef fect of apply ing new Fed eral Fi nan cial Account ing Stan dards.

“Other ad just ments” are re vi sions 

to cor rect the be gin ning net po si -

tion.

Net Position—

End of Period

This amount re flects the net po si -

tion on the cur rent year’s Bal ance

Sheet.
42 Fi nan cial State ments

This state ment re ports the net cost

of fis cal 1998 Gov ern ment op er a -

tions. It also shows the cost to carry

out na tional pri or i ties as de ter mined

by law. 

It also cat e go rizes costs by ma jor

func tion. It pres ents costs in much

the same way as does the bud get, ex -

cept that costs are al lo cated to func -

tions based on ac count ing stan dards. 

Thus, this state ment re ports costs on

an ac crual ba sis and al lo cates them

dif fer ently than the bud get. For ex -

am ple, this state ment al lo cates the

cost of pen sions and re tiree health

ben e fits among all the func tions that

em ploy work ers. The bud get cat e go -

rizes pen sion pay mentsto re tir ees as

a subfunction, found un der “In come

se cu rity.” The bud get cat e go rizes

agency con tri bu tions to re tire ment

funds as intragovernmental out lays

dis trib uted among all the func tions

that em ploy work ers. A de scrip tion

of each of the func tions and the com -

po nents of net cost for the ac tiv i ties

in cluded in each func tion is pre -

sented in Sup ple men tal In for ma tion

as “Net cost de tail.”

The State ment con tains the fol -

low ing three com po nents for each

func tion: 

• The gross cost of Gov ern ment

op er a tions.

• The rev e nues earned from the

pub lic for goods and ser vices.

• The net cost of Gov ern ment

op er a tions, which is gross cost

less rev e nue earned.

Gross Cost

“Gross cost” in cludes the full cost

of all func tions. These costs may be

di rectly traced, as signed on a cause

and ef fect ba sis, or rea son ably al lo -

cated to the func tion.

Earned Revenue

This is rev e nue the Gov ern ment

earned by pro vid ing goods and ser -

vices to the pub lic at a price.

Net Cost

The “Net cost” of Gov ern ment

op er a tions is com puted by sub tract -

ing “Earned rev e nues” from “Gross

cost.”

Statement

of Net Cost

As sets in cluded on the Bal ance Sheet are

re sources of the Fed eral Gov ern ment that remain avail able to meet fu ture needs. The

most sig nif i cant as sets re ported in the Balance Sheet are loans re ceiv able and in ven to -

ries, as well as prop erty, plant and equipment. There are, how ever, other sig nif i cant

re sources avail able to the Gov ern ment that

ex tend be yond the as sets pre sented in this

Fi nan cial State ment. Those as sets in clude

the Gov ern ment’s sov er eign pow ers to tax,

reg u late com merce and set mon e tary pol icy.

They also in clude nat u ral re sources.

A change in ac count ing stan dards, ef fec -

tive as of Oc to ber 1, 1997, cre ated a new

class of as sets, termed Stew ard ship As sets.

Se lected as sets now are high lighted sep a -

rately from the Bal ance Sheet un der Steward ship In for ma tion. As stew ard of these assets, it is in cum bent on the Gov ern ment to

dem on strate ac count abil ity by in clud ing

these as sets in its fi nan cial re ports. 

National defense assets

“Na tional de fense as sets” are weapon

sys tems and sup port ing as sets used by the

mil i tary for the Na tion’s com mon de fense

and gen eral wel fare. The pre dom i nant report ing ob jec tives for na tional de fense assets are their avail abil ity to de fend the

country in times of need. These ob jec tives

are best mea sured in non-financial terms.

Ef fec tive Oc to ber 1, 1997, na tional de fense

as sets to tal ing $655.2 bil lion were re clas si -

fied from the Bal ance Sheet to Stew ard ship

In for ma tion. Ex am ples of those as sets inAssets

This Bal ance Sheet showsthe Gov ern ment’s as sets and li a bil i -

ties. It alone does not pro vide a com plete pic ture of the Gov ern -

ment’s fi nan cial re sources nor the cur rent and fu ture claims on

them. How ever, when com bined with Stew ard ship In for ma tion,

this in for ma tion pres ents a more com pre hen sive un der stand ing

of the Gov ern ment’s fi nan cial po si tion. Most line items on the

Bal ance Sheet are de scribed in the Notes to the Fi nan cial

Statements. The first note, for ex am ple, pro vides in for ma tion on

the ac count ing pol i cies for as sets and li a bil i ties.

Balance

Sheet
Fi nan cial State ments 43

clude air craft car ri ers, sub ma rines,

tanks and mis siles.

Stewardship land

“Stew ard ship land” is land owned

by the Fed eral Gov ern ment and set

aside for the use and en joy ment of

pres ent and fu ture gen er a tions. The

Fed eral Gov ern ment does not ex pect

to use this land to meet its ob li ga tions, 

un like the as sets listed on the Bal ance 

Sheet. Stew ard ship land is mea sured

in non-financial units such as acres of

land and lakes, miles of park ways,

and wild and sce nic rivers. Ex am ples

of stew ard ship land in clude his toric

parks, na tional for ests, wil der ness areas and land used to en hance eco sys -

tems to en cour age an i mal and plant

spe cies and to con serve na ture.

Heritage assets

“Her i tage as sets” are Gov ern -

ment-owned as sets that have one or

more of the fol low ing char ac ter is tics:

his tor i cal or nat u ral sig nif i cance; cultural, ed u ca tional, or ar tis tic

im por tance; or sig nif i cant ar chi tec -

tural fea tures. The cost of her i tage assets of ten is not de ter mi na ble or rel e -

vant to their sig nif i cance. Like

stew ard ship land, the Gov ern ment

does not ex pect to use these as sets to

meet its ob li ga tions. The most rel e -

vant in for ma tion about her i tage assets is non-financial. In stead, in for -

ma tion on their ex is tence pro vides the

best mea sure of the Gov ern ment’s

cus to dial re spon si bil ity. Ex am ples of

her i tage as sets in clude: the Dec la ra -

tion of In de pend ence, the Con sti tu -

tion, and the Bill of Rights pre served

by the Na tional Ar chives. Also included are na tional mon u ments such

as the Viet nam Vet erans Me mo rial,

Jef fer son Me mo rial and the Wash ing -

ton Mon u ment as well as art and cultural trea sures at the Smith so nian Insti tu tion and the Li brary of Con gress.

Many other sites such as the bat tle -

fields, his toric struc tures and na tional 

his toric land marks also are placed under this cat e gory.

Liabilities and Net Position

Li a bil i ties are ob li ga tions of

the Fed eral Gov ern ment re sult -

ing from prior ac tions that will

re quire re sources. The most sig -

nif i cant li a bil i ties re ported on

the Bal ance Sheet are Fed eral

debt se cu ri ties held by the pub lic

and ac crued pen sion li a bil i ties

for cur rent and re tired Fed eral

ci vil ian and military per son nel.

How ever, the Gov ern ment’s re -

spon si bil i ties are much broader

than these Bal ance Sheet li a bil i -

ties. 

The Gov ern ment’s re spon si -

bil i ties and pol icy com mit ments

in clude the so cial in sur ance pro -

grams dis closed in Stew ard ship

In for ma tion and cer tain fu ture

loss con tin gen cies.

The mag ni tude and com plex -

ity of so cial in sur ance pro grams

cou pled with the ex treme sen si -

tiv ity of pro jec tions re lat ing to

the many as sump tions of the

pro gram pro duce a large range

of pos si ble re sults. The Stew ard -

ship Re spon si bil ities sec tion

ex plains fac tors that im pact the

var i ous pro grams. Using this in -

for ma tion, the read ers can ap ply

their own judg ment to the

sustainability of the in di vid ual

pro grams. The Fed eral Ac count -

ing Stan dards Ad vi sory Board

con tin ues to con sider the ap pro -

pri ate ac count ing treat ment for

them.

The Bal ance Sheet in cludes

so cial in sur ance ben e fits due

and pay able as of the re port ing

date. 

Each of the so cial in sur ance

pro grams has an as so ci ated trust

fund to ac count for its ac tiv ity.

An ex pla na tion of the large trust

funds for so cial in sur ance and

many of the other large trust

funds is in cluded in Note

17–Ded i cated Col lec tions. That

note also con tains in for ma tion

about trust fund re ceipts, disbursements

and as sets.

A broad per spec tive on the Fed eral

Gov ern ment’s re spon si bil i ties is pro -

vided by the Cur rent Ser vices As sess -

ment, which also can be found un der

Stew ard ship In for ma tion. Pres ented in

ac cor dance with the Pres i dent’s bud get, 

this in for ma tion es ti mates Fed eral ex -

pen di turesfor fis cal years 1999 through

2004 if there are no changes to cur rent

law. 

The Gov ern ment also has un re solved

con tin gen cies where ex ist ing con di -

tions, sit u a tions or cir cum stances cre ate

un cer tainty about fu ture losses. Con tin -

gent li a bil i tiesthat do not meet the cri te -

ria for rec og ni tion on the Bal ance

Sheet, but for which there is at least a

rea son able pos si bil ity that a loss has

been incurred, are dis closed in Note

15–Com mit ments and Con tin gencies.

“Net po si tion” is pre sented asthe sum

of Bal ance Sheet as sets less Bal ance

Sheet li a bil i ties.
44 Fi nan cial State ments

United States Government 

Statement of Operations and Changes in Net Position 

for the Year Ended September 30, 1998

(In billions of dollars) 

Revenue:

Individual income tax and tax withholdings ............................. . 1,374.2

Corporation income taxes ......................................... . 186.3

Unemployment taxes............................................. . 26.4

Excise taxes ................................................... . 57.6

Estate and gift taxes............................................. . 24.0

Customs duties ................................................ . 17.7

Other taxes and receipts .......................................... . 26.6

Miscellaneous earned revenues..................................... . 7.4

Total revenue ................................................ . 1,720.2

Net Cost of Government Operations:

National defense ............................................... . 321.6

Human resources .............................................. . 1,080.4

Physical resources .............................................. . 100.2

Net interest ................................................... . 243.1

Other functions................................................. . 108.7

Total net cost of Government operations ............................. . 1,854.0

Excess of Net Cost Over Revenue .................................... .

(133.8)

Unreconciled transactions affecting the change

in net position (Note 16) ........................................ .

23.9

Decrease in net position ........................................... .

(109.9)

Net position, beginning of period ..................................... .

(5,003.0)

Prior Period Adjustments (Note 14):

Changes in accounting principles .................................. .

(681.7)

Other adjustments ............................................. . (339.8)

Net position, end of period.......................................... . (6,134.4)

The ac com pa ny ing notes are an in te gral part of these fi nan cial state ments.
Fi nan cial State ments 45

United States Government 

Statement of Net Cost

for the Year Ended September 30, 1998

(In bil lions of dol lars)

Gross

Cost

Earned 

Rev e nue Net Cost

National defense ................................. . 343.6 22.0 321.6

Hu man Re sources:

Education, training, employment

and social services ............................ . 54.7 3.3 51.4

Health ....................................... . 125.3 1.1 124.2

Medicare ..................................... . 213.7 20.6 193.1

Income security ................................ . 181.8 7.7 174.1

Social Security ................................. . 378.7 - 378.7

Veterans benefits and services (Note 10).............. . 160.2 1.3 158.9

Total human resources ......................... . 1,114.4 34.0 1,080.4

Physical Resources:

Energy ....................................... . 13.3 11.9 1.4

Natural resources and environment .................. . 27.0 4.2 22.8

Commerce and housing credit ...................... . 96.5 70.7 25.8

Transportation ................................. . 41.6 3.7 37.9

Community and regional development ................ . 14.7 2.4 12.3

Total physical resources......................... . 193.1 92.9 100.2

Net interest .................................... . 243.1 - 243.1

Other Functions:

International affairs ............................. . 24.8 6.0 18.8

General science, space and technology ............... . 19.9 0.1 19.8

Agriculture .................................... . 19.1 2.3 16.8

Administration of justice .......................... . 28.3 1.4 26.9

General government ............................. . 29.2 2.8 26.4

Total other functions ........................... . 121.3 12.6 108.7

Total ..................................... . 2,015.5 161.5 1,854.0

The ac com pa ny ing notes are an in te gral part of these fi nan cial state ments.
46 Fi nan cial State ments

Blank Page
Fi nan cial State ments 47

United States Government

Balance Sheet

as of September 30, 1998

(In billions of dollars)

Assets:

Cash and other monetary assets (Note 2) ...................... .

 96.8

Accounts receivable ...................................... .

 36.1

Loans receivable (Note 3).................................. .

 166.8

Taxes receivable (Note 4).................................. .

 27.1

Inventories and related property (Note 5)....................... .

 166.8

Property, plant and equipment (Note 6) ........................ .

 299.3

Other assets (Note 7) .................................... . 59.9

Total assets .......................................... . 852.8

Liabilities and Net Position:

Accounts payable (Note 8) ................................. .

 90.0

Federal debt securities held by the public (Note 9)................ .

 3,717.7

Federal employee and veteran benefits payable (Note 10) .......... .

 2,685.1

Environmental liabilities (Note 11) ........................... .

 224.5

Benefits due and payable (Note 12) .......................... .

 77.6

Loan guarantee liabilities (Note 3) ........................... .

 37.7

Other liabilities (Note 13) .................................. . 154.6

Total liabilities ........................................ .

 6,987.2

Commitments and Contingencies (Note 15) 

Net Position ........................................... .

 (6,134.4)

Total liabilities and net position ............................ .

 852.8

The ac com pa ny ing notes are an in te gral part of these fi nan cial state ments.
48 Fi nan cial State ments

Blank Page
Stew ard ship Information 49

United States Gov ern ment

Stew ard ship In for ma tion 

for the Year Ended Sep tem ber 30, 1998

(Un au dited)

The Fed eral Gov ern ment holds

“Stew ard ship as sets” for the ben e fit of

the Na tion. Be cause the Gov ern ment

has been en trusted with, and made account able for, these re sources and respon si bil i ties, they are rec og nized in

the Fi nan cial Re port of the United

States Gov ern ment.

When ac quired, “Stew ard ship assets” are treated as ex penses in the finan cial state ments. This sec tion provides more de tailed stew ard ship

in for ma tion on these re sources to highlight their long-term ben e fit and to

dem on strate ac count abil ity. This in for -

ma tion fa cil i tates the un der stand ing of

the op er a tions and fi nan cial con di tion

of the Gov ern ment. 

Stewardship

Assets

The De part ment of De fense (DOD) owns and uses

“Na tional de fense as sets” to ac com plish mil i tary mis -

sions, such as war, op er a tions short of war, train ing,

peace keep ing and sup port ing ci vil ian au thor i ties dur -

ing civil emer gen cies. 

These as sets di vide into two cat e go ries: weap ons

sys tems and sup port prin ci pal end items. Weapon

sys tems re fer to mil i tary equip ment that launch, release, carry, or fire ord nance; and/or equip ment that

car ries weapon sys tems re lated prop erty, equip ment,

ma te rial or per son nel. Sup port prin ci pal end items

con sist of items ac quired to sup port weapon sys tems

that ul ti mately may be in cor po rated into weapon systems. Ex am ples of these items in clude air craft engines, tank en gines, air craft ra dar, ship so nar,

uninstalled mis sile mo tors, mis sile con trol pan els,

gun mounts, gun tur rets and guid ance sys tems.

National Defense Assets

“The Department of

Defense (DOD) owns and

uses ‘National defense

assets’ to accomplish

military missions, such as

war, operations short of

war, training,

peacekeeping and

supporting civilian

authorities during civil

emergencies.”
50 Stew ard ship In for ma tion

National Defense Assets as of September 30

(In number of systems or items)

Bal ance as of

October 1, 1997

Ad di tions/

(De le tions)

Balance as of

September 30, 1998

Aircraft: 

Combat ................. . 9,047 (434) 8,613

Airlift ................... . 2,380 (62) 2,318

Other aircraft ............. . 8,916 (857) 8,059

Ships:

Submarines .............. . 137 (14) 123

Aircraft carriers............ . 16 2 18

Surface combatants ........ . 229 2 231

Amphibious warfare ships .... . 78 5 83

Mine warfare ships ......... . 34 4 38

Support ships............. . 238 (10) 228

Other ships .............. . 1,209 (62) 1,147

Small boats .............. . 3,237 (684) 2,553

Missiles:

Ballistic missiles .......... . 3,905 (652) 3,253

Other missiles ............ . * * 725,346

Combat Vehicles:

Tanks .................. . 10,889 (827) 10,062

Other combat vehicles ...... . 43,844 (6,360) 37,484

Space Systems:

Satellites ................ . 69 9 78

Other Weapon Systems:

Torpedoes ............... . 7,436 1,050 8,486

Other weapons ............ . 13,490 (1,696) 11,794

* The be gin ning of the year amount and ad di tions and de le tions were not avail able from all sources.

The DOD’s prop erty sys temsin for -

ma tion, listed in the Na tional De fense

As sets ta ble, does not cap ture and/or

re tain ad di tion and de le tion data;

there fore, DOD could not re port sep a -

rately such amounts. The re port re -

flects the net amount be tween the

open ing and clos ing bal ances. As

DOD’s prop erty sys tems are mod i -

fied or up graded, ap pro pri ate

mod i fi ca tions will be made to re port

ad di tions and de le tions sep a rately.

The quan ti ties of na tional de fense

as sets pre sented re flect the sum of the

quan ti ties re ported by the Army,

Navy, Air Force and the Ma rine

Corps. Na tional de fense as sets do not

in clude Coast Guard ships and other

as sets. At times of war, Coast Guard

as sets are un der the di rec tion of

DOD, but in times of peace, they are

un der the De part ment of Trans por ta -

tion (Trans por ta tion). Each of the

mil i tary ser vices’ fi nan cial statements pres ents ad di tional in for ma -

tion on na tional de fense as sets.

National Defense Assets, cont.
Stew ard ship Information 51

Investments in National Defense Assets for the Period Ended September 30

(In millions of dollars) 

 

Aircraft:

Combat ..................................................... . $5,269

Airlift ....................................................... . 3,727

Other aircraft ................................................. . 1,512

Aircraft support principal end items ................................. . 3,340

Ships:

Submarines .................................................. . 1,090

Aircraft carriers................................................ . 1,301

Surface combatants ............................................ . 2,879

Amphibious warfare ships ........................................ . 753

Mine warfare ships ............................................. . 89

Other support ships ............................................ . 575

Ship support principal end items ................................... . 851

Missiles:

Ballistic missiles .............................................. . 587

Other missiles ................................................ . 1,271

Missile support principal end items ................................. . 1,339

Combat Vehicles:

1

Tanks ...................................................... . 38

Other combat vehicles .......................................... . 489

Combat vehicle support principal end items ........................... . 842

Space Systems:

Satellites .................................................... . 517

Satellite support principal end items ................................ . 667

Other Weapon Systems:

Torpedoes ................................................... . 125

Other weapons ................................................ . 132

Other weapons support principal end items ........................... . 135

Mission support assets

2

.......................................... . 4,968

Weapons systems support real property ............................... . 28

Total investments in national defense assets

for fiscal year ended September 30. ............................. . $32,524

1

 Air Force in vest ments in com bat ve hi cles are not in cluded in amounts re ported.

2

 The amount re ported does not in clude Air Force in vest ments.

“Mis sion sup port as sets” in clude

var i ous types of mil i tary equip ment,

such as ord nance sup port equip ment,

ve hic u lar equip ment, elec tron ics

equip ment and com mu ni ca tions

equip ment. Weapon sys tems sup port

real prop erty in cludes am mu ni tion

bunk ers and mis sile si los in ac tive

use.

Re cently, the re quire ments were

mod i fied for re port ing ac qui si tion

costs of na tional de fense as sets to require the full cost in ac cor dance with

the State ment of Fed eral Fi nancial

Ac count ing Stan dards (SFFAS)

Num ber 4. DOD cur rently does not

have cost ac count ing sys tems that

cap ture the full cost re quired by

SFFAS Num ber 4 and will not for

many years. There fore, the amounts

re ported in this re port rep re sent the

DOD’s an nual dis burse ments for

each cat e gory of Na tional De fense

As sets.

The in vest ment amounts in National De fense As sets pre sented in

this re port re flect the sum of in vest -

National

Defense

Assets, cont.
52 Stew ard ship In for ma tion

"Stew ard ship land" re fers to fed er -

ally owned land that is not used, or

held for use, in "Gen eral Gov ern -

ment" op er a tions. This cat e gory excludes lands ad min is tered by the Bureau of In dian Af fairs and held in

trust. Also, ex cluded from stew ard -

ship land are mil i tary bases, land used

by the Ten nes see Val ley Au thority

and other lands used as part of "General Gov ern ment" op er a tions. 

Most stew ard ship land is "pub lic

do main." Be tween 1781 and 1867,

the Gov ern ment ac quired land equal

to 79.4 per cent of the cur rent acre age 

of the United States, spend ing a to tal

of $85.1 mil lion.

Stewardship Land

United States Government

Stewardship Land

as of September 30

(In millions of acres)

To tals

Pre dom i nate Land Use

U.S.

For est

Ser vice

Na tional

Park

Ser vice

U.S. Fish

and Wild life

Ser vice

Bu reau

of Land

Man age ment

To tal by

Type of

Use

Per cent of

To tal

Bureau of Land 

Management land ..... .

- - - 263.6 263.6 42.4

National wildlife refuge ... . - - 87.5 - 87.5 14.1

National parks ......... . - 50.2 - - 50.2 8.1

National forest ......... . 153.3 - - - 153.3 24.7

National grassland ...... . 3.8 - - - 3.8 0.6

Wilderness and 

other areas .......... .

 34.8 27.2 0.9 - 62.9 10.1

Total acres......... . 191.9 77.4 88.4 263.6 621.3 100.0
Stew ard ship Information 53

The Bu reau of Land Man age ment

(BLM) man ages a va ri ety of land

types. BLM sub di vides its man age -

ment re spon si bil ity into five pri mary

cat e go ries: range land, forestland, ripar ian and wetlands, aquatic ar eas,

and other hab i tat and waste lands.

Range land con sists of land where

the na tive veg e ta tion is pre dom i -

nately grasses, grass-like plants,

forbs, or shrubs suit able for graz ing

or brows ing. This in cludes lands that

are revegetated nat u rally or ar ti fi -

cially to pro vide for age cover and are

man aged like na tive veg e ta tion.

Range land in cludes nat u ral grasslands, sa van nas, shrublands, most

deserts, tun dra, al pine com mu ni ties,

coastal marshes and wet mead ows.

Range land to tals 165 mil lion acres,

in clud ing 5 mil lion acres in the

Alaska Rein deer Range.

Forestland en com passes ap prox i -

mately 11 mil lion acres. Alaska

forestland num bers about 7 mil lion

acres, while West ern States boast another 4 mil lion. For ested lands are of

great va ri ety. They in clude:

• The black and white spruce in

Alaska.

• The as pen, lodgepole pine, ponder osa pine, in te rior Douglas fir,

and as so ci ated spe cies of the

Inter-Mountain West.

• The pinyon-juniper wood lands

of the Great Ba sin and South west.

• The Douglas fir, hem lock and

ce dar for ests of west ern Or e gon

and north ern Cal i for nia.

Wet lands are in un dated or sat u -

rated by sur face or ground wa ter at a

fre quency and du ra tion suf fi cient to

sup port veg e ta tion adapted for life in

sat u rated soil. Wet lands in clude bogs,

marshes, shal lows, muskegs, wet

mead ows, es tu ar ies and ri par ian areas. Wet lands to tal 16 mil lion acres.

Ri par ian lands ad ja cent to creeks,

streams, lakes and rivers to tal 18,300

miles in length and 7 mil lion acres in

area. These ar eas con tain wa ter and

veg e ta tion in the oth er wise arid western United States. They are im por tant

to fish and wild life spe cies, as well as

live stock. Since they fil ter wa ter

flow ing through them, ri par -

ian-wetland ar eas can af fect the

health of the en tire wa ter-shed.

Aquatic ar eas have flow ing or

stand ing wa ter. They in clude about 4

mil lion acres of lakes, res er voirs and

streams. These wa ters con tain a wide

va ri ety of aquatic spe cies rang ing

from rare res i dent spe cies, such as the

desert pupfish, to en dan gered and

threat ened ana dro mous spe cies, such

as steelhead and chi nook salmon.

BLM des ig nates waste land ar eas as

those that gen er ally do not pro vide

for age in suf fi cient amounts to sustain wild life or graz ing an i mals. This

land cat e gory in cludes moun tain

tops, gla ciers, bar ren moun tains, sand

dunes, playas, hot-dry deserts and

other sim i lar ar eas to tal ing 20 mil lion 

acres.

Bureau of Land Management U.S. Fish and

Wildlife Service

The U.S. Fish and Wild life Ser vice

man ages 88.4 mil lion acres of fed er -

ally owned lands held pri mar ily for

wild life con ser va tion. It has five

goals:

• Pre serve, re store and en hance,

in their nat u ral eco sys tems, all

spe cies of an i mals and plants endan gered or threat ened.

• Per pet u ate the mi gra tory bird

re source.

• Pre serve a nat u ral di ver sity and

abun dance of flora and fauna.

• Pro vide an un der stand ing and

ap pre ci a tion of fish and wild life

ecol ogy.

• Pro vide ref uge vis i tors a safe,

whole some and en joy able rec re -

ational ex pe ri ence ori ented toward wild life.

The Fish and Wild life Ser vice subdi vides its man age ment re spon si bil -

ity into the fol low ing cat e go ries: 

• "Na tional wild life ref uges"

(516 sites on 87.5 mil lion acres).

• "Ref uge co or di na tion ar eas"

(50 sites on 197,000 acres).

• "Wa ter fowl pro duc tion ar eas"

(199 sites on 704,000 acres).

• "Fish eries re search cen ters" 

(83 sites on 14,000 acres).

• "Wild and sce nic rivers" 

(six rivers to tal ing 1,416 miles in

length).

The For est Ser vice man ages

191.9 mil lion acres of fed er ally

owned lands for the sus tained use of

out door rec re ation, range, tim ber,

wa ter shed, wild life and fish.

For est land con tains 155 named

Na tional For ests to tal ing 153.3 million acres. Within the Na tional Forests, live stock graz ing for cat tle,

horses, sheep and goats was per mit -

ted on over 92.4 mil lion acres of

range land. The For est Ser vice harvested 3.3 bil lion board feet of

tim ber, sold 3.0 bil lion board feet,

and re for ested 287,905 acres, primar ily with ge net i cally im proved

seed lings in fis cal 1998.

Wil der ness land con tains 34.7

mil lion acres in 38 States and is

served by 33,000 miles of trails.

The For est Ser vice also man ages

20 named grass lands on 3.8 mil lion

acres and about 4,348 miles of the

wild and sce nic river sys tem.

U.S. Forest

Service
54 Stew ard ship In for ma tion

National

Park Service

The Na tional Park Ser vice manages 77.4 mil lion acres of fed er ally

owned lands. These lands are set

aside to con serve the scen ery, nature, his toric ob jects and wild life so

they can be en joyed by cur rent and

fu ture gen er a tions of Amer i cans

Other types of park ar eas in clude:

na tional rivers, park ways, na tional

lakeshores, his toric parks, sce nic

trails, wild and sce nic rivers, mil i -

tary parks, re serves, bat tle fields and

other parks.

Summary of Acreage

(In millions of acres)

Type of Park Area Acre age

National parks ........................ . 50.2

National preserves..................... . 21.4

National recreation areas ................ . 3.4

National monuments ................... . 1.9

National seashores .................... . 0.5

Total acres......................... . 77.4

Federal Stewardship Land

Source: National Atlas of the United States of America,

U.S. Geological Survey

The Fed eral Gov ern ment holds vast

num bers of her i tage as sets. These assets en com pass many of the Na tion’s

most pre cious his toric, nat u ral and

cul tural re sources. Her i tage as sets are

unique prop erty, plant and equip ment

with: 

• His toric or nat u ral sig nif i cance.

• Cul tural, ed u ca tional or ar tis tic

im por tance.

• Sig nif i cant ar chi tec tural char ac -

ter is tics. 

The Gov ern ment has been en trusted 

with, and is ac count able for, these assets which are held for the long-term

ben e fit of the Na tion. Ex am ples of

her i tage as sets are the Wash ing ton

Mon u ment, Dec la ra tion of In de pend -

ence, Yo sem ite Na tional Park and museum ob jects on dis play at the Smithso nian In sti tu tion. 

The fol low ing dis cus sion of the

Fed eral Gov ern ment’s her i tage as sets

is not all-inclusive. Rather, it is intended to high light sig nif i cant her i -

tage as sets re ported by Fed eral agencies. 

The Gov ern ment’s her i tage as sets

can be clas si fied into three broad cat e -

go ries: col lec tion type, nat u ral and

cul tural. Col lec tion-type her i tage assets in clude ob jects gath ered and

main tained for ex hi bi tion such as museum col lec tions and li brary col lec -

Heritage

Assets

tions. Nat u ral her i tage as sets in clude

prop er ties such as na tional wil der ness 

ar eas, wild and sce nic rivers, nat u ral

landmarks, for ests and grass lands.

The Stew ard ship Land sec tion lists

the to tal acres of land area for some

nat u ral her i tage as sets such as national for ests. Cul tural her i tage as sets

in clude his toric places and struc tures,

me mo ri als and mon u ments, na tional

cem e ter ies, and ar che o log i cal sites.
Stew ard ship Information 55

Prom i nent among Fed eral

mu seum col lec tions are those of

the Smith so nian In sti tu tion,

num ber ing ap prox i mately 140

mil lion in di vid ual ob jects. The

Smith so nian ac quires, pro tects

and pre serves these ob jects for

pub lic ex hi bi tion, ed u ca tion and

re search.

The Li brary of Con gress

holds the world's larg est li brary

col lec tion. More than 115 million items com prise that col lec -

tion which is held for use by the

Con gress and the pub lic. The

Li brary con tains two cop ies of

ev ery book, pam phlet, map,

print, pho to graph and piece of

mu sic reg is tered for copy right

in the United States.

Ad di tionally, the Na tional

Ar chives holds over 2 mil lion

cu bic feet of re cords. These records en sure ready ac cess to essen tial ev i dence doc u ment ing

the rights of cit i zens, the ac tions 

of Fed eral of fi cials and the effects of those ac tions on the national ex pe ri ence. These records in clude: tex tual and

leg is la tive re cords; car to graphic 

and ar chi tec tural re cords; motion pic ture, sound, and video

re cords, and still pic tures and

graph ics. The Ar chives maintains such his tor i cally im por tant 

doc u ments as the U. S. Con sti -

tu tion and the Lou i si ana Purchase Treaty.

A “Wil der ness area” is an area

des ig nated by Con gress that is

pro tected and man aged so as to

pre serve its nat u ral con di tions.

The De part ment of the In te rior

man ages 255 wilderness ar eas

com pris ing 66.5 per cent of the

Na tion’s 103.7 mil lion acres of

wil der ness. One of those is the

Cebolla Wil der ness in New

Mex ico. 

The “Na tional wild and sce nic

rivers sys tem” in cludes

free-flowing rivers that are val -

ued for their fish and wild life or

their sce nic, rec re ational, geo -

logic his toric, cul tural, or other

value. The De part ment of the In -

te rior man ages 54 per cent of the

10,831 river miles in the “Na -

tional and wild sce nic rivers sys -

tem, in clud ing the Bluestone

Na tional Sce nic River in West

Vir ginia.

National nat u ral land marks

have na tional sig nif i cance be -

cause they ex em plify a nat u ral

re gion’s char ac ter is tic fea tures.

The Na tional Park Ser vice has

iden ti fied 578 national nat u ral

land marks, such as the Gar den

of the Gods in Col o rado. 

The U.S. For est Ser vice man -

ages 155 na tional for ests and 20

na tional grass lands on over 192

mil lion acres of pub lic land.

These ar eas en com pass sig nif i -

cant her i tage re sources. Ex am -

plesin cluded in this cat e gory are

the White Moun tain Na tional

For est in New Hamp shire and

the Thun der Ba sin Na tional

Grass land in Wy o ming. 

The Na tional Reg is ter of His toric

Places lists his toric places and struc -

tures. This is Amer ica's of fi cial list -

ing of im por tant his tor i cal sites.

Prop erties listed in clude dis tricts,

sites, build ings, struc tures and ob -

jectssig nif i cant to Amer i can his tory, 

ar chi tec ture, ar chae -

ol ogy, en gi neer ing

and cul ture. For est

Ser vice lands con tain

887 such prop er ties.

The Na tional Reg is -

ter es ti mates that an -

other 109,000 prop -

er ties are el i gi ble for

this des ig na tion.

The Na tion's mon -

u ments and me mo ri -

als in clude the Wash -

ing ton Mon u ment, Viet nam

Vet eran's Me mo rial and Jef fer son

Me mo rial in Wash ing ton, DC. The

Na tional Park Ser vice man agesthese

sites. Also, the Amer i can Bat tle

Mon u ments Com mis sion man ages

27 me mo ri als, mon u ments and

mark ers around the world, such as

the Belleau Wood Ma rine Mon u -

ment in France. 

Ar che o log i cal sites con tain the re -

mains of past hu -

man ac tiv ity. The

De part ment of the

In te rior man ages

over 290,000 ar -

che o log i cal sites.

The an cient earthen

mounds at the

Hopewell Cul ture

Na tional His toric

Site in Ohio is a no -

ta ble ex am ple.

Na tional cem e -

ter ies in clude the Arlington Na tional

Cem e tery in Vir ginia and the Fort

Lo gan Na tional Cem e tery in Col o -

rado. The VA man ages those and 58

other cem e ter ies.

Collection-type Natural Heritage Assets

Heritage

Assets

Cultural Heritage Assets
56 Stew ard ship In for ma tion

Con gress passed the So cial Se cu -

rity Act in 1935. The Act, as sub se -

quently amended, in cludes pro grams

pro vid ing re tire ment and dis abil ity

ben e fits.

Con gress es tab lished two trust

funds for So cial Se cu rity: The Federal Old-Age and Sur vi vors In sur -

ance (OASI) and the Fed eral Dis abil -

ity in sur ance (DI) Trust Funds

(OASDI). OASI pays re tire ment and

sur vi vors ben e fits and DI pays ben e -

fits to dis abled work ers.

Rev e nue to OASDI con sists of taxes

on earn ings paid by em ploy ees, their

em ploy ers and the self-employed.

OASDI also re ceives rev e nue from

the in come taxes on So cial Se cu rity

and from in ter est on its in vest ments

in Trea sury se cu ri ties. So cial Se cu -

rity rev e nues not needed to pay current ben e fits or ad min is tra tive expenses are in vested in spe cial-issue

Gov ern ment se cu ri ties. Those se cu ri -

ties are guar an teed as to both prin ci -

pal and in ter est and backed by the full

faith and credit of the Gov ern ment.

The Board of Trustees of the OASI

and DI trust funds pro vides the Pres i -

dent and Con gress with short-range

(10 years) and long-range (75 years)

ac tu ar ial es ti mates of each trust fund

in its an nual re port. Be cause of the inher ent un cer tainty in es ti mates for as

long as 75 years into the fu ture, the

Board of Trustees uses three al ter na -

tive sets of eco nomic and de mo -

graphic as sump tions to show the

range of pos si bil i ties. As sump tions

are made about many eco nomic, demo graphic and pro gram matic factors, in clud ing gross do mes tic product, earn ings, the Con sumer Price

In dex, un em ploy ment, birth rate, immi gra tion, mor tal ity, and dis abil ity

in ci dents and ter mi na tion. The assump tions used in the ta ble be low,

gen er ally re ferred to as the "in ter me -

di ate as sump tions," re flects the best

es ti mate of ex pected fu ture ex pe ri -

ence. 

The pres ent val ues of ac tu ar ial es ti -

mates were com puted as of the be gin -

ning of the val u a tion pe riod, Sep tem -

ber 30, 1998. The ex pen di tures

con sist of the sum of the pres ent

value of all es ti mated pay ments during the val u a tion pe riod. The con tri -

bu tions con sist of the sum of the present value of all es ti mated non-interest

in come dur ing the pe riod. The es ti -

mates were pre pared on the ba sis of

the fi nanc ing method re garded as

be ing the most ap pro pri ate by both

Con gress and the Board of Trustees.

These es ti mates as sume fu ture workers will be cov ered by the pro gram as

they en ter the la bor force.

Un der cur rent leg is la tion and us ing 

in ter me di ate as sump tions, the DI and

OASI trust funds are pro jected to be

ex hausted in 2019 and 2034, re spec -

tively. Com bined OASDI ex pen di -

tures will ex ceed cur rent tax in come

be gin ning in 2013, and will ex ceed

to tal cur rent in come (in clud ing current in ter est in come) for cal en dar

years 2021 and later. Thus, cur rent

tax in come plus a por tion of an nual

in ter est in come will be needed to

meet ex pen di tures for year 2013

through 2020. There af ter, in ad di tion

to cur rent tax in come and cur rent inter est in come, a por tion of the prin ci -

pal (com bined OASDI as sets) will be

needed each year un til trust fund assets are to tally ex hausted in 2032. At

that point, cur rent tax in come will be

suf fi cient to pay ap prox i mately 75

per cent of the ben e fits due.

Social Security

Social Security Present Value Estimates for the Period

of 75 Years into the Future, Beginning September 30, 1998

(In billions of dollars) OASI DI OASDI

Present value of actuarial contributions

to December 31, 2073 ......................... .

16,383.3 2,689.0 19,072.3

Present value of actuarial expenditures

to December 31, 2073 ......................... .

19,567.3 3,307.2 22,874.5

Present value of future resources needed ............. . 3,184.0 618.2 3,802.2

Assets of Social Security as of September 30 (Note 17) . .

664.5 78.2 742.7

Stewardship Social Security Estimated Trust Fund Balances

Responsibilities
Stew ard ship Information 57

Fed eral Hos pi tal In sur ance Trust

Fund rev e nue con sists of taxes on

earn ings paid by em ploy ees, their employ ers and the self-employed. The

fund also re ceives rev e nue from the

tax a tion of So cial Se cu rity ben e fits

and from in ter est on its in vest ments in

Trea sury se cu ri ties. Rev e nues not

needed to pay cur rent ben e fits of the

Fed eral Hos pi tal In sur ance Pro gram

(Medicare Part A) or ad min is tra tive

ex penses are in vested in spe cial is sue

Trea sury se cu ri ties. These se cu ri ties

bear a mar ket rate of in ter est, and are

guar an teed both as to prin ci pal and inter est. In ad di tion, the se cu ri ties are

backed by the full faith and credit of

the U.S. Gov ern ment.

As com puted 75 years into the future (to cal en dar year 2073), Medicare

Part A has an ac tu ar ial def i cit of

$4,042.7 bil lion. This es ti mate includes the book value of as sets as of

Sep tem ber 30, 1998, and the pres ent

value of var i ous pro gram in come

items ex pected to be re ceived through

the year 2073. Sub tracted from those

amounts are: the pres ent value of outlays through the year 2073, claims incurred through Sep tem ber 30, 1998,

that were un paid as of that date, and

ad min is tra tive ex penses re lated to

those claims. Un der cur rent leg is la tion 

and us ing in ter me di ate as sump tions

from the 1998 Trustees Re port, which

in cor po rated changes from the Balanced Bud get Act, the fund is projected to be ex hausted in 2008.

The ben e fits and ad min is tra tive expenses of the Fed eral Sup ple men tary

Med i cal In sur ance pro gram (Medicare

Part B)are fi nanced by pre mi ums paid

by Medicare ben e fi cia ries as well as

Gov ern ment con tri bu tions. The

monthly pre mium in cal en dar year

1998 cov ered 25 per cent of the

Medicare Part B pro gram's es ti mated

1998 cost.

Medicare Part B has a sur plus of

$29.1 bil lion, rep re sent ing the amount

of the es ti mated book value of the Federal Sup ple men tal Med i cal In sur ance

Trust Fund as sets as of Sep tem ber 30,

1998, less un paid ben e fits and re lated

ad min is tra tive ex penses.

Medicare

Medicare Part A (Hospital Insurance)

Present Value Estimates

for the Period of 75 Years into the Future,

Beginning September 30, 1998

(In billions of dollars)

Present value of actuarial contributions

to the year 2073 ...................... .

6,325.3

Present value of actuarial expenditures

to the year 2073 ...................... .

10,368.0

Present value of future resources needed...... . 4,042.7

Assets in Federal Hospital Insurance Trust Fund

as of September 30 (Note 17)........... .

120.5

Note: the es ti mates for this pro gram are sig nif i cantly dif fer ent than those of prior

years due to a change in the val u a tion pe riod from 25 to 75 years.

Medicare Part B (Supplementary Medical Insurance)

Balances as of September 30, 1998

(In billions of dollars)

Total Federal Supplemental Medical Insurance

Trust Fund assets (Note 17) .............. .

40.1

Total unpaid benefits ..................... . 11.0

Excess of trust fund assets

 over unpaid benefits .................. .

29.1

Estimated Balances of Federal Hospital Insurance

Trust Fund (Medicare Part A)

Under Intermediate Assumptions
58 Stew ard ship In for ma tion

Rail road re tire ment pays full-age

an nu ities when el i gi ble per sons

reach age 65 (if they have 10 years of

ser vice) or age 62 (if they have 30

years of ser vice). It pays re duced age

an nu ities to el i gi ble ben e fi cia ries

who are age 62 (with 10 to 29 years

of ser vice), or age 60 (with 30 years

of ser vice). The rail road re tire ment

pro gram pays dis abil ity an nu ities on

the ba sis of to tal or oc cu pa tional disabil ity. It also pays an nu ities to divorced spouses, re mar ried

widow(er)s, sur viv ing di vorced

spouses, chil dren and par ents of deceased rail road work ers. Qual ified

rail road re tire ment ben e fi cia ries are

cov ered by Medicare in the same way

as So cial Se cu rity ben e fi cia ries.

The Rail road Re tire ment Board

(RRB) and the So cial Se cu rity Admin is tra tion (SSA) share ju ris dic tion

over the pay ment of re tire ment and

sur vi vors ben e fits. RRB has ju ris dic -

tion over the pay ment of re tire ment

ben e fits if the em ployee had at least

10 years of rail road ser vice. For sur vi -

vor ben e fits, there is an ad di tional require ment that the em ployee's last

reg u lar em ploy ment be fore re tire -

ment or death was in the rail road indus try. If a rail road em ployee or his or

her sur vi vors do not qual ify for railroad re tire ment ben e fits, the RRB

trans fers the em ployee's rail road retire ment cred its to SSA, where they

are treated as So cial Se cu rity cred its.

Pay roll taxes paid by rail road employ ers and their em ploy ees pro vide

the pri mary source of in come for the

rail road re tire ment-survivor ben e fit

pro gram. By law, rail road re tire ment

taxes are co or di nated with So cial Secu rity taxes. Em ployees and em ploy -

ers pay tier I taxes at the same rate as

So cial Se cu rity taxes. Tier II taxes finance rail road re tire ment ben e fit

pay ments that are higher than So cial

Se cu rity lev els. 

Other sources of pro gram in come

in clude the fi nan cial in ter changes

with the So cial Se cu rity trust funds,

in ter est on in vest ments, rev e nue re -

sult ing from Fed eral in come taxes

and rail road re tire ment ben e fits, and

ap pro pri a tions from gen eral Trea -

sury rev e nues (pro vided af ter 1974

as part of a phaseout of cer tain vested

dual ben e fits).

The net book value of as sets in the

Rail road Re tire ment Ac count at Sep -

tem ber 30, 1998, was $14.6 bil lion.

The hold ings within this ac count in -

clude notes and bonds that, if sold at

mar ket value, would equal $15.3 bil -

lion due to their higher yields. 

Railroad Retirement Account Present Value Estimates for the Period

of 75 Years into the Future, Beginning September 30, 1998*

(In billions of dollars)

Present value of actuarial contributions to December 31, 2073 ................... .

61.9

Present value of actuarial expenditures to December 31, 2073 ................... . 73.1

Present value of future resources needed ................................... . 11.2

Assets in the Railroad Retirement Account as of September 30, 1998 ............ .

14.6

*These fig ures take into ac count fu ture en trants as well as for mer and pres ent em ploy ees.

Railroad

Retirement

Railroad Retirement Account Estimated Activity
Stew ard ship Information 59

The Black Lung Dis abil ity Ben e -

fits pro gram pro vides for com pen sa -

tion as well as med i cal and sur vi vor

ben e fits for el i gi ble coal min ers disabled due to em ploy ment-related

pneu mo co ni o sis (black lung dis ease). 

The De part ment of La bor (La bor) oper ates Part C of the Black Lung Disabil ity Ben e fits Pro gram. Un der Part

C, the Black Lung Dis abil ity Trust

Fund pro vides ben e fit pay ments to eli gi ble dis abled min ers when no respon si ble mine op er a tor can be assigned the li a bil ity.

Ex cise taxes from coal mine op er a -

tors, based on the sale of coal, fund

black lung dis abil ity pay ments and related costs.

The pro jected de crease in cash inflows in the year 2014 and there af ter

is the re sult of a sched uled re duc tion

in the tax on the sale of coal. This rate

re duc tion is pro jected to re sult in a

49-percent de crease in the amount of

ex cise taxes col lected be tween the

years 2013 and 2015. The cu mu la tive

ef fect of this change is es ti mated to be

in ex cess of $12.6 bil lion by the year

2040.

The to tal li a bil i ties of the Black

Lung Dis abil ity Trust Fund ex ceed

as sets by $5.9 bil lion. This def i cit

fund bal ance rep re sents the ac cu mu -

lated short fall of ex cise taxes that are

nec es sary to meet ben e fit pay ments

and in ter est ex penses. This short fall

was funded by ad vances to the Black

Lung Dis abil ity Trust Fund that must

be re paid with in ter est.

Black Lung Disability Trust Fund Present Value Estimates

for the Period of 42 Years into the Future,

Beginning September 30, 1998

(In billions of dollars)

Present value of actuarial contributions to September 30, 2040 ............... . 23.9

Present value of actuarial expenditures to September 30, 2040 ............... . 50.4

Present value of future resources needed ............................... . 26.5

Excess of liabilities over assets in the Black Lung Disability Trust Fund

as of September 30, 1998 ....................................... .

(5.9)

Black Lung

Benefits

Black Lung Fund Estimated Activity
60 Stew ard ship In for ma tion

Con gress cre ated the Un em ploy -

ment Trust Fund in 1935 to pro vide income as sis tance to un em ployed workers who have lost their jobs through no

fault of their own. A unique sys tem of

Fed eral and State part ner ships ad min -

is ters the un em ploy ment in sur ance

pro gram. Al though es tab lished in Federal law, State of fi cials ex e cute the

pro gram through con form ing State

laws. The Fed eral Gov ern ment provides broad pol icy guid ance and program di rec tion through the over sight

of the De part ment of La bor. Meanwhile, State un em ploy ment in sur ance

stat utes ad min is tered by State agencies es tab lish pro gram de tails. 

Fed eral and State un em ploy ment

taxes lev ied on sub ject em ploy ers finance the Un em ploy ment Trust Fund.

Those funds are de pos ited in the Unem ploy ment Trust Fund and re ported

as Fed eral tax rev e nue.

The to tal as sets within the Un em -

ploy ment Trust Fund ex ceeded li a bil i -

ties by $72.1 bil lion. This fund balance ap prox i mates the ac cu mu lated

sur plus of tax rev e nues and earn ings

on these rev e nues over ben e fit payment ex penses. It is avail able to finance ben e fit pay ments in the fu ture

when tax rev e nues may be in suf fi -

cient. Trea sury in vests this ac cu mu -

lated sur plus in Fed eral se cu ri ties. The

net value of these se cu ri ties as of Septem ber 30, 1998, was $70.6 bil lion.

Unemployment

Insurance

Unemployment Trust Fund Present Value Estimates

in Nominal Dollars

for the Period of 10 Years into the Future,

Beginning September 30, 1998

(In billions of dollars)

Present value of actuarial contributions

to September 30, 2008................ .

393.7

Present value of actuarial expenditures

to September 30, 2008................ .

347.6

Excess of contributions over expenditures .... . 46.1

Assets in the Unemployment Trust Fund

as of September 30, 1998 (Note 17) .... .

72.1

“A unique system

of Federal and

State partnerships

administers the

unemployment

insurance

program.” 

Unemployment Fund Estimated Activity
Stew ard ship Information 61

The Cur rent Ser vices As sess ment

ta ble shows the Of fice of Man age -

ment and Bud get's es ti mated re ceipts, 

out lays, and sur plus or def i cit in the

bud get if no changes are made to laws

al ready en acted. Re ceipts and man da -

tory out lays, such as So cial Se cu rity

ben e fits and net in ter est, in volve ongo ing ac tiv i ties that gen er ally op er ate

un der per ma nent le gal au thor ity autho rized by leg is la tion. The cur rent

ser vices es ti mates of re ceipts and

man da tory spend ing as sume that receipts and man da tory spend ing continue in the fu ture as spec i fied by current laws. The cur rent ser vices

es ti mates for dis cre tion ary spend ing

as sume dis cre tion ary fund ing for fis cal 

1999 equals ap pro pri a tions en acted by

Con gress. It also as sumes that dis cre -

tion ary fund ing for sub se quent years

holds con stant in real terms. Be cause

laws al ready en acted pro vide the ba sis

for the cur rent ser vices es ti mates, they

do not con sti tute a pro posed bud get,

nor do they pre dict the most likely budget out comes. 

The cur rent ser vices es ti mates may

be used to as sess the sustainability of

Current Services Assessment Receipt and Outlay Estimates

as Presented in the President's Budget

 (In billions of dollars)

Fiscal Year

Base 

Year

1998 1999 2000 2001 2002 2003 2004

Receipts:

Individual income taxes ....... . 828 869 902 918 948 975 1,023

Corporate income taxes ....... . 189 182 187 193 199 208 217

Social insurance

and retirement receipts ..... .

 572 609 636 660 686 712 739

Excise taxes ............... . 58 68 65 67 69 71 73

Other receipts .............. . 75 78 82 87 96 100 105

Total receipts............. .

 1,722 1,806 1,872 1,925 1,998 2,066 2,157

Outlays:

National defense............ . 269 277 278 289 296 305 313

Social Security ............. . 379 393 409 427 447 469 491

Medicare ................. . 193 205 218 232 237 255 269

Income security............. . 233 243 257 268 278 287 299

Health ................... . 132 143 153 162 173 186 198

Veterans benefits and services . . 42 43 45 46 48 50 52

Education, training, employment

and social services......... .

 55 60 65 66 66 69 71

Transportation.............. . 40 43 46 49 50 51 53

Other programmatic functions . . . 114 129 130 136 140 143 149

Net interest ............... . 243 227 215 208 199 192 185

Undistributed offsetting receipts . . (47) (40) (42) (45) (51) (46) (47)

Total outlays ............. . 1,653 1,723 1,774 1,838 1,883 1,961 2,033

Unified surplus .......... . 69 83 98 87 115 105 124 

Current Services Assessment
62 Stew ard ship In for ma tion

pro grams un der cur rent law. That is,

they may be used to pro ject if fu ture

re sources can sus tain pub lic ser vices

and meet ob li ga tions as they come

due. In this way, they can warn of future prob lems in her ent in cur rent law.

They also can pro vide a bench mark

against which tax and spend ing programs can be com pared. Cur rent services es ti mates are use ful in as sess ing 

the mag ni tude of pro posed changes.

Also, they can pro vide an an a lyt i cal

per spec tive of Gov ern ment by showing the short- and me dium-term direc tion of cur rent pro grams. 

The pre ced ing sched ule pres ents 

the ac tual bud get re sults for fis cal

1998 and the cur rent ser vices es ti -

mates for all Fed eral taxes and

spend ing pro grams for the sub se -

quent 6 years. It shows re ceipts by

source and out lays by func tion.

The es ti mates for these years are

iden ti cal to the cur rent ser vices esti mates in the Pres i dent's bud get

for fis cal 2000. The fol low ing es ti -

mates use the same eco nomic, program matic and other tech ni cal assump tions as that doc u ment. 
Notes to the Fi nan cial State ments 63

Note 1. Summary of Significant Accounting Policies

This Fi nan cial Re port in cludes the

fi nan cial sta tus and ac tiv i ties of the

ex ec u tive branch and por tions of the

leg is la tive and ju di cial branches of

the Gov ern ment. This in cludes those

Gov ern ment cor po ra tions that are

part of the Fed eral Gov ern ment. The

Ap pen dix lists Gov ern ment en ti ties

in cluded in these fi nan cial state ments 

and also con tains a par tial list of en ti -

ties ex cluded. For the pur poses of this

doc u ment, “Gov ern ment” re fers to

the U.S. Gov ern ment. The fis cal year

of the Gov ern ment ends Sep tem ber

30. The fi nan cial re port ing pe riod is

the same used for the an nual bud get.

Ma te rial intragovernmental trans ac -

tions were elim i nated in con sol i da -

tion, ex cept as de scribed in Note 16.

A. Reporting Entity

The Fi nan cial Re port was prepared in ac cor dance with Form and

Con tent guid ance spec i fied by the

Of fice of Man age ment and Bud get

(OMB) and the State ments of Federal Fi nan cial Ac count ing Standards (SFFAS). This ba sis of account ing gen er ally rec og nizes

ex penses when in curred. It rec og -

nizes non-exchange rev e nues on a

mod i fied cash ba sis of ac count ing.

Re mit tances of non-exchange reve nues are rec og nized when

re ceived; re lated re ceiv ables are

rec og nized when mea sur able and

le gally col lect ible. This ba sis of

ac count ing also rec og nizes refunds and re lated off sets of

non-exchange rev e nues when

mea sur able and le gally pay able.

Ex change rev e nues are rec og nized

when earned. This ba sis of account ing dif fers from that used for

bud get ary re port ing. This fis cal

year, four ac count ing stan dards became ef fec tive per tain ing to property, plant and equip ment; man a ge -

rial cost ac count ing; rev e nue and

other fi nanc ing sources; and supple men tary stew ard ship re port ing.

B. Basis of

Accounting

United States Gov ern ment

Notes to the Fi nan cial State ments

for the Year Ended Sep tem ber 30, 1998

D. Direct Loans

and Loan

Guarantees

Di rect loans ob li gated and loan

guar an tees com mit ted af ter Sep tem -

ber 30, 1991, are re corded based on

the pres ent value of net cash-flows

es ti mated over the life of the loan or

guar an tee. Di rect loans made prior to

Oc to ber 1, 1991, may be re corded under the pres ent-value method or the

al low ance-for-loss method. The allow ance-for-loss method re duces the

out stand ing prin ci pal by an al low -

ance for uncollectible amounts when

it is more likely than not that the loans

will not be col lected in full. Li a bil i -

ties re lated to loan guar an tees commit ted be fore Oc to ber 1, 1991, may

be re corded un der the pres ent-value

method or the al low ance-for-loss

method by the amount the agency esti mates will more likely than not require a fu ture cash out flow to pay default claims.

Gov ern ment rev e nue co mes

from two sources: non-exchange

trans ac tions and ex change transac tions. Non-exchange rev e nues

arise pri mar ily from ex er cise of

the Gov ern ment’s power to tax

and levy du ties, fines and pen al -

ties. Ex change (earned) rev e nues

arise when a Gov ern ment en tity

pro vides goods and ser vices to the

pub lic for a price.

Non-exchange rev e nue is recog nized when re ceived. To tal reve nue is re ported net of the change

in Fed eral taxes re ceiv able. Refunds and other off sets are rec og -

nized when dis bursed and net ted

against non-exchange rev e nue. 

Earned rev e nue rep re sents reve nue earned from user charges

such as ad mis sion fees to Fed eral

parks, in sur ance pre mi ums, and

fees on Fed eral hous ing and loan

pro grams. Earned rev e nue is recog nized when the Gov ern ment

pro vides the goods or ser vices.

C. Revenue Recognition
64 Notes to the Fi nan cial State ments

“Taxes re ceiv able” pri mar ily consist of un col lected tax as sess ments,

pen al ties and in ter est when tax pay ers 

have agreed the amounts are owed, or

a court has de ter mined the as sess -

ments are owed. This Fi nan cial Report does not in clude un paid as sess -

ments when nei ther tax pay ers nor a

court has agreed that the amounts are

owed (com pli ance as sess ments) and

the Gov ern ment does not ex pect further col lec tions due to fac tors such as

the tax payer’s death, bank ruptcy or

in sol vency (write-offs). Taxes receiv able are re ported net of an al low -

ance for the es ti mated por tion

deemed to be uncollectible.

“Prop erty,plant and equipment" used in Gov ern ment op er a -

tions is car ried at cost. De pre ci a -

tion and am or ti za tion ex pense

ap plies to prop erty, plant and

equip ment ex cept land, lim ited du ra -

tion land rights, her i tage as sets,

na tional de fense as sets and con struc -

tion in prog ress. It is rec og nized us ing 

the straight-line method over the assets’ es ti mated use ful lives.

The Gov ern ment Man age ment Reform Act does not re quire the leg is la -

tive and ju di cial branches to re port

their fi nan cial in for ma tion to Treasury. There fore, this Fi nan cial Re port 

does not in clude most prop erty, plant

G. Property,

Plant and

Equipment

“In ven tories” are val ued at histor i cal cost. His tor i cal cost methods in clude first-in-first-out,

weighted av er age and mov ing aver age. Es ti mated re pair costs reduce the value of in ven tory held

for re pair. Ex cess, ob so lete and

un ser vice able in ven to ries are valued at es ti mated net re al iz able

val ues.

F. Inventories

and Related

Property

“Pen sion and re tire ment health

ben e fit ex penses" are re corded

dur ing the time em ployee services are ren dered. The re lated lia bil i ties for de fined ben e fit pension plans and re tire ment health

ben e fits are re corded at es ti mated

pres ent value of fu ture ben e fits,

less the es ti mated pres ent value of

fu ture nor mal cost con tri bu tions. 

 “Nor mal cost” is the por tion of

the ac tu ar ial pres ent value of projected ben e fits al lo cated, un der

the ac tu ar ial method, as ex pense

for em ployee ser vices ren dered in

the cur rent year. Ac tu ar ial gains

and losses (and prior and past service cost, if any) are rec og nized

im me di ately in the year they occur, with out am or ti za tion.

“En vi ron men tal li a bil i ties” are recorded at the es ti mated cur rent cost to

remediate haz ard ous waste and en vi -

ron men tal con tam i na tion, as sum ing

the use of cur rent tech nol ogy.

Remediation con sists of re moval,

treat ment and/or safe con tain ment.

Where tech nol ogy does not ex ist to

clean up haz ard ous waste, only the

es ti ma ble por tion of the li a bil ity, typi cally safe con tain ment, is re corded.

I. Environmental

Liabilities

E. Taxes

Receivable

Li a bil i ties for con tin gen cies are

rec og nized on the Bal ance Sheet

when both:

• A past trans ac tion or event has

oc curred.

• A fu ture out flow or other sac ri -

fice of re sources is prob a ble and

mea sur able.

The es ti mated con tin gent li a bil ity

may be a spe cific amount or a range

of amounts. If some amount within

the range is a better es ti mate than any

other amount within the range, then

that amount is rec og nized. If no

amount within the range is a better esti mate than any other amount, then

the min i mum amount in the range is

rec og nized.

Con tin gent li a bil i ties that do not

meet the above cri te ria for rec og ni -

tion, but for which there is at least a

rea son able pos si bil ity that a loss has

been in curred, are dis closed in Note

15–Com mit ments and Con tin -

gencies.

A li a bil ity for so cial in sur ance programs (So cial Se cu rity, Medicare,

rail road re tire ment, black lung and

un em ploy ment) is rec og nized for any

un paid amounts due as of the re port -

ing date. No li a bil ity is rec og nized for

fu ture ben e fit pay ments not yet due.

For fur ther in for ma tion, see the Steward ship In for ma tion sec tion on so cial

in sur ance.

H. Retirement

Programs

J. Contingencies

L. Related 

Party Transactions

Fed eral Re serve Banks (FRBs),

which are not part of the re port ing entity, serve as the Gov ern ment’s depos i tary and fis cal agent. They process Fed eral pay ments and de pos its to

Trea sury’s ac count and ser vice Federal debt se cu ri ties. FRBs owned

$477.9 bil lion of Fed eral debt se cu ri -

ties held by the pub lic as of Sep tem -

ber 30, 1998. FRB earn ings that exceed stat u tory amounts of sur plus

K. Social Insurance
Notes to the Fi nan cial State ments 65

es tab lished for Fed eral banks are paid

to the Gov ern ment and are rec og -

nized as non-exchange rev e nue.

Those earn ings to taled $24.6 bil lion

for the year ended Sep tem ber 30,

1998. The pri mary source of these

earn ings is from in ter est earned on

Fed eral debt se cu ri ties held by FRBs.

FRBs is sue Fed eral Re serve notes,

the cir cu lat ing cur rency of the United

States. These notes are col lat er al ized

by spe cific as sets owned by FRBs,

typ i cally Gov ern ment se cu ri ties.

Fed eral Re serve notes are backed by

the full faith and credit of the U.S.

Gov ern ment.

The Gov ern ment does not guar an -

tee pay ment of the li a bil i ties of Govern ment-sponsored en ter prises such

as the Fed eral Na tional Mort gage Asso ci a tion or the Fed eral Home Loan

Mort gage Cor po ra tion. These en ter -

prises also are ex cluded from the report ing en tity.

Note 2. Cash and Other Monetary Assets

Cash and Other Monetary Assets 

as of September 30

(In billions of dollars)

Cash ............................... . 42.2

Gold................................ . 11.0

Domestic monetary assets ............... . 1.2

International monetary assets ............. . 42.4

Total cash and other monetary assets...... . 96.8

“Cash,” in the amount of $42.2 billion, con sists of:

• Trea sury bal ances held at the

FRBs, net of out stand ing checks.

• Trea sury bal ances in spe cial

depositaries that hold the pro ceeds 

of cer tain tax pay ments known as

the U. S. Trea sury Tax and Loan

Note ac counts.

• Funds held out side of Trea sury

and the FRBs by au tho rized fis cal

of fi cers or agents.

• Mon ies held by Gov ern ment

col lec tion and dis burs ing of fi cers,

agen cies’ undeposited col lec tions, 

un con firmed de pos its, and cash

trans fers.

• Time de pos its at fi nan cial in sti -

tu tions.

The Gov ern ment main tains for mal

ar range ments with nu mer ous banks to

main tain time de pos its known as

“com pen sat ing bal ances.” These balances com pen sate the banks for services pro vided to the Gov ern ment,

such as main tain ing zero-balance accounts for the col lec tion of pub lic

mon ies.

“Gold” is val ued at the stat u tory

price of $42.2222 per fine troy ounce.

As of Sep tem ber 30, 1998, the number of fine troy ounces was

260,928,196. The mar ket value of

gold on the Lon don Fixing as of the

re port ing date was $293.85 per fine

troy ounce. Gold was pledged as collat eral for gold cer tif i cates is sued to

the FRBs to tal ing $11.0 bil lion. See

Note 13–Other Li a bil i ties.

Gold

“Do mes tic mon e tary as sets" consist of liq uid as sets, other than cash,

that are based on the U.S. dol lar includ ing coins, sil ver bul lion and

other coin age met als. These items totaled $1.2 bil lion.

As sets val ued on a ba sis other than

the U.S. dol lar com prise “In ter na -

tional mon e tary as sets.”

The U.S. re serve po si tion in the Inter na tional Mon e tary Fund (IMF) repre sents an in vest ment in the IMF. The

IMF pro vides fi nan cial as sis tance to

about 180 coun tries in clud ing the

United States. It seeks to pro mote currency ex change sta bil ity. Only a portion of the re quired pay ment to the

IMF was paid in cash, with the remain der treated as a sub scrip tion. The

re corded bal ance is shown net of the

sub scrip tion por tion, which rep re sents 

a let ter of credit pay able to the IMF.

As of Sep tem ber 30, 1998, the remain ing avail able bal ance un der the

let ter of credit to taled $14.9 bil lion.

Cash

Domestic

Monetary Assets

International

Monetary Assets

The U.S. re serve po si tion in the IMF

has a U.S. dol lar equiv a lent of $21.2

bil lion as of that date.

Spe cial draw ing rights (SDRs) are

in ter est-bearing as sets ob tained

through ei ther IMF al lo ca tions, transac tions with IMF mem ber coun tries,

or in ter est earn ings on SDR hold ings. 

Trea sury’s Ex change Sta bi li za tion

Fund held SDRs to tal ing $10.1 billion at the end of fis cal 1998. Those

hold ings are sim i lar to an in vest ment

in the IMF.

At Sep tem ber 30, 1998, “Other li a -

bil i ties” in cluded a $6.7 bil lion in ter -

est-bearing li a bil ity to the IMF. This

li a bil ity con sisted of SDRs ob tained

through IMF al lo ca tions.

The SDR Act of 1968 au tho rized

the Sec re tary of the Trea sury to is sue

SDR cer tif i cates to Fed eral Re serve

Banks (FRBs) in ex change for cash.

The value of these cer tif i cates can not

ex ceed the value of the SDR holdings. The Sec re tary of the Trea sury

de ter mines when the SDR cer tif i -

cates can be re deemed by the FRBs.

The li a bil ity for such re demp tions,

which to taled $9.2 bil lion at the end

of the fis cal year, is in cluded in Note

13–Other Li a bil i ties.

In ter na tional mon e tary as sets also

in clude for eign cur rency and other

mon e tary as sets de nom i nated in foreign cur rency. These as sets have a

U.S. dol lar equiv a lent of $42.4 billion.
66 Notes to the Fi nan cial State ments

The Fed eral Gov ern ment uses two

meth ods, di rect loans and loan guaran tee pro grams, to ac com plish the

same goals. These goals are to promote the na tion’s wel fare by mak ing

di rect loans and guar an teed loans to

seg ments of the pop u la tion not ad e -

quately served by non-Federal in sti -

tu tions. For those un able to af ford

credit at the mar ket rate, Fed eral

credit pro grams pro vide sub si dies in

the form of di rect loans of fered at an

in ter est rate lower than the mar ket

rate. For those to whom non-Federal

fi nan cial in sti tu tions will be re luc tant

to grant credit be cause of the high risk

in volved, Fed eral credit pro grams

guar an tee the pay ment of these

non-Federal loans and ab sorb the cost

of de faults.

The to tal es ti mated cost rep re sents

the al low ance for loss and sub sidy

cost for di rect loans and the loan guaran tee li a bil ity for guar an teed loans.

Ru ral elec tri fi ca tion and tele com -

mu ni ca tions loans are for the construc tion and op er a tion of gen er at ing

plants, elec tric trans mis sions, and

dis tri bu tion lines or sys tems. These

loans carry an av er age ma tu rity of

greater than 20 years and are usu ally

se cured.

The ma jor pro grams funded though

the Ru ral Housing In sur ance Fund

pro gram ac count are:

• Very low and low-to-moderate

in come home own er ship loans

and guar an tees.

• Very low-income hous ing repair loans.

Federal Loan Programs as of September 30

(In billions of dollars)

Loan Pro gram

Face Value

of Loans

Outstand ing

To tal

Es ti mated Cost

to the Fed eral 

Gov ern ment

Net Loans

Re ceiv able 

(In cludes

re lated Inter est)

Amount

Guar an teed

by the Federal Gov ern -

ment

Per cent of Face

Value of Loans Guaran teed by the Federal Gov ern ment

Direct Loans:

Rural development .... . 70.1 15.1 55.0

Student loan programs . . 54.3 11.7 42.6

Commodity Credit

Corporation........ . 18.0 11.1 6.9

Agency for International 

Development ...... . 12.3 5.7 6.6

Housing programs .... . 11.9 0.5 11.4

Farm Service Agency... . 9.7 0.8 8.9

Export-Import Bank .... . 9.3 3.0 6.3

Small business loans . . . 9.2 1.8 7.4

All other direct loan

programs ......... . 26.6 4.9 21.7

Total loans receivable 

(see Balance Sheet)....................... . 166.8

Guaranteed Loans:

FHA............... . 519.5 9.4 476.6 91.8

VA housing credits .... . 203.5 4.7 70.0 34.4

Guaranteed student 

loans ............ . 112.5 11.6 110.3 98.0

Small Business

Administration ..... . 37.5 1.5 30.6 81.6

Commodity Credit

Corporation........ . 22.8 6.1 22.8 100.0

All other guaranteed 

loan programs...... . 39.7 4.4 34.0 85.6

Total loan guarantee 

liabilities (see 

Balance Sheet) ....... .

37.7

Total for all loan

programs ...... . 1,156.9 92.3

Note 3. Loan Programs
Notes to the Fi nan cial State ments 67

• Do mes tic farm la bor hous ing

loans.

• Housing site loans.

• Credit sales of ac quired property.

Loan pro grams are lim ited to ru ral

ar eas that in clude towns, vil lages and

other places that are not part of an urban area. The ma jor ity of these loans

ma ture in ex cess of 25 years and are

se cured by the prop erty of the borrower.

The Di rect Stu dent Loan pro gram,

es tab lished in 1994, of fers four types

of ed u ca tion loans: Stafford,

Unsubsidized Stafford, PLUS for parents and con sol i da tion loans. Ev i -

dence of fi nan cial need is re quired for

a stu dent to re ceive a sub si dized

Stafford loan. The other three loan

pro grams are avail able to bor row ers

at all in come lev els. These loans usually ma ture 9 to 13 years af ter the student is no lon ger en rolled. They are

un se cured.

The Agency for In ter na tional Devel op ment pro vides eco nomic as sis -

tance to se lected coun tries in sup port

of U.S. ef forts to pro mote sta bil ity

and se cu rity in ter ests in stra te gic regions of the world.

The Ex port-Import Bank aids in financ ing and pro mot ing U.S. ex ports.

To ac com plish its ob jec tives, the

bank’s au thor ity and re sources are

used to:

• As sume com mer cial and po lit i -

cal risk that ex port ers or pri vate

in sti tu tions are un will ing or are

un able to un der take.

• Over come ma tu rity and other

lim i ta tions in pri vate sec tor financ ing.

• As sist U.S. ex ports to meet foreign of fi cially spon sored ex port

credit com pe ti tion.

• Pro vide lead er ship and guidance in ex port fi nanc ing to the

U.S. ex port ing and bank ing commu ni ties and to for eign bor row ers. 

Re pay ment terms for these loans

are usu ally 1 to 7 years.

The Fed eral Housing Ad min is tra -

tion (FHA) pro vides mort gage in sur -

ance en cour ag ing lend ers to make

credit avail able to ex pand

homeownership. FHA pre dom i nately 

serves bor row ers that the con ven -

tional mar ket does not ad e quately

serve such as first-time homebuyers,

mi nor i ties, lower-income fam i lies

and res i dents of underserved ar eas.

The Fed eral Fam ily Ed u ca tion

Loan pro gram, for merly known as

the Guar an teed Stu dent Loan program, was es tab lished in 1965. Like

the Di rect Stu dent Loan pro gram, it

of fers four types of loans: Stafford,

Unsubsidized Stafford, PLUS for

par ents and con sol i da tion loans.

Vet eran hous ing ben e fits pro vide

par tial guar an tee of res i den tial mortgage loans is sued to el i gi ble vet er ans 

and ser vice men by pri vate lend ers.

This guar an tee al lows vet er ans and

ser vice men to pur chase a home without a sub stan tial down pay ment.

Other loan guar an tees in clude:

Small Busi ness Ad min is tra tion loans

to mi nor ity busi nesses; and the Farm

Ser vice Agency for farm own er ship,

emer gency and di sas ter loans.

The sub sidy ex pense is the es ti -

mated cost of cur rent-year loan disburse ments and loans guar an teed.

The sub sidy ex pense in curred in

fis cal 1998 to taled $1.0 bil lion.

Note 5. Inventories and Related Property

“In ven tories and re lated prop er -

ties" con sist of the cat e go ries listed

be low, net of al low ance for ob so lete

and un ser vice able in ven tory, as of

Sep tem ber 30, 1998.

“Op er ating ma te ri als and sup plies"

are com prised of tan gi ble per sonal

prop erty pur chased for use in nor mal

op er a tions.

“Ma te rials and sup plies held for future use” in cludes tan gi ble per sonal

prop erty not readily avail able in the

mar ket or held be cause there is more

than a re mote chance that they will

even tu ally be needed.

“In ven tory held for sale” is tan gi ble 

per sonal prop erty held for sale, net of

al low ances.

“Seized mon e tary in stru ments”

com prise only mon e tary in stru ments.

These mon e tary in stru ments are

await ing judg ment to de ter mine owner ship. The re lated li a bil ity is included in “Other li a bil i ties.” Other

prop erty seized by the Gov ern ment,

such as real prop erty and tan gi ble personal prop erty, is not in cluded as a

Gov ern ment as set. It is ac counted for

Note 4. Taxes Receivable

Taxes Receivable as of September 30

(In billions of dollars)

Gross taxes receivable ............................................ . 82.9

Allowance for doubtful accounts...................................... . 55.8

Taxes receivable, net as of September 30, 1998 ......................... . 27.1
68 Notes to the Fi nan cial State ments

“Prop erty, plant and equip ment"

con sist of tan gi ble as sets in clud ing

land, build ings, struc tures and other

as sets used to pro vide goods and services. Cer tain types of tan gi ble as sets, 

col lec tively re ferred to as “Stew ard -

ship as sets,” are not re ported as property, plant and equip ment or elsewhere on the Bal ance Sheet. This is

based on ac count ing stan dards that

be came ef fec tive for fis cal 1998.

“Stew ard ship as sets” in clude “National de fense as sets,” “Her i tage assets” and “Stew ard ship land.” These

as sets are pre sented in the Stew ard -

ship In for ma tion sec tion. Ac cord -

ingly, these fi nan cial state ments reflect a prior pe riod ad just ment of

$655.5 bil lion to re move the stew ard -

ship as sets pre vi ously cap i tal ized on

the Bal ance Sheet. (See Note

14–Prior Pe riod Ad just ments.)

Property, Plant and Equipment as of September 30

(In bil lions of dol lars) Cost

Ac cu mu lated 

De pre ci a tion/

Am or ti za tion Net 

Buildings, structures and facilities .... . 269.3 129.5 139.8

Furniture, fixtures and equipment ..... . 159.6 73.9 85.7

Construction in progress ........... . 51.5 - 51.5

Land and land improvements ........ . 18.3 1.3 17.0

Automated data processing software . . . 2.8 1.6 1.2

Assets under capital lease.......... . 2.3 0.4 1.9

Leasehold improvements ........... . 1.9 0.7 1.2

Other property, plant and equipment... . 1.0 - 1.0

 Total property, plant and equipment . . 506.7 207.4 299.3

Note 6. Property, Plant and Equipment

in agency prop erty-management records un til the prop erty is for feited,

re turned or oth er wise liq ui dated.

“For feited prop erty” is com prised

of mon e tary in stru ments, in tan gi ble

prop erty, real prop erty and tan gi ble

per sonal prop erty ac quired through

for fei ture pro ceed ings; prop erty acquired by the Gov ern ment to sat isfy a

tax li a bil ity; and un claimed and abandoned mer chan dise.

“Stock pile ma te ri als” are stra te gic

and crit i cal ma te ri als held for use in

na tional de fense, con ser va tion or national emer gen cies due to stat u tory

re quire ments.

“Com mod i ties” are items of commerce or trade that have an ex change

value used to sta bi lize or sup port market prices.

“Other re lated prop erty” in cludes

all other re lated prop erty not in cluded 

above (for ex am ple, prop erty acInventories and Related Property as of September 30

(In bil lions of dol lars) De fense All Oth ers To tal

Inventory held for sale .................. . 69.4 0.5 69.9

Stockpile materials .................... . 4.3 37.7 42.0

Operating materials and supplies .......... . 31.1 2.6 33.7

Materials and supplies held for future use.... . 20.3 0.1 20.4

Commodities ......................... .

- 0.3 0.3

Seized monetary instruments ............. .

- 0.2 0.2

Forfeited property ..................... .

- 0.2 0.2

Other related property .................. . 0.1 - 0.1

 Total inventories and related property ..... . 125.2 41.6 166.8
Notes to the Fi nan cial State ments 69

Other Assets as of September 30

(In billions of dollars) 

Advances and prepayments ............... . 13.2

Securities and investments ............... . 19.1

Other ............................... . 27.6

 Total other assets..................... . 59.9

Note 8.

Accounts

Payable

“In ter est on Trea sury se cu ri ties

held by the pub lic" is the amount of

in ter est ac crued on Fed eral debt se cu -

ri ties held by the pub lic (see Note 9)

and not paid as of Sep tem ber 30,

1998. Other ac counts pay able are for

goods and other prop erty or dered and

re ceived, and for ser vices ren dered by

other than em ploy ees.

Accounts Payable as of September 30

(In billions of dollars)

Agency:

Interest on Treasury securities held by the public . . 45.5

DOD.................................. . 13.7

U.S. Postal Service ....................... . 4.1

Agriculture ............................. . 3.2

VA ................................... . 3.0

NASA ................................. . 2.9

OPM.................................. . 2.9

HHS .................................. . 0.4

All other departments ..................... . 14.3

Total accounts payable................... . 90.0

Note 7. Other

Assets

“Other as sets” con sist of advances and pre pay ments, se cu ri -

ties and in vest ments, and other assets of the Gov ern ment not

oth er wise clas si fied. Se cu ri ties are

shown at cost, net of un am or tized

pre mi ums and dis counts.

Note 9. Federal Debt Securities Held by the Public

Definitions of Debt

• Gross Fed eral Debt - All Gov ern ment debt, whether is sued

by Trea sury (Trea sury se cu ri ties) or by other agen cies

(agency se cu ri ties). “Gross Fed eral debt” is ei ther held by

the pub lic or by Gov ern ment en ti ties.

• Debt Held by the Pub lic - Fed eral debt held out side the

Gov ern ment by in di vid u als, cor po ra tions, State or lo cal govern ments, the Fed eral Re serve Sys tem, for eign gov ern ments, 

and cen tral banks.

• Intragovernmental hold ings - Fed eral debt held by Gov ern -

ment trust funds, re volv ing funds and spe cial funds.

“Fed eral debt held by the pub lic"

to taled $3,717.7 bil lion at the end of

fis cal 1998. The ta ble on Fed eral

Debt Se cu ri ties Held by the Pub lic reflects in for ma tion on bor row ing to finance Gov ern ment op er a tions. Debt

is shown at face value, with un am or -

tized pre mi ums added and un am or -

tized dis counts sub tracted.

“Intragovernmental hold ings” repre sent that por tion of the gross Federal debt held as in vest ments by Gov -

ern ment en ti ties, in clud ing ma jor trust

funds. For more in for ma tion on trust

funds, see Note 17–Ded i cated Collec tions. Intragovernmental hold ings

were elim i nated in con sol i da tion.
70 Notes to the Fi nan cial State ments

Se cu ri ties that rep re sent debt held

by the pub lic are pri mar ily is sued by

Trea sury and in clude:

• In ter est-bearing mar ket able secu ri ties (bills, notes and bonds).

• In ter est-bearing non mar ket able

se cu ri ties (For eign gov ern ment

se ries, State and lo cal gov ern ment 

se ries, do mes tic se ries and savings bonds).

• Non-interest bear ing debt (matured and other debt).

As of Sep tem ber 30, 1998, $5,439

bil lion of Fed eral debt was sub ject to

a stat u tory limit (31 United States

Code 3101). That limit was $5,950

bil lion. The debt sub ject to the limit

in cludes:

• Debt held by the pub lic and

intragovernmental hold ings, less

most agency se cu ri ties, Fed eral

Fi nancing Bank debt, mis cel la -

neous debt and un re al ized discount on Gov ern ment ac count

se ries se cu ri ties.

• Un am or tized net dis counts on

pub lic is sues of Trea sury notes

and bonds (other than

zero-coupon bonds).

Federal Debt Securities Held by the Public as of September 30

(In bil lions of dol lars)

Be gin ning

Bal ance

Oct. 1,

1997

Net

Change

Dur ing

Fiscal

1998

End ing

Bal ance

Sept. 30,

1998

Av er age

Interest 

Rate During Fis cal

1998

Treasury Securities:

Marketable securities ..................... . 3,439.8 (108.8) 3,331.0 6.556% 

Non-marketable securities .................. . 1,967.7 220.0 2,187.7 6.903% 

Non-interest bearing debt................... . 5.6 1.9 7.5 

Total Treasury securities.................. . 5,413.1 113.1 5,526.2 

Plus: Unamortized premium 

on Treasury securities .................. . 20.2 (3.3) 16.9 

Less: Unamortized discount 

on Treasury securities .................. . 78.2 0.7 78.9 

Total Treasury securities, 

net of unamortized premiums 

and discounts .................... . 5,355.1 109.1 5,464.2 

Agency Securities:

Tennessee Valley Authority ................. . 27.4 (0.7) 26.7

All other agencies ........................ . 5.8 (3.1) 2.7

Less: Unamortized net discounts ............. . 0.5 (0.1) 0.4

Total agency securities, net of unamortized

premiums and discounts ................ . 32.7 (3.7) 29.0

Total Federal debt..................... . 5,387.8 105.4 5,493.2

Less: Intragovernmental holdings, 

net of unamortized premiums 

and discounts ................... . 1,619.6 155.9 1,775.5

Total Federal debt securities 

held by the public ................... . 3,768.2 (50.5) 3,717.7

Types of mar ket able se cu ri ties:

Bills—Short-term ob li ga tions is sued with a term of 1 year or less.

Notes—Me dium-term ob li ga tions is sued with a term of at least 1 year, but not more than 10 years.

Bonds—Long-term ob li ga tions of more than 10 years.
Notes to the Fi nan cial State ments 71

Intragovernmental Holdings:

Federal Debt Securities Held as Investments by Government Accounts 

as of September 30

(In billions of dollars)

Be gin ning

Bal ance

Oct. 1,

1997

Net Change

Dur ing Fis cal

1998

End ing

Bal ance

Sept. 30,

1998

Holdings Greater than or Equal to $100 Billion:

SSA, Old-Age and Survivors Insurance ............... . 567.5 85.8 653.3

OPM, civil service retirement and disability............ . 422.1 29.2 451.3

DOD, military retirement ........................ . 126.0 7.8 133.8

HHS, Hospital Insurance Fund ..................... . 116.6 1.7 118.3

 Subtotal ................................... . 1,232.2 124.5 1,356.7

Holdings Less than $100 Billion 

and Greater than $15 Billion:

SSA, disability insurance......................... . 63.6 13.4 77.0

Labor, unemployment ........................... . 61.9 8.7 70.6

HHS, supplementary medical insurance .............. . 34.5 5.0 39.5

FDIC funds ................................... . 37.4 1.7 39.1

Railroad Retirement Board ....................... . 19.2 2.6 21.8

OPM, Employees Life Insurance.................... . 18.0 1.4 19.4

Transportation, Highway Trust Fund ................. . 22.3 (4.4) 17.9

Treasury, Exchange Stabilization Fund ............... . 15.5 0.5 16.0

 Subtotal ................................... . 272.4 28.9 301.3

Other programs and funds........................ . 102.8 10.0 112.8

 Subtotal ................................... . 1,607.4 163.4 1,770.8

Plus: Unamortized net premiums ................... . 12.2 (7.5) 4.7

 Total intragovernmental holdings ................ . 1,619.6 155.9 1,775.5
72 Notes to the Fi nan cial State ments

The Gov ern ment of fers its em ploy ees, both ci vil ian and mil i tary, re tire ment

ben e fits, life and health in sur ance, and other ben e fits.

The Fed eral Gov ern ment ad min is ters more than 40 pen sion plans. The largest are ad min is tered by the Of fice of Per son nel Man age ment (OPM), for ci vil -

ian em ploy ees, and by DOD, for mil i tary per son nel. The Gov ern ment has both

de fined ben e fit and de fined con tri bu tion pen sion plans. The larg est are de fined 

ben e fit plans.

Note 10. Federal Employee 

and Veteran Benefits Payable

Federal Employee and Veteran Benefits Payable as of September 30

(In bil lions of dol lars) Ci vil ian Mil i tary To tal 

Pension liability ........... .

 996.4 650.5 1,646.9 

Health benefits payable ..... .

 181.8 223.4 405.2 

Veterans compensation 

and burial benefits ....... .

- 578.1 578.1 

Liability for other benefits .... .

 34.1 20.8 54.9 

Total Federal employee and

veteran benefits payable. . . 1,212.3 1,472.8 2,685.1

Significant Assumptions Used 

in Determining Pension Liability and the Related Expense

(In percentages) Ci vil ian Mil i tary

Rate of interest ............................. . 7.0% 6.5%

Rate of inflation............................. . 4.0% 2.1%

Projected salary increases ..................... . 4.3% 2.8%

Change in Actuarial Accrued Pension Liability 

and Components of Related Expense

(In bil lions of dol lars) Ci vil ian 1 Military Total

Actuarial accrued pension liability, 

as of September 30, 1997 ................. . 965.0 641.7 1,606.7

Pension Expense:

Normal costs ........................... . 23.7 16.6 40.3

Interest on liability ....................... . 65.9 41.0 106.9

Actuarial (gains)/losses ................... .

(20.8) (17.6) (38.4)

 Total pension expense ................... . 68.8 40.0 108.8

Benefits paid ........................... . (43.5) (31.2) (74.7)

Actuarial accrued pension liability,

as of September 30, 1998 ............. .

990.3 650.5 1,640.8

1

 Does not in clude U.S. Tax Court, ju di cial branch, or the DC government.
Notes to the Fi nan cial State ments 73

Change in Actuarial Accrued Post-Retirement Health Benefits Liability 

and Components of Related Expenses

(In bil lions of dol lars) Civilian Military To tal

Actuarial accrued post-retirement health benefits, 

as of September 30, 1997....................... . 164.3 218.0 382.3

Post-Retirement Health Benefits Expense:

Normal costs................................. . 6.1 6.0 12.1

Interest on liability ............................. . 11.9 14.7 26.6

Actuarial (gains)/losses ......................... . 6.0 (8.5) (2.5)

Total post-retirement health benefits expense ....... . 24.0 12.2 36.2

Claims paid.................................. . (6.5) (6.8) (13.3)

Actuarial accrued post-retirement 

health benefits liability, as of September 30, 1998 . . . 181.8 223.4 405.2

Significant Assumptions Used

in Determining Post-Retirement Health Benefits Liability and the Related Expense

(In percentages) Ci vil ian Mil i tary 

Rate of interest ................... . 7.0% 6.5%

Rate of health care inflation .......... . 7.0% 2.5% - 8.0%

Pensions

The larg est ci vil ian pen sion plan is

ad min is tered by OPM and cov ers approx i mately 90 per cent of all Fed eral

ci vil ian em ploy ees. It in cludes two

com po nents of de fined ben e fits: the

Civil Ser vice Re tire ment Sys tem

(CSRS) and the Fed eral Em ployees’

Re tire ment Sys tem (FERS). The basic ben e fit com po nents of the CSRS

and the FERS are fi nanced and op er -

ated through the Civil Ser vice Re tire -

ment and Dis abil ity Fund (CSRDF).

CSRDF mon ies are gen er ated pri mar -

ily from em ploy ees, agency con tri bu -

tions, pay ments from the gen eral fund

and in ter est on in vest ments in Fed eral 

debt se cu ri ties. For fur ther dis cus -

sion, see Note 17–Ded i cated Col lec -

tions, Civil Ser vice Re tire ment and

Dis abil ity Fund.

The Fed eral Re tire ment Thrift Invest ment Board, an in de pend ent

Gov ern ment agency, op er ates the

Thrift Sav ings Plan. Fed eral em ploy -

ees and re tir ees cov ered by CSRS and

FERS own the fund’s as sets. For this

rea son, the fund is ex cluded from the

Fi nan cial Re port and the fund’s holdings of Fed eral debt are con sid ered

part of the Fed eral debt held by the

pub lic, rather than Fed eral debt held

by the Gov ern ment. FERS em ploy ees 

may con trib ute up to 10 per cent of

base pay to the plan, which the Govern ment matches up to 5 per cent.

CSRS em ploy ees may con trib ute up

to 5 per cent of base pay with no Govern ment match.

The Thrift Sav ings Plan held $26.5

bil lion of non mar ket able Trea sury secu ri ties as of Sep tem ber 30, 1998 and

is in cluded in “To tal Fed eral debt secu ri ties held by the pub lic” in the Balance Sheet.

Health Benefits

Ci vil ian re tir ees pay the same insur ance pre mi ums as ac tive em ploy -

ees un der the Fed eral Em ployee

Health Ben e fits Pro gram (FEHBP).

These pre mi ums cover only a por tion

of the costs.

Other Benefits

Em ployee and an nu itant con tri bu -

tions, and in ter est on in vest ments

fund a portion of the Fed eral Employees Group Life In sur ance program. This in sur ance pro gram finances pay ments to pri vate in sur ance

com pa nies for Fed eral em ploy ees’

group life in sur ance. It is ad min is -

tered by OPM.

Civilian

Employees
74 Notes to the Fi nan cial State ments

Veterans Compensation 

and Burial Benefits Payable 

as of September 30

(In billions of dollars)

Veterans ........................................... . 462.3

Survivors ........................................... . 112.1

Burial benefits ....................................... . 3.7

Total compensation and burial benefits payable ............. . 578.1

Pensions

The DOD Mil i tary Re tire ment

Trust Fund ac cu mu lates funds to finance li a bil i ties of the De part ment

un der mil i tary re tire ment and sur vi -

vor ben e fit pro grams. The Fund

pro vides re tire ment ben e fits for

mil i tary per son nel and their sur vi -

vors.

The mil i tary re tire ment sys tem

ap plies to the Army, Navy, Ma rine

Corps and Air Force. The sys tem is

a funded, noncontributory, de fined

ben e fit plan. It in cludes

non-disability re tire ment pay, disabil ity re tire ment pay, re tire ment

pay for re serve ser vice and sur vi vor

an nu ity pro grams.

Health Benefits

Mil i tary re tir ees and their depend ents are en ti tled to health care

in mil i tary med i cal fa cil i ties if the

fa cil ity can pro vide the needed care.

Un til they reach age 65, mil i tary retir ees and their de pend ents also are

en ti tled to health care fi nanced by

TRICARE (for merly CHAMPUS).

No pre mium is charged for

TRICARE fi nanced care, but there

are de duct ible and copayment require ments. Af ter they reach 65

years of age, mil i tary re tir ees are

en ti tled to Medicare.

Mil i tary re tiree health care includes the cost of build ings, equipment, ed u ca tion and train ing, staffing, op er a tions, and main te nance of

mil i tary med i cal treat ment fa cil i -

ties. They also con sist of claims

paid by TRICARE and the cost of

ad min is ter ing the pro gram.

Compensation 

and Burial Benefits

Vet erans com pen sa tion is payable as a dis abil ity ben e fit or a survi vor’s ben e fit. En ti tle ment to compen sa tion de pends on: the vet eran’s

dis abil i ties in curred in, or ag gra -

vated dur ing, ac tive mil i tary service; death while on duty; or death

re sult ing from ser vice-connected

dis abil i ties, if not in ac tive duty.

Burial ben e fits in clude a burial

and plot, or in ter ment al low ance

pay able for a vet eran, who at the

time of death, was en ti tled to receive com pen sa tion or a pen sion, or

whose death oc curred in a VA fa cil -

ity.

The li a bil ity for vet er ans compen sa tion and burial ben e fits payable in creased in fis cal 1998 by

$381 bil lion. The pri mary fac tors

con trib ut ing to this in crease were

changes in the ac tu ar ial meth od ol -

ogy and the in ter est rate as sump -

tions.

Due to these changes, the Statement of Net Cost line item ti tled

“Vet erans ben e fits and ser vices” increased by $109.4 bil lion.

Other Benefits

Vet erans in sur ance in cludes the

fol low ing pro grams: United States

Gov ern ment Life In sur ance, National Ser vice Life In sur ance, Veterans In sur ance and In dem nities,

Vet erans Spe cial Life In sur ance,

Vet erans Re opened In sur ance, Service Dis abled Vet erans In sur ance,

and Ser vice men’s Group Life Insur ance.

The Na tional Ser vice Life In sur -

ance was es tab lished in 1940 for

World War II ser vice men and vet er -

ans. It re mained open un til 1951. Of

the orig i nal 22 mil lion pol i cies issued, ap prox i mately 1.9 mil lion remain. This pro gram lim its cov er age 

to $10,000.

Vet erans Spe cial Life In sur ance

was es tab lished in 1951 for ser vice -

men who served in the Ko rean War

and in the post-Korean pe riod

through 1957. Ap prox i mately

800,000 pol i cies were is sued, of

which 240,000 re main.

Military Employees (Including Veterans)
Notes to the Fi nan cial State ments 75

Dur ing World War II and the Cold

War, the United States de vel oped a

mas sive in dus trial com plex to research, pro duce and test nu clear

weap ons. The nu clear weap ons complex in cluded nu clear re ac tors, chemi cal pro cess ing build ings, metal machin ing plants, lab o ra to ries and

main te nance fa cil i ties. The costs asso ci ated with re mov ing, con tain ing

and/or dis pos ing of haz ard ous waste

from the prop er ties com prise the result ing en vi ron men tal li a bil i ties. “Envi ron men tal li a bil i ties,” in this re port, 

ap ply only to re quired cleanup costs

from Fed eral op er a tions known to result in haz ard ous waste re sult ing from

ap proved Fed eral, State, or lo cal statutes and/or reg u la tions.

En ergy in curred op er at ing and capi tal ex pen di tures to tal ing $6.3 bil lion

in fis cal 1998 to remediate leg acy

waste. This in cludes nu clear ma te ri -

als and fa cil i ties sta bi li za tion as well

as waste treat ment, stor age and disposal ac tiv i ties at each in stal la tion.

“En vi ron men tal man age ment and

leg acy wastes” in clude costs for en vi -

ron men tal res to ra tion, nu clear ma te -

rial and fa cil ity sta bi li za tion, and

waste treat ment, stor age and dis posal

ac tiv i ties at each in stal la tion. They

also in clude costs for re lated ac tiv i ties 

such as land lord re spon si bil i ties, program man age ment, and le gally prescribed grants for par tic i pa tion and

over sight by Na tive Amer i can tribes

and reg u la tory agen cies. “Ac tive facil i ties” rep re sent an tic i pated

remediation costs for those fa cil i ties

con duct ing on go ing op er a tions that

ul ti mately will re quire sta bi li za tion,

de ac ti va tion and de com mis sion ing.

DOD is re spon si ble for clean ing up

and dis pos ing of haz ard ous ma te ri als

in fa cil i ties it op er ates or has op er -

ated. The De part ment has re corded a

$34.0 bil lion li a bil ity for these costs.

DOD has not cur rently re corded any

li a bil ity for na tional de fense as sets

(pri mar ily weapon sys tems like aircraft, ships and sub ma rines) and ammu ni tions (pri mar ily haz ard ous ma te -

ri als).

Pro jects with no cur rent fea si bil ity

remediation ap proach are ex cluded

from the es ti mate. Sig nif i cant projects not in cluded are:

• Nu clear ex plo sion test ar eas

(for ex am ple, Ne vada test sites).

• Large sur face wa ter bod ies (for

ex am ple, the Clinch and Co lum -

bia rivers).

• Most ground wa ter (even with

treat ment, fu ture use will be restricted).

• Some spe cial nu clear ma te rial

(for ex am ple, ura nium

hexafluoride).

Environmental Liabilities as of September 30

(In billions of dollars)

Energy:

Environmental management 

and legacy waste................. . 145.1

Active facilities .................... . 19.6

High-level waste and spent nuclear fuel . . . 10.7

Pipeline facilities .................. . 7.8

Other .......................... . 3.2

Total Energy .................... . 186.4

DOD ............................. . 34.0

All other agencies ................... . 4.1

 Total environmental liabilities ........ . 224.5

Note 11. Environmental Liabilities

These amounts are the ben e fits

owed to program re cip i ents or

med i cal ser vice pro vid ers as of the

fis cal year end that have not yet

been paid. For a de scrip tion of the

pro grams, see the Stew ard ship Respon si bil ities sec tion of Stew ard -

ship In for ma tion.

Benefits Due and Payable as of September 30

(In billions of dollars)

Federal Old-Age and Survivors Insurance..... . 28.9

Federal Hospital Insurance (Medicare Part A) . . 17.8

Federal Supplemental Medical Insurance 

(Medicare Part B).................... . 11.0

Grants to States for Medicaid ............ . 10.8

Federal Disability Insurance .............. . 6.7

Supplemental security income ............ . 0.9

Railroad retirement .................... . 0.7

Unemployment insurance ............... . 0.5

Black lung .......................... . 0.1

Other benefits ....................... . 0.2

 Total benefits due and payable .......... . 77.6

Note 12.

Benefits Due

and Payable
76 Notes to the Fi nan cial State ments

Note 13. Other

Liabilities

“In sur ance li a bil i ties” in clude

bank de posit in sur ance, guar an tees

of pen sion ben e fits, life in sur ance

and med i cal in sur ance against damage to prop erty (home, crops and airplanes) caused by per ils such as

flood ing and other nat u ral di sas ters,

risk of war, and in sol vency. “Deferred rev e nue” re fers to rev e nue received but not yet earned. “Ex change

Sta bi li za tion Fund” in cludes Spe cial

Draw ing Right cer tif i cates is sued to

the FRBs and al lo ca tions from the Inter na tional Mon e tary Fund. “Other

debt” in cludes Gov ern ment ob li ga -

tions, whether se cured or un se cured,

not in cluded in pub lic debt. “Ac crued 

wages and ben e fits” con sist of the esti mated li a bil ity for ci vil ian and

com mis sioned of fi cers’ sal a ries and

wages earned but un paid. It also includes funded an nual leave and other

em ployee ben e fits that have been

earned but are un paid. “Gold cer tif i -

cates” are monetarized por tion of

gold and the cer tif i cates are de pos ited 

in the Fed eral Re serve Bank.

Amounts re ceived for goods and services to be fur nished com prise “Advances from oth ers.” “Other

miscelleanous li a bil i ties” con sist of

de posit funds and sus pense ac counts.

Other Liabilities as of September 30

(In billions of dollars)

Insurance programs ................... . 23.8

Deferred revenue ..................... . 19.7

Exchange Stabilization Fund ............. . 15.9

Other debt .......................... . 11.7

Accrued wages and benefits ............. . 11.1

Gold certificates ...................... . 11.0

Advances from others .................. . 1.7

Other miscellaneous liabilities............ . 59.7

 Total other liabilities ................. . 154.6

“Prior pe riod ad just ments” con sist

of all ad just ments to the open ing net

po si tion. They cor rect er rors in a prior

pe riod, or ad just fig ures that have

changed due to the im ple men ta tion of

changes in ac count ing prin ci ples. If

mil i tary ser vice has re sulted in any

vet er ans’ dis abil ity or death, VA provides com pen sa tion pay ments to the

vet er ans and their de pend ents.

Changes in ac tu ar ial meth od ol o gies

and in ter est as sump tions re sulted in

an in crease in the VA li a bil ity of

$271.3 bil lion.

In ad di tion, DOD has ad justed its

ac cu mu lated de pre ci a tion in fis cal

1997, by $32.2 bil lion. De fense as sets 

(war re serves such as mis siles, aircraft and ve hi cles) had to be cor rected 

by $35.9 bil lion to re flect the proper

amount. Over stated DOD in ven to ries

re quired an ad just ment of $0.8 billion.

Trans por ta tion changed the value

of its prop erty and ad justed “Ac cu -

mu lated de pre ci a tion” by $8.4 bil lion. 

Also, ac tu ar ial as sump tions for pensions and health ben e fits ac counted

for a fur ther Trans por ta tion ad just -

ment of $5.1 bil lion.

Rail road re tire ment ad justed its

prior year ac tu ar ial re tire ment li a bil -

ity of $11.4 bil lion. To be con sis tent

with this Fi nan cial Re port, this li a bil -

ity was re clas si fied to stew ard ship respon si bil i ties from the Bal ance Sheet.

Na tional de fense as sets, as explained in the in tro duc tion to the Balance sheet, were moved to Stew ard -

ship In for ma tion. The to tal amount of

$655.2 bil lion rep re sents a change in

ac count ing prin ci ples for the 1998

Fi nan cial Re port of the United States

Gov ern ment and is in cluded in prior

pe riod ad just ments.

Not pre vi ously cap i tal ized, “As sets 

in space” in the amount of $17.1 billion were re corded and rep re sent a

change in ac count ing prin ci ples.

NASA also ad justed ac cu mu lated depre ci a tion by $20.0 bil lion. Fur ther, a

change in the cap i tal iza tion thresh old 

re sulted in a $3.0 bil lion de crease in

NASA’s fixed as sets.

Note 14. Prior

Period

Adjustments

Prior Period Adjustments 

to the Fiscal Year Beginning October 1, 1997

(In billions of dollars)

In creases to

Net Po si tion

De creases to

Net Po si tion

Changes in 

Accounting Principles:

National defense assets ..... . 655.2

NASA ................... . 17.1 23.2

All other agencies .......... . 20.4

Total net changes in

accounting principles .... . 681.7

Other Adjustments:

VA pension ............... . 271.3

DOD.................... . 69.9

Transportation ............ . 14.2

Railroad retirement liability ... . 11.4

Liability for loan guarantees ... . 2.0

Other corrections of errors.... . 2.2

Total net other adjustments . . 339.8
Notes to the Fi nan cial State ments 77

Note 15. Commitments and Contingencies

Commitments and Contingencies as of September 30

(In billions of dollars)

Cap i tal

Leases

Op er ating

Leases

Commitments

Long-term Leases:

General Services Administration ............................ . 1.0 14.8

U.S. Postal Service ..................................... . 0.4 7.7

Other long-term leases ................................... . 0.9 3.1

 Total long-term leases.................................. . 2.3 25.6

Undelivered Orders:

HUD ................................................ . 111.2

DOD ................................................ . 86.2

HHS ................................................ . 40.4

Education ............................................ . 36.9

Agriculture............................................ . 15.6

Transportation ......................................... . 14.8

EPA................................................. . 10.9

Treasury ............................................. . 6.9

AID ................................................. . 6.3

Energy............................................... . 6.3

Justice .............................................. . 5.6

Export-Import Bank...................................... . 5.0

NSF ................................................ . 3.4

Other undelivered orders ................................. . 27.2

Total undelivered orders ................................ . 376.7

Contingencies

Insurance:

Pension Benefit Guaranty Corporation ........................ . 17.0

Other insurance contingencies ............................. . 0.3

 Total insurance....................................... . 17.3

Government Loan and Credit Guarantees:

VA ................................................. . 78.9

Education ............................................ . 110.3

Other Government loan and credit guarantees .................. . 0.3

 Total Government loan and credit guarantees ................. . 189.5

Unadjudicated Claims:

DOD ................................................ . 0.7

Transportation ......................................... . 0.5

Treasury ............................................. . 0.2

Other unadjudicated claims ............................... . 0.8

 Total unadjudicated claims .............................. . 2.2

Other Contingencies:

Treasury ............................................. . 56.3

Agriculture............................................ . 7.5

DOD ................................................ . 5.7

Transportation ......................................... . 3.0

NASA ............................................... . 1.5

Other contingencies ..................................... . 2.2

 Total other contingencies ................................ . 76.2

Total contingencies ................................. . 285.2
78 Notes to the Fi nan cial State ments

Financial Treatment of Loss Contingencies

Probability of Loss Probable

Reasonably Possible, more

than remote but less than

probable

Remote, chance of

occurrence slight

Financial Treatment Balance Sheet

Note 15 – Commitments and

Contingencies

No disclosure

The Gov ern ment en gages in contrac tual com mit ments re quir ing future fi nan cial ob li ga tions. Dis clo sure

of some of these com mit ments is required in pri vate sec tor ac count ing

due to their na ture or amounts. Ad ap -

ta tions of these dis clo sures for the

Gov ern ment’s com mit ments are still

evolv ing. The Gov ern ment has signif i cant amounts of long-term lease

ob li ga tions, shown in the ta ble on the

pre vi ous page. “Un de liv ered or ders”

rep re sent the value of goods and services or dered and ob li gated that have

not yet been re ceived.

A con tin gency is an ex ist ing con di -

tion or sit u a tion in volv ing un cer tainty 

as to a pos si ble loss. A loss is con sid -

ered rea son ably pos si ble if the fu ture

con firm ing event or events are more

than re mote, but less than prob a ble.

These con tin gen cies do not in clude

ex ist ing con di tions or sit u a tions

where the fu ture oc cur ring event is

only con sid ered re mote. Nor do they

in clude con tin gen cies that would result in a gain.

The Gov ern ment also is sub ject to

other con tin gen cies, in clud ing lit i ga -

tion that arise in the nor mal course of

op er a tions. The ul ti mate dis po si tion

of these mat ters is un known. Based

on in for ma tion cur rently avail able,

how ever, it is man age ment’s opin ion

that the ex pected out come of these

mat ters, in di vid u ally or in the ag gre -

gate, will not have a ma te rial ad verse

ef fect on the fi nan cial state ments.

This is true for all con tin gen cies except lit i ga tion de scribed in the next

para graph.

Nu mer ous cases are pend ing involv ing su per vi sory good will at savings and loan in sti tu tions, Medicare

cost re port set tle ments, har bor mainte nance fees and cer tain other matters. While it is likely that the United

States will have to pay some amount

of dam ages on the claims, the ul ti -

mate costs can not be rea son ably es ti -

mated at this time.

Note 16. Unreconciled Transactions 

Affecting the Change in Net Position

The rec on cil i a tion of the “Change

in net po si tion” re quires that the differ ence be tween end ing and be gin -

ning net po si tion equals the ex cess of

rev e nues over cost, plus or mi nus

prior pe riod ad just ments. The un rec -

on ciled trans ac tions needed to bring

the change in net po si tion into balance net to $23.9 bil lion.

The three pri mary fac tors af fect ing

this out-of-balance sit u a tion are:

• Misclassification of

intragovernmental trans ac tions by

agen cies.

• Changes in val u a tion of Balance Sheet as sets and li a bil i ties,

which were not iden ti fied by

agen cies as prior pe riod ad just -

ments.

• Tim ing dif fer ences and er rors

in the re port ing of trans ac tions.

The iden ti fi ca tion and re port ing of

these un rec on ciled trans ac tions are a

pri or ity pro ject of the fi nan cial commu nity within the Gov ern ment.

The term “trust fund,” as used in

this re port and in Fed eral bud get account ing, is fre quently mis un der -

stood. In the pri vate sec tor, “trust” refers to funds of one party held by a

sec ond party (the trustee) in a fi du -

ciary ca pac ity. In the Fed eral bud get,

the term “trust fund” means only that

the law re quires the funds be accounted for sep a rately, used only for

spec i fied pur poses and des ig nated as

a “trust fund.” A change in law may

change the fu ture re ceipts and the

terms un der which the fund’s resources are spent.

“Trust fund as sets” rep re sent the

un ex pended bal ance from all sources

of re ceipts and amounts due the trust

fund, re gard less of source. This includes re lated governmental trans ac -

tions. These are trans ac tions be tween

two dif fer ent en ti ties within the Federal Gov ern ment (for ex am ple, monies re ceived by one en tity of the Govern ment from an other en tity of the

Gov ern ment).

“Intragovernmental as sets” are

com prised of in vest ments in Fed eral

debt se cu ri ties, re lated ac crued in ter -

est and fund bal ance with Trea sury.

These amounts were elim i nated in

pre par ing this Fi nan cial Re port.

 “Net as sets” rep re sent only the

amounts due from in di vid u als and

other en ti ties out side the Gov ern -

ment. This meansthat all re lated gov -

ern men tal trans ac tions are re moved

to pres ent the Gov ern ment’s po si tion

as a whole.

The ma jor ity of trust fund as sets

are in vested in intragovernmental

Fed eral debt se cu ri ties. These se cu ri -

ties re quire re demp tion if a fund’s

dis burse ments ex ceed its re ceipts.

Re deeming these se cu ri ties will in -

crease the Gov ern ment’s fi nanc ing

needs and re quire in creased bor row -

Note 17.

Dedicated

Collections
Notes to the Fi nan cial State ments 79

This trust fund pro vides as sis -

tance and pro tec tion against the

loss of earn ings due to re tire ment

or death. The as sis tance is in the

form of money pay ments and/or

med i cal care. The Fed eral

Old-Age and Sur vi vors In sur ance

Trust Fund is ad min is tered by

SSA.

Pay roll taxes pri mar ily fund the

Fed eral Old-Age and Sur vi vors Insur ance Trust Fund. Earn ings on

Fed eral debt se cu ri ties, Fed eral

agen cies’ pay ments for the So cial

Se cu rity ben e fits earned by mil i -

tary and ci vil ian em ploy ees, and

Trea sury pay ments for a por tion of

in come taxes paid on So cial Se cu -

rity ben e fits pro vide the fund with

ad di tional in come.

Federal Hospital Insurance Trust Fund

The Fed eral Hos pi tal In sur ance

Trust Fund fi nances the Hos pi tal Insur ance pro gram (Medicare Part A).

This pro gram funds the cost of hos pi -

tal and re lated care for in di vid u als age

65 or older, who meet cer tain in sured

sta tus re quire ments, and for el i gi ble

dis abled peo ple. HHS ad min is ters the

pro gram.

The Fed eral Hos pi tal In sur ance

Trust Fund is fi nanced pri mar ily by

pay roll taxes. It also re ceives in come

from in ter est earn ings on Fed eral debt

se cu ri ties, Fed eral agen cies’ payments for the So cial Se cu rity ben e fits

earned by mil i tary and Fed eral ci vil -

ian em ploy ees, and a por tion of income taxes paid on So cial Se cu rity

ben e fits.

Federal 

Disability

Insurance 

Trust Fund

The Fed eral Dis abil ity In sur ance

Trust Fund pro vides as sis tance and

pro tec tion against the loss of earn ings 

due to a wage earner’s dis abil ity. The

as sis tance is in the form of money

pay ments or med i cal care. The Federal Dis abil ity In sur ance Trust Fund

is ad min is tered by SSA.

Like the Fed eral Old-Age and Survi vors In sur ance Trust Fund, pay roll

taxes pri mar ily fund the Fed eral Disabil ity In sur ance Trust Fund. The

Fund also re ceives in come from inter est earn ings on Fed eral debt se cu -

ri ties, Fed eral agen cies’ pay ments for

the So cial Se cu rity ben e fits earned by

mil i tary and Fed eral ci vil ian em ploy -

ees, and a por tion of in come taxes

paid on So cial Se cu rity ben e fits.

Federal

Supplementary

Medical

Insurance 

Trust Fund

The Fed eral Sup ple men tary

Med i cal In sur ance Trust Fund

fi nances the Sup ple men tal Medi cal In sur ance pro gram

(Medicare Part B), which provides sup ple men tary med i cal insur ance for en rolled par tic i pants 

to cover med i cal ex penses not

cov ered by Medicare Part A.

The pro gram is ad min is tered by

HHS.

Ap pro pri a tions, pre mi ums

charged to en rollees and in ter est 

earned on in vest ments in Federal debt se cu ri ties fund the Federal Sup ple men tary Med i cal Insur ance Trust Fund.

Military 

Retirement 

Trust Fund

The Mil i tary Re tire ment Trust

Fund pro vides re tire ment ben e fits for

Army, Navy, Ma rine Corps, and Air

Force per son nel and their sur vi vors.

The fund is fi nanced by DOD con tri -

bu tions, ap pro pri a tions and in ter est

earned on in vest ments in Fed eral debt

se cu ri ties.

Federal Old-Age

and Survivors 

Insurance 

Trust Fund

The Civil Ser vice Re tire ment and

Dis abil ity Fund cov ers two Fed eral

ci vil ian re tire ment sys tems: the Civil

Ser vice Re tire ment Sys tem (CSRS)

for em ploy ees hired be fore 1984 and

the Fed eral Em ployee Re tire ment

Sys tem (FERS), for em ploy ees hired

af ter 1983.

The CSRS is fi nanced by Fed eral

ci vil ian em ploy ees’ con tri bu tions,

agen cies’ con tri bu tions on be half of

the em ploy ees, ap pro pri a tions and inter est earned on in vest ments in Federal debt.

Civil Service

Retirement and

Disability Fund
80 Notes to the Fi nan cial State ments

The Un em ploy ment Trust Fund

pro tects work ers who lose their jobs

through no fault of their own. The unem ploy ment in sur ance pro gram is a

unique Fed eral and State part ner ship

based on Fed eral law, ex e cuted

through State law by State of fi cials.

La bor ad min is ters the pro gram.

Taxes on em ploy ers pri mar ily

fund the Un em ploy ment Trust Fund.

How ever, in ter est earned on in vest -

ments in Fed eral debt se cu ri ties also

pro vides in come to the fund. Ap pro -

pri a tions have sup ple mented its income dur ing pe ri ods of high and extended un em ploy ment.

Unemployment Trust Fund

The Haz ard ous Sub stance

Superfund was au tho rized to ad dress

pub lic health and en vi ron men tal

threats from spills of haz ard ous ma te -

ri als and from sites con tam i nated

with haz ard ous sub stances. The En vi -

ron men tal Pro tec tion Agency (EPA)

ad min is ters the fund.

Ex cise taxes col lected on pe tro -

leum and chem i cals, en vi ron men tal

taxes from all cor po ra tions with income in ex cess of $2 mil lion, and inter est earned on in vest ments in Federal debt se cu ri ties fi nance the

Haz ard ous Sub stance Superfund.

Hazardous

Substance

Superfund

The High way Trust Fund was estab lished to pro mote do mes tic in ter -

state trans por ta tion, mov ing peo ple

and the trans por ta tion of goods. The

fund pro vides Fed eral grants to

States for high way con struc tion and

re lated trans por ta tion pur poses.

Trans por ta tion ad min is ters the Highway Trust Fund.

Ear marked taxes on gas o line and

other fuel, cer tain tires, ve hi cle and

truck use, and in ter est earned on invest ments in Fed eral debt se cu ri ties

pro vide all fi nanc ing for the Highway Trust Fund.

Highway 

Trust Fund

The Air port and Air way Trust Fund

pro vides for air port im prove ment,

main te nance of air port fa cil i ties and

equip ment, re search and a por tion of

op er a tions. Trans por ta tion ad min is -

ters the Air port and Air way Trust

Fund.

Taxes re ceived from trans por ta tion 

of per sons and prop erty in the air, fuel

used in non-commercial air craft, inter na tional de par ture taxes and in ter -

est earned on in vest ments in Fed eral

debt se cu ri ties pro vide fund ing for

the Air port and Air way Trust Fund.

Airport and Airway Trust Fund

Dedicated Collections as of September 30*

(In billions of dollars)

As sets

Fund Name Re ceipts

Dis burse -

ments

Trust Fund

As sets

Less Intragovernmental As sets

Con sol i dated

As sets

Federal Old-Age and

Survivors Insurance 

Trust Fund ........ . 416.9 329.8 664.5 664.5 -

Federal Disability 

Insurance Trust Fund . . . 63.2 49.5 78.2 78.2 -

Medicare Part A ....... . 138.2 136.6 120.5 120.5 -

Medicare Part B ...... . 82.0 76.9 40.1 40.1 -

Unemployment 

Trust Fund ......... . 32.5 23.5 72.1 72.1 -

Hazardous Substance

Superfund.......... . 0.9 1.5 5.1 5.1 -

Highway Trust Fund..... . 28.3 32.7 26.1 26.1 -

Airport and Airway 

Trust Fund ......... . 8.7 5.9 9.3 9.3 -

Civil Service Retirement

and Disability Fund ... . 50.8 59.0 460.0 459.7 0.3

Military Retirement 

Trust Fund ......... . 37.8 33.8 149.9 149.9 -

* By law, cer tain ex penses (costs) re lated to the ad min is tra tion of the above funds are not charged to the funds and are financed by other sources.
Notes to the Fi nan cial State ments 81

Note 18. Indian Trust Funds

The Indian Trust Funds dif fer from

other ded i cated col lec tions re ported

in Note 17.

The De part ment of the In te rior (In -

te rior) has re spon si bil ity for the as -

sets held in trust on be half of Amer i -

can In dian Tribes and in di vid u als.

Trust funds are held in ac counts for

ap prox i mately 315 tribes, 317,000

in di vid ual In dian ac counts and other

funds, in clud ing the Alaska Na tive

Es crow Fund. The as sets held in trust

for Na tive Amer i cans are owned by

the trust ben e fi cia ries and are not

Fed eral as sets. There fore, these

amounts are not re flected in the Bal -

ance Sheet or State ment of Net Cost.

Indian Trust Fund bal ances pre -

sented be low do not in clude trust land

man aged by the Gov ern ment.

U.S. Government as Trustee for Indian Trust Funds

Held for Indian Tribes and Other Special Trust Funds 

Statement of Changes in Trust Fund Balances as of September 30 

(Unaudited)

(In millions of dollars)

Receipts.............................................. . 521.7

Disbursements ......................................... .

(465.4)

Receipts in excess of disbursements ......................... . 56.3

Trust fund balances, beginning of year ........................ . 2,403.7

Trust fund balances, end of year........................... . 2,460.0

U.S. Government as Trustee for Indian Trust Funds

Held for Individual Indian Monies Trust Funds 

Statement of Changes in Trust Fund Balances as of September 30 

(Unaudited)

(In millions of dollars)

Receipts.............................................. . 313.6

Disbursements ......................................... .

(354.1)

Disbursements in excess of receipts ......................... . (40.5)

Trust fund balances, beginning of year ........................ . 519.7

Trust fund balances, end of year........................... . 479.2
82 Notes to the Fi nan cial State ments

Blank Page
Sup ple men tal In for ma tion and Ap pen dix 83

Net Cost Detail

The State ment of Net Cost pres ents the cost of the Gov ern ment’s

ma jor func tions. The ob jec tives of each of the func tions are described be low. Also, the state ment con tains the def i ni tions of

“Gross cost,” “Earned rev e nue” and “Net cost.”

Amounts listed un der this function in clude the costs to pro vide mili tary forces to de ter war; to be prepared to en gage in war; and to

pre serve the peace and se cu rity of

the United States, the Ter ri tories,

Com mon wealth, its pos ses sions and

any area oc cu pied by the United

States. Na tional de fense also includes the cost to train, equip and

com pen sate the armed forces; develop, ac quire, uti lize and dis pose of

weap ons sys tems; con duct re search

and de vel op ment to main tain techno log i cal su pe ri or ity, cut costs and

im prove per for mance of weapon

sys tems; and carry out other de fense

re lated ac tiv i ties. 

National Defense

Education, Training, Employment and Social Services

(In billions of dollars)

Subfunctions Gross Cost

 Earned

Rev e nue Net Cost

Elementary, secondary 

and vocational education .... . 16.2 - 16.2

Higher education ............ . 13.6 3.3 10.3

Research and 

general education aids ...... . 2.5 - 2.5

Training and employment ...... . 5.4 - 5.4

Other labor services.......... . 0.8 - 0.8

Social services ............. . 16.2 - 16.2

Total education, 

training, employment 

and social services ....... .

54.7 3.3 51.4

Human

Resources

Education,

Training,

Employment

and Social

Services

The “Ed u ca tion,

train ing, em ploy ment

and so cial ser vices”

func tion serves to extend knowl edge and

skills, en hance employ ment and em ploy -

ment op por tu ni ties,

pro tect work place

stan dards and pro vide

ser vices to the needy.

United States Gov ern ment 

Sup ple men tal In for ma tion 

for the Year Ended Sep tem ber 30, 1998

(Un au dited)
84 Sup ple men tal In for ma tion and Ap pen dix

Health

(In billions of dollars)

Subfunctions Gross Cost

 Earned 

Rev e nue Net Cost

Health care services ..... . 109.0 0.6 108.4

Health research 

and training .......... . 13.5 0.3 13.2

Consumer and

occupational 

health and safety ...... . 1.9 0.2 1.7

Cost not allocated 

to subfunctions ....... .

0.9 - 0.9

Total health ........ . 125.3 1.1 124.2

Human 

Resources, cont.

Health

Listed un der the “Health” func tion

are the costs to pro mote phys i cal and

men tal health, in clud ing the pre ven -

tion of ill ness and ac ci dents, and the

Medicaid pro gram. Al though the

Medicare pro gram is the larg est Federal health pro gram, by law it is in a

sep a rate function for bud get purposes. Also ex cluded from the

“Health” subfunction is Fed eral

health care for mil i tary per son nel and

vet er ans.

Income Security

(In billions of dollars)

Subfunctions Gross Cost

 Earned 

Rev e nue Net Cost

Unemployment compensation . . . 24.0 1.0 23.0

Housing assistance.......... . 27.1 - 27.1

Food and 

nutritional assistance....... . 35.5 0.2 35.3

Other income security ........ . 81.4 4.4 77.0

Cost not allocated 

to subfunctions ........... .

13.8 2.1 11.7

 Total income security ....... . 181.8 7.7 174.1

Income Security

The cost of pro vid ing pay ments

to per sons for whom no cur rent service is ren dered com prises the “Income se cu rity” func tion. In cluded

are dis abil ity, un em ploy ment, welfare and sim i lar pro grams, ex cept

So cial Se cu rity and in come se cu -

rity for vet er ans. Also in cluded are

food stamps; spe cial milk and child

nu tri tion pro grams; un em ploy ment 

com pen sa tion and work ers’ compen sa tion; pub lic as sis tance cash

pay ments; ben e fits paid to the elderly and coal min ers; and low- and

mod er ate-income hous ing as sis -

tance. The cost of Fed eral pen sions

and re tiree health ben e fits are al lo -

cated to other func tions.

Social Security

“So cial Se cu rity” costs include pay ments to el i gi ble

ben e fi cia ries of the old-age

and sur vi vors in sur ance and

dis abil ity in sur ance programs. These are col lec -

tively re ferred to as “So cial

Se cu rity.” The So cial Se cu -

rity pro gram is the sin gle

larg est Fed eral pro gram and

is funded pri mar ily by payroll taxes. For more in for ma -

tion on So cial Se cu rity, re fer 

to the Stew ard ship In for ma -

tion sec tion on Stew ard ship

Re spon si bil ities and Note

17–Ded i cated Col lec tions.

Medicare

Fed eral hos pi tal in sur -

ance and Fed eral sup ple -

men tary med i cal pro grams

make up Medicare. This

func tion is not fur ther subdi vided. For more in for ma -

tion on Medicare, see the

note in the Stew ard ship Respon si bil ities sec tion of

Stew ard ship In for ma tion,

and Note 17–Ded i cated

Col lec tions.
Sup ple men tal In for ma tion and Ap pen dix 85

Veterans Benefits and Services

(In billions of dollars)

Subfunctions Gross Cost

 Earned 

Rev e nue Net Cost

Income security for veterans .............. . 137.6 - 137.6

Veterans education, 

training and rehabilitation .............. . 2.0 - 2.0

Hospital and medical care for veterans ...... . 18.5 0.6 17.9

Veterans housing ...................... . 0.6 0.5 0.1

Other veterans benefits and services ........ . 1.5 0.2 1.3

Total veterans benefits and services....... . 160.2 1.3 158.9

Energy

The “En ergy” subfunction includes the cost of pro mot ing an ad e -

quate sup ply and ap pro pri ate use of

en ergy to serve the needs of the economy.

Veterans Benefits and Services

The amounts listed un der this func tion in clude spe cific ben e fits and ser vices paid

to those with prior mil i tary ser vice. In cluded are vet er ans com pen sa tion, life in sur -

ance, pen sions, burial ben e fits, ed u ca tion, train ing, med i cal care, vet er ans hous ing

and VA ad min is tra tive ex penses. The net cost for the subfunction ti tled “In come

se cu rity for vet er ans” in creased this fis cal year by $109.4 bil lion. This in crease resulted from a change in ac tu ar ial meth od ol ogy and in ter est rate as sump tions. 

Human 

Resources, cont.

Physical Resources

Energy

(In billions of dollars)

Subfunctions Gross Cost

 Earned

Rev e nue Net Cost

Energy supply .......... . 11.7 11.3 0.4

Energy conservation...... . 0.7 - 0.7

Emergency energy

preparedness......... . 0.2 - 0.2

Energy information, 

policy and regulation.... .

0.7 0.6 0.1

Total energy .......... . 13.3 11.9 1.4

Natural Resources and Environment

(In billions of dollars)

Subfunctions Gross Cost

 Earned 

Rev e nue Net Cost

Water resources ............................... . 7.9 1.6 6.3

Conservation and land management................. . 5.3 1.0 4.3

Recreational resources .......................... . 1.7 0.3 1.4

Pollution control and abatement.................... . 8.4 0.8 7.6

Other natural resources .......................... . 3.7 0.5 3.2

Total natural resources and environment ............ . 27.0 4.2 22.8

Natural Resources 

and Environment

This func tion is com prised of cost

in curred to de velop, man age and

main tain the Na tion’s nat u ral resources and en vi ron ment. Ex cluded

are fund ing for com mu nity wa ter

sup ply pro grams, ba sic sewer systems and waste treat ment plants that

are part of com mu nity or re gional

de vel op ment pro grams.
86 Sup ple men tal In for ma tion and Ap pen dix

Commerce and Housing Credit

(In billions of dollars)

Subfunctions Gross Cost

Earned

Rev e nue Net Cost

Mortgage credit ......... . 2.9 4.8 (1.9)

Postal Service .......... . 78.1 60.0 18.1

Deposit insurance ....... . 3.3 1.0 2.3

Other advancement 

of commerce ......... .

12.2 4.9 7.3

Total commerce 

and housing credit .... .

96.5 70.7 25.8

Commerce and 

Housing Credit

This func tion en com passes the

pro mo tion and reg u la tion of the

com merce, hous ing and de posit insur ance in dus tries. In cluded un der

“Com merce and hous ing credit” are

costs to col lect and dis sem i nate social and eco nomic data; pro vide general pur pose sub si dies to busi ness

and in di vid u als, in clud ing credit subsi dies to hous ing; and sup port the

Postal Ser vice fund.

Transportation

(In billions of dollars)

Subfunctions Gross Cost

 Earned 

Rev e nue Net Cost

Ground transportation.... . 27.4 2.3 25.1

Air transportation ....... . 8.6 0.6 8.0

Water transportation..... . 5.3 0.8 4.5

Other transportation ..... . 0.3 - 0.3

Total transportation .... . 41.6 3.7 37.9

Physical

Resources, cont.

Transportation

Grants to States and oth ers for local or na tional trans por ta tion of passen gers and prop erty make up the

bulk of the costs as so ci ated with this

func tion. In cluded are costs to construct fa cil i ties; pur chase equip ment;

do re search, test ing and eval u a tion;

and pro vide op er at ing sub si dies to

trans por ta tion fa cil i ties (such as airports and rail roads).

The costs of pro mot ing vi a ble

com mu nity econ o mies by de vel -

op ing phys i cal fa cil i ties or fi nan -

cial in fra struc tures com prise this

func tion. Also in cluded are the

costs of de vel op ing trans por ta -

tion fa cil i ties that are in te gral

parts of com mu nity de vel op ment

pro grams. Aid to busi nesses is

usu ally ex cluded from this function un less it pro motes the economic de vel op ment of de pressed

ar eas and is not de signed to promote par tic u lar lines of busi ness

for their own sake.

Community and Regional Development

Community and Regional Development

(In billions of dollars)

Subfunctions Gross Cost

Earned 

Rev e nue Net Cost

Community development.................... . 7.1 0.2 6.9

Area and regional development ............... . 3.9 0.6 3.3

Disaster relief and insurance................. . 3.7 1.6 2.1

 Total community 

and regional development................ .

14.7 2.4 12.3
Sup ple men tal In for ma tion and Ap pen dix 87

In ter est costs are pri mar ily amounts on Fed eral se cu ri -

ties held by the pub lic. In ter est pay ments on these se cu -

ri ties are made by Trea sury’s Bu reau of the Pub lic Debt.

Net Interest

International Affairs

This func tion in cludes the cost of

main tain ing peace ful re la tions, support ing com merce and travel be tween 

the United States and the rest of the

world, and pro mot ing in ter na tional

se cu rity and eco nomic de vel op ment

abroad.

General Science, Space

and Technology

This func tion cov ers the costs of

Na tional Sci ence Foun da tion research, NASA space pro grams and

En ergy gen eral sci ence re search.

Agriculture

Costs as so ci ated with pro mot ing

ag ri cul tural eco nomic sta bil ity and

main tain ing and in creas ing ag ri cul -

tural pro duc tion are found un der the

“Ag ri cul ture” func tion. 

Other Functions

International Affairs

(In billions of dollars)

Subfunctions Gross Cost

 Earned

Rev e nue Net Cost

International development 

and humanitarian assistance ..................... . 10.5 1.1 9.4

International security assistance .................... . 2.4 1.0 1.4

Conduct of foreign affairs ......................... . 4.9 0.6 4.3

Foreign information and exchange activities ............ . 1.3 - 1.3

International financial programs ..................... . 5.7 3.3 2.4

Total international affairs ........................ . 24.8 6.0 18.8

General Science, Space and Technology

(In billions of dollars)

Subfunctions Gross Cost

 Earned

Rev e nue Net Cost

General science and basic research ................. . 5.1 - 5.1

Space flight, research and supporting activities ......... . 14.8 0.1 14.7

Total general science, space and technology ......... . 19.9 0.1 19.8

Agriculture

(In billions of dollars)

Subfunctions Gross Cost

 Earned 

Rev e nue Net Cost

Farm income stabilization ........................ . 16.0 1.9 14.1

Agriculture research and service .................... . 3.1 0.4 2.7

Total agriculture .............................. . 19.1 2.3 16.8
88 Sup ple men tal In for ma tion and Ap pen dix

Administration of Justice

The costs of ju di cial ser vices includes po lice pro tec tion, law en force -

ment (in clud ing civil rights), re ha bil i -

ta tion and in car cer a tion of crim i nals,

and the gen eral main te nance of domes tic or der. It also in cludes the cost

of pro vid ing court-appointed coun sel

or other le gal ser vices for in di vid u als. 

Not found un der “Ad min is tra tion of

jus tice” are the costs of the leg is la tive 

branch and po lice and guard ac tiv i ties 

that pro tect Fed eral prop erty. Also,

the cost of Na tional Guard per son nel

and mil i tary per son nel who are called

upon oc ca sion ally to main tain pub lic

safety and the cost of mil i tary po lice

are in cluded un der the na tional defense func tion.

General Government

“Gen eral Gov ern ment” cov ers general over head costs of the Fed eral

Gov ern ment. This in cludes leg is la -

tive and ex ec u tive ac tiv i ties as well as

cen tral fis cal, per son nel and prop erty

ac tiv i ties. All ac tiv i ties rea son ably or

closely as so ci ated with other functions are in cluded in those func tions

rather than “Gen eral Gov ern ment.”

General Government

(In billions of dollars)

Subfunctions Gross Cost

Earned

Rev e nue Net Cost

Legislative functions .......................... . 1.6 - 1.6

Executive direction and management............... . 0.4 - 0.4

Central fiscal operations ....................... . 11.0 2.0 9.0

General property and records management .......... . 12.1 0.4 11.7

Central personnel management .................. . 0.2 - 0.2

General purpose fiscal assistance ................ . 1.6 0.1 1.5

Other general Government ...................... . 2.3 0.3 2.0

 Total general Government ..................... . 29.2 2.8 26.4

Administration of Justice

(In billions of dollars)

Subfunctions Gross Cost

 Earned

Rev e nue Net Cost

Federal law enforcement activities ................. . 13.2 0.4 12.8

Federal litigative and judicial activities .............. . 6.6 0.5 6.1

Federal correctional activities .................... . 4.0 0.2 3.8

Criminal justice activities........................ . 4.5 0.3 4.2

 Total administration of justice................... . 28.3 1.4 26.9

Other Functions, cont.
Sup ple men tal In for ma tion and Ap pen dix 89

For fis cal 1998, the uni fied bud get

re ported a sur plus of $69.2 bil lion. 

For the same pe riod, the Fi nan cial

Re port re ports an ex cess of net cost

over rev e nue of $133.8 bil lion. The

dif fer ence be tween these two

amounts oc curs be cause they are

pre pared on dif fer ent measurement

basis to carry out their dif fer ent objec tives. The Fi nan cial Re port is prepared on the ac crual ba sis, ac cord ing 

to stan dards rec om mended by the

Fed eral Ac count ing Stan dards Ad vi -

sory Board as is sued by OMB and

GAO. Un der ac crual ac count ing,

trans ac tions are re ported when the

events giv ing rise to the trans ac tions

oc cur rather when the cash is received or paid. By con trast, the unified bud get is com puted pri mar ily on

the cash ba sis, ac cord ing to ac cepted

bud get con cepts and pol i cies. The

most sig nif i cant dif fer ences be tween 

these two bases in volve the tim ing of

rec og ni tion and measurement of reve nue and costs.

The dif fer ences be tween these two

basis of ac count ing can be di vided

into four pri mary cat e go ries.

1. Re ceipts rec og nized in the budget that are not rec og nized as rev e -

nue in the Fi nan cial Re port, such as:

• Collections of pre-credit reform

loans.

• Collections of taxes receivable.

• Collections of accounts

receivable.

• Proceeds from the sale of

capital assets representing

“book value.”

2. Rev e nues rec og nized in the Finan cial Re port that are not rec og -

nized as re ceipts in the bud get, such

as:

• Increases in taxes receivable.

• Increases in accounts

receivable.

3. Out lays rec og nized in the budget that are not rec og nized as costs in

the Fi nan cial Re port, such as:

• Purchases of inventory and

property, plant and equipment.

• Reductions in accounts

payable.

4. Costs rec og nized in the Fi nan -

cial Re port that are not rec og nized as

out lays in the bud get, such as:

• Depreciation on property, plant

and equipment.

• Increases in estimated

liabilities for employee

pensions.

• Increases in estimated

liabilities for employee

benefits.

• Increases in estimated

environmental liabilities.

• Defaults on pre-credit reform

loans.

In fis cal 1998, some of the the primary dif fer ences be tween the unified bud get sur plus and the ex cess of

net cost over rev e nue were as follows:

1. VA com pen sa tion–An in ter est

rate change was made in the ac tu ar ial 

as sump tions for Vet erans com pen sa -

tion that sig nif i cantly in creased the

li a bil ity. This in crease in the li a bil ity 

is rec og nized as a cur rent pe riod expense in the Fi nan cial Re port. The

re lated li a bil ity is dis closed in Note

10–Fed eral Em ployee and Vet eran

Ben e fits Pay able.

2. Mil i tary and Fed eral em ploy -

ees–The in crease in ac tu ar ial health

and pen sion li a bil i ties for mil i tary

and Fed eral em ploy ees is rec og nized 

as a cur rent pe riod ex pense in the Finan cial Re port. For a de tailed dis clo -

sure, see Note 10–Fed eral Em ployee 

and Vet eran Ben e fits Pay able.

3. En vi ron men tal Ex penses–The

in crease in es ti mated li a bil i ties as so -

ci ated with re mov ing, con tain ing

and/or dis pos ing of haz ard ous waste

is rec og nized as a cur rent pe riod expense in the Fi nan cial Re port. For a

de tailed dis clo sure, see Note 11–Envi ron men tal Li a bil i ties.

4. Dis trict of Co lum bia (DC) pension fund–In fis cal 1998, the Fed eral

Gov ern ment as sumed man age ment

re spon si bil ity of the DC pen sion

fund. The Fi nan cial Re port rec og -

nized the trans fer of this fund as a

$8.5 bil lion li a bil ity for fu ture payments to re tir ees, and as a $3 bil lion

Reconciliation of the Excess of Net Cost Over Revenue

 to the Unified Budget Surplus

Reconciliation of the Excess of Net Cost over Revenue to the Unified Budget

Surplus for the Year Ended September 30 (Unaudited)

(In billions of dollars)

Unified budget surplus ........................................ . 69.2

Veterans compensation ...................................... .

(109.4)

Military and Federal employees ................................ .

(39.8)

Environmental liabilities...................................... .

(12.8)

District of Columbia pension fund............................... .

(5.5)

Net amount of all other differences ............................. . (35.5)

Financial Report’s excess of net cost over revenue.................... . (133.8)
90 Sup ple men tal In for ma tion and Ap pen dix

Blank Page
Sup ple men tal In for ma tion and Ap pen dix 91

This Fi nan cial Re port in cludes the ex ec u tive, leg is la tive 

and ju di cial branches of the Gov ern ment. Ex cluded are

pri vately owned Gov ern ment-sponsored en ter prises such

as the Fed eral Home Loan Banks and the Fed eral Na tional

Mort gage As so ci a tion. The Fed eral Re serve Sys tem also

is ex cluded be cause or ga ni za tions and func tions per tain -

ing to mon e tary pol icy are tra di tion ally sep a rate from, and

in de pend ent of, other cen tral Gov ern ment or ga ni za tions

and func tions.

Ex ec u tive Of fice of the Pres i dent

Of fice of Man age ment and Bud get (OMB)

www.whitehouse.gov/wh/eop/omb

De part ment of Ag ri cul ture (Ag ri cul ture)

www.usda.gov

De part ment of Com merce (Com merce)

www.doc.gov

De part ment of De fense (DOD)

www.defenselink.mil

De part ment of Ed u ca tion (Ed u ca tion)

www.ed.gov

De part ment of En ergy (En ergy)

www.doe.gov

De part ment of Health and Hu man Ser vices (HHS)

www.hhs.gov

De part ment of Housing and Ur ban De vel op ment 

(HUD)

www.hud.gov

De part ment of In te rior (In te rior)

www.doi.gov

De part ment of Jus tice (Jus tice)

www.usdoj.gov

De part ment of La bor (La bor)

www.dol.gov

De part ment of State (State)

www.state.gov

De part ment of the Air Force (Air Force)

www.af.mil

De part ment of the Army (Army)

www.army.mil

De part ment of the Navy (Navy)

www.navy.mil

De part ment of the Trea sury (Trea sury)

www.ustreas.gov

De part ment of Trans por ta tion (Trans por ta tion)

www.dot.gov

De part ment of Vet erans Af fairs (VA)

Www.va.gov

U. S. Postal Ser vice

www.usps.gov

Agency for In ter na tional De vel op ment (AID)

www.info.usaid.gov

Cen tral In tel li gence Agency (CIA)

www.odci.gov

Com mod ity Credit Cor po ra tion

Com mod ity Fu tures Trading Com mis sion

Cor po ra tion for Pub lic Broad cast ing

En vi ron men tal Pro tec tion Agency (EPA)

www.epa.gov

Ex port-Import Bank of the United States

www.exim.gov

Farm Credit Ad min is tra tion

www.fca.gov

Federal Com mu ni ca tions Com mis sion (FCC)

www.fcc.gov

Fed eral De posit In sur ance Cor po ra tion (FDIC)

www.fdic.gov

Fed eral Emer gency Man age ment Agency (FEMA)

www.fema.gov

Fed eral Trade Com mis sion (FTC)

www.ftc.gov

Gen eral Ser vices Ad min is tra tion (GSA)

www.gsa.gov

Na tional Aero nau tics and Space Ad min is tra tion 

(NASA)

www.nasa.gov 

Na tional Ar chives and Re cords Ad min is tra tion

www.nara.gov

Na tional Credit Un ion Ad min is tra tion

www.ncua.gov

Na tional Sci ence Foun da tion (NSF)

www.nsf.gov

Na tional Trans por ta tion Safety Board (NTSB)

www.ntsb.gov

Of fice of Per son nel Man age ment (OPM)

www.opm.gov

Pen sion Ben e fit Guar anty Cor po ra tion

www.pbgc.gov

Significant Entities Included in these Statements 

and their Website Ad dresses:

Appendix: List of Significant Government 

Entities Included and Excluded
92 Sup ple men tal In for ma tion and Ap pen dix

 Fed eral Re serve Banks (FRBs)

Board of Gov er nors of the Fed eral Re serve Sys tem 

Fed eral Re tire ment Thrift In vest ment Board

Thrift Sav ings Plan (TSP)

Farm Credit Sys tem

Fed eral Home Loan Banks

Fi nancing Cor po ra tion

Freddie Mac

Fan nie Mae

Sal lie Mae

Res o lu tion Funding Cor po ra tion

Army and Air Force Ex change Ser vice

Navy Ex change Ser vice Com mand

Ma rine Corps Ex change

Se cu ri ties and Ex change Com mis sion (SEC)

www.sec.gov

Small Busi ness Ad min is tra tion (SBA)

www.sba.gov

Smith so nian In sti tu tion

www.si.edu

So cial Se cu rity Ad min is tra tion (SSA)

www.ssa.gov

Ten nes see Val ley Au thor ity (TVA)

www.tva.gov

Nu clear Reg u la tory Com mis sion

www.nrc.gov

Army Corps of En gi neers

www.usace.army.mil

U.S. In for ma tion Agency

www.usia.gov

En rich ment Cor po ra tion-(un til 7/28/98)

Significant entities excluded from these statements:

Other Boards and Com mis sions

Li brary of Con gress (LOC)

www.loc.gov

Gov ern ment Print ing Of fice (GPO)

www.gpo.gov

Gen eral Ac count ing Of fice (GAO)

www.gao.gov

Con gres sio nal Bud get Of fice (CBO)

www.cbo.gov

Other leg is la tive and ju di cial-(cash 

 trans ac tions only)

Entities Included, cont.