2002 

Financial Report 

of the 

United States 

Government 
Contents 

A Message from the Secretary of the Treasury ............................................................................1 
 

Management’s Discussion and Analysis ........................................................................................3 
 

General Accounting Office Report 

Comptroller General’s Statement .................................................................................................29 
 

Auditor’s Report...........................................................................................................................37 
 

Financial Statements 

Statements of Net Cost .................................................................................................................49 
 

Statements of Operations and Changes in Net Position................................................................49 
 

Reconciliations of Net Operating Cost and Unified Budget Surplus (or Deficit).........................50 
 

Statements of Changes in Cash Balance from Unified Budget and Other Activities ...................51 
 

Balance Sheets..............................................................................................................................51 
 

Stewardship Information (Unaudited) 

Stewardship Assets.......................................................................................................................59 
 

National Defense Assets...............................................................................................................59 
 

Stewardship Land .........................................................................................................................59 
 

Heritage Assets.............................................................................................................................60 
 

Stewardship Responsibilities:
 

Social Insurance Update ............................................................................................................62 
 

Social Insurance.........................................................................................................................63 
 

Statements of Social Insurance..................................................................................................63 
 

Notes to the Statements of Social Insurance..............................................................................66 
 

Program Sustainability ..............................................................................................................66 
 

Trust Fund Financing.................................................................................................................69 
 

Social Security...........................................................................................................................69 
 

Federal Hospital Insurance—Medicare Part A..........................................................................77 
 

Federal Supplementary Medical Insurance—Medicare Part B..................................................82 
 

Railroad Retirement...................................................................................................................83 
 

Black Lung (Part C)...................................................................................................................85 
 

Unemployment Insurance..........................................................................................................86 
 

Stewardship Investments ..............................................................................................................90 
 

Current Services Assessment........................................................................................................91 
 

Notes to the Financial Statements 

Note 1. Summary of Significant Accounting Policies..................................................................93 
 

Note 2. Cash and Other Monetary Assets.....................................................................................96 
 

Note 3. Accounts Receivable, Net................................................................................................98 
 

Note 4. Loans Receivable and Loan Guarantee Liabilities, Net...................................................98 
 

Note 5. Taxes Receivable, Net ...................................................................................................102 
 

Note 6. Inventories and Related Property, Net ...........................................................................102 
 

Note 7. Property, Plant and Equipment, Net ..............................................................................103 
 

Note 8. Other Assets...................................................................................................................104 
 

Note 9. Accounts Payable...........................................................................................................105 
 

Note 10. Federal Debt Securities Held by the Public and Accrued Interest ...............................105 
 

Note 11. Federal Employee and Veteran Benefits Payable ........................................................107 
 

Note 12. Environmental and Disposal Liabilities.......................................................................111 
 

Note 13. Benefits Due and Payable ............................................................................................113 
 

Note 14. Other Liabilities ...........................................................................................................114 
 

Note 15. Collections and Refunds of Federal Revenue ..............................................................115 
 
Note 16. Unreconciled Transactions Affecting the Change in Net Position...............................117 
 

Note 17. Prior Period Adjustments.............................................................................................118 
 

Note 18. Commitments and Contingencies ................................................................................118 
 

Note 19. Dedicated Collections..................................................................................................122 
 

Note 20. Indian Trust Funds.......................................................................................................125 
 

Note 21. Subsequent Event/Department of Homeland Security.................................................127 
 

Supplemental Information (Unaudited) 

Deferred Maintenance ................................................................................................................129 
 

Unexpended Budget Authority...................................................................................................130 
 

Tax Burden.................................................................................................................................130 
 

Other Claims for Refunds...........................................................................................................131 
 

Appendix 

List of Significant Government Entities Included
 

and Excluded from the Financial Statements...........................................................................133 
 
List of Social Insurance Charts 

Chart 1 Estimated OASDI Income (Excluding Interest) and Expenditures, 1960-2076 ..........71 
 

Chart 2 Estimated OASDI Income (Excluding Interest) and Expenditures
 

as a Percentage of Taxable Payroll, 1960-2076.........................................................72 
 

Chart 3 Estimated OASDI Income (Excluding Interest) and Expenditures
 

as a Percentage of GDP, 1960-2076 ..........................................................................72 
 

Chart 4 Estimated Number of OASDI Beneficiaries per 100 Covered Workers, 1960-2076 ..73 
 

Chart 5 Present Value of Estimated Medicare Part A Income (Excluding Interest) and 
 

Expenditures, 2002-2076...........................................................................................77 
 

Chart 6 Estimated Medicare Part A Income (Excluding Interest) and Expenditures
 

as a Percentage of Taxable Payroll, 2002-2076.........................................................78 
 

Chart 7 Estimated Medicare Part A Income (Excluding Interest) and Expenditures
 

as a Percentage of GDP, 2002-2076 ..........................................................................78 
 

Chart 8 Estimated Number of Medicare Part A Beneficiaries per 100 Covered Workers,
 

2002-2076..................................................................................................................79 
 

Chart 9 Estimated Medicare Part B Premium Income and Expenditures, 2002-2076..............82 
 

Chart 10 Estimated Medicare Part B Premium Income and Expenditures as a Percentage of GDP, 
 

2002-2076..................................................................................................................83 
 

Chart 11 Estimated Railroad Retirement Income (Excluding Interest) and Expenditures, 
 

2002-2076..................................................................................................................84 
 

Chart 12 Estimated Black Lung Expenditures and Excise Tax Collections, 
 

2003-2040..................................................................................................................86 
 

Chart 13 Estimated Unemployment Fund Cashflow Using Expected 
 

Economic Conditions, 2003-2012 .............................................................................87 
 

Chart 14 Estimated Unemployment Fund Cashflow Using a Mild
 

Recessionary Unemployment Rate, 2003-2012.........................................................88 
 

Chart 15 Estimated Unemployment Fund Cashflow Using a Deep 
 

Recessionary Unemployment Rate, 2003-2012.........................................................88 
 

Chart 16 Unemployment Trust Fund Solvency as of September 30, 2002.................................89 
 
This page is intentionally blank. 
 

A MESSAGE FROM THE 

SECRETARY OF THE TREASURY 

I am pleased to present the fiscal year 2002 Financial Report of the United States Government 

issued pursuant to the Government Management Reform Act of 1994. The Report discusses the 

government’s financial operations for the year and includes financial statements that cover the 

executive branch, as well as parts of the legislative and judicial branches of the U.S. Government. 

This is the sixth year that the report has been issued. 

For fiscal 2002, the U.S. Government is reporting an accrual-based net operating cost of $365 

billion down from $515 billion we reported in fiscal 2001. This also compares to a $158 billion 

budget deficit for fiscal 2002 reported last October. The most significant change between these 

accrual financial results and the budget deficit is the accrual recognition of veterans benefit costs 

beyond those covered by budget outlays. 

The drive to produce financial reports that better fulfill our responsibilities to the Congress 

and the public continues. This year, 21 of the 24 Chief Financial Officers’ Act departments and 

agencies received unqualified audit opinions, an increase of three from last year. In addition, the 

Treasury Department was able to accelerate the issuance of its audited financial statements by over 

three months thereby complying in fiscal 2002 with the November 15th accelerated reporting 

dates, which do not go into effect until fiscal 2004. As a result, a total of three major agencies met 

the future deadline. This is a tremendous achievement that when accomplished by all agencies will 

significantly improve the timeliness and usefulness of the data. 

The significance of these accrual-based reports is that they show the implications of current 

budgetary decisions over a longer time horizon. The ability to assess such impacts is significantly 

reduced when analysis is restricted to cash-based budget amounts. This information is therefore an 

important element of the debate about the real effects of governmental commitments. 

I intend to continue the commitment to producing and reporting financial information that 

meets the highest standards of integrity, and to provide to the American people the accountability 

and professionalism that they expect from their Government. 

John W. Snow 
This page is intentionally blank.
 

DISCUSSION AND ANALYSIS 3 

MANAGEMENT’S DISCUSSION AND 

ANALYSIS 

Introduction 

We are pleased to present the consolidated Financial Report of the United States Government (Financial 

Report), a comprehensive picture of the Government’s finances. Transparent presentation of the Federal 

Government’s financial results and condition has never been more important for understanding the fiscal condition 

of the United States. Our objective is to provide useful, timely reports of financial information to the American 

public and the world. We are committed to continue our work to improve financial management, modernize the 

Government’s financial management systems, and strengthen financial reporting. 

In this our 6th year of issuing financial statements, we are making progress in our quest to report the financial 

activities of the U.S. Government timely, reliably, and in a format useful to the readers. Although our auditors have 

disclaimed an opinion again this year, we have seen significant improvements in the underlying data quality. All 24 

of the largest departments and agencies completed their combined performance and accountability reports on time, 

by February 1, 2003, a month earlier than last year. In addition, 21 received an unqualified or clean opinion, as 

compared with 18 for the previous year, and only two agencies’ auditors were unable to render an opinion. The 

current focus of our attention is to resolve our material weaknesses in internal controls and improve data quality and 

timeliness. For example, we are implementing a plan to issue this report for fiscal 2004 operations by December 15, 

2004. 

The accompanying Financial Report is required by 31 U.S.C. § 331(e)(1) to be submitted to Congress by 

March 31, and consists of Management’s Discussion and Analysis, Statements of Net Cost, Statements of 

Operations and Changes in Net Position, Reconciliations of Net Operating Cost and Unified Budget Surplus (or 

Deficit), Statements of Changes in Cash Balance from Unified Budget and Other Activities, Balance Sheets, 

Stewardship Information (Unaudited), Notes to the Financial Statements, and Supplemental Information 

(Unaudited). Each section is preceded by a description of its contents. 

Executive Summary 

Operating Results Plus Commitments—The Big Picture 

Historically, the Government’s financial situation has been evaluated primarily from a cash-based budgeting 

perspective that measures the flow of funds in and out of Government accounts. However, that perspective does not 

track the many promises made by the Federal Government that translate into future spending. Thus, the first step in 

examining our financial challenge is to get an accurate snapshot of our current situation by adopting a forwardlooking accrual-based accounting system. 

In addition to accrual-based results, the larger picture includes many obligations and commitments not 

captured in accrual-based operating results. An attempt is made here to go beyond the balance sheet to also examine 

the impact of these other commitments. 

Because the Government traditionally has been viewed from a budget perspective, and because many of the 

terms used to describe financial events have different meanings when describing budget outcomes, a conscious 

effort has been made to refer to budget-based amounts by using the term budget in order to eliminate any possible 

confusion. Net operating revenue (cost) is the term used to represent accrual-based operating results and equates to 

the balance of revenue less net cost of Government operations. 
4 DISCUSSION AND ANALYSIS 

Financial Summary of Operations 

Statement of Operations and Changes in Net Position Comparison 

(In trillions of dollars) 

(1.0) 

(0.5) 

0.0 

0.5 

1.0 

1.5 

2.0 

2.5 

3.0 

99 00 01 02 99 00 01 02 99 00 01 02 

Actuarial 

Costs 

Total Revenue Net Cost of U.S. 

Government 

Operations 

Net Operating 

Revenue (Cost) 

The above chart shows the financial results remained in a net operating cost in fiscal 2002. The net operating 

cost was $364.9 billion in fiscal 2002, as compared to a net operating cost of $514.8 billion for fiscal 2001. The 

continued net operating cost contributed to the Government’s borrowing a net additional $220.5 billion in debt, 

excluding related accrued interest, from the public. As is also evident in the chart, revenues decreased in fiscal 2002 

by $136.0 billion, with individual income tax and tax withholdings comprising almost all of the decrease. Revenues 

have now declined 2 years in a row. Also, revenues declined in fiscal 2002 by 7 percent, the largest percentage 

decline since 1946. The net cost of U.S. Government operations decreased in fiscal 2002 by $286.1 billion when 

compared to fiscal 2001 costs. The largest reason for the decrease is that fiscal 2001 reflected the initial nonrecurring effect of a new law that increased the military retirement health benefits liability by $293.0 billion. Under 

this legislation, TRICARE benefits were extended to military retirees and their beneficiaries who were eligible for 

Medicare, and a fund was established to pay these benefits. This change resulted in civilian and military retirement 

and post-retirement health care becoming the largest liability of the Federal Government, and it remained so for 

fiscal 2002. 

The following chart shows that over the past 4 fiscal years, significant costs associated with certain benefit 

liabilities have had a major impact on the Government’s cost of operations. These incremental costs are the result of 

changes in interest rates and other actuarial assumptions. Also shown is that absent these adjustments, costs are 

steadily trending upward and the net operating revenue (cost) has fluctuated from break-even in fiscal 1999 to a 

$109.0 billion net operating revenue in fiscal 2000, and now to a $196.5 billion net operating cost in fiscal 2002. 

Actuarial liabilities include Federal employee and veteran benefits payable and are discussed in Note 11 of the Notes 

to the Financial Statements section. 
DISCUSSION AND ANALYSIS 5 

Costs 

(In trillions of dollars) 

1.5 

2.0 

2.5 

3.0 

1999 2000 2001 2002 

Reported net cost of Government 

operations 

Net cost of Government operations 

excluding change in actuarial liabilities 

Net Operating Revenue (Cost) 

(In billions of dollars) 

(750.0) 

(500.0) 

(250.0) 

0.0 

250.0 

1999 2000 2001 2002 

Reported net operating revenue (cost) 

Net operating revenue (cost) excluding 

change in actuarial liabilities 

Obligations and Commitments 

Liabilities are defined by the Federal Accounting Standards Advisory Board (FASAB) as a probable and 

quantifiable future outflow or other sacrifice of resources as a result of past transactions or events. Normally, 

liabilities result from activity related to a contractual obligation. Some of the obligations and commitments assumed 

by the U.S. Government (primarily related to social welfare) do not rise to the level where they would be included 

with liabilities due to the nature of the legislation that created them. They represent, however, some of the most 

significant fiscal commitments and serious future challenges. 

Although we report most of the quantifiable off-balance sheet obligations and commitments throughout this 

Financial Report, the following table presents them as a group for a comprehensive view of the magnitude of the 

Government’s current promises. The social insurance figures in the table are closed-group obligations. These 

obligations are equal to the present value of net payments (benefits less taxes) expected during the projection period 

on behalf of program participants over age 15 at the start of the projection period. While a true accrual measure 

would count only benefits already earned (and taxes already paid) by current workers, the closed-group liability 

includes future benefit accruals and future taxes of current workers. In this sense, the closed-group numbers are 

more forward-looking than a strict accrual-based calculation. They represent an estimate of the responsibility, under 

current law, of future taxpayers to pay benefits to current participants. 

A different perspective is provided by estimates of open-group obligations. The open group includes future as 

well as current participants and is appropriate for assessing sustainability. For that purpose, the open group should 

be extended to the indefinite future. For example, in the case of the Old -Age, Survivors and Disability Insurance 

(OASDI) program, the infinite-horizon, open-group obligation is $11.9 trillion in present value dollars (per the 2003 

Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance 

Trust Funds). Unlike the Trustees’ report, however, the focus of the financial statements and disclosures in this 

report is on Federal Government obligations made to date for which the accrual-based calculation is appropriate. 
6 DISCUSSION AND ANALYSIS 

Category (In billions of dollars) 2002 2001 

Social Insurance Commitment1: 

Federal Old-Age, Survivors and Disability Insurance (Social Security)........... 11,215.0 10,542.0 

Federal Hospital Insurance (Medicare Part A).................................................. 6,409.0 6,012.0 

Federal Supplementary Medical Insurance (Medicare Part B).......................... 6,487.0 6,471.0 

Railroad Retirement.......................................................................................... 38.0 35.0 

Total social insurance commitment................................................................ 24,149.0 23,060.0 

Other Commitments and Contingencies: 

Undelivered orders (contractual commitments) (page 120).............................. 538.8 497.9 

Multi-lateral development banks (page 120)..................................................... 69.8 69.4 

Long-term leases (page 120)............................................................................. 50.0 48.7 

Other commitments (page 120)......................................................................... 48.8 44.5 

Contingencies 70.0 48.4 

Total other commitments and contingencies.................................................. 777.4 708.9 1

 Calculation based upon present value of 75-year actuarial projections for the closed group 

(benefit payments in excess of contributions and earmarked taxes). The closed group 

represents current participants ages 15 and over at the start of the period. (Page 65) 

(page 121).................................................................................

The Big Picture 

When obligations and commitments are added to the traditional accounting liabilities, a more complete picture 

of the Government’s promises is revealed. The following table illustrates the extent of these commitments as of 

September 30, 2002, by combining items already on the Balance Sheet with the above table. 

Summary of Total Governmental Commitments and Assets 

Category (In billions of dollars) 

Sept. 30, 

2002 

Social insurance commitment.................................................................................. 24,149.0 

Federal post-retirement liabilities............................................................................ 3,589.4 

Federal debt held by the public and accrued interest............................................... 3,573.2 

Other on-balance sheet liabilities............................................................................. 654.1 

Other commitments and contingencies.................................................................... 777.4 

Total Governmental obligations........................................................................... 32,743.1 

Less balance sheet assets................................................................................... 996.5 

Less military equipment (1).............................................................................. 616.0 

Total Governmental commitments less Governmental assets (2)................... 31,130.6 1

 Source: Fiscal Year 2004 Analytical Perspectives, page 37, Defense Fixed Reproducible 

Capital, Nonfinancial Assets. 

2

 The power to tax is not reflected as an asset. 

In this context, the ratio of assets to liabilities may not provide a meaningful perspective on the financial 

condition of the Federal Government, partially since the assets do not value the Government’s sovereign ability to 

tax. A more useful reference for the scale of our liabilities may be in terms of the national economy. To help put the 

numbers in this perspective, they can be expressed as a percent of annual gross domestic product (GDP). GDP in the 

final quarter of fiscal 2002 was $10.5 trillion. For fiscal 2002, debt held by the public, excluding accrued interest 

payable, was roughly $3.5 trillion or 33.7 percent of GDP. Total Governmental liabilities less Governmental assets 

were more than 295 percent of GDP. 

In order to further appreciate this situation, some measure of the Government’s assets must be added to the 

analysis. The Government’s most significant asset is its power to tax, which is not valued in an accounting sense. 

However, assumptions can be made relative to the size of the economy to provide a framework for understanding 

future revenues and their ability to fund our commitments, as well as the projected costs of planned and expected, 

but discretionary, Federal Government activities. 
DISCUSSION AND ANALYSIS 7 

The Federal Government’s function with respect to programs such as Social Security, Medicare and Medicaid 

is not unlike that of an insurance provider. A private insurer closely monitors its total liabilities and the combination 

of assets and future premiums it expects to use in meeting those obligations. Similarly, it is prudent on our part to 

examine the total exposure of the Federal Government rather than focusing on the current annual impact of these 

programs, which is currently positive. Under current law, current and past participants would receive benefits with a 

present value that is approximately $24 trillion in excess of the present value of the revenues that we expect to 

receive. The policy question to be addressed is how do we pay for those promises and rectify this fiscal imbalance? 

The answer will probably take a combination of actions, including increasing economic growth, greater societal 

investments and savings, larger Federal debt, controlling health care costs, and legislative changes involving 

improved incentives, and possibly benefit changes and tax increases. While retirement and health care insurance are 

the biggest pieces of this problem, we must also confront the true costs of all Government programs. 

As these projections indicate, the country faces a significant challenge to better align its promises with its 

resources for the future. 

Mission and Organizational Structure 

No other entity in the world compares in size, scope, and complexity to the U.S. Government. It spent more 

than $2.0 trillion in fiscal 2002. A civilian Federal workforce of 2.7 million individuals plus 1.4 million Department 

of Defense (DOD) active duty military personnel serves a diverse Nation of almost 281 million Americans. 

To fulfill its constitutional mandates, the U.S. Government undertakes a wide variety of programs to: 

• Maintain strong, ready, and modern military forces. 

• Provide homeland security. 

• Provide critical international leadership. 

• Contribute to energy security. 

• Protect the environment. 

• Boost agricultural productivity. 

• Facilitate commerce and support housing. 

• Support the transportation system. 

• Help economically distressed urban and rural communities. 

• Assist States and localities in providing essential education and training. 

• Promote health care. 

• Foster income security. 

• Provide benefits and services to veterans. 

• Administer justice. 

The form of Government that exists in the United States is a constitutional representative democracy. The 

following organization chart illustrates the constitutionally mandated separation of powers into the three main 

branches of Government. It also illustrates the breadth and complexity of the executive branch. 
8 DISCUSSION AND ANALYSIS 

THE GOVERNMENT OF THE UNITED STATES 

THE CONSTITUTION 

LEGISLATIVE BRANCH EXECUTIVE BRANCH JUDICIAL BRANCH 

THE PRESIDENT 

THE VICE PRESIDENT 

Executive Office of the President 

THE CONGRESS 

SENATE HOUSE 

Architect of the Capitol 

United States Botanic Garden 

General Accounting Office 

Government Printing Office 

Library of Congress 

Congressional Budget Office 

White House Office 

Office of the Vice President 

Council of Economic Advisers 

Council on Environmental Quality 

National Security Council 

Office of Administration 

Office of Homeland Security (*) 

Office of Management and Budget 

Office of National Drug Control Policy 

Office of Policy Development 

Office of Science and Technology Policy 

Office of the U.S. Trade Representative 

(*) Homeland Security Act of 2002, was signed 

into law 11/25/02 creating the new Department of 

Homeland Security. See Note 21 for additional 

information. 

THE SUPREME COURT OF THE 

UNITED STATES 

United States Courts of Appeals 

United States District Courts 

Territorial Courts 

United States Court of International Trade 

United States Court of Federal Claims 

United States Court of Appeals for the 

Armed Forces 

United States Tax Court 

United States Court of Appeals 

for Veterans Claims 

Administrative Office of the United States Courts 

Federal Judicial Center 

United States Sentencing Commission 

DEPARTMENT 

OF 

AGRICULTURE 

DEPARTMENT 

OF 

COMMERCE 

DEPARTMENT 

OF 

DEFENSE 

DEPARTMENT 

OF 

EDUCATION 

DEPARTMENT 

OF 

ENERGY 

DEPARTMENT 

OF HEALTH 

AND HUMAN 

SERVICES 

DEPARTMENT 

OF HOUSING 

AND URBAN 

DEVELOPMENT 

DEPARTMENT 

OF 

THE INTERIOR 

DEPARTMENT 

OF 

JUSTICE 

DEPARTMENT 

OF 

LABOR 

DEPARTMENT 

OF 

STATE 

DEPARTMENT 

OF 

TRANSPORTATION 

DEPARTMENT 

OF THE 

TREASURY 

DEPARTMENT 

OF 

VETERANS 

AFFAIRS 

INDEPENDENT ESTABLISHMENTS AND GOVERNMENT CORPOR ATIONS 

African Development Foundation 

Central Intelligence Agency 

Commodity Futures Trading 

Commission 

Consumer Product Safety Commission 

Corporation for National and 

Community Service 

Defense Nuclear Facilities Safety 

Board 

Environmental Prot ection Agency 

Equal Employment Opportunity 

Commission 

Export -Import Bank of the U.S. 

Farm Credit Administration 

Federal Communications 

Commission 

Federal Deposit Insurance 

Corporation 

Federal Election Commission 

Federal Emergency Management 

Agency 

Federal Housing Finance Board 

Federal Labor Relations Authority 

Federal Maritime Commission 

Federal Mediation and 

Conciliation Service 

Federal Mine Safety and 

Health Review Commission 

Federal Reserve System 

Federal Retirement Thrift 

Investment Board 

Federal Trade Commission 

General Services Administration 

Inter-American Foundation 

Merit Systems Protection Board 

National Aeronautics and 

Space Administration 

National Archives and Records 

Administration 

National Capital Planning 

Commission 

National Credit Union Administration 

National Foundation on the Arts 

and the Humanities 

National Labor Relations Board 

National Mediation Board 

National Railroad Passenger 

Corporation (Amtrak) 

National Science Foundation 

National Transportation Safety 

Board 

Nuclear Regulatory Commission 

Occupational Safety and Health 

Review Commission 

Office of Government Ethics 

Office of Personnel Management 

Office of Special Counsel 

Overseas Private Investment 

Corporation 

Peace Corps 

Pension Benefit Guaranty 

Corporation 

Postal Rate Commission 

Railroad Retirement Board 

Securities and Exchange 

Commission 

Selective Service System 

Small Business Administration 

Social Security Administration 

Tennessee Valley Authority 

Trade and Development Agency 

U.S. Agency for International 

Development 

U.S. Commission on Civil Rights 

U.S. International Trade 

Commission 

U.S. Postal Service 

Original source: U.S. Government Manual 2002/2003 
DISCUSSION AND ANALYSIS 9 

The United States is impressive in its position as one of the world powers. The following table illustrates 

several interesting facts about the United States, as compared with other countries. 

Item of Interest 

Amount for the 

United States 

Information 

as of 

Country 

Rank Comments 

Land area 9,158,960 square 

kilometers 4th Russia, China, and Canada are larger 

Population 280.6 million July 2002 est. 3rd China and India are 

greater 

Gross domestic product $10.082 trillion 2001 est. 1st China was second with 

$5.6 trillion 

Gross domestic product–per 

capita $36,300 2001 est. 2nd Luxembourg was first with $43,400 

Infant mortality rate 6.69 deaths per 

1,000 live births 2002 est. 41st 

Countries with 

populations > 50 million 

with lower deaths: 

France – 4.41 

Germany – 4.65 

Italy – 5.76 

Japan – 3.84 

United Kingdom – 5.45 

Electricity–production 3.8 trillion kilowatthour 2000 1st China was second with 

1.308 trillion 

Military expenditures – 

percent of gross domestic 

product 

3.20 percent Fiscal 1999 est. 44th North Korea was first 

with 31.3 percent 

Source: Central Intelligence Agency’s The World Factbook 2002 

Financial Results 

The net operating cost as shown in these financial statements for fiscal 2002 is $364.9 billion, as compared to a 

budget deficit of $157.7 billion. The primary component of the difference between the budget and accrual numbers 

is an increase in the liability for veterans compensation and burial benefits of $157.3 billion. For a detailed 

reconciliation showing the differences, see the Reconciliations of Net Operating Cost and Unified Budget Surplus 

(or Deficit) in the Financial Statements section. 

In fiscal 2001, the financial statements showed a net operating cost of $514.8 billion, as compared to a budget 

surplus of $127.0 billion. The primary components of the difference were increases in the liability for military health 

liabilities of $388.6 billion, and an increase in the liability for veterans disability of $115.2 billion. 

Revenue and Cost Summary 

Revenue 

Government revenue comes from two sources: nonexchange transactions and exchange transactions. 

Nonexchange revenue arises primarily from exercise of the Government’s power to demand payments from the 

public (e.g., taxes, duties, fines, and penalties). Nonexchange revenue is the U.S. Government’s primary source of 

revenue and totaled $1,870.4 billion in fiscal 2002, as compared to $2,001.4 billion in fiscal 2001. More than 98 

percent of this total came from tax receipts, with the remainder coming from customs duties and other miscellaneous 

receipts. This reduction of $131.0 billion, or 6.5 percent, resulted primarily from a drop in individual income tax and 

tax withholdings and can be attributed to a variety of factors, including a weaker economy, a decline in capital gains 

realizations, and tax cuts enacted in recent years. Even in the absence of any tax cuts, it is estimated that the receipts 

would still have declined by 5.7 percent. 

Exchange, or earned, revenue arises when a Government entity provides goods and services to the public for a 

price. Examples of exchange revenues are the mailing and postage revenue for the U.S. Postal Service and Medicare 

Part B premiums collected by the Department of Health and Human Services (HHS). During fiscal 2002, the U.S. 
10 DISCUSSION AND ANALYSIS 

Government earned $163.9 billion in exchange revenue, as compared with $172.3 billion in fiscal 2001. Of the fiscal 

2002 revenues, $156.6 billion is offset against the gross cost of the related agencies’ programs to arrive at the 

agencies’ net cost, as compared with $160.0 billion for fiscal 2001. Also included is $7.3 billion ($12.3 billion in 

fiscal 2001) that was earned by the U.S. Government but not offset against the cost of any program (e.g., royalties 

on the Outer Continental Shelf Lands). 

The following chart shows the components of revenue by major source. 

Components of Revenue by Major Source 

(In billions of dollars) 

0.0 

500.0 

1,000.0 

1,500.0 

2,000.0 

2,500.0 

All others 82.2 79.7 86.0 78.2 

Other taxes and receipts 42.0 56.3 48.9 49.3 

Excise taxes 70.5 69.3 67.3 67.9 

Corporation income taxes 182.2 204.3 147.9 143.7 

Individual income tax and 

tax withholdings 

1,456.0 1,635.2 1,663.6 1,538.6 

1999 2000 2001 2002 
DISCUSSION AND ANALYSIS 11 

Cost 

0 

100 

200 

300 

400 

500 

600 

700 

800 

Dept. of 

Defense 

Social 

Security 

Admin. 

Dept. of 

Health & 

Human 

Svcs. 

Interest on 

Debt Held 

by the 

Public 

Dept. of 

Veteran 

Affairs 

All Other 

Entities 

Net Cost Comparison 

(In billions of dollars) 

2000 

2001 

2002 

The above chart compares significant elements of net cost by fiscal year. As noted earlier, the significant 

decrease in DOD cost from fiscal years 2001 to 2002 is because fiscal 2001 reflects the initial non-recurring effect 

of the extension of medical benefits to retired personnel in the amount of $293.0 billion, plus another $91.3 billion 

in other actuarial assumption changes. The second largest change was a decrease in the interest on debt held by the 

public of $42.3 billion. Although the amount of outstanding debt held by the public increased during fiscal 2002, the 

related fiscal 2002 interest expense on such debt decreased as a result of overall lower interest rates. The net costs of 

HHS increased by $38.4 billion, primarily due to a $19.7 billion, 15.1 percent, increase in Medicaid and an $11.8 

billion, 5.4 percent, increase in Medicare. 

Asset and Liability Summary 

Assets 

The assets of the U.S. Government are the tangible resources available to pay liabilities or to satisfy future 

service needs. The accompanying chart depicts a 4-year comparison of the major categories of reported assets as of 

September 30, for fiscal years 1999 through 2002. 
12 DISCUSSION AND ANALYSIS 

0 

50 

100 

150 

200 

250 

300 

350 

Assets - Key Items Comparison 

(In billions of dollars) 

1999 115.2 183.7 173.3 298.8 112.0 

2000 104.9 207.6 185.2 298.5 115.3 

2001 108.0 208.9 183.8 306.7 118.7 

2002 141.6 219.2 192.2 324.7 118.8 

Cash and Other 

Monetary 

Assets 

Loans 

Receivable, Net 

Inventories and 

Related 

Property, Net 

Property, Plant 

and Equipment, 

Net 

All Other Assets 

As can be seen from the above chart, in fiscal 2002, assets increased in all major categories. Cash and other 

monetary assets increased by $33.6 billion, or 31 percent, and were mostly due to a $14 billion increase in 

compensating balances and an increased cash balance required to meet early fiscal 2003 payments. Compensating 

balances are deposited interest free to compensate commercial banks for services provided on behalf of the Federal 

Government (such as tax collections, handling over-the-counter deposits for Federal program agencies, providing 

lockbox services for agency collection programs, etc.). Property, plant and equipment also increased by $18.0 

billion, or 5.9 percent, mostly due to an $8.5 billion increase in DOD and a $1.7 billion increase in the Department 

of Transportation. For fiscal 2001, assets remained relatively constant from the previous fiscal year. It is important 

to note that the assets presented on the Balance Sheets are not a comprehensive list of Federal resources. Natural 

resources, stewardship land (national parks, forests, and grazing lands), national defense assets, and heritage assets 

are examples of resources that are not included in the assets reported on the Balance Sheets. Detailed information 

about these items can be found in the Stewardship Information section. Additionally, the U.S. Government’s most 

important financial resource, its sovereign power to tax, regulate commerce, and set monetary policy cannot be 

quantified and is not reflected. It should be noted that pending congressional approval, a new Federal accounting 

standard will require that national defense assets will be capitalized and, with the exception of the cost of land and 

land improvements that produce permanent benefits, depreciated, and included on the Government’s Balance 

Sheets. 

Liabilities 

At the end of fiscal 2002, the U.S. Government reported liabilities of $7.8 trillion, as compared to $7.4 trillion 

for September 30, 2001. The largest component of these liabilities ($3.6 trillion) is represented by pension, 

disability, and retiree health care costs for Federal civilian and military employees as well as for veterans, as 

compared to $3.4 trillion for September 30, 2001. During fiscal 2002, the increase of $157.3 billion for veterans 

compensation and burial benefits was due to a combination of factors, including overall decreases in interest rates 

used for discounting future benefits and the number of new compensation awards made for diabetes in fiscal 2001. 

The second largest increase of $21.7 billion was for military pension liability, which represented a 3.1 percent 

increase in the liability. See Note 11 in the Notes to the Financial Statements section for a more detailed explanation 

of these changes. During fiscal 2001, there was an increase of $406.8 billion for military employees benefits, which 

was mostly due to reflecting the initial non-recurring effect of the National Defense Authorization Act and other 
DISCUSSION AND ANALYSIS 13 

actuarial assumption changes. In addition, there was an increase of $139.3 billion for liability for veterans 

compensation and burial benefits caused by changes in interest rate and other actuarial assumptions. 

The next largest liability, $3,573.2 billion, relates to Federal debt securities held by the public, as compared to 

$3,359.3 billion for September 30, 2001; this reflects a $213.9 billion increase in the debt held by the public, 

including related accrued interest. The fiscal 2002 increase in debt held by the public is primarily due to total 

Federal spending exceeding total Federal revenues. 

Another liability is related to environmental cleanup costs associated with environmental 

damage/contamination. As of September 30, 2002, the recognized cost of cleaning up environmental 

damage/contamination across Government programs was estimated to be $273.0 billion, as compared to $306.8 

billion for September 30, 2001. A significant component of this reduction relates to the Department of Energy. It 

reduced its environmental liability by $28.7 billion, mostly due to employing an accelerated cleanup approach 

resulting from a top-to-bottom review to find efficient and cost-effective ways to achieve greater real cleanup and 

risk reduction to public health. 

The accompanying chart presents a 4-year comparison of the major components of liabilities reported on the 

Balance Sheets as of September 30, for fiscal years 1999 through 2002. 

0 

500 

1,000 

1,500 

2,000 

2,500 

3,000 

3,500 

4,000 

Liabilities - Key Items Comparison 

(In billions of dollars) 

1999 2,600.7 3,674.2 313.2 321.1 

2000 2,764.7 3,454.2 301.2 336.8 

2001 3,360.8 3,359.3 306.8 358.0 

2002 3,589.4 3,573.2 273.0 381.1 

Federal Employee and 

Veteran Benefits 

Payable 

Federal Debt Securities 

Held by the Public and 

Accrued Interest 

Environmental and 

Disposal Liabilities All Other Liabilities 

As clearly shown above, Federal employee and veteran benefits payable has been rapidly increasing over the 

past 2 years. Federal debt securities held by the public, including accrued interest, is now showing an increase, after 

3 years of steady reductions. The increase in fiscal 2002 was $213.9 billion, as compared with a $94.9 billion 

reduction for fiscal 2001. 

Federal Debt and Budget Surpluses and Deficits 

Fiscal 2002 resulted in a budget deficit, following 4 consecutive years of budget surpluses. It is important to 

understand the composition of budget surpluses and deficits, and the impact that these have on the composition of 

the Federal debt. There are two components of Federal debt: debt held by the public and intragovernmental debt 

holdings. 
14 DISCUSSION AND ANALYSIS 

Debt held by the public includes all Federal debt held by individuals, corporations, State or local governments, 

Federal Reserve Banks, foreign governments, and other entities outside of the U.S. Government. The types of 

securities held by the public include, but are not limited to, Treasury Bills, Treasury Notes, Treasury Bonds, U.S. 

Savings Bonds, State and Local Government Series securities, Foreign Series securities, and Domestic Series 

securities. 

Intragovernmental debt holdings generally include nonmarketable securities held by various elements of the 

Government itself. The laws establishing Government trust funds (such as the Social Security and Medicare Trust 

Funds) generally require the balances to be invested in these special securities. Although intragovernmental debt 

holdings are used in the calculation of the Federal debt subject to the statutory debt limit, intragovernmental 

transactions are eliminated in the consolidation process of preparing this Financial Report since they are claims of 

one part of the Government against another part. However, they are important to an understanding of total debt 

outstanding because, as the intragovernmental securities are redeemed, other sources of funds will be needed to fund 

the spending related to the redemptions. 

The following chart presents a 4-year comparison of the components of Federal debt subject to the statutory 

debt limit. 

Analysis of Federal Debt Subject to the Limit 

(In billions of dollars) 

3,631.6 3,409.9 3,540.3 

1,988.3 2,230.9 2,462.0 

2,673.5 

3,319.8 

0 

1,280 

2,560 

3,840 

5,120 

6,400 

1999 2000 2001 2002 

Fiscal year ending September 30 

Intragovernmental Debt 

Holdings 

Federal Debt Held by 

the Public, excluding 

accrued interest 

Current Statutory Debt 

Limit ($6,400 billion) 

* Number on top of bars 

represents total Federal debt 

subject to the statutory limit, and 

has been adjusted for agency 

and Federal Financing Bank 

debt, and certain unamortized 

premiums and discounts not 

subject to the statutory debt in 

the amounts of $52.2 billion, 

$49.2 billion, $49.0 billion, and 

$52.7 billion for fiscal 1999, 

2000, 2001, and 2002, 

respectively. 

5,567.7* 5,591.6* 5,732.8* 

6,161.1* 

As can be seen from the above chart, total Federal debt subject to the limit increased by $428.3 billion during 

fiscal 2002, which is primarily comprised of an increase in intragovernmental debt holdings of $211.5 billion and an 

increase in Federal debt held by the public, excluding related accrued interest, of $220.5 billion. Intragovernmental 

debt holdings have steadily increased since fiscal 1999 and debt held by the public decreased from fiscal years 1999 

through 2001, but increased this fiscal year. The primary reasons for the increases in intragovernmental debt 

holdings are the annual cash surpluses in the Federal Old -Age and Survivors Insurance, Federal Disability 

Insurance, Military Retirement, and Civil Service Retirement and Disability trust funds. The fiscal 2002 increase in 

debt held by the public is primarily due to total Federal spending exceeding total Federal revenues. 

The two major components of total Federal debt (or gross Federal debt), debt the Government owes to the 

public and debt the Government owes to itself, have markedly different interpretations. In a short-run 

macroeconomic view, only publicly held debt has an impact on the economy. When the Government borrows from 

the public, it reduces the amount of resources available in the financial markets for private investment. The debt the 

Government owes to itself, consisting of Federal securities credited to trust funds, has no impact on financial 

markets. Moreover, while the total debt is often considered a measure of the Government’s deferred obligations, the 
DISCUSSION AND ANALYSIS 15 

portion held by the trust funds does not reflect what the Government is expected to pay in the future if it is to meet 

commitments prescribed in programs like OASDI. Essentially, from the perspective of the Federal Government, 

trust fund holdings represent only reserve spending authority allocated for a particular program. That is, for the 

Government as a whole, the holdings of trust funds are not assets—they are not resources set aside to support future 

expenditures. From the perspective of individual programs, however, trust funds are assets of a sort in that the 

reserve spending authority can be invoked when cash balances are negative. Thus, the total Federal debt is a 

combination of external and internal debt, representing obligations to the public and to itself through specific 

programs. But internal debt provides an incomplete picture of future obligations under the programs, and when 

internal debt needs to be repaid, the expenditure and its financing could have an impact on financial markets. 

On December 11, 2001, the Department of the Treasury (Treasury) requested the statutory debt ceiling be 

raised from $5,950 billion to $6,700 billion. During fiscal 2002, before the debt ceiling was raised, Treasury twice 

faced debt issuance suspension periods that required it to depart from its normal debt management procedures and to 

invoke legal authorities provided to avoid breaching the debt limit. Actions taken by Treasury included suspending 

investment of receipts of the Government Securities Investment Fund (G Fund) of the Federal Employees’ Thrift 

Savings Plan and the Civil Service Retirement and Disability trust fund (Civil Service fund); redeeming Civil 

Service fund securities early; and suspending the sales of State and Local Government Series securities. In addition, 

because the debt subject to the limit was so close to the ceiling during these periods, Treasury issued cash 

management bills to manage short-term financing needs. On June 28, 2002, Public Law 107-199 was enacted, which 

raised the statutory debt ceiling by $450 billion to $6.4 trillion. Starting in February 2003, Treasury again had to 

take advantage of available statutory tools to avoid breaching the statutory debt limit. Even with the use of statutory 

tools, there is a risk that we may hit the statutory debt limit before the collection of April 15 tax receipts. 

Federal Government operations are composed of two parts: trust funds, which receive their funding from 

dedicated collections (including collections from Treasury and other Federal agencies), and general Government, 

which is funded mainly from general revenues and borrowing. Many of the larger trust funds finance social 

insurance programs (such as Social Security and Medicare) and Federal military and civilian retirement programs. 

Other major trust funds finance highway and transit construction and airport development. The following chart 

illustrates a 4-year comparison of the budget surpluses or deficits of these two parts of Government and how the 

budget surpluses were used. 
16 DISCUSSION AND ANALYSIS 

4-Year Comparison of Sources and Uses of Budget Surplus or Deficit 

(In billions of dollars) 

0 

50 

100 

150 

200 

250 

300 

350 

400 

450 

Source 

Use 

Source 

Use 

Source 

Use 

Source 

Use 

Other Changes 

General 

Government Net 

Operating Revenue

General 

Government Net 

Operating Cost

Increase in Debt 

Held by the 

Government 

Reduction in Debt 

Held by the Public 

Trust Fund Surplus 

1999 2000 2001 2002 

Fiscal years 

Source: Combined Statement of Receipts, Outlays, and Balances of the United States Government 

Trust fund surpluses (the white area in the chart) are invested in Federal debt securities. The cash invested in 

Federal debt securities is mainly used for two purposes: to reduce the debt held by the public (the diagonally striped 

area) and to fund the general Government net operating cost (the black area). Other changes (the gray area) consist 

primarily of outlays under various loan programs. In fiscal 2002, it was necessary to increase the debt held by the 

public since the general Government net operating cost exceeded the trust fund surplus. 

The budget surpluses, based primarily on a cash basis, are almost entirely due to the trust fund surpluses. 

General Government operations experienced budget deficits for fiscal years 1999, 2001, and 2002, but had a budget 

surplus for fiscal 2000. 
DISCUSSION AND ANALYSIS 17 

Future Outlook 

National Priorities: (1) Winning the War Against 

Terrorism, (2) Securing the Homeland, and (3) 

Generating Long-Term Economic Growth 

America is in the opening stages of a long struggle against terrorist groups and the nations that support them. 

The United States and cooperating nations have brought a wide range of capabilities to bear on terrorism. The 

diverse activities undertaken illustrate the degree to which we are engaged in a new type of war. The United States 

and cooperating nations have accomplished the following: 

• Built and maintained a global coalition of more than 70 countries to fight terrorism. 

• Conducted successful military operations resulting in regime change in Afghanistan. 

• Provided freedom and humanitarian relief to oppressed people in Afghanistan. 

• Frozen terrorists’ assets and restricted the flow of money that enables terror. 

• Exploited unprecedented intelligence capabilities to locate, track, and apprehend terrorists on the run. 

Achieving these kinds of successes in the years ahead requires a sustained commitment of resources. One 

measure of our commitment is the funding that has already been dedicated to this effort. The Federal Government 

has spent or committed to spend $100 billion to respond to terrorism. This includes funding to fight the war on 

terrorism, to improve homeland security, and to finance recovery efforts in the New York metropolitan area and 

Washington, D.C. 

The creation of the Department of Homeland Security (DHS) was an historic step forward in protecting 

America. The new DHS began operations to secure the Nation’s safety in the biggest reorganization of the Federal 

Government in a half-century. The cabinet-level department unifies the work of 22 programs and agencies, and will 

move quickly to better protect Americans from threats here at home. By law, the DHS Secretary has 1 year from the 

time the Department becomes effective to bring all of the 22 agencies into the organization. As stated in the 

reorganization plan, most of the components moved into the new Department in March 2003. 

On November 26, 2002, President Bush signed into law the Terrorism Risk Insurance Act of 2002. Under the 

Act, Congress established in Treasury a temporary Terrorism Risk Insurance Program and authorized the Secretary 

of the Treasury to administer the program and pay the Federal share of compensation for insured losses under the 

program. The purpose of the program is to provide a transitional transparent system of shared public and private 

compensation for insured losses resulting from acts of terrorism. The program promotes economic growth by 

ensuring the continued widespread availability and affordability of property and casualty insurance for terrorism 

risk. It is structured so as to provide a transitional period for p rivate markets to develop mechanisms for the pricing 

of terrorism risk insurance, and build capacity and arrangements to diffuse the financial risks of any future losses, 

with consistent reliance upon State insurance regulation and consumer protections. 

Some of the challenges we face will endure for many years and will require great resources. As we look down 

that path, we will not always get to choose which battles we fight. It is, however, our duty to fight them. 

The recession of 2001 likely has been over for a year, but its effects linger. Though the economy has expanded, 

the rate of growth has not been fast enough and the improvement has been choppy and uneven. Too many 

Americans remain out of work and are concerned about their economic futures; too many businesses hold back in 

the face of this economic uncertainty, unwilling to make the investments in new production facilities, new 

machinery, and new technologies needed to re-ignite the full potential of our economy. To deal with this situation, 

the Administration proposed a bold jobs and growth program. 

The economy has suffered a series of shocks that have cost tens of thousands of jobs. Just as economic 

recovery was poised to begin, the attacks of September 11, 2001, caused a massive disruption. Flights were 

cancelled, tourism fell, stock trading was halted, and consumers and businesses retrenched as they sorted through the 

implications of this new threat to the Nation. 

Our economy then faced a new threat from within when Americans discovered serious abuses of trust by some 

corporate leaders. We learned that a handful of companies across a wide range of industries had engaged in 

dishonest practices that cost innocent people their jobs and savings. Penalties in the marketplace and the courts were 

prompt and severe, and new protections and oversight are being put into place, but much damage was done to 

investor confidence. 
18 DISCUSSION AND ANALYSIS 

To ensure the strongest economy possible, one in which every willing worker can find a job, the 

Administration is focusing on efforts to clear the way for faster growth and greater prosperity. Its proposed jobs and 

growth package will operate quickly not only to accelerate recovery, but also to produce a stronger, more resilient 

economy for years to come. The four key elements of the program are: 

• Accelerating in 2003 certain elements of the Economic Growth and Tax Reform Reconciliation Act of 2001 

(EGTRRA), such as the marginal rate reductions and the marriage penalty relief, that would otherwise take 

effect later. 

• Eliminating the unfair double taxation of dividends paid to individuals. 

• Increasing immediately the amount that small businesses are allowed to deduct from $25,000 to $75,000. 

• Creating new personal reemployment accounts to help unemployed workers search for new jobs and to provide a 

“reemployment bonus” for those quickly finding work. 

Social Security and Medicare: Benefits 

Will Soon Outstrip Dedicated Revenues 

Social Security and Medicare, our largest entitlement programs, combine to provide financial support to 40 

million seniors—14 percent of our population—and account for one-third of total Federal spending. As our 

population ages and health care costs continue to escalate, the costs of these programs will grow enormously, and 

will rapidly threaten to overwhelm the rest of the budget. 

Americans have often heard that Social Security and Medicare are in deep trouble financially, and the simple 

reason is the benefits provided under current law for these programs will soon far outstrip their dedicated revenues. 

Over the next 75 years, the actuaries of the Social Security Administration (SSA) project the cost of all benefits paid 

to current beneficiaries and promised to future beneficiaries will exceed Social Security revenues by almost $5 

trillion. The Medicare shortfall over this period is even worse at more than $13 trillion. (In terms defined earlier, 

these are open group unfunded obligations computed over the traditional 75-year horizon, generally used in the 

Trustees’ Reports.) 

Citizens and policymakers rightly monitor and debate the size of the national debt, which stands at $3.5 trillion 

in public hands, excluding related accrued interest, with another $2.7 trillion credited to various Government trust 

funds. But in fiscal 2002, the combined shortfall in Social Security and Medicare of nearly $18 trillion was about 

five times as large as today’s publicly held national debt. In other words, it would take an additional $18 trillion in 

today’s dollars to fund the obligations of these systems as they are now constituted. This is roughly the equivalent of 

the total income Americans will earn over the next year and a half. Expressed yet another way, the combined 

shortfall in Social Security and Medicare was eight times the amount of total Government spending in fiscal 2002. 
DISCUSSION AND ANALYSIS 19 

The estimates of Social Security and Medicare’s unfunded promises are subject to some variation depending 

on the underlying assumptions used. However, no conceivable combination of reasonable assumptions can erase the 

problems in Social Security or Medicare. The Social Security and Medicare shortfalls compel change. The longer 

the delay in enacting reforms, the greater the danger and the more drastic the remedies will have to be. 

Economic and Budgetary Results 

The U.S. economy improved significantly in fiscal 2002, spurred by the lagged effects of fiscal and monetary 

policies put into place earlier. Real GDP increased in each of the four quarters of the fiscal year, after declining in 

fiscal 2001. Inflation was very low. Productivity growth posted its strongest four-quarter increase in almost 30 years, 

and real wages rose. Progress in the labor market was less favorable, although employment began to turn around in 

the second half of the fiscal year. The Federal budget for fiscal 2002 suffered from the impacts of the previous 

year’s recession and the spending requirements following the terrorist attacks, recording a budget deficit of $157.7 

billion after 4 years of surpluses. 

The Economy in Fiscal 2002 

After declining by 0.4 percent in fiscal 2001, real GDP rebounded by a strong 3.3 percent over the four 

quarters of fiscal 2002. The downturn in fiscal 2001 was relatively mild by historical standards, with the loss in real 

GDP the smallest among all recessions since the early 1970s. Growth in fiscal 2002 was led chiefly by consumer 

spending, which rose 3.8 percent over the fiscal year after posting only a 1.8 percent increase the previous year. Low 

interest rates, engineered in part by the monetary policy actions of the Federal Reserve, and higher disposable 

personal income, resulting from the EGTRRA and other fiscal policy measures, helped support consumer spending. 

Those policies offset some of the negative wealth effects on consumer demand that resulted from the decline in the 

stock market in the last 2 years. 
20 DISCUSSION AND ANALYSIS 

Growth of Real GDP 

(Percent change, fourth quarter to fourth quarter) 

-0.5 

3.2 

2.4 

4.4 

2.6 

3.7 

4.8 

3.8 4.2 

3.7 

-0.4 

3.3 

-2 

-1 

0 

1 

2 

3 

4 

5 

6 

7 

91 92 93 94 95 96 97 98 99 00 01 02 

Fiscal years 

The labor market began to improve in the second half of the fiscal year, but strong job growth has yet to 

resume. Through the first half of the fiscal year, more than 1 million payroll jobs were cut, mostly in the 

manufacturing sector. In the second half of the year, employment conditions stabilized and about 130,000 jobs were 

added. The unemployment rate moved up from 5.0 percent at the start of the year to as high as 5.9 percent in April, 

then eased to 5.7 percent by the final month. The 5.7 percent average for the fiscal year as a whole compares with 

4.4 percent in fiscal 2001. 

On the positive side, inflation was well contained in fiscal 2002. Falling prices for petroleum held the increase 

in the consumer price index to just 1.6 percent over the year. Growth in “core” consumer prices (excluding energy 

and food) was also moderate at 2.3 percent. 

Productivity gains have helped to keep cost pressures down while allowing real output and wages to grow. 

Productivity in the nonfarm business sector of the economy rose by an extraordinary 5.7 percent over the four 

quarters of fiscal 2002, the strongest four-quarter performance since 1973. 

Budget Results 

The unified Federal budget was in deficit by $157.7 billion in fiscal 2002. That was the first budget deficit 

following 4 consecutive years of surpluses, but smaller than the $165.1 billion budget deficit that had been projected 

in the July Mid-Session Review. In relation to GDP, the budget deficit was a modest 1.5 percent, which except for 

fiscal years 1996 and 1997, was the lowest such share since fiscal 1979. The economic recession and declines in the 

stock market, estimated to have accounted for nearly two-thirds of the swing from surplus to deficit, were the chief 

reasons for the deterioration in the unified budget balance. Other factors were the tax cuts and stimulus measures 

enacted to spur the economy and the increased defense and homeland security spending needed to protect the 

country from new threats. 

Receipts decreased by $138.0 billion, or 6.9 percent, the largest percentage decline since fiscal 1946. Receipts 

in relation to GDP returned to a more normal 17.9 percent in fiscal 2002, down from 19.9 percent in 2001 and a 

record high 20.8 percent in 2000. Outlays rose $147.2 billion, or 7.9 percent, and represented a 19.5 percent share of 

GDP compared with 18.6 percent in the prior fiscal year. 

Debt held by the public excluding accrued interest increased by $220.5 billion, or 6.6 percent, in fiscal 2002. 

That represented a relatively modest 33.7 percent of GDP, however, second only to the 33.1 percent ratio in fiscal 

2001, as the lowest since 1984. 
DISCUSSION AND ANALYSIS 21

Budget Projections

Deficits are projected to increase in fiscal years 2003 and 2004, and then shrink as the economy returns to a 

stronger growth path. Deficits in relation to GDP are projected to be moderate. The ratio is expected to rise from 1.5 

percent in fiscal 2002 to about 2.8 percent in the next 2 years, still well below the 4.0 average in the first half of the 

1990s. Thereafter, the ratio of the deficit to GDP declines rapidly, down to 1.4 percent in fiscal years 2007 and 2008.

Significant Performance Accomplishments

Progress on Audited Financial Statements

In fiscal 2002, 21 of 24 major departments and agencies received unqualified opinions on their financial statements. 

For the first time ever, the Department of Agriculture (USDA) received a clean opinion on its financial statements. The 

Department of Education (Education), Federal Emergency Management Agency (FEMA) and the National Aeronautics 

and Space Administration (NASA) received unqualified opinions in fiscal 2002, reclaiming clean opinions that had been 

lost in recent years. USDA overcame significant financial management challenges in fiscal 2002 to receive its first clean 

opinion. The U.S. Agency for International Development (USAID) also made substantial progress and received a qualified 

opinion—an improvement from six consecutive disclaimers.

Audit reports, required for the first time to be combined with agency performance reports, were delivered to the 

Office of Management and Budget (OMB) by February 1, a month earlier than last year. Treasury and SSA produced 

audited financial statements in November, implementing 2 years early the Administration’s goal to have audited financial 

statements 45 days after the end of the fiscal year. The Department of Veterans Affairs (VA) submitted its financial 

statements in December. In addition, Treasury and the Department of Housing and Urban Development submitted their 

performance reports 2 to 3 months earlier than they ever had before.
22 DISCUSSION AND ANALYSIS 

The Small Business Administration (SBA), which had previously received unqualified opinions since 1996, received 

a disclaimer of an opinion for fiscal 2002. The auditors also issued a disclaimer on the fiscal 2001 financial statements and 

withdrew the opinion on the fiscal 2000 financial statements. SBA’s auditors found material errors in the accounting for 

loan asset sales, and valuation of the Direct Disaster Loan portfolio. SBA is working on an aggressive corrective action 

plan to remedy its financial management challenges. While DOD received a disclaimer again this year, it has launched a 

major initiative to clean up its poor financial management by redesigning its financial management systems. 

In addition to more reliable and timely financial reporting, a number of agencies made significant progress in 

improving their internal controls. USDA, along with the Environmental Protection Agency and SSA, resolved longstanding material weaknesses that had plagued their program and financial operations. 

A strong internal control environment mitigates risk and helps achieve effectiveness and efficiency, more reliable 

performance and financial information, and compliance with laws and regulations. Obviously, one of the greatest barriers 

to adequate financial management is the fact that some Federal agencies are plagued by repeat material control 

weaknesses —areas so problematic year after year that they detrimentally affect the reliability of financial information. 

Through the Executive Branch Management Scorecard, the Administration is monitoring and supporting agencies’ efforts 

to resolve these long-standing weaknesses. 

Results of Fiscal 2002 Agency Financial Audits 

Five agencies improved audit results: 

• USDA received its first clean opinion. 

• Education, FEMA, and NASA reclaimed their clean opinions. 

• USAID improved from a disclaimer (since 1996) to a qualified opinion for the 1st time. 

Only one agency, SBA, deteriorated: 

• SBA was downgraded from clean opinion (since 1996) to a disclaimer of opinion for 

2002, and prior year clean opinions were withdrawn. 

• Auditors discovered material errors in SBA’s accounting for loan asset sales and the 

valuation of the Direct Disaster Loan portfolio. 

No change in audit opinions for 18 agencies: 

• 17 agencies sustained clean opinions. 

• DOD continues to receive a disclaimer of o pinion. DOD has launched a major initiative 

to clean up its poor financial management by completely redesigning its financial 

management systems, which will take years to implement fully. 

Expanding the Question from “How Much?” to “How Well?” 

In a results-oriented Government, the burden of proof rests on each Federal program and its advocates to prove 

that the program is getting results. The burden does not rest with the taxpayers or reformers who believe the money 

could be better spent elsewhere. 

This idea is simple, but does not reflect how things have operated in the Federal Government. Instead, the 

Washington mentality has generally assumed that program funding should increase steadily with the only question 

being, “by how much?” This type of thinking has wasted untold billions of dollars and prevented the emergence of 

results-oriented Government. 

The fifth element of the President’s Management Agenda—budget and performance integration—seeks to shift 

budget deliberations from an emphasis on inputs to giving greater attention to program objectives, outcomes, and 

relevant outputs. To this end, the Administration began to rate program effectiveness and reporting on the results for 

selected programs in the fiscal 2003 President’s Budget. 

In the President’s fiscal 2004 Budget, the process was formalized for 20 percent of Federal programs using a 

new rating tool, the Program Assessment Rating Tool (PART). The PART included general questions in each of 

four broad topics to which all programs selected for review are subjected: (1) program purpose and design, (2) 

strategic planning, (3) program management, and (4) program results (i.e., whether a program is meeting its longterm and annual goals). Additionally, OMB asked more specific questions depending on the approach used for 
DISCUSSION AND ANALYSIS 23 

program delivery. The end result was a profile for each program reviewed and an overall rating assigned on a fourpoint scale of effective, moderately effective, adequate, or ineffective. Those programs judged to have insufficient 

information available were given a rating of “results not demonstrated.” 

For more detailed information regarding PART guidance and PART worksheets, visit the OMB website at 

www.omb.gov. 

The President’s Management Agenda: Significant 

Accomplishments 

In August 2001, President Bush launched the President’s Management Agenda, an agenda that identified the 

five main challenges that represent “the most apparent deficiencies where the opportunity to improve is greatest.” 

The Administration harbors no illusions that leaps forward will come easily. Constant effort must be made to find 

ways to save and stretch taxpayer dollars, many through small improvements. Breakthrough gains may come only 

after years of dedicated, even tedious, effort. 

The Human Capital Initiative aims to attract and retain talented and imaginative people into the Federal 

Government in order to improve the service provided to our citizens. The Competitive Sourcing Initiative exposes 

parts of the Government to competition so that they may better focus on what customers want while controlling cost. 

The Improved Financial Performance initiative enhances the quality and timeliness of financial information so that it 

can be used to manage Federal programs more effectively, while preventing waste, fraud, and abuse. This initiative 

also improves how the Government manages its money; reducing, for instance, the billions in erroneous payments 

the Government makes every year. The E-Gov Initiative harnesses the power of the Internet to make Government 

more productive. The Budget Performance/Integration Initiative starts the process of linking results with resource 

decisions—the underlying information needed to hold Government accountable. 

Since facing such challenges requires sustained effort, the President’s Management Agenda tracks agencies’ 

status against established standards for success as well as their progress toward meeting the standards. Status and 

progress are rated using the familiar symbols of red, yellow, and green. Grades are reported on the Executive Branch 

Scorecard at the end of this section. 

Since the scorecard’s unveiling in the fiscal 2003 Budget a year ago, Federal departments and agencies have 

been working to upgrade their ratings in those areas most in need of improvement. The good news is that signs of 

progress outnumber distress signals, as 11 departments or agencies show 17 changes for the better. While NASA 

and SBA slipped in the management of their finances, the results of the fiscal 2002 audits show that NASA regained 

lost footing by again earning a clean opinion. 

Although effort and management attention have been strong at virtually every agency, progress has been 

uneven. The Administration will follow closely how and whether agencies put their plans into effect. When 

shortfalls in results become apparent, corrective action will be taken. 

Explanation of Status Scores 

Green Agency meets all of the standards for success. 

Yellow Agency achieves some, but not all, of the criteria. 

Red Agency has any of a number of serious flaws. 

Explanation of Progress Scores 

Green Implementation is proceeding according to plans. 

Yellow Slippage in implementation schedule, quality of deliverables, or other issues requiring adjustments by 

agency in order to achieve initiative on a timely basis. 

Red Initiative in serious jeopardy. Unlikely to realize objectives without significant management intervention. 

Some real management advances in the Federal Government have been racked up over the past year. For 

example : 

• Both Treasury and SSA met—2 years early—the goal to produce audited financial statements by November 15th, 

just 45 days after the end of the year, compared with 151 days under previous administrations. 

• HHS has reduced its personnel offices from 40 to 7, and will eventually move to just one. This and other 

consolidations will allow HHS to deploy hundreds of employees to the front lines to deliver services directly to 

the American people. 
24 DISCUSSION AND ANALYSIS 

• DOD reduced headquarters staff by 11 percent, reducing civilian employees by more than 3,000 in just the last 

year. 

• Rules for conducting public-private competitions have been slashed by almost 12,000 words, cutting the time for 

conducting competitions from as much as 4 years to a maximum of just 1 year. 

• VA is opening up the activities of 52,000 employees to competition over the next 5 years, 25,000 of them in 

fiscal 2003 alone. 

• Government agencies and employees are paying their credit card bills more quickly. The Federal Government 

began fiscal 2002 with 10 percent of its individually billed travel accounts delinquent. That amount has been 

reduced to 6 percent, bringing total delinquent dollars for individually billed accounts down by more than $310 

million. 

• The number of Government-owned vehicles will decline by more than 10,000, from 586,450 in fiscal 2001 to 

576,039 in fiscal 2004. (See the Controls section for a further discussion.) 

• Citizens are now only three clicks from transactions and services on the redesigned website www.Firstg ov.gov, 

which Yahoo!© rated one of the “world’s 50 most incredibly useful websites.” 

• The www.GovBenefits.gov website provides, with a minimum of red tape, an online tool for citizens to learn 

about Federal benefit programs for which they may qualify. 

• Free Filing, debuting in fiscal 2003, will enable 60 percent of taxpaying Americans to prepare and file their taxes 

online and without cost. 

While progress to date is encouraging, agencies, by and large, have been moving to address more easily 

corrected problems. The challenges will undoubtedly increase in fiscal 2003. The coming year will be critical to 

sustaining the agenda’s momentum and achieving the goals envisioned by the President. 

The Scorecard 

Since July 2002, ratings for each quarter have been posted on the www.Results.gov website. The scorecard 

published here includes ratings for the quarter that ended December 31, 2002, and shows changes in status since the 

Administration conducted the first evaluation of September 30, 2001. Since then, a single green light has been added 

to the one that appeared on the original scorecard. The second green score was achieved by the agency that earned 

the first—the National Science Foundation (NSF). This scorecard includes status scores only for DHS, due to its 

newness. 
DISCUSSION AND ANALYSIS 25

Executive Branch Management Scorecard

Current Status as of

December 31, 2002

Progress in Implementing the President’s 

Management Agenda

Human

Capital

Competitive

Sourcing

Financial

Perf. E-Gov

Budget/

Perf.

IntegrationHuman

Capital

Competitive

Sourcing

Financial

Perf. E-Gov

Budget/

Perf.

Integration

AGRICULTURE

COMMERCE ›

DEFENSE › ›

EDUCATION ›

ENERGY › › ›

EPA ›

HHS

HOMELAND

HUD

INTERIOR

JUSTICE

LABOR › ›

STATE

DOT

TREASURY

VA › ›

AID

CORPS

GSA

NASA › fl ›

NSF ›

OMB

OPM ›

SBA fl

SMITHSONIAN

SSA ›

Arrows indicate change in status since baseline evaluation on September 30, 2001.

Legend: = Red = Yellow = Green
26 DISCUSSION AND ANALYSIS 

Systems, Controls, and Legal Compliance 

Systems 

The Federal Government faces agency-specific and Governmentwide challenges in modernizing its financial 

management systems. Many financial management systems need upgrading or replacing before they can provide 

information to support efforts to achieve the President's goal of a citizen-centered, results-oriented, and marketbased Government. In some cases, progress will take several years. 

The success of financial systems modernization efforts is dependent, in part, on standardized financial 

management across the Government. Towards this end, OMB established two sets of standard business rules for 

certain transactions conducted between Government agencies. Agencies that do not use these business rules will be 

downgraded on their progress score for financial management on the Executive Branch Management Scorecard. 

Controls 

Numerous internal controls exist to ensure that financial reporting, compliance, and operation objectives are 

met. For reporting purposes, instances where these controls are not functioning as planned are described in the 

individual agency financial reports. Those deficiencies that materially affect the Governmentwide financial 

statements are described in the accompanying report prepared by the General Accounting Office (GAO). Each 

agency is responsible for developing and implementing a corrective action plan. In addition, OMB and Treasury will 

continue to work with Federal agencies to resolve crosscutting issues. In some cases, however, the resolution of 

these issues requires reengineering of current processes, which is currently being addressed. 

Reducing Erroneous Payments 

The Administration has launched a major effort to reduce erroneous payments—in other words, payments the 

Government makes in error. In most instances, they are overpayments. However, in all cases, taxpayers are 

shortchanged. 

For the first time ever, selected agencies were required to report the extent of erroneous payments made in their 

major benefit programs. Initially, just a few agencies voluntarily reported erroneous payments in their annual 

financial statements. Now, 11 agencies have estimated their erroneous payment rates. But programs like Medicaid 

and School Lunch will have to design from scratch a methodology to examine the integrity of program payments. 

Eleven agencies reported making more than an estimated $30 billion in erroneous payments. 

During the past year, the Administration expended considerable effort to prevent a further erosion of controls 

over payments from Federal programs. USDA’s Food and Nutrition Service, for instance, pursued cash sanctions 

against States with above-average error rates. During Congress’ recent reauthorization of the Food Stamp Quality 

Control program, attempts were made to dilute the accountability of States and erode the Federal Government’s 

ability to maintain fiscal accountability. The Administration opposed and will continue to oppose efforts to weaken 

financial controls and program integrity. 

Congress endorsed the President’s effort to reduce erroneous payments when it passed the Improper Payments 

Information Act of 2002. This bill requires an estimate of the extent of erroneous payments from all Federal 

programs. Program-wide erroneous payment estimates can only help stem the loss to the Federal Government in 

waste, fraud, and abuse—too much of which takes place without an accounting. 

Strengthening Asset Management 

In another area of deficiency, the Administration will monitor agency asset management practices as part of the 

Improved Financial Performance initiative. The Federal Government’s asset management practices have been shown 

to be particularly weak. 

According to this year’s financial statements, the Federal Government owns $325 billion in property, plant and 

equipment, $219 billion in loans receivable, and $192 billion in inventories and related property. But the assets 

reported on the balance sheet are only a small portion of the assets actually owned by the Federal Government. 
DISCUSSION AND ANALYSIS 27 

National defense assets and much of the Government’s immense land holdings do not show up on Government 

financial statements. For instance, the Federal Government holds title to 28 percent of the United States’ entire 

landmass. It owns sites and structures, monuments, memorials, cemeteries, as well as the items in its museums and 

libraries, including major works of art and historical documents. These assets are reported in the supplemental 

stewardship information. 

Agency management of vehicle fleets will also be monitored as part of agency asset management practices. 

The Government owns more than half a million cars and trucks and spends more than $2 billion annually to operate 

them. In April 2002, the Administration asked agencies to take a closer look at their motor vehicle fleets and to 

report any planned reductions and cheaper leasing arrangements by the end of the fiscal year. The military agencies 

and several civilian agencies, notably the Departments of Energy, HHS, and Interior, and the General Services 

Administration projected reductions ranging from 5 percent to 15 percent. These reductions were offset, however, 

by equally significant increases in agencies with expanded law enforcement and security-related missions (DHS and 

Justice). 

Legal Compliance 

Federal agencies are required to comply with a wide range of laws and regulations, including appropriations, 

employment, health and safety, and others. Responsibility for compliance primarily rests with agency management; 

compliance is addressed as part of agency financial statement audits. Agency auditors tested for compliance with 

selected laws and regulations related to financial reporting. These auditors found no instances of material 

noncompliance that affected the Governmentwide financial statements. There were, however, instances that were 

material to an individual agency, and these were reported in the individual agencies’ financial statement audit 

reports. 

Basis of Accounting and Reporting Entity 

Accounting Standards 

The accompanying financial statements were prepared based on U.S. Generally Accepted Accounting 

Principles (GAAP) standards developed by FASAB, except as noted in GAO’s auditor’s report. 

GAAP for the Federal Government is tailored to the U.S. Government’s unique characteristics and special 

needs. For example, the Stewardship Information section of this report contains important information about diverse 

subjects such as land set aside for the use and enjoyment of present and future generations, heritage assets, and 

social insurance programs such as Social Security. 

In fiscal 2002, the Statement of Federal Financial Accounting Standards (SFFAS) No. 24, Selected Standards 

for the Consolidated Financial Report of the United States Government, was implemented at the Governmentwide 

reporting level. Under the provisions of SFFAS No. 24, two new principal statements are included in the Financial 

Report: Reconciliations of Net Operating Cost and Unified Budget Surplus (or Deficit) and Statements of Changes 

in Cash Balance from Unified Budget and Other Activities. These statements reconcile net operating cost with the 

President’s budget surplus (deficit) and explain how the annual budget surplus (deficit) relates to the change in the 

Government’s operating cash. 

In addition, SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles, was also 

implemented at the Governmentwide reporting level for fiscal 2002. SFFAS No. 21 amends SFFAS No. 7 to require 

that reporting entities restate prior period financial statements for material errors discovered in the current period, if 

such statements are provided for comparative purposes, and if the effect of the error would be material to the 

financial statements in either period. 
28 DISCUSSION AND ANALYSIS 

Accrual Basis 

GAAP requires that these financial statements be prepared using the accrual basis of accounting, but permits 

the use of modified cash accounting for taxes and duties. Under the accrual basis, transactions are reported when the 

events giving rise to the transactions occur, rather than when cash is received or paid (cash basis). Therefore, 

expenses are recorded when incurred, exchange revenue is recorded when earned, and taxes and duties (the majority 

of nonexchange revenue) are recorded on a modified cash basis of accounting (generally when received). In 

contrast, Federal budgetary reporting is generally on the cash and obligation basis in accordance with accepted 

budget concepts. 

The most significant difference between cash and accrual bases involves the timing of recognition and 

measurement of revenues and costs. For example, GAAP requires recognition of liabilities for costs related to 

environmental cleanup when the events requiring such costs occur and, among other things, the Government has 

acknowledged responsibility for the event. By contrast, current budget concepts recognize such costs later, at the 

time payment is made for the cleanup. In addition, GAAP requires the recognition of depreciation expenses on fixed 

assets, liability for accrued leave, and total actuarial liabilities for pensions, retired pay, and post-retirement health 

benefits. These differences are reflected in the Reconciliations of Net Operating Cost and Unified Budget Surplus 

(or Deficit), which can be found in the Financial Statements section of this Financial Report. 

Coverage 

These financial statements cover the executive branch, as well as parts of the legislative and judicial branches 

of the U.S. Government. A list of the significant entities included in these financial statements is in the Appendix. 

Information from the legislative and judicial branches is limited because those entities are not required by law to 

submit comprehensive financial statement information to Treasury. Due to its private ownership and independence, 

the Federal Reserve System is excluded. In addition, Government-sponsored but privately-owned enterprises (such 

as Federal Home Loan Banks and the Federal National Mortgage Association) also are excluded. 

Additional Information 

Additional details about the information contained in these financial statements can be found in the financial 

statements of the individual agencies listed in the Appendix. In addition, related U.S. Government publications such 

as the Budget of the United States Government, the Treasury Bulletin , the Monthly Treasury Statement of Receipts 

and Outlays of the United States Government, the Monthly Statement of the Public Debt of the United States, the 

Economic Report of the President, and the Trustees’ Reports for the Social Security and Medicare programs may be 

of interest. 
GENERAL ACCOUNTING OFFICE REPORT 29 

March 31, 2003 

The President 

The President of the Senate 

The Speaker of the House of Representatives 

Our report on the U.S. government’s consolidated financial statements for the fiscal years 

2002 and 2001 is enclosed. As in the 5 previous fiscal years, we were unable to express 

an opinion on the consolidated financial statements because of certain material 

weaknesses in internal control and in accounting and reporting. These conditions 

prevented us from being able to provide the Congress and American citizens an opinion 

as to whether the consolidated financial statements are fairly stated in conformity with 

U.S. generally accepted accounting principles. 

Until the problems discussed in our report are adequately addressed, they will continue to 

(1) hamper the federal government’s ability to accurately report a significant portion of 

its assets, liabilities, and costs, (2) affect the federal government’s ability to accurately 

measure the full cost and financial performance of certain programs and effectively 

manage related operations, and (3) significantly impair the federal government’s ability 

to adequately safeguard certain significant assets and properly record various 

transactions. 

Across government, financial management improvement initiatives are under way that, if 

effectively implemented, have the potential to appreciably improve the quality of the 

federal government’s financial management and reporting. A number of federal agencies 

have started to make progress in their efforts to modernize the ir financial management 

systems and improve financial management performance as called for in the President’s 

Management Agenda. For example, the Department of the Treasury’s Internal Revenue 

Service (IRS) has made significant progress in addressing its financial management 

weaknesses, including addressing controls over budgetary activity and its accountability 

over property and equipment. Resolving many of IRS’s most serious financial 

management weaknesses—identified by GAO as a high-risk area since 1995—will 

United States General Accounting Office 

Washington, DC 

Comptroller General 

of the Unite d States 

20548 
30 GENERAL ACCOUNTING OFFICE REPORT 

require a sustained, long-term commitment of resources, continued strong involvement of 

senior management, and sustained progress in systems modernization. 

This year marks the earliest that federal agencies’ audited financial statements have ever 

been available. 

audited financial statements with performance reports and deliver both to the Office of 

Management and Budget (OMB) by February 1, a month earlier than last year. 

Furthermore, the Principals of the Joint Financial Management Improvement Program 

(JFMIP)1 have agreed to accelerate the agency financial statement reporting date to 

November 15 for fiscal year 2004. 

long-standing record of delivering its audited financial statements well before the 

mandated deadline, issued its fiscal year 2002 audited financial statements on November 

19, 2002. The Department of the Treasury also accelerated its time frame and issued its 

fiscal year 2002 audited financial statements on November 15, 2002, which was more 

than 3 months earlier than fiscal year 2001. 

For fiscal year 2002, 21 of the 24 Chief Financial Officers (CFO) Act agencies were able 

to attain unqualified audit opinions on their financ ial statements, up from 6 agencies for 

fiscal year 1996. Also, 4 CFO Act agencies showed improvement by receiving 

unqualified opinions from their auditors this year—the Department of Education, the 

National Aeronautics and Space Administration, the Federal Emergency Management 

Agency, and the Department of Agriculture, which received an unqualified audit opinion 

for the first time. On the other hand, the auditor for the Small Business Administration 

withdrew its unqualified opinions on the agency’s fiscal years 2001 and 2000 financial 

statements and disclaimed its opinions on the agency’s fiscal years 2002 and 2001 

financial statements. 

In identifying improved financial performance as one of its five governmentwide 

initiatives, the President’s Management Age nda stated that a clean (unqualified) financial 

audit opinion is a basic prescription for any well-managed organization. It recognized 

that “most federal agencies that obtain clean audits only do so after making extraordinary, 

labor-intensive assaults on financial records.” Further, the President’s Management 

Agenda stated that without sound internal control and accurate and timely financial 

information, it is not possible to accomplish the President’s agenda to secure the best 

performance and highest measure of accountability for the American people. 

Building on the success that has been achieved in obtaining unqualified audit opinions, 

federal agency management must continue to work toward fully resolving the pervasive 

and generally long-standing material weaknesses that have been reported for the past 6 

1

JFMIP is a joint and cooperative undertaking of the Department of the Treasury, GAO, OMB, and the 

Office of Personnel Management working in cooperation with each other and other federal agencies to 

improve financial management practices in the federal government. 

provided by the four Principals of the JFMIP—the Comptroller General of the United States, the Secretary 

of the Treasury, and the Directors of OMB and the Office of Personnel Management. 

For the first time, CFO Act agencies were required to combine their 

The Social Security Administration, which has a 

Leadership and program guidance are 
GENERAL ACCOUNTING OFFICE REPORT 31 

fiscal years. The underlying causes of these issues are significant financial management 

systems weaknesses, problems with fundamental recordkeeping and financial reporting, 

incomplete documentation, and weak internal control. Many federal agencies have 

continued to expend significant resources to use extensive ad hoc procedures and to make 

billions of dollars in adjustments to derive financial statements months after the end of a 

fiscal year. Timely, accurate, and useful financial information is essential for making 

operating decisions day to day, managing the federal government’s operations more 

efficiently and effectively, meeting the goals of federal financial management reform 

legislation (such as the CFO Act), supporting results-oriented management approaches, 

and ensuring accountability on an ongoing basis. 

The JFMIP Principals have defined certain measures, in addition to receiving an 

unqualified financial statement opinion, for achieving financial management success. 

These additional measures include being able to routinely provide timely, accurate, and 

useful financial information and having no material internal control weaknesses or 

material noncompliance with laws and regulations and the requirements of the Federal 

Financial Management Improvement Act of 1996 (FFMIA). Reports of inspectors 

general and their contract auditors indicated that only 4 of the 24 CFO Act agencies had 

neither a material internal control weakness, an issue involving compliance with 

applicable laws and regulations, nor an instance of lack of substantial compliance with 

FFMIA requirements. While the severity and magnitude of the problems identified varied 

greatly, auditors for 17 of the 24 CFO Act agencies reported at least one material control 

weakness. In addition, reports of the inspectors general and their contract auditors 

indicated that financial management systems of 19 of the 24 CFO Act agencies did not 

comply substantially with one or more of FFMIA’s three federal financial management 

systems requirements.2 For the remaining 5 CFO Act agencies, auditors provided 

negative assurance, meaning that nothing came to their attention indicating that these 

agencies’ financial management systems did not substantially meet FFMIA requirements. 

The auditors for these 5 agencies did not definitively state whether these agencies’ 

systems substantially complied with FFMIA requirements, as is required under the 

statute. 

Essential to achieving an opinion on the consolidated financial statements is resolution of 

the serious financial management problems at the Department of Defense (DOD), which 

we have designated as high risk since 1995. 

operations represents a challenge that goes far beyond financial accounting to the very 

fiber of DOD’s range of business operations and culture. DOD’s financial management 

problems are pervasive, complex, long-standing, and deeply rooted in virtually all 

business operations throughout the department. To date, none of the military services or 

2

FFMIA requires auditors, as part of CFO Act agencies’ financial statement audits, to report whether 

agencies’ financial management systems substantially comply with federal financial management systems 

requirements, applicable federal accounting standards (U.S. generally accepted accounting principles), and 

the federal government’s Standard General Ledger at the transaction level. 

Overhauling DOD’s financial management 
32 GENERAL ACCOUNTING OFFICE REPORT 

major DOD components has passed the test of an independent financial audit because of 

pervasive weaknesses in financial management systems, operations, and controls. In 

September 2001, Secretary of Defense Rumsfeld announced a broad, top-priority 

initiative to transform the full range of the department’s business processes, including 

decades-old financial systems that are not well interconnected. The Secretary of Defense 

recently included improving DOD’s financial management as one of his top 10 priorities, 

and DOD has already taken a number of actions intended to address its serious financial 

management problems. In addition, DOD has a major effort under way to develop a DOD 

enterprise architecture that is intended to prescribe a blueprint for operational and 

technological changes in its financial and related business systems operations. 

DOD has a long way to go, its efforts over the past year represent important progress. 

The level of top leadership that has been brought to bear on this challenge will have to be 

sustained with a goal of achieving lasting improvement that truly transforms DOD’s 

business systems and operations and enables the department to meet the mandate of the 

CFO Act and achieve the President’s Management Agenda’s goal of improved financial 

performance. 

Two other major impediments to an opinion on the consolidated financial statements are 

the federal government’s inability to (1) account for billions of dollars of transactions 

between federal government entities and (2) properly prepare the consolidated financial 

statements. 

issue is that the federal government lacked clearly articulated business rules for these 

transactions so that the y would be handled consistently by agencies. Compounding this 

problem, a substantial number of the CFO Act agencies did not fully perform 

reconciliations of intragovernmental activity and balances with their trading partners.3 

To address this issue, OMB has established standard business rules for certain 

governmentwide transactions between federal government entities and is requiring 

quarterly reconciliations of intragovernmental activity and balances beginning in fiscal 

year 2003. For example, in accordance with one of the business rules, beginning in fiscal 

year 2003 for intragovernmental investments with Treasury’s Bureau of the Public Debt 

(BPD), BPD and trading partner agencies are required to use the same method for 

recording amortization on market-based notes, bonds, and zero coupon securities. In the 

past, differences in the amortization methods being used caused out of balance conditions 

for related intragovernmental activity and balances. 

With respect to properly preparing the consolidated financial statements, Treasury is 

currently developing a new system and procedures to be used beginning with fiscal year 

2004. Treasury’s initiative is intended to, among other things, directly link information 

from federal agencies’ audited financial statements to amounts reported in the 

consolidated financial statements. The continued strong leadership of both OMB and 

Treasury will be important to resolve the intragovernmental transactions issue and issues 

surrounding preparing the consolidated financial stateme nts. 

3

Trading partners are U.S. government agencies, departments, or other components included in the 

consolidated financial statements that do business with each other. 

While 

As we reported last year, the heart of the intragovernmental transactions 
GENERAL ACCOUNTING OFFICE REPORT 33 

As previously discussed, the President’s Management Agenda includes improved 

financial performance as one of the top five governmentwide management goals. 

governmentwide initiatives of the President’s Management Agenda include strategic 

management of human capital, competitive sourcing, expanded electronic government, 

and budget and performance integration. 

isolated or piecemeal fashion, but rather must be addressed together along with other 

major management challenges and high-risk areas in an integrated way to ensure that 

they drive a broader transformation of the cultures of federal agencies. 

administration has used the Executive Branch Management Scorecard, which includes 

broad standards, to highlight federal agencies’ progress in achieving management and 

performance improvements embodied in the President’s Management Agenda. 

step in the right direction to improving management and performance. 

scorecard is not in the scoring per se, but in the degree to which scores lead to sustained 

focus and demonstrable improvements. 

in the scoring process in order for this approach to be credible and effective in providing 

the proper incentives that produce lasting results. 

During fiscal year 2002, JFMIP Principals continued the series of regular, deliberative 

meetings that began in August 2001. 

issues such as better defining measures for financial management success, requiring 

accelerated financial statement reporting across government, enhancing the independence 

of the Federal Accounting Standards Advisory Board, establishing audit advisory 

committees for the federal government as a whole and for selected major federal 

agencies, and addressing difficult accounting and reporting issues. 

actions have been taken, the continued leadership and personal commitment of the 

Principals is necessary to continue the momentum for improving the federal 

government’s financial management and performance. At the end of fiscal year 2002, I 

ended my 2-year term as Chair of the JFMIP Principals, and the Chair rotated to Office of 

Management and Budget Director Daniels. I look forward to working with the new 

Chair, Treasury Secretary Snow, and Office of Personnel Management Director James in 

the upcoming months to continue this important dialogue and build on the strong working 

relationships that we have established. 

As we look ahead, the federal government faces an unprecedented demographic 

challenge. 

2008—only 5 years from now—the first wave of baby boomers becomes eligible to claim 

Social Security benefits. s the share of the population over 65 years old climbs to more 

than 20 percent in 2035, federal spending on the elderly will absorb larger and ultimately 

unsustainable shares of the federal budget. 

expected to surge as people live longer and spend more time in retirement. 

advances in medical technology are likely to keep pushing up the cost of providing health 

care. 

federal spending for Social Security, Medicare, and Medicaid is virtually certain to 

overwhelm the rest of the federal budget. 

Other 

These initiatives cannot be addressed in an 

The 

This is a 

The value of the 

It will be important that there be continuous rigor 

We focused on key financial management reform 

Although many 

A nation that has prided itself on its youth will become older. In fact, in

A 

Federal health and retirement spending are 

In addition, 

Absent substantive reform of these entitlement programs, a rapid escalation of 
34 GENERAL ACCOUNTING OFFICE REPORT 

On March 17, 2003, the Trustees of the Social Security and Medicare trust funds reported 

on the current and projected status of these programs over the next 75 years. 

Trustees report that the fundamentals of the financial status of both Social Security and 

Medicare remain highly problematic. 

difficulties that are more severe than those confronting Social Security because costs of 

the Medicare program are projected to rise faster than costs of the Social Security 

program. 

Value of Resources Needed Over the 75-Year Projection Period for Federal Hospital 

Insurance (Medicare Part A), while the Social Security projection showed an 8 percent 

increase. 

facing Social Security and Medicare must be taken in a timely manner and that the sooner 

these financial challenges are addressed, the more varied and less disruptive the solutions 

can be. 

These long-term demographic and fiscal pressures and the new commitments and actions 

undertaken as a result of the tragic events of September 11, 2001, serve to increase the 

need to look at competing claims and new priorities. 

retirement entitlement programs is essential to preserving fiscal flexibility in the long 

term, a fundamental review of major programs, policies, and operations can create muchneeded fiscal flexibility to address emerging needs. 

proper role of the federal government will be in the 21st century and how the government 

should do business in the future. 

Timely, accurate, and useful financial and performance information can help form the 

basis for reconsidering the relevance or “fit” of any federal program or activity in today’s 

world and for the future. eview might identify programs that have proven to be 

outdated or persistently ineffective, or alternatively could prompt us to update and 

modernize activities through such actions as improving program targeting and efficiency, 

consolidation, or reengineering of processes and operations. 

should not be limited to only spending programs but should include the full range of 

more indirect tools of governance that the federal government uses to address national 

objectives. clude loans and loan guarantees, tax expenditures, and 

regulations. Ultimately, the federal government should strive to hand to the next 

generation the legacy of a government that is effective and relevant to a changing 

society—a government that is as free as possible of outmoded commitments and 

operations that can inappropriately encumber the future. 

The Congress and President Bush face the challenge of sorting out these many claims on 

the federal budget without the budget enforcement mechanisms or fiscal benchmarks that 

guided the federal government through the years of deficit reduction into surplus. 

forward, new rules and goals will be important both to provide fiscal discipline and to 

prompt a focus on the longer-term implications of decisions. It is still the case that the 

federal government needs a decision-making framework that permits it to evaluate 

choices against both today’s needs and the longer-term fiscal future that will be handed to 

future generations. ture, the federal government must begin 

to prepare for tomorrow. 

The 

However, they stated that Medicare faces financial 

The projections show a 20 percent increase over the prior year in the Present 

Once again, the Trustees state that action to address the financial difficulties 

While reforming health and 

There is a need to consider what the 

Such a r 

In addition, the review 

These tools in 

Going 

As stewards of the nation’s fu 

In this regard, the federal government must determine how best 
GENERAL ACCOUNTING OFFICE REPORT 35

to address these structural challenges in a reasonably timely manner in order to identify 

specific actions that need to be taken. 

 - - - - - 

Once again, we appreciate the cooperation and assistance of Department of the Treasury 

and OMB officials, as well as the chief financial officers and inspectors general, in 

carrying out our responsibility to report on the U.S. government’s consolidated financial 

statements. We look forward to continuing to work with these officials and the Congress 

to achieve the goals and objectives of financial management reform.

Our report was prepared under the direction of Jeffrey C. Steinhoff, Managing Director, 

and Gary T. Engel, Director, Financial Management and Assurance. If you have any 

questions, please contact me on (202) 512-5500 or them on (202) 512-2600.

David M. Walker

Comptroller General

of the United States
36 GENERAL ACCOUNTING OFFICE REPORT 

This page is inte ntionally blank. 
GENERAL ACCOUNTING OFFICE REPORT 37 

United States General Accounting Office 

Washington, DC 

Comptroller General 

of the United States 

The President 

The President of the Senate 

The Speaker of the House of Representatives 

The Secretary of the Treasury, in coordination with the Director of the Office of 

Management and Budget (OMB), is required annually to submit financial stateme nts for 

the U.S. government to the President and the Congress. 

statements.1 This is our report on the accompanying U.S. government’s consolidated 

financial statements for the fiscal years ended September 30, 2002 and 2001,2 and 

associated reports on internal control and compliance with laws and regulations. 

The federal government is responsible for (1) preparing annual consolidated financial 

statements in conformity with U.S. generally accepted accounting principles, (2) 

establishing, maintaining, and assessing internal control to provide reasonable assurance 

that the control objectives of the Federal Managers’ Financial Integrity Act are met,3 and 

(3) complying with applicable laws and regulations. ial 

Officers (CFO) Act agencies4 are responsible for implementing and maintaining financial 

management systems that comply with the Federal Financial Management Improvement 

Act of 1996 (FFMIA) requirements. 

financial statements for the fiscal years ended September 30, 2002 and 2001. 

discusses the scope and methodology of our work. 

________________________ 

1

The Government Management Reform Act of 1994 has required such reporting, covering the executive 

branch of government, beginning with financial statements prepared for fiscal year 1997. 

(e). has elected to include certain financial information on the legislative and 

judicial branches in the consolidated financial statements as well.

2

The consolidated financial statements for the fiscal years ended September 30, 2002 and 2001, consist of 

the Statements of Operations and Changes in Net Position, the Statements of Net Cost, and Balance Sheets, 

including the related notes to these financial statements. 

Accounting Standards No. 24, which was adopted in January 2003, these consolidated financial statements 

also include comparative Reconciliations of Net Operating Cost and Unified Budget Surplus (or Deficit) 

and Statements of Changes in Cash Balance from Unified Budget and Other Activities.

3

31 U. S. C. 3512 (c), (d). This act requires agency heads to evaluate and report annually to the 

President on the adequacy of their internal controls and accounting systems and on actions to correct 

significant problems.

4

The Federal Emergency Management Agency (FEMA), one of the 24 CFO Act agencies, transferred to the 

new Department of Homeland Security (DHS) effective March 1, 2003. With this transfer, FEMA will no 

longer be required to prepare and have audited stand-alone financial statements under the CFO Act, leaving 

23 CFO Act agencies. 

and have audited financial statements under the Accountability of Tax Dollars Act of 2002, Pub. L. No. 

107-289, 116 Stat. 2049 (Nov. 7, 2002). 

20548 

GAO is required to audit these 

Also, the 24 Chief Financ 

Our objective was to audit the consolidated 

Appendix I 

31 U.S.C. 331 

The federal government 

In accordance with Statement of Federal Financial 

DHS, along with most other executive branch agencies, will be required to prepare 
38 GENERAL ACCOUNTING OFFICE REPORT 

A significant number of material weaknesses5 related to financial systems, fundamental 

recordkeeping and financial reporting, and incomplete documentation continued to (1) 

hamper the federal government’s ability to accurately report a significant portion of its 

assets, liabilities, and costs, (2) affect the federal government’s ability to accurately 

measure the full cost and financial performance of certain programs and effectively 

manage related operations, and (3) significantly impair the federal government’s ability 

to adequately safeguard significant assets and properly record various transactions. 

Several of these material weaknesses (referred to hereafter as material deficiencies) 

resulted in conditions that continued to prevent us from expressing an opinion on the 

accompanying consolidated financial statements for the fiscal years ended September 30, 

2002 and 2001.6 There may also be additional issues that could affect the consolidated 

financial statements that have not been identified. 

In accordance with the National Defense Authorization Act for fiscal year 2002,7 the 

Department of Defense (DOD) reported that for fiscal year 2002 DOD’s financial 

management systems were not able to provide adequate evidence supporting material 

amounts in its financial statements. 

applicable financial reporting requirements for (1) property, plant, and equipment, (2) 

inventory and operating materials and supplies, (3) military retirement health care 

actuarial liability, (4) environmental liabilities, (5) intragovernmental eliminations and 

related accounting adjustments, and (6) cost accounting by suborganization/responsibility 

segment and major program. 

Based largely on DOD’s assertion, the DOD Inspector General disclaimed an opinion on 

DOD’s financial statements for fiscal year 2002 as it had for the previous 6 fiscal years. 

DOD’s financial management systems and reporting weaknesses substantially impair our 

ability to determine the reliability of the financial information reported in the federal 

government’s overall financial reports. 

bala nces to the consolidated financial statements, until DOD corrects these material 

weaknesses, they will continue to impede our ability to express an opinion on the 

consolidated financial statements. er 

material weaknesses that need to be corrected. 

DISCLAIMER OF OPINION ON THE CONSOLIDATED FINANCIAL 

STATEMENTS 

Because we were unable to determine the reliability of significant portions of the 

accompanying fiscal years 2002 and 2001 U.S. government’s consolidated financial 

statements, we are unable to, and we do not, express an opinion on such financial 

statements. 

________________________ 

5

A material weakness is a condition that precludes the entity’s internal control from providing reasonable 

assurance that misstatements, losses, or noncompliance material in relation to the financial statements or to 

stewardship information would be prevented or detected on a timely basis. 6

We previously reported that material deficiencies prevented us from expressing an opinion on the fiscal 

years 1997, 1998, 1999, and 2000 consolidated financial statements. 

7

Section 1008, Pub. L. No. 107-107, 115 Stat. 1012 (Dec. 28, 2001). 

DOD asserted that it is unable to comply with 

Given the significance of DOD’s activities and 

In addition, as noted later in this report, there are oth 
GENERAL ACCOUNTING OFFICE REPORT 39 

As a result of the material deficiencies in the federal government’s systems, 

recordkeeping, documentation, and financial reporting, readers are cautioned that 

amounts reported in the consolidated financial statements and related notes may not be 

reliable. 

contained in the accompanying Management’s Discussion and Analysis and other 

financial management information—including information used to manage the 

government day to day and budget information reported by federal agencies—which is 

taken from the same data sources as the consolidated financial statements. 

We ha ve not audited and do not express an opinion on the Management’s Discussion and 

Analysis, Stewardship Information, Supplemental Information, or other information 

included in the accompanying fiscal year 2002 Financial Report of the United States 

Government . 

Material Deficiencies 

The federal government did not maintain adequate systems or have sufficient, reliable 

evidence to support information reported in the accompanying consolidated financial 

statements as described below. ontributed to our disclaimer 

of opinion and also constitute material weaknesses in internal control. 

highlights the primary effects of these material weaknesses on the accompanying 

consolidated financial statements and on the management of federal government 

operations. 

Property, Plant, and Equipment and Inventories and Related Property The federal 

government could not satisfactorily determine that all such assets were included in the 

consolidated financial statements, verify that certain reported assets actually exist, or 

substantiate the amounts at which they were valued. 

property, plant, and equipment and the vast majority of inventories and related property 

are the responsibility of DOD. dequate systems or have 

sufficient records to provide reliable information on these assets. 

notably the National Aeronautics and Space Administration, reported continued 

weaknesses in internal control procedures and processes related to property, plant, and 

equipment. 

Liabilities and Commitments and Contingencies The federal government could not 

reasonably estimate or adequately support amounts reported for certain liabilities. 

example, the federal government was not able to reliably estimate key components of 

DOD’s environmental and disposal liabilities and could not support its estimate of 

military postretirement health benefits liabilities included in federal employee and 

veteran benefits payable. nt could not determine whether 

commitments and contingencies, including those related to treaties and other agreements 

entered into to further the U.S. government’s interest, were complete and properly 

reported. 

Cost of Government Operations and Disbursement Activity The previously discussed 

material deficiencies in reporting assets and liabilities, material deficiencies in financial 

These material deficiencies also affect the reliability of certain information 

These material deficiencies c 

Appendix II 

A significant portion of the 

DOD did not maintain a 

Other agencies, most 

For 

Further, the federal governme 
40 GENERAL ACCOUNTING OFFICE REPORT 

statement preparation, as discussed below, and the lack of adequate disbursement 

reconciliations at certain federal agencies affect reported net costs. As a result, the federal 

government was unable to support significant portions of the total net cost of government 

operations, most notably related to DOD. 

some federal agencies did not adequately reconcile disbursements to the Department of 

the Treasury’s (Treasury) records of disbursements, which is intended to be a key control 

to detect and correct errors and other misstatements in financial records in a timely 

manner. We have seen progress in this area over the past 6 years. 

years 2002 and 2001 there were unsupported adjustments and unreconciled differences 

between federal agencies’ and Treasury’s records of disbursements totaling billions of 

dollars. 

Accounting for and Reconciliation of Intragovernmental Activity and Balances OMB 

and Treasury require CFO Act agencies to reconcile selected intragovernmental activity 

and balances with their “trading partners”8 and to report on the extent and results of 

intragovernmental activity and balances reconciliation efforts. 

reviewed these reports and communicated the results of their reviews to OMB, Treasury, 

and GAO. A substantial number of the CFO Act agencies did not fully perform the 

required reconciliations for fiscal years 2002 and 2001, citing reasons such as (1) trading 

partners not providing needed data, (2) limitations and incompatibility of agency and 

trading partner systems, and (3) human resource issues. unts 

reported for federal agency trading partners for certain intragovernmental accounts were 

significantly out of balance. 

intragovernmental accounts, primarily related to appropriations, will need to be resolved. 

To address certain issues that contributed to the out of balance condition for 

intragovernmental activity and balances, OMB has established a set of standard business 

rules for governmentwide transactions among trading partners and is requiring quarterly 

reconciliations of intragovernmental activity and balances beginning in fiscal year 2003. 

For example, in accordance with one of the business rules, beginning in fiscal year 2003 

for intragovernmental investments with Treasury’s Bureau of the Public Debt (BPD), 

BPD and trading partner agencies are required to use the same method for recording 

amortization on market-based notes, bonds, and zero coupon securities. 

differences in the amortization methods being used have caused out of balance conditions 

for related intragovernmental activity and balances. 

transactions problem remains a difficult challenge and will require a commitment by the 

CFO Act agencies and continued strong leadership by OMB. 

Preparation of Consolidated Financial Statements The federal government did not have 

adequate systems, controls, and procedures to properly prepare its consolidated financial 

statements, as described below. Also, disclosure of certain financial information was not 

presented in the consolidated financial statements in conformity with U.S. generally 

accepted accounting principles. 

________________________ 

8

Trading partners are U.S. government agencies, departments, or other components included in the 

consolidated financial statements that do business with each other. 

As it relates to disbursement reconciliations, 

However, for fiscal 

The inspectors general 

For both of these years, amo 

In addition, significant differences in other 

In the past, 

Resolving the intragovernmental 
GENERAL ACCOUNTING OFFICE REPORT 41 

Consolidated Financial Statement Compilation Due to the current financial 

statement compilation process, the federal government could not adequately 

ensure that the information for each federal agency included in the consolidated 

financial statements was consistent with the underlying agency financial 

statements. 

and does no t adequately leverage the existing work and work products resulting 

from federal agencies’ audited financial statements. 

compounded by the need for broad changes in the structure of the government’s 

Standard General Ledger (SGL) accounts and the process for maintaining the 

SGL. 

The net position reported in the consolidated financial statements is derived by 

subtracting liabilities from assets, rather than through balanced accounting entries. 

To make the fiscal years 2002 and 2001 consolidated financial statements 

balance, Treasury recorded a net $17.1 billion and $17.3 billion decrease to net 

operating cost, respectively, on the Statement of Operations and Changes in Net 

Position, which it labeled unreconciled transactions.9 An additional net $12.5 

billion and $3.9 billion of unreconciled transactions were improperly recorded in 

net cost for fiscal years 2002 and 2001, respectively. 

unreconciled transaction amounts primarily to the federal government’s inability 

to properly identify and eliminate transactions between governmental entities, 

federal agency adjustments that affected net position, and other errors. Treasury 

was unable to adequately identify and explain the gross components of such 

amounts. Unreconciled transactions also may exist because the federal 

government does not have effective controls over reconciling net position. 

The federal government did not have an adequate process to reconcile the 

operating results, which for fiscal year 2002 showed a net operating cost of 

$364.9 billion, to the budget results, which for the same period showed a unified 

budget deficit of $157.7 billion. 

Treasury is currently developing a new system and procedures to prepare the 

consolidated financial statements beginning with fiscal year 2004. 

are intended to, among other things, directly link information from federal 

agencies’ audited financial statements to amounts reported in the consolidated 

financial statements and facilitate the reconciliation of net position. 

Elimination of Intragovernmental Activity and Balances Consolidated financial 

statements are intended to present the results of operations and financial position 

of the components that make up a reporting entity as if the entity were a single 

enterprise. 

must eliminate intragovernmental activity and balances between the federal 

________________________ 

9

Prior to fiscal year 2001, the federal government reported unreconciled transactions as a change in net 

position. 

transactions, if any, relate to operations, it reported unreconciled transactions as a component of net 

operating cost in the accompanying consolidated financial statements. 

This process also requires significant human and financial resources 

The problems are further 

Treasury attributes these net 

These actions 

When preparing the consolidated financial statements, the preparer 

Although the federal government was unable to determine how much of the unreconciled 
42 GENERAL ACCOUNTING OFFICE REPORT 

agencies. 

intragovernmental trans actions, Treasury’s ability to eliminate these transactions 

is impaired. 

noted above, have been identified. 

reconciliations, Treasury recently began providing agencies with detailed trading 

partner information. Intragovernmental activity and balances are “dropped” or 

“offset” in the preparation of the consolidated financial statements rather than 

eliminated through balanced accounting entries. This contributes to the federal 

government’s inability to determine the impact of these differences on amounts 

reported in the consolidated financial statements. 

OPINION ON INTERNAL CONTROL 

In addition to the material weaknesses noted above, we found four other material 

weaknesses in internal control as of September 30, 2002, which are described below. 

Because of the effects of the material weaknesses discussed in this report, in our opinion, 

the federal government did not maintain effective internal control to meet the following 

objectives: (1) transactions are properly recorded, processed, and summarized to permit 

the preparation of the financial statements and stewardship information in conformity 

with U.S. generally accepted accounting principles, and assets are safeguarded against 

loss from unauthorized acquisition, use, or disposition and (2) transactions are executed 

in accordance with laws governing the use of budget authority and with other laws and 

regulations that could have a direct and material effect on the financial statements and 

stewardship information. 

identify additional reportable conditions 10 in internal control, some of which were 

reported by agency auditors as being materia l weaknesses at the individual agency level. 

These matters do not represent material weaknesses at the governmentwide level. Also, 

due to the issues noted throughout this report, additional material weaknesses may exist 

that have not been reported. 

Loans Receivable and Loan Guarantee Liabilities Prior to fiscal year 2001, we cited 

accounting for loans receivable and loan guarantee liabilities as a material deficiency 

contributing to our disclaimer because certain key federal credit agencies could not 

reliably estimate the costs of their lending programs or determine the net loan amounts 

expected to be collected. 

Department of Agriculture, we removed this area from the list of issues contributing to 

our disclaimer. 

deficiencies in the processes and procedures used to estimate the costs of their lending 

programs and value their loan receivables. Small 

Business Administration (SBA) withdrew its unqualified opinions on the agency’s fiscal 

years 2001 and 2000 financial statements because SBA lacks reliable financial data to 

assess the overall financial impact of its loan asset sales and is unable to support its net 

________________________ 

10Reportable conditions are matters coming to our attention that, in our judgment, should be communicated 

because they represent significant deficiencies in the design or operation of internal control that could 

adversely affect the federal government’s ability to meet the internal control objectives described in this 

report. 

Because of federal agencies’ problems in handling their 

Significant differences reported in intragovernmental accounts, as 

To help federal agencies better perform their 

Individual federal agency financial statement audit reports 

In fiscal year 2001, due to significant improvements at the 

Nevertheless, several federal agencies continue to have significant 

For example, the auditor for the 
GENERAL ACCOUNTING OFFICE REPORT 43 

loans receivable balance. 

reasonably estimate its loan program costs for budget and financial statement purposes.11 

In addition, we again noted that other federal credit agencies cont inue to require 

significant adjustments to the estimates of program costs, net loan amounts to be 

collected, and related notes. 

control weaknesses. 

Improper Payments Across the federal government, improper payments occur in a 

variety of programs and activities, including those related to health care, contract 

management, federal financial assistance, and tax refunds.12 Many improper payments 

occur in federal programs that are administered by entities other than the federal 

government. 

system of internal controls. 

magnitude of improper payments in their programs, and while estimates of improper 

payments disclosed in federal agency financial statements totaled about $20 billion for 

both fiscal years 2002 and 2001,13 the federal government did not estimate the full extent 

of improper payments. ent Agenda includes addressing 

erroneous payments (a term we consider synonymous with improper payments) as one of 

the key elements for improving financial performance. 

shown leadership in this area, now requires annual submissions on improper payments 

from 15 federal agencies. 

on erroneous payment rates and the status of actions taken to reduce improper payments. 

Further, the Improper Payments Information Act of 200214 requires federal agencies to 

(1) annually review programs and activities that they administer to identify those that 

may be susceptible to significant improper payments, (2) estimate improper payments in 

susceptible programs and activities, and (3) provide reports to Congress that include the 

status of actions to reduce improper payments for programs and activities with estimated 

improper payments of $10 million or more. 

Information Security GAO has reported information security over computerized 

operations as a governmentwide high-risk area since February 1997.15 Information 

________________________ 

11U.S. General Accounting Office, Small Business Administration: Accounting Anomalies and Limited 

Operational Data Make Results of Loan Sales Uncertain , GAO-03-87 (Washington, D.C.: January 2003). 

12Improper payments include inadvertent errors, such as duplicate payments and miscalculations, payments 

for unsupported or inadequately supported claims, payments for services not rendered, payments to 

ineligible beneficiaries, and payments resulting from fraud and abuse by program participants and/or 

federal employees.

13In trying to establish a baseline of erroneous payments, OMB’s fiscal year 2001 estimate of more than 

$30 billion, reported in Management’s Discussion and Analysis, includes amounts from agency sources 

other than published financial statements. 

published in agency fiscal years 2001 and 2002 performance and accountability reports, which include 

financial statements. 

payments using the same method of reporting, as required by the Improper Payments Information Act of 

2002, there may be variances between the amounts reported annually by OMB and GAO.

14Pub. L. No. 107 -300, 116 Stat. 2350 (Nov. 26, 2002). 

15See, for example, U.S. General Accounting Office, High-Risk Series: 

Supporting the Federal Government and the Nation’s Critical Infrastructures, GAO-03-121 (Washington, 

D.C.: January 2003). 

This raises significant concerns about SBA’s ability to 

Auditors for these agencies reported related material internal 

In general, improper payments often result from a lack of or an inadequate 

Most federal agencies have not estimated or reported the 

The President’s Managem 

Accordingly, OMB, which has 

Specifically, OMB requires actual and projected information 

For purposes of this report, we considered only those amounts 

We acknowledge that until all agencies systematically identify and report improper 

Protecting Information Systems 
44 GENERAL ACCOUNTING OFFICE REPORT 

security weaknesses are placing enormous amounts of federal government assets at risk 

of inadvertent or deliberate misuse, financial information at risk of unauthorized 

modification or destruction, sensitive information at risk of inappropriate disclosure, and 

critical operations at risk of disruption. 

estimate the full magnitude of actual damage and loss resulting from federal information 

security weaknesses because it is likely that many such incidents are either not detected 

or not reported. 

institutionalized comprehensive security management programs, which are critical to 

resolving information security problems and managing information security risks on an 

ongoing basis. 

information security controls, the Federal Information Security Management Act of 

200216 was enacted in December 2002. 

Tax Collection Activities Material internal control weaknesses and systems deficiencies 

continue to affect the federal government’s ability to effectively manage its tax collection 

activities.17 Due to errors and delays in recording activity in taxpayer accounts, taxpayers 

were not always credited for payments made on their taxes owed, which could result in 

undue taxpayer burden. 

potential unreported or underreported taxes and did not always pursue collection efforts 

against taxpayers owing taxes to the federal government. 

COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS 

Our work to determine compliance with selected provisions of applicable laws and 

regulations related to financial reporting was limited by the material weaknesses 

discussed above. 

reported were material to individual agency financial statements, are included in 

individua l agency audit reports. 

accompanying consolidated financial statements. 

We caution that other noncompliance may have occurred and not been detected. 

the results of our limited procedures may not be sufficient for other purposes. 

objective was not to, and we do not, express an opinion on compliance with applicable 

laws and regulations. 

AGENCY FINANCIAL MANAGEMENT SYSTEMS 

To achieve the financial management improvements envisioned by the CFO Act, FFMIA, 

and, more recently, the President’s Management Agenda, federal agencies need to 

modernize their financial management systems to generate reliable, useful, and timely 

financial information throughout the year and at year-end. roughout this 

report, financial management systems weaknesses have contributed to our inability to 

determine the reliability of the consolidated financial statements. 

________________________ 

16Pub. L. No. 107 -347, Title III, 116 Stat. 2946 (Dec. 17, 2002).

17U.S. General Accounting Office, Financial Audit: 

Statements, GAO-03-243 (Washington, D.C.: Nov. 15, 2002). 

The federal government is not in a position to 

Although progress has been made, federal agencies have not yet 

To provide a comprehensive framework for ensuring the effectiveness of 

In addition, the federal government did not always follow up on 

Instances of noncompliance, some of which the federal agency auditors 

However, none of these instances were material to the 

Further, 

Our 

As discussed th 

FFMIA requires 

IRS’s Fiscal Years 2002 and 2001 Financial 
GENERAL ACCOUNTING OFFICE REPORT 45

auditors, as part of CFO Act agencies’ financial statement audits, to report whether 

agencies’ financial management systems substantially comply with (1) federal financial 

management systems requirements, (2) applicable federal accounting standards (U.S. 

generally accepted accounting principles), and (3) the federal government’s SGL at the 

transaction level. For fiscal year 2002, auditors for 19 CFO Act agencies reported that 

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

more of these three FFMIA requirements. Meeting the requirements of FFMIA has 

presented long-standing, significant challenges. These challenges will be resolved only 

through time, investment, and sustained emphasis on correcting deficiencies in federal 

financial management systems. GAO plans to report to the Congress by October 1, 2003, 

on CFO Act agencies’ FFMIA implementation for fiscal year 2002, as required by the 

act. 

- - - - - 

We provided a draft of this report to Department of the Treasury and Office of 

Management and Budget officials, who expressed their continuing commitment to 

address the problems this report outlines.

David M. Walker

Comptroller General

of the United States

March 20, 2003
46 GENERAL ACCOUNTING OFFICE REPORT 

APPENDIX I 

SCOPE AND METHODOLOGY 

The Government Management Reform Act of 1994 expanded the requirements of the 

CFO Act by making the inspectors general of 24 major federal agencies responsible for 

annual audits of agencywide financial statements prepared by these agencies and GAO 

responsible for the audit of the U.S. government’s consolidated financial statements.18 

Our work was performed in coordination and cooperation with the inspectors general to 

achieve our joint audit objectives. 

significant federal agency components, as discussed below. 

primarily on determining the current status of the material deficiencies and the other 

material weaknesses affecting internal control that we had previously reported in our 

report on the consolidated financial statements for fiscal year 2001.19 We performed 

sufficient audit work to provide this report on the consolidated financial statements, 

internal control, and the results of our assessment of compliance with applicable laws and 

regulations. 

We separately audited the following significant federal agency component s. 

• We audited and expressed an unqualified opinion on the Internal Revenue Service’s 

(IRS) fiscal years 2002 and 2001 financial statements, which included approximately 

$2 trillion and $2.1 trillion of tax revenue and $281 billion and $251 billion of tax 

refunds for fiscal years 2002 and 2001, respectively, and $20 billion of net federal 

taxes receivable each year.20 In fiscal year 2002, we continued to report numerous 

material internal control weaknesses, which resulted in ineffective internal controls. 

We also reported two instances of noncompliance with applicable laws and 

regulations and lack of substantial compliance of IRS’s financial management 

systems with FFMIA. 

• We audited and expressed an unqualified opinion on the Schedules of Federal Debt 

managed by Treasury’s Bureau of the Public Debt (BPD) for the fiscal years ended 

September 30, 2002 and 2001.21 The schedules reported for these 2 fiscal years (1) 

approximately $3.6 trillion (2002) and $3.3 trillion (2001) of federal debt held by the 

public comprising individuals, corporations, state and local governments, the Federal 

Reserve Banks, and foreign governments and central banks, (2) about $2.7 trillion 

(2002) and $2.5 trillion (2001) of intragovernmental debt holdings, which represent 

federal debt issued by Treasury and held by certain federal government accounts such 

as the Social Security and Medicare trust funds, and (3) nearly $172 billion (2002) 

________________________ 

18The 1994 act authorized OMB to designate agency components that also would receive a financial 

statement audit. 

19For our report on the U.S. government’s consolidated financial statements for fiscal year 2001, see U.S. 

Department of the Treasury, Financial Report of the United States Government (Washington, D.C.: March 

2002), pp. 25-42, which can be found on GAO’s Internet site at www.gao.gov.

20GAO-03-243. 

21U.S. General Accounting Office, Financial Audit: Bureau of the Public Debt’s Fiscal Years 2002 and 

2001 Schedules of Federal Debt, GAO-03-199 (Washington, D.C.: Nov. 1, 2002). 

This work included separate GAO audits of certain 

Our audit approach focused 
GENERAL ACCOUNTING OFFICE REPORT 47 

and $207 billion (2001) of interest on federal debt held by the public.22 We reported 

that as of September 30, 2002, BPD had effective internal control over financial 

reporting and compliance with laws and regulations related to the Schedule of Federal 

Debt. 

2002 with laws we tested. 

• We audited and expressed unqualified opinions on the December 31, 2001 and 2000, 

financial statements of the funds administered by the Federal Deposit Insurance 

Corporation (FDIC), including the Bank Insurance Fund, the Savings Association 

Insurance Fund, and the FSLIC Resolution Fund.23 We reported that as of December 

31, 2001, FDIC had effective internal control over financial reporting and compliance 

with laws and regulations. 

internal control over certain material balances of the funds administered by FDIC as 

of September 30, 2002. 

We considered the CFO Act agencies’ and certain other federal agencies’ fiscal years 

2002 and 2001 financial statements and the related auditors’ reports prepared by the 

inspectors general or their contractors. 

agencies provide information about the operations of each of these entities. 

audit, and we do not express an opinion on, any of these individual federal agency 

financial statements. We also considered the Department of Defense (DOD) assertion 

provided to the DOD inspector general that DOD management prepared and submitted 

pursuant to the provisions of the National Defense Authorization Act for fiscal year 2002. 

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

standards. 

________________________ 

22On June 28, 2002, legislation was enacted to raise the statutory debt limit by $450 billion to $6.4 trillion. 

On February 20, 2003, the Secretary of the Treasury began exercising statutory authority available to him 

to avoid exceeding the current $6.4 trillion debt ceiling. 

been raised. 

23U.S. General Accounting Office, Financial Audit: al Deposit Insurance Corporation’s 2001 and 

2000 Financial Statements, GAO 02-633 (Washington, D.C.: May 21, 2002). 

Further, we reported that there was no reportable noncompliance in fiscal year 

In addition, we performed audit procedures and tests of 

Financial statements and audit reports for these 

We did not 

As of March 20, 2003, the debt ceiling had not 

Feder 
48 GENERAL ACCOUNTING OFFICE REPORT 

APPENDIX II 

Primary Effects Caused by the Material Weaknesses Described in This Report 

(198127) 

Areas Involving Material 

Weaknesses 

Primary Effects on the Fiscal Years 2002 and 2001 Consolidated 

Financial Statements and the Management of Government Operations 

Property, plant, and 

equipment and 

inventories and related 

property 

Without accurate asset information, the federal government does not fully 

know the assets it owns and their location and condition and cannot 

effectively (1) safeguard assets from physical deterioration, theft, or loss, 

(2) account for acquisitions and disposals of such assets, (3) ensure the 

assets are available for use when needed, (4) prevent unnecessary 

storage and maintenance costs or purchase of assets already on hand, 

and (5) determine the full costs of programs that use these assets. 

Liabilities Problems in accounting for liabilities affect the determination of the full cost of the 

federal government’s current operations and the extent of its liabilities. Also, 

improperly stated environmental and disposal liabilities and weak internal control 

supporting the process for their estimation affect the federal government’s ability 

to determine priorities for cleanup and disposal activities and to allow for 

appropriate consideration of future budgetary resources needed to carry out 

these activities. In addition, when disclosures of commitments and contingencies 

are incomplete or incorrect, reliable information is not available about the extent 

of the federal government’s obligations. 

Cost of government 

operations and 

disbursement activity 

Inaccurate cost information affects the federal government’s ability to 

control and reduce costs, assess performance, evaluate programs, and set 

fees to recover costs where required. Improperly recorded disbursements 

could result in misstatements in the financial statements and in certain data 

provided by federal agencies for inclusion in the President's budget 

concerning obligations and outlays. 

Accounting for and 

reconciliation of 

intragovernmental 

activity and balances 

Problems in accounting for and reconciling intragovernmental activity and 

balances impair the government’s ability to account for billions of dollars of 

transactions between governmental entities. 

Preparation of 

consolidated financial 

statements 

Weaknesses related to the preparation of the consolidated financial 

statements impair the federal government's ability to (1) fully ensure that 

the consolidated financial statements were consistent with federal agency 

financial statements and were properly balanced and (2) adequately 

reconcile the operating results reported in the consolidated financial 

statements with the unified budget results. 

Improper payments Without a systematic measurement of the extent of improper payments, 

federal agency management cannot determine (1) if improper payment 

problems exist that require corrective action, (2) mitigation strategies and 

the appropriate amount of investments to reduce them, and (3) the success 

of efforts implemented to reduce improper payments. 

Loans receivable and 

loan guarantee liabilities 

Weaknesses in the processes and procedures for estimating credit 

program costs affect the government’s ability to support annual budget 

requests for these programs, make future budgetary decisions, manage 

program costs, and measure the performance of lending activities. 

Information security 

weaknesses 

Information security weaknesses over computerized operations are placing 

enormous amounts of federal assets at risk of inadvertent or deliberate 

misuse, financial information at risk of unauthorized modification or 

destruction, sensitive information at risk of inappropriate disclosure, and 

critical operations at risk of disruption. 

Tax collection activities Weaknesses in controls over tax collection activities continue to affect the 

federal government’s ability to efficiently and effectively account for and 

collect revenue. Additionally, weaknesses in financial reporting affect the 

federal government’s ability to make informed decisions about collection 

efforts. As a result, the federal government is vulnerable to loss of tax 

revenue and exposed to potentially billions of dollars in losses due to 

inappropriate refund disbursements . 
FINANCIAL STATEMENTS 49 

Financial Statements
 


of the United States Government
 


for the Years Ended September 30, 2002
 


and September 30, 2001
 


In accordance with the Statement of Federal Financial Accounting Standards (SFFAS) No. 24, two new 

principal financial statements are included in this Financial Report of the United States Government (Financial 

Report). They are the Reconciliations of Net Operating Cost and Unified Budget Surplus (or Deficit) and the 

Statements of Changes in Cash Balance from Unified Budget and Other Activities. 

Statements of Net Cost 

These Statements present the net cost of fiscal years 2002 and 2001 Government operations. For the purposes 

of this document, “Government” refers to the United States Government. It categorizes costs by Chief Financial 

Officer Act entities and other significant entities. Costs are presented in a similar manner as in the budget, even 

though the budget presents costs by obligations and outlays based on functions. In the Statements of Net Cost, the 

costs are divided between the corresponding departments and entities mentioned above, providing greater 

accountability by showing the relationship of the agencies’ net cost to the Governmentwide net cost. The focus of 

the budget of the United States is by agency. Budgets are prepared, defended and monitored by agency. In reporting 

by agency, we are assisting the external users in assessing the budget integrity, operating performance, stewardship, 

and systems and control of the Federal Government. 

These Statements contain the following three components: 

•	 Gross cost—This is the full cost of all the departments and entities. These costs may be traced directly, 

assigned on a cause-and-effect basis, or reasonably allocated to the corresponding departments and entities. 

• Earned revenue—This is revenue the Government earned by providing goods and services to the public at a price. 

• Net cost—This is computed by subtracting earned revenue from gross cost. 

Because of their specific functions, most of the costs originally associated with the General Services 

Administration (GSA) and the Office of Personnel Management (OPM) have been allocated to and reflected in the 

costs of their user agencies. The remaining costs for GSA and OPM on the Statements of Net Cost are the 

administrative operating costs, the expenses from prior and past costs from plan amendments, and the actuarial gains 

and losses for these agencies. The interest on Treasury securities held by the public is part of the Department of the 

Treasury’s (Treasury) responsibilities, but because of its importance, and the dollar amounts, it is reported separately 

in these Statements. Net cost for Governmentwide reporting purposes includes GSA and OPM agency allocations, 

and is net of intragovernmental eliminations. For this reason, individual agency net cost amounts will not agree with 

the agency’s financial statements. 

Please refer to the Management’s Discussion and Analysis section for further information concerning the 

mission and organization of the components of the Government of the United States. 

Statements of Operations and Changes in Net Position 

These Statements report the results of Government operations. They include unearned revenues that are generated 

principally by the Government’s sovereign power to tax, levy duties, and assess fines and penalties. These Statements 

also cover the cost of Government operations, net of revenue earned from the sale of goods and services to the public 

(earned revenues). They further include any adjustments and unreconciled transactions that affect the net position. 
50 FINANCIAL STATEMENTS 

Revenue 

Individual income tax and tax withholdings consist of Federal individual income taxes, Social Security taxes, 

Medicare taxes, and railroad retirement taxes, net of related refunds. 

Miscellaneous earned revenues consist of earned revenues received from the public with virtually no 

associated cost. This category includes revenues generated by the Federal Communications Commission from the 

sale of spectrum licenses to promote open-air communication services to the public (spectrum auctions). It also 

includes rents and royalties on the Outer Continental Shelf Lands resulting from the leasing and development of 

mineral resources on public lands. 

Net Cost of Government Operations 

The net cost of Government operations (which is gross cost less earned revenue) flows through from the 

Statement of Net Cost. 

Unreconciled Transactions 

Unreconciled transactions are adjustments needed to bring the change in net position into balance due to 

unreconciled and unaccounted for differences in the consolidated financial statements. Please refer to Note 16— 

Unreconciled Transactions Affecting the Change in Net Position for detailed information. 

Net Position, Beginning of Period 

The net position, beginning of period reflects the net position reported on the prior year’s Balance Sheet as of 

the end of that fiscal year. 

Prior Period Adjustments 

Prior period adjustments are revisions to adjust the beginning net position. Refer to Note 1B—Basis of 

Accounting and Revenue Recognition, and Note 17—Prior Period Adjustments for detailed information. 

Net Position, End of Period 

This amount reflects the net position as of the end of the fiscal year. 

Reconciliations of Net Operating Cost and Unified Budget 

Surplus (or Deficit) 

The purpose of the reconciliation is to report how the proprietary net operating cost and the unified budget 

surplus (or deficit) relate to each other. The premise of the reconciliation is that the accrual and budgetary 

accounting basis share transaction data. 

These Statements report the reconciliation of the results of operations (net operating cost) on the Statements of 

Operations and Changes in Net Position to the unified budget surplus (or deficit) in the President’s budget. 

Receipts and outlays in the President’s budget are measured primarily on a cash basis and, therefore, differ 

from the accrued cost-basis measures used in the Financial Report. These Statements begin with the results of 

operations (net operating cost), reported on an accrued cost-basis in the Statements of Operations and Changes in 
FINANCIAL STATEMENTS 51 

Net Position, and arrive at the unified budget surplus. Reconciling items include accrued items, such as changes in 

liabilities for military, veteran and civilian benefits, as well as depreciation expenses on fixed assets and changes in 

environmental liabilities. 

Components of Net Operating Cost Not Part of the 

Budget Surplus (or Deficit) 

This information includes the operating components, such as the changes of benefits payable for veterans, 

military and civilian employees, and the environmental liabilities and depreciation expense not included in the 

budget results. 

Components of the Budget Surplus (or Deficit) 

Not Part of Net Operating Cost 

This information includes the budget components, such as capitalized fixed assets, changes in accounts 

receivable, and increases in other assets not included in the operating results because of their long-term nature. 

These items are typically part of the Balance Sheets only, and are not part of the operating results. 

The primary purpose of these Statements is to report how the annual unified budget surplus (or deficit) relates 

to the change in the Government’s cash balance and debt held by the public. It explains why the unified budget 

surplus (or deficit) normally would not result in an equivalent change in the Government’s cash balance. 

These Statements reconcile the unified budget deficit (or surplus) to the change in operating cash during the 

fiscal year, and explain how the budget deficit (fiscal 2002) was financed and budget surplus (fiscal 2001) was used. 

A budget deficit is the result of expenditures exceeding receipts (revenue) during a particular fiscal year, and a 

budget surplus is the result of receipts (revenue) exceeding expenditures during a particular fiscal year. 

In depicting how the unified budget deficit (or surplus) affected cash, these Statements show that in fiscal 2002 

the greatest amount was net new borrowings from the public, and in fiscal 2001 the greatest amount was net 

repayments of the debt held by the public. Other transactions also required cash disbursements and are not part of 

the repayments of the debt. These other transactions, such as the issuance of student loans or premiums on early 

buyback of public debt, required cash payments and contributed to the use of the surplus or deficit. These 

Statements show the differences between accrual and cash budgetary basis, mainly because of timing differences in 

the financial statements. 

The Balance Sheets show the Government’s assets and liabilities. When combined with stewardship 

information, this information presents a more comprehensive understanding of the Government’s financial position. 

All of the line items on the Balance Sheets are described in the Notes to the Financial Statements. For example, Note 

2—Cash and Other Monetary Assets provides information concerning the cash reported in the assets section. 

Assets 

Assets included on the Balance Sheets are resources of the Government that remain available to meet future 

needs. The most significant assets that are reported on the Balance Sheets are property, plant and equipment, 

Statements of Changes in Cash Balance from Unified 

Budget and Other Activities 

Balance Sheets 
52 FINANCIAL STATEMENTS 

inventories, and loans receivable. There are, however, other significant resources available to the Government that 

extend beyond the assets presented in these Financial Statements. Those resources include stewardship assets, 

including natural resources (see Stewardship Information section), and the Government’s sovereign powers to tax, 

regulate commerce, and set monetary policy. 

Selected assets are highlighted in the Stewardship Information section of this report to demonstrate the 

Government’s accountability for these assets. Stewardship assets include national defense assets, stewardship land, 

and heritage assets. 

Liabilities and Net Position 

Liabilities are obligations of the Government resulting from prior actions that will require financial resources. 

The most significant liabilities reported on the Balance Sheets are Federal employee and veteran benefits payable 

and Federal debt securities held by the public and accrued interest. Liabilities also include social insurance benefits 

due and payable as of the reporting date. 

As with reported assets, the Government’s responsibilities and policy commitments are much broader than 

these reported Balance Sheet liabilities. They include the social insurance programs disclosed in the Statements of 

Social Insurance in the Stewardship Information section, and a wide range of other programs under which the 

Government provides benefits and services to the people of this Nation, and certain future loss contingencies. 

The magnitude and complexity of social insurance programs, coupled with the extreme sensitivity of 

projections relating to the many assumptions of the programs, produce a wide range of possible results. The 

Stewardship Responsibilities section describes the social insurance programs, reports long-range estimates that can 

be used to assess the financial condition of the programs, and explains some of the factors that impact the various 

programs. Using this information, readers can apply their own judgment as to the condition and sustainability of the 

individual programs. 

Each of the social insurance programs has an associated trust fund to account for its activity. The taxes 

collected for specific use are credited to the corresponding trust fund that will use these funds to meet a particular 

Government purpose. If the collections from taxes and other sources exceed the payments to the beneficiaries, the 

excess collections are invested in Treasury securities or “loaned” to the Treasury’s general fund; therefore, the trust 

fund balances do not represent cash. An explanation of the trust funds for social insurance and many of the other 

large trust funds is included in Note 19—Dedicated Collections. That note also contains information about trust fund 

receipts, disbursements, and assets. 

A broad perspective on the Government’s responsibilities is provided by the Current Services Assessment, 

which also can be found in the Stewardship Information section. Presented in accordance with the President’s 2004 

budget, this information estimates Federal expenditures and receipts for fiscal 2002 to 2008, assuming there are no 

changes to current law. 

The Government has entered into contractual commitments requiring the future use of financial resources and 

has unresolved contingencies where existing conditions, situations, or circumstances create uncertainty about future 

losses. Commitments as well as contingencies that do not meet the criteria for recognition as liabilities on the 

Balance Sheets, but for which there is at least a reasonable possibility that losses have been incurred, are disclosed in 

Note 18—Commitments and Contingencies. 

Because of its sovereign power to tax and borrow, and the country’s wide economic base, the Government has 

unique access to financial resources through generating tax revenues and issuing Federal debt securities. This 

provides the Government with the ability to meet present obligations and those that are anticipated from future 

operations and are not reflected in net position. 
FINANCIAL STATEMENTS 53 

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54 FINANCIAL STATEMENTS

United States Government

Statements of Net Cost

for the Years Ended September 30, 2002 and September 30, 2001

(In billions of dollars) 2002 2001

 Gross

 Cost

 Earned

 Revenue

Net

Cost

Gross

Cost

Earned

Revenue

Net

Cost

Department of Agriculture ................................ 80.5 9.6 70.9 83.5 11.1 72.4 

Department of Commerce ................................ 7.4 1.2 6.2 7.4 1.2 6.2 

Department of Defense................................ 420.4 13.9 406.5 776.8 12.6 764.2 

Department of Education ................................ 49.9 4.8 45.1 39.9 4.1 35.8 

Department of Energy ................................ (3.0) 4.8 (7.8) 27.0 5.2 21.8 

Department of Health & Human Services ................................ 499.9 27.0 472.9 459.2 24.7 434.5 

Department of Housing & Urban Development................................ 36.3 2.2 34.1 34.5 2.4 32.1 

Department of Interior................................ 15.0 0.7 14.3 11.7 0.3 11.4 

Department of Justice................................ 29.5 2.3 27.2 26.5 2.3 24.2 

Department of Labor................................................................ 64.7 - 64.7 42.3 - 42.3 

Department of State................................................................ 10.9 0.9 10.0 10.0 1.0 9.0 

Department of Transportation ................................ 65.4 1.6 63.8 63.6 0.3 63.3 

Department of the Treasury ................................ 66.0 3.6 62.4 60.0 4.4 55.6 

Interest on debt held by the public ................................ 175.4 - 175.4 217.7 - 217.7 

Department of Veterans Affairs ................................ 218.4 2.6 215.8 196.0 2.7 193.3 

U.S. Agency for International Development ................................ 8.0 - 8.0 7.1 0.1 7.0 

Environmental Protection Agency ................................ 8.2 0.5 7.7 8.4 0.5 7.9 

Federal Emergency Management Agency................................ 6.2 1.8 4.4 6.3 1.6 4.7 

General Services Administration................................ (0.1) 0.3 (0.4) 0.1 0.3 (0.2)

National Aeronautics & Space Administration................................ 14.7 0.1 14.6 9.2 0.1 9.1 

National Science Foundation................................ 4.2 - 4.2 3.7 - 3.7 

U.S. Nuclear Regulatory Commission ................................ 0.6 0.4 0.2 0.6 0.4 0.2 

Office of Personnel Management ................................ 0.2 - 0.2 0.2 - 0.2 

Small Business Administration................................ 1.3 0.5 0.8 0.8 0.2 0.6 

Social Security Administration ................................ 492.9 0.3 492.6 465.3 0.3 465.0 

Export-Import Bank of the United States ................................ (1.2) 0.3 (1.5) 0.8 0.3 0.5 

Federal Communications Commission ................................ 6.8 1.1 5.7 14.9 6.7 8.2 

Federal Deposit Insurance Corporation................................ 1.8 0.7 1.1 3.1 0.5 2.6 

National Credit Union Administration................................ 0.2 0.5 (0.3) 0.3 0.4 (0.1)

Pension Benefit Guaranty Corporation ................................ 12.7 0.9 11.8 2.3 0.8 1.5 

Railroad Retirement Board ................................ 9.3 - 9.3 9.0 - 9.0 

Tennessee Valley Authority................................ 7.9 6.8 1.1 11.8 6.9 4.9 

United States Postal Service ................................ 83.1 66.4 16.7 86.2 65.6 20.6 

All other entities ................................................................

 22.8 0.8 22.0 19.6 3.0 16.6 

Total ................................................................

 2,416.3 156.6 2,259.7 2,705.8 160.0 2,545.8 

The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS 55

United States Government 

Statements of Operations and Changes in Net Position

for the Years Ended September 30, 2002 and September 30, 2001

(In billions of dollars) 2002 2001

Revenue:

Individual income tax and tax withholdings ...................................................... 1,538.6 1,663.6 

Corporation income taxes ...............................................................................143.7 147.9 

Unemployment taxes ..................................................................................... 26.2 26.7 

Excise taxes................................................................................................ 67.9 67.3 

Estate and gift taxes ...................................................................................... 26.4 28.3 

Customs duties .............................................................................................. 18.3 18.7 

Other taxes and receipts ................................................................................ 49.3 48.9 

Miscellaneous earned revenues................................................................ 7.3 12.3 

Total revenue.............................................................................................. 1,877.7 2,013.7 

Less net cost of Government operations .................................................. 2,259.7 2,545.8 

Unreconciled transactions affecting the change in

net position (Note 16) ..................................................................................

17.1 17.3 

Net operating cost ..........................................................................................

(364.9) (514.8)

Net position, beginning of period................................................................(6,458.8) (5,945.4)

Prior period adjustments (Note 17)................................................................ 3.5 1.4 

Net operating cost..........................................................................................(364.9) (514.8)

Net position, end of period.............................................................................

(6,820.2) (6,458.8)

The accompanying notes are an integral part of these financial statements.
56 FINANCIAL STATEMENTS

United States Government

Reconciliations of Net Operating Cost and Unified Budget Surplus (or Deficit) 

for the Years Ended September 30, 2002 and September 30, 2001

(In billions of dollars) 2002 2001

Net operating cost.......................................................................................... (364.9) (514.8)

Components of net operating cost not part of the budget surplus (or deficit):

Increase in liability for military employee benefits (Note 11):

Increase in military pension liabilities .............................................................. 21.7 17.8 

Increase in military health liabilities ................................................................ 11.1 388.6 

(Decrease)/increase in other military benefits .................................................. (0.4) 0.4 

Increase in liability for military employee benefits............................................. 32.4 406.8 

Increase in liability for veterans compensation and burial benefits (Note 11):

Increase in liability for veterans ................................................................ 147.7 115.2 

Increase in liability for survivors ................................................................ 9.0 24.1 

Increase in liability for burial benefits............................................................... 0.6 - 

Increase in liability for veterans compensation................................................. 157.3 139.3 

Increase in liability for civilian employee benefits (Note 11):

Increase in civilian pension liabilities ............................................................... 16.9 41.0 

Increase in civilian health liabilities................................................................ 16.2 7.2 

Increase in other civilian benefits ................................................................ 5.8 1.9 

Increase in liability for civilian employee benefits ............................................. 38.9 50.1 

Decrease in environmental liabilities (Note 12):

(Decrease)/increase in energy's environmental liabilities ................................ (28.7) 4.1 

(Decrease)/increase in all others' environmental liabilities ................................ (5.1) 1.6 

(Decrease)/increase in environmental liabilities ............................................... (33.8) 5.7 

Depreciation expense....................................................................................... 20.5 21.4 

Increase in benefits due and payable (Note 13).................................................. 9.3 8.1 

(Increase)/decrease in taxes receivable (Note 5)................................................ (0.3) 2.2 

Increase in other liabilities (Note 14)................................................................ 13.8 13.1 

Premium on early buyback of public debt ........................................................... 3.8 10.7 

Seigniorage and sale of gold............................................................................. (1.0) (1.3)

(Decrease)/increase in accounts payable (Note 9) ............................................. (0.4) 9.41

Components of the budget surplus (or deficit) not part of net operating cost:

Capitalized Fixed Assets:

Department of Defense.................................................................................. (18.1) (11.1)

Civilian agencies ........................................................................................... (22.8) (23.3)

Total capitalized fixed assets ................................................................ (40.9) (34.4)

Decrease in accounts receivable (Note 3).......................................................... 2.2 (1.9)

(Increase)/decrease in inventory (Note 6) .......................................................... (8.4) 1.4 

Increase in other assets (Note 8) ................................................................ (2.0) (3.7)

Principal repayments of precredit reform loans ................................................... 8.2 19.9 

Net amount of all other differences ................................................................ 1.0 (6.4)1

Other:

Prior period adjustments (Note 17)................................................................ 6.6 1.41

Unified Budget deficit (or surplus)................................................................

 (157.7) 127.0

1 Restated.

The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS 57

United States Government

Statements of Changes in Cash Balance from Unified Budget and Other Activities

for the Years Ended September 30, 2002 and September 30, 2001

(In billions of dollars) 2002 2001

Budget receipts—actual ................................ 1,853.3 1,990.9

Budget outlays—actual ................................ (2,011.0) (1,863.9)

Unified budget (deficit) or surplus ................................ (157.7) 127.0

Adjustments for Non-Cash Outlays 

Included in the Budget:

Interest accrued by Treasury on debt held 

by the public ................................................................ (152.0) (171.0)

Subsidy expense (Note 4)................................ 4.9 0.7

Items Affecting the Cash Balance Not 

Included in the Budget:

Net Transactions from Financing Activity:

Repayment of debt held by the public................................ 3,570.2 2,620.7

Borrowings from the public................................ (3,791.0) (2,530.6)

Total ................................................................ (220.8) 90.1

Net Transactions from Monetary Activity:

Increase in special drawing rights................................ .8 1.6

Increase in other monetary assets................................ 14.3 8.2

Increase/(decrease) in loans to the IMF................................ 2.5 4.7

Total................................................................ 17.6 14.5

Net Transactions from Other Activities:

Net direct loan activity ................................13.7 18.5

Interest paid by Treasury on debt 

held by the public ................................ 158.6 175.8

Premium on early buyback of public debt ................................ 3.8 10.7

Net guaranteed loan activity................................ (2.3) 4.1

Increase/(decrease) in other assets................................ (.9) 1.6

Increase in deposit fund balances ................................ (.4) (4.1)

Decrease/(increase) in other liabilities................................ 3.4 (4.1)

Seigniorage and other equity ................................ (1.0) (1.3)

Revisions to the prior budget results................................ 1.0 -

Total ................................................................ 175.9 201.2

Disposition of (Deficit) or Surplus ................................ (174.4) 135.5

Increase/(decrease) in operating cash 

balance ................................................................ 16.7 (8.5)

Operating Cash: (Note 2)

Operating cash balance beginning of 

period................................................................ 44.2 52.7

Operating cash balance end of period................................ 60.9 44.2

The accompanying notes are an integral part of these financial statements.
58 FINANCIAL STATEMENTS

United States Government

Balance Sheets

as of September 30, 2002 and September 30, 2001

(In billions of dollars) 2002 2001

Assets:

Cash and other monetary assets (Note 2) ....................................................... 141.6 108.0 

Accounts receivable, net (Note 3) ................................................................32.0 34.2 

Loans receivable, net (Note 4)................................................................ 219.2 208.9 

Taxes receivable, net (Note 5)................................................................ 21.4 21.1 

Inventories and related property, net (Note 6) ................................ 192.2 183.8 

Property, plant and equipment, net (Note 7) ................................ 324.7 306.7 

Other assets (Note 8)................................................................ 65.4 63.4 

Total assets ................................................................................................ 996.5 926.1 

Liabilities:

Accounts payable (Note 9) ................................................................ 55.8 56.2 

Federal debt securities held by the public and accrued interest 

(Note 10) ................................................................................................ 3,573.2 3,359.3 

Federal employee and veteran benefits payable (Note 11) ............................... 3,589.4 3,360.8 

Environmental and disposal liabilities (Note 12) ................................ 273.0 306.8 

Benefits due and payable (Note 13) ................................................................ 95.3 86.0 

Loan guarantee liabilities (Note 4)................................................................28.1 27.7 

Other liabilities (Note 14)................................................................ 201.9 188.1 

Total liabilities ............................................................................................. 7,816.7 7,384.9 

Commitments and contingencies (Note 18)

Net position ................................................................................................

(6,820.2) (6,458.8)

Total liabilities and net position ................................................................ 996.5 926.1 

The accompanying notes are an integral part of these financial statements.
STEWARDSHIP INFORMATION (UNAUDITED) 59 

United States Government 

Stewardship Information for the Years 

Ended September 30, 2002 and 

September 30, 2001 (Unaudited) 

Stewardship Assets 

The Government holds stewardship assets for the benefit of the Nation. Because the Government has been entrusted 

with, and made accountable for, these resources and responsibilities, they are recognized in this Financial Report . 

When acquired, stewardship assets are generally treated as expenses in the financial statements. This section 

provides more detailed stewardship information on these resources to highlight their long-term benefit and to demonstrate 

accountability. This information facilitates the understanding of the operations and financial condition of the Government. 

National Defense Assets 

National defense assets consist of property, plant and equipment that the Department of Defense (DOD) 

requires to perform military missions, such as combat operations, peacekeeping, and support of civilian authorities 

during civil emergencies, and vessels held in a preservation status by the Maritime Administration’s National 

Defense Reserve Fleet. 

In June 2002, the Federal Accounting Standards Advisory Board (FASAB) approved SFFAS No. 23 entitled, 

Eliminating the Category National Defense Property, Plant and Equipment. FASAB has recommended this 

statement to remove national defense assets from stewardship information and report them on the Balance Sheet as 

part of general property, plant and equipment. This standard is effective for years ending after September 30, 2002, 

and is currently pending final approval by Congress. The standard on national defense property, plant and equipment 

provides for capitalization of property previously defined as national defense property, plant and equipment and the 

reporting of such property as general property, plant and equipment. DOD cannot fully comply with existing 

reporting requirements, because many of DOD’s accountability and logistics systems do not contain the cost of the 

national defense property, plant and equipment assets. These systems were designed for the purpose of maintaining 

accountability and meeting other logistics requirements and capturing the cost of national defense property, plant 

and equipment. 

Stewardship Land 

Stewardship land refers to federally-owned land that is set aside for the use and enjoyment of present and 

future generations and land on which military bases are located. Except for military bases, this land is not used or 

held for use in general Government operations. Stewardship land is land that the Government does not expect to use 

to meet its obligations, unlike the assets listed in the Balance Sheets. Stewardship land is measured in nonfinancial 

units such as acres of land and lakes, miles of parkways, and miles of wild and scenic rivers. Examples of 

stewardship land include national parks, national forests, wilderness areas, and land used to enhance ecosystems to 

encourage animal and plant species and to conserve nature. This category excludes lands administered by the Bureau 

of Indian Affairs and held in trust. 

Most stewardship land managed by the Government was once part of the 1.8 billion acres of public domain 

land acquired between 1781 and 1867. Stewardship land accounts for 28 percent of the current U.S. landmass. 

Stewardship land acquired totaled $212.4 million and $373.0 million for the years ended September 30, 2002, and 

2001, respectively. The table below depicts the stewardship land owned by the Government and administered by the 
60 STEWARDSHIP INFORMATION (UNAUDITED) 

Department of the Interior (DOI), DOD, and the Department of Agriculture (USDA). Detailed information 

concerning stewardship land can be obtained in the financial statements of DOI, DOD, and USDA. 

United States Government Stewardship Land as of September 30 

Agency Predominate Use 

Millions 

of Acres Percentage 

2002 2001 2002 2001 

Bureau of Land Management ................................ Public land 261.5 261.8 40.4 40.5 

U.S. Forest Service ................................ National forest system 192.3 192.4 29.7 29.8 

U.S. Fish and Wildlife Service ................................ National wildlife refuge system 90.1 90.1 13.9 14.0 

National Park Service ................................ National park system 79.0 78.9 12.2 12.2 

Department of Defense................................ Defense facilities 18.8 16.8 2.9 2.6 

Bureau of Reclamation ................................ Water, power, and recreation 5.8 5.7 0.9 0.9 

Total acres ................................................................................................ 647.5 645.7 100.0 100.0 

Heritage Assets 

Heritage assets are Government-owned assets that have one or more of the following characteristics: 

• Historical or natural significance. 

• Cultural, educational, or artistic importance. 

• Significant architectural characteristics. 

The cost of heritage assets often is not determinable or relevant to their significance. Like stewardship land, the 

Government does not expect to use these assets to meet its obligations. The most relevant information about heritage 

assets is nonfinancial. The public entrusts the Government with these assets and holds it accountable for their 

preservation. Examples of heritage assets include Mount Rushmore National Memorial, Yosemite National Park, 

and museum objects on display at the Smithsonian Institution. Other examples of heritage assets include the 

Declaration of Independence, the U.S. Constitution, and the Bill of Rights preserved by the National Archives. Also 

included are national monuments/structures such as the Vietnam Veterans Memorial, the Jefferson Memorial, and 

the Washington Monument, as well as art and cultural treasures at the Smithsonian Institution and the Library of 

Congress. Many other sites such as battlefields, historic structures, and national historic landmarks are placed in this 

category, as well. 

Some heritage assets are used both to remind us of our heritage and for day-to-day operations. These assets are 

referred to as multi-use heritage assets. One typical example is the White House. The cost of acquisition, betterment 

or reconstruction of all multi-use heritage assets is capitalized as general property, plant and equipment and is 

depreciated. 

The following discussion of the Government’s heritage assets is not all-inclusive. Rather, it highlights 

significant heritage assets reported by Federal agencies. 

The Government classifies heritage assets into three broad categories: 

• Collection-type. 

• Natural. 

• Cultural. 

Collection-type heritage assets include objects gathered and maintained for museum and library collections. 

Natural heritage assets include national wilderness areas, wild and scenic rivers, natural landmarks, forests and 

grasslands. Cultural heritage assets include historic places and structures, memorials and monuments, national 

cemeteries and archeological sites. 
STEWARDSHIP INFORMATION (UNAUDITED) 61 

Collection-Type Heritage Assets 

The Smithsonian Institution holds some of the most prominent Federal museum collections. The Smithsonian 

acquires, protects, and preserves approximately 140 million individual objects for public exhibition, education, and 

research. 

Similarly, the Library of Congress holds the world’s largest library collection, comprising more than 115 

million items. The Library of Congress receives two copies of every book, pamphlet, map, print, photograph, and 

piece of music registered for copyright in the United States. 

The National Archives holds more than 2 million cubic feet of records. These records ensure ready access to 

essential information documenting the rights of citizens, the actions of Federal officials, and the effects of those 

actions on the national experience. These records include text and legislative records; cartographic and architectural 

records; motion picture, sound, and video records; and still pictures and graphics. The National Archives also 

maintains historically important documents such as the U.S. Constitution and the Louisiana Purchase Treaty. 

Collection-type heritage assets acquired totaled $187.8 million and $13.2 million for the years ended 

September 30, 2002, and 2001, respectively. 

Natural Heritage Assets 

Congress has designated several wilderness areas to preserve their natural conditions. DOI manages 

approximately 69.4 million acres of these wilderness areas comprised of almost 65 percent of the Nation’s more 

than 106 million wilderness acres. The Cebolla Wilderness in New Mexico is one such area. 

The national wild and scenic rivers system includes protected free-flowing rivers. The Government protects 

these areas because of their fish and wildlife, or for their scenic, recreational, geologic, historic, or cultural value. 

DOI manages 53 percent of these 11,303 river miles, including the Bluestone National Scenic River in West Virginia. 

The Government also sets aside natural landmarks that exemplify a region’s natural characteristics. The U.S. 

Fish and Wildlife Service manages 43 national natural landmarks, the Bureau of Land Management manages 45 

natural landmarks, and the National Park Service manages 18 national natural landmarks, such as the Garden of the 

Gods in Colorado. 

The U.S. Forest Service manages 155 national forests and 20 national grasslands on more than 192 million 

acres of public land. These areas encompass significant heritage resources. Examples include the White Mountain 

National Forest in New Hampshire and the Thunder Basin National Grassland in Wyoming. 

Natural heritage assets acquired totaled $313.0 million and $51.0 million for the years ended September 30, 

2002, and 2001, respectively. 

Any acreage cited above for natural heritage assets, such as wilderness areas, are also included in the acreage 

cited in the Stewardship Land section. 

Cultural Heritage Assets 

The National Register of Historic Places lists historic sites and structures. This is America’s official list of 

cultural resources worthy of preservation. Official properties include districts, sites, buildings, structures, and 

objects significant to American history. It also includes significant architectural, archaeological engineering, and 

cultural properties. Forest Service land encompasses 3,491 such properties. 

The Nation’s monuments and memorials include the Washington Monument, the Vietnam Veterans Memorial, 

and the Jefferson Memorial in Washington, D.C. The National Park Service manages these. In addition, the 

American Battle Monuments Commission administers, operates, and maintains 24 permanent American Military 

Cemeteries on foreign soil and 27 stand-alone memorials, monuments, and markers around the world. This includes 

the Belleau Wood Marine Monument in France. 

Archeological sites contain the remains of human activity. DOI manages numerous archaeological sites. The 

National Park Service manages 63,000 archeological sites; the Bureau of Land Management, the U.S. Fish and 

Wildlife Service and the Bureau of Reclamation manage 280,110 archaeological and historical properties. The 

ancient earthen mounds at the Hopewell Culture National Historic Site in Ohio are a notable example . 

National cemeteries include the Arlington National Cemetery in Virginia and the Fort Logan National 

Cemetery in Colorado. The Department of the Army (Army) manages the Arlington National Cemetery. The 

Department of Veterans Affairs (VA) manages Fort Logan National Cemetery and other cemeteries. 
62 STEWARDSHIP INFORMATION (UNAUDITED) 

Stewardship Responsibilities 

Stewardship responsibilities provide information on the social insurance programs: Social Security, Medicare, 

Railroad Retirement, Black Lung and Unemployment Insurance. The purpose of this information is to assist the 

American people in evaluating the financial condition and sustainability of these programs. 

Social Insurance Update 

Congress passed the Social Security Act in 1935. The Act, as subsequently amended, includes programs that 

provide retirement and disability benefits. Congress established two trust funds for Social Security: the Federal OldAge and Survivors Insurance (OASI) and the Federal Disability Insurance (DI) Trust Funds (combined as OASDI). 

The following table gives financial report users updated information on selected financial aspects of the Social 

Security and Medicare programs that became available subsequent to the preparation of the related data presented in 

the detailed social insurance disclosures on pages 63 to 82. 

Specifically, the social insurance programs’ actuarial analysis and assumptions that are included on pages 73 to 

76 were prepared based on estimates as of January 1, 2002. On March 17, 2003, the Boards of Trustees for the 

Social Security and Medicare Trust Funds released annual reports that present information for these programs as of 

January 1, 2003. The table below compares selected key data elements from these sources. 

Comparison of Trustees’ Reports Updated 

Estimates with the Financial Report Estimates 

Trustees’ 

Report 

Estimates as of 

January 1, 2003 

Financial 

Report 

Estimates as of 

January 1, 2002 

First Year Expenditures Exceed Tax Revenue: 

Social Security (OASI and DI) ................................................................ 2018 2017 

Federal Old-Age and Survivors Insurance (OASI) ................................ 2018 2018 

Federal Disability Insurance (DI)................................................................ 2008 2009 

Federal Hospital Insurance (Medicare Part A) ................................ 2013 2016 

Year Trust Fund Assets Are Exhausted:* 

Social Security ................................................................ 2042 2041 

Federal Old-Age and Survivors Insurance ................................ 2044 2043 

Federal Disability Insurance ................................................................ 2028 2028 

Federal Hospital Insurance ................................................................ 2026 2030 

Actuarial Deficit as a Percentage of 

Taxable Payroll Over the 75-Year Projection Period: 

Social Security ................................................................ 1.92% 1.87% 

Federal Old-Age and Survivors Insurance ................................ 1.56% 1.54% 

Federal Disability Insurance ................................................................ 0.35% 0.34% 

Federal Hospital Insurance ................................................................ 2.40% 2.02% 

Annual Deficit as a Percentage of Taxable Payroll for 

the 75th Year of the Projection Period: 

Social Security ................................................................ 6.50% 6.42% 

Federal Old-Age and Survivors Insurance ................................ 5.73% 5.64% 

Federal Disability Insurance ................................................................ 0.77% 0.78% 

Federal Hospital Insurance ................................................................ 8.09% 7.37% 

Present Value of Resources Needed Over the 75-Year 

Projection Period: 

Social Security ................................................................ $4,927 billion1 $4,562 billion 

Federal Hospital Insurance ................................................................ $6,166 billion1 $5,126 billion 

*See page 69 for more information on how trust funds are financed.

1

Amount derived by the Office of the Actuary at the Social Security Administration and Centers for Medicare & Medicaid 

Services, respectively, for Trustees’ Report projections. 
STEWARDSHIP INFORMATION (UNAUDITED) 63 

In their 2003 Reports, the Trustees for the OASDI and Federal Hospital Insurance (HI), or Medicare Part A, 

programs reported that the short-range financial status of these programs is adequate. However, they continued to 

caution that long-term sustainability issues have deteriorated and still need to be addressed, and that timely action to 

deal with the continuing long-term financial difficulties is needed. As the Trustees point out, “... the sooner they are 

addressed the more varied and less disruptive can be their solutions.” 

For the OASDI program, the long-range actuarial deficit increased by 0.05 percentage of taxable payroll, 

primarily because the valuation period extends one year later to 2077, a larger deficit year. A higher assumed rate of 

immigration improved the projected financial status of the trust funds in early years, delaying the start of cash-flow 

deficits by 1 year and extending the year of trust fund exhaustion by 1 year. 

The primary reason for the change in HI program estimates is the increase in the projection base. Actual and 

projected expenditures are significantly higher than estimated last year mainly due to faster growth in inpatient 

hospital benefits. In addition, actual and projected payroll tax income is lower than previously estimated because of 

a downward revision in estimated wage and salary disbursements. 

On balance, these changes extend the exhaustion date for the OASDI Trust Fund by 1 year (from 2041 to 

2042) and deplete the HI Trust Fund 4 years earlier (from 2030 to 2026). Revenues fall short of expenditures, 1 year 

later than last year (2018 compared to 2017) for the OASDI Trust Fund and 3 years earlier than last year for the HI 

Trust Fund (2013 compared to 2016). The 75-year actuarial balances were worse for both trust funds, for the reasons 

stated above, as well as, the addition of a new deficit year at the end of the 75-year projection period. Both funds 

remain substantially out of long-term actuarial balance. Compared to last year, the annual deficit (as a percentage of 

payroll) in the 75th projection year (2077) increased noticeably for the OASDI fund and for the HI fund. 

As used in the preceding table, first year expenditures exceed tax revenue is the point at which the trust funds 

would have to start using interest income to make payments. Interest income is paid in the form of Treasury 

securities. In order to use the interest, the trust funds would have to redeem the securities. To finance redemption, 

the Government must raise taxes, increase borrowings from the public, cut spending for other programs, retire less 

debt, or some combination thereof. The year trust fund assets are exhausted is the point at which all trust fund assets 

(Treasury securities) have been redeemed. After this date, these respective programs will not have adequate 

resources to pay promised benefits or obligations in a timely manner. In the year of trust fund exhaustion (based on 

the intermediate assumptions of the 2003 Trustees’ Report), 2042 for OASDI and 2026 for Medicare Part A, tax 

income is estimated to cover 73 percent of program expenditures. Actuarial deficit as a percentage of taxable payroll 

over the 75-year projection period can be interpreted as the percentage that, if added to the current scheduled tax 

rates, would cover projected trust fund shortfalls over the 75-year period and have enough assets on hand at the end 

of the 75-year period to pay scheduled benefits in the following year. Similarly, annual deficit as a percentage of 

taxable payroll for the 75th year of the projection period represents the increase in payroll taxes needed in year 2077 

and 2076 to cover projected cash shortfalls for each 1-year period. Present value of resources needed over the 75-

year projection period represents the discounted net excess of projected cash expenditures (outflow) over cash 

income (inflow) during the 75-year projection period. The trust fund assets at the beginning of the period are not 

reflected in the calculation of this amount. 

Social Insurance 

The social insurance programs were developed to provide income security and health care coverage to citizens 

under specific circumstances as a responsibility of the Government. Because taxpayers rely on social insurance in 

their long-term planning, social insurance programs should show their sustainability as currently constructed, as well 

as what their effect will be on the Government’s financial condition. The resources needed to run these programs are 

raised through taxes and fees collections. Eligibility for benefits rests in part on earnings and time worked by the 

individuals. Social insurance program benefits sometimes are redistributed intentionally toward lower-wage workers. In 

addition, social insurance programs have uniform sets of entitling events and schedules that apply to all participants. 

Statements of Social Insurance 

These Statements present estimates for several key indicators of the status of the Social Security and Medicare 

programs. These estimates are based on long-range actuarial projections of the range of persons who are participants 

or eventually will participate in the programs as contributors or beneficiaries during a projected period of time 

sufficient to illustrate the financial status and sustainability of the program. The projection includes current workers, 
64 STEWARDSHIP INFORMATION (UNAUDITED) 

retirees, survivors, disabled persons who have not attained retirement age, as well as the participants who have 

attained retirement age, and those expected to become new participants in the future. Refer to the footnotes at the 

bottom of these Statements for the projection valuation date. 
STEWARDSHIP INFORMATION (UNAUDITED) 65

United States Government

Statements of Social Insurance 

Present Value of Long-Range Actuarial Projections

(In billions of dollars) 2002 2001 2000

Federal Old-Age, Survivors and Disability Insurance (Social Security):

Contributions and earmarked taxes from:

Participants who are currently receiving benefits ................................ 348 309 266

Participants who are not currently receiving benefits................................ 13,048 12,349 11,335

Future participants ................................................................ 11,893 11,035 10,088

 All current and future participants ............................................................... 25,289 23,693 21,689

Expenditure payments to or on behalf of: 

Participants who are currently receiving benefits ................................4,401 4,256 4,020

Participants who are not currently receiving benefits................................ 20,210 18,944 17,217

Future participants ................................................................ 5,240 4,700 4,297

All current and future participants ............................................................... 29,851 27,900 25,534

Present Value of Resources Needed............................................................. 4,5621

4,20723,8453

Federal Hospital Insurance (Medicare Part A):

Contributions and earmarked taxes from:

Participants who are currently receiving benefits ................................ 125 113 97

Participants who are not currently receiving benefits................................ 4,408 4,136 3,757

Future participants ................................................................ 3,753 3,507 3,179

All current and future participants ............................................................... 8,286 7,756 7,033

Expenditure payments to or on behalf of:

Participants who are currently receiving benefits ................................1,747 1,693 1,681

Participants who are not currently receiving benefits................................ 9,195 8,568 6,702

Future participants ................................................................ 2,470 2,225 1,349

All current and future participants ............................................................... 13,412 12,486 9,732

 

Present Value of Resources Needed............................................................. 5,1261

4,73022,6993

Federal Supplementary Medical Insurance (Medicare Part B):

Contributions and earmarked taxes from:

Participants who are currently receiving benefits ................................ 252 258 234

Participants who are not currently receiving benefits................................ 1,856 1,845 1,527

Future participants ................................................................ 600 593 404

All current and future participants ............................................................... 2,708 2,696 2,165

Expenditure payments to or on behalf of:

Participants who are currently receiving benefits ................................1,132 1,159 1,051

Participants who are not currently receiving benefits................................ 7,463 7,415 6,094

Future participants ................................................................ 2,238 2,206 1,514

All current and future participants ............................................................... 10,833 10,780 8,659

Present Value of Resources Needed............................................................. 8,1251

8,08426,4943

Railroad Retirement Present Value of Resources Needed................................ 2011948

5

Black Lung (Part C) Present Value of Resources Needed ................................ (5)6(4)7(4)8

1 The projection period is 1/1/2002 - 12/31/2076 and the valuation date is 1/1/2002.

2

 The projection period is 1/1/2001 - 12/31/2075 and the valuation date is 1/1/2001.

3

 The projection period is 1/1/2000 - 12/31/2074 and the valuation date is 1/1/2000.

4

 The projection period is 1/1/2001 - 12/31/2076 and the valuation date is 1/1/2001.

5 The projection period is 9/30/2000 - 12/31/2073 and the valuation date is 12/31/1998.

6

 The projection period is 9/30/2002 - 9/30/2040 and the valuation date is 6/30/2002.

7

 The projection period is 9/30/2001 - 9/30/2040 and the valuation date is 6/30/2001.

8

 The projection period is 9/30/2000 - 9/30/2040 and the valuation date is 6/30/2000.

See the Social Insurance update on page 62 for the most recent Trustees’ Report projections.

The following notes are an integral part of this statement.
66 STEWARDSHIP INFORMATION (UNAUDITED) 

Notes to the Statements of Social Insurance 

Actuarial present value of the 75-year projections are computed based on the economic and demographic 

assumptions believed most likely to occur (the intermediate assumptions) as set forth in the related Trustees’ reports. 

Contributions and earmarked taxes consist of payroll taxes from employers, employees, and self-employed 

persons; revenue from Federal income taxation of OASDI and railroad retirement benefits; monthly Medicare Part B 

premiums paid by, or on behalf of, beneficiaries; railroad work-hour tax; and excise tax on coal (Black Lung). 

Contributions and earmarked taxes for the Medicare Part B program presented in this report are presented from a 

consolidated perspective. Interest payments and other intragovernmental transfers have been eliminated. The 

Centers for Medicare & Medicaid Services’ (CMS), formerly known as the Health Care Financing Administration, 

2002 Financial Report presents income from the trust fund’s perspective, not a Governmentwide perspective. 

Therefore, CMS’ Financial Report includes $8,125 billion for the present value of transfers from the general fund of 

the Treasury to the Medicare Part B Trust Fund that have been eliminated in this Financial Report. 

Expenditure payments include benefit payments and administrative expenses. 

Black Lung disability benefits for current and future miners are not expected to be material. 

Future participants, in the three insurance groups, include births during the period and individuals below age 

15 as of January 1 of the valuation year. 

The present value of resources needed is the current amount of funds needed to cover projected shortfalls, 

excluding the starting trust fund balances, over the projection period. The trust fund balances at the beginning of the 

valuation period that were eliminated for this consolidation were: $1,213 billion—Social Security, $209 billion— 

Medicare Part A, $41 billion—Medicare Part B, $24 billion—Railroad Retirement, and Black Lung Trust Fund, 

which had a negative balance of $7.7 billion. 

The projection period for new entrants covers the next 75 years for the Social Security and Medicare programs. 

The projection period for current participants (i.e., those age 15 and over on January 1 of the valuation year, referred 

to as the “closed group”) would theoretically cover all of their working and retirement years, a period that could be 

greater than 75 years in a few instances. As a practical matter, the present values of future payments and 

contributions for/from current participants beyond 75 years are not material. 

The actuarial present value of the excess of future scheduled expenditure payments to current participants (that 

is, to the closed group of participants) over future scheduled contributions and tax income from them or paid on their 

behalf is calculated by subtracting the actuarial present value of future scheduled contributions and tax income by 

and on behalf of current participants from the actuarial present value of the future scheduled benefit payments to 

them or on their behalf. For Social Security and Medicare, further information can be obtained from the Social 

Security Administration (SSA) (The 2002 Annual Report of the Board of the Trustees of the Federal Old-Age and 

Survivors Insurance and Disability Insurance Trust Funds) and from the Department of Health and Human Services 

(HHS) ( The 2002 Annual Report of the Boards of the Trustees of the Federal Hospital Insurance and Federal 

Supplementary Medical Insurance Trust Funds) . 

Program Sustainability 

Social Security (OASDI) 

Under the intermediate assumptions (best estimates) of the Board of Trustees of the Federal OASDI Trust 

Funds, OASDI income from contributions on taxable earnings and from income taxes on benefits is expected to 

exceed total expenditures for 2002 and each of the next 14 calendar years. From 2010 through 2030, however, 

OASDI costs, relative to taxable earnings, are expected to increase rapidly as the “baby-boom” generation reaches 

retirement age. In contrast, the program’s income from contributions due on taxable earnings and income taxes on 

benefits will remain a relatively constant percentage of taxable payroll. 

In view of the size of the financial shortfall in the OASDI program over the next 75 years, the Board of 

Trustees of the Federal OASDI Trust Funds urges that the long-range deficits of both the OASI and DI Trust Funds 

be addressed in a timely way. 

Medicare 

Medicare has generally been viewed as a program in greater financial difficulty than Social Security because it 

will combine the rising costs of health care over time with the increase in beneficiaries as baby boomers become 
STEWARDSHIP INFORMATION (UNAUDITED) 67 

eligible. The approach of the last two decades, that of seeking improvements in the efficiency and effectiveness of 

health care delivery, will continue to be an important contributor to Medicare’s future. The challenge facing the 

future financing of this program is how we, as a society, will share the costs of health care for a much larger aging 

population. 

The Medicare Part A program is substantially out of financial balance in the long range. Under the 

intermediate assumptions of the Board of Trustees trust funds, income excluding interest (2022 including) income is 

projected to continue to exceed expenditures moderately for the next 14 years, but to fall short by steadily increasing 

amounts in 2016 and later. The long-range outlook, however, remains extremely unfavorable, in large part as a result 

of the impending retirement of the baby-boom generation. Over the full 75-year projection period, substantially 

greater changes in income and/or outlays are needed to bring the program into actuarial balance. 

These projections indicate that without additional legislation, the fund would be exhausted in the future— 

initially producing payment delays, but very quickly leading to a curtailment of health care services to beneficiaries. 

In its 2002 annual report to Congress, the Board of Trustees urged the Nation’s policymakers to address the 

remaining financial imbalance facing the trust fund by taking “further effective and decisive action, building on the 

strong steps taken in recent reforms.” They also stated, “Consideration of further reforms should occur in the 

relatively near future.” 

The recent improvements in projected expenditures for Medicare Part B, while welcome, are not sufficiently 

large to diminish serious concerns with expenditure growth. The Board of Trustees note that program costs have 

generally grown faster than the gross domestic product (GDP) and that this trend is expected to continue under 

present law. The projected increases are attributable, in part, initially to assumed continuing growth in the volume 

and intensity of services provided per beneficiary. Starting in 2011, the attainment of eligibility of the post-World 

War II baby-boom generation will also have a major influence on the growth in program costs. 

Prior to the Ba lanced Budget Act of 1997, Medicare Part A Trust Fund assets were projected to be exhausted 

in the very near future. The urgency of this situation prompted considerable attention and led directly to the 

provisions in the Act to slow expenditure growth. In contrast, the financing provisions for Medicare Part B prevent 

such crises. While Medicare Part B is in fact running a shortfall since premiums only cover about 25 percent of 

program costs, the trust fund remains solvent because of a growing infusion of general revenue funds. As a result, 

there has been substantially less attention directed toward the financial status of the Medicare Part B program than to 

the Medicare Part A program, even though Part B expenditures have increased faster than Part A expenditures in 

most years and are expected to continue to do so in the future. 

Given the past and projected cost of the Medicare Part B program, the Board of Trustees urges the Nation’s 

policymakers to consider effective means of controlling costs in the near term. For the longer term, legislative 

proposals need to be developed to address the large increases in Part B costs associated with the baby boom’s 

retirement in partnership with Part A cost increases. 

Railroad Retirement 

The Railroad Retirement program is projected to have a $20.0 billion negative cashflow, based on a projection 

through 2077, on a consolidated basis. This negative cashflow will be financed through the redemption of securities 

that resulted from past program surpluses. The long-term stability of the program, however, is still questionable. 

Under the current financing structure, actual levels of railroad employment over the coming years will largely 

determine whether corrective action is necessary. 

The Railroad Retirement and Survivors’ Improvement Act of 2001 (RRSIA), enacted on December 21, 2001, 

provided several changes in benefit and financing provisions, including the transfer of the investment responsibility 

from the Railroad Retirement System Trust funds managed by the Railroad Retirement Board (RRB). 

The provisions of RRSIA 2001: 

• Restored full annuities for employees and their spouses who retire at age 60, instead of 62, with 30 years of 

railroad service. 

• Eliminated a cap on monthly retirement and disability benefits. 

• Increased some widow(er)s’ benefits by providing a guaranteed minimum amount of benefits. 

• Lowered the minimum service requirements from 10 to 5 years, if performed after 1995. 

• Reduced the tier II tax rates on rail employers and employee representatives in calendar years 2002 and 2003, 

and beginning with 2004, provides automatic adjustments in the tier II tax for employers, employee 

representatives, and employees. It also repealed the supplemental annuity work-hour tax paid by employers 

beginning with calendar year 2002. 

• Created a new National Railroad Retirement Investment Trust (NRRIT) as a private entity authorized to invest 

Railroad Retirement assets in diversified investment portfolios in the same manner as those of private sector 
68 STEWARDSHIP INFORMATION (UNAUDITED) 

retirement plans. Prior to RRSIA, inves tment of the Railroad Retirement assets was limited to U.S. Government 

securities. 

• Allows for railroad retirement benefit payments in the future to be issued by a qualified nongovernmental 

financial institution with payments continuing to be processed through Treasury in the meantime. 

During fiscal 2002, the RRB transferred $1.5 billion from the Railroad Retirement Account to NRRIT, which 

was invested in equity index funds. An additional $17.8 billion was transferred to the NRRIT from October 1, 2002 

through March 20, 2003. 

In fiscal 2002, FASAB was asked for guidance on the proper presentation and disclosures of NRRIT 

transactions in RRB’s financial statements (where it was not consolidated) and the Financial Report (where it was 

consolidated). FASAB was unable to provide guidance in fiscal 2002, but may do so in broader perspective of social 

insurance disclosures in the next year or two. 

Black Lung 

The Black Lung Part C disability program’s net present value of future benefit payments for the 38-year period 

ending September 30, 2040, is $3.1 billion. The net present value of future excise taxes for the 38-year period is $7.8 

billion, which results in a $4.7 billion excess of excise taxes over benefit payments. However, the net present value 

of total cash outflows, including interest payments and administrative costs, is $20.9 billion, resulting in an excess of 

cash outflows over excise taxes of $13.1 billion. 
STEWARDSHIP INFORMATION (UNAUDITED) 69 

Trust Fund Financing 

Other Trust Funds 

Black Lung 

Disability Insurance 

Hospital Insurance 

Old-Age and 

Survivors Insurance 

$ 100 

($ 

$15 

IOU 

U.S. 

Treasury's 

General 

Fund Business and 

Individual Taxes 

General Use 

Specific Use 

U.S. Government 

Payments to 

beneficiaries 

Trust Funds 

Internal Loan 

Borrowings from the public 

85) 

The Government collects taxes from business and individuals. Each type of tax collected is classified for 

“general use” or for “specific use.” The taxes collected for general use are included in the general fund and are used 

to fund the Government’s general operations. 

The taxes collected for specific use are credited to the corresponding trust fund that will use these funds to 

meet a particular Government purpose. The beneficiaries from these earmarked trust funds are paid from the balance 

of each of the corresponding trust funds. If the collections from taxes and other sources exceed outlays to the 

beneficiaries, the excess collections are invested, normally in Treasury securities, which means that the excess 

collections are “loaned” to the Treasury’s general fund. The reason for this is the trust funds generally are not 

permitted to hold the excess cash collected. Usually, all excess collections as well as interest earnings must be 

invested by the trust funds in Treasury securities or Government-guaranteed securities. Therefore, the trust fund 

balances do not represent cash. These balances are the sum of all specific use collections plus interest and other 

receipts, less payments to beneficiaries over the life of the fund. 

When payments to beneficiaries exceed receipts, the trust funds redeem a commensurate amount of their 

Treasury securities holdings. 

In addition to earmarked taxes, trust funds receive income from the interest earned on investments in Treasury 

securities and, in some cases, from other sources as well. 

Social Security 

OASI pays retirement and survivors’ benefits and DI pays benefits to disabled workers and their dependents. 

At the end of calendar year 2002, OASDI benefits were paid to approximately 46 million beneficiaries. Revenue to 

the combined OASDI funds consists primarily of taxes on earnings paid by employees, their employers, and the self-
70 STEWARDSHIP INFORMATION (UNAUDITED) 

employed. OASDI also receives revenue from the income taxes on some Social Security benefits and interest on its 

investments in Treasury securities. Social Security revenues not needed to pay current benefits or administrative 

expenses are invested in special-issue Treasury securities. Eligibility and benefit amounts are determined under the 

laws applicable for the period. Current law bases the amount of the monthly benefit payments for workers, or their 

eligible dependents or survivors, on the workers’ lifetime taxable earnings histories. 

The Board of Trustees of the OASI and DI Trust Funds provides in its annual report to the President and 

Congress short-range (10-year) and long-range (75-year) actuarial estimates of each trust fund. Because of the 

inherent uncertainty in estimates for 75 years into the future, the Board of Trustees uses three alternative sets of 

economic and demographic assumptions to show a range of possibilities. Assumptions are made about many 

economic and demographic factors, including GDP, earnings, the consumer price index (CPI), the unemployment 

rate, the fertility rate, immigration, mortality, and disability incidence and terminations. The assumptions used in the 

accompanying tables, generally referred to as the “intermediate assumption,” reflect the best estimate of expected 

future experience, under current law. 

Cashflow Projections 

The present values of actuarial estimates as shown in the following sections were computed as of January 1, 

2002, the beginning of the valuation period. The actuarial estimated income equals the sum of the present value of 

all estimated scheduled non-interest income during the period. The actuarial estimated expenditures equal the sum of 

the present value of all estimated scheduled payments during the valuation period. 

The primary receipts of OASDI are funds appropriated under permanent authority based on contributions 

payable by workers, their employers, and individuals with self-employment income. Revenue derived from 

subjecting a portion of OASDI benefits to Federal personal income taxation is dedicated to the OASDI and HI 

programs. All contributions, or taxes, are collected by the Internal Revenue Service (IRS) and deposited to the trust 

fund. Another source of income is interest received on the investments held by the trust funds, which is implicit in 

the present values presented in this report. The primary expenditures are for scheduled OASDI benefit payments and 

for expenses related to admin istration of the OASDI programs. 

Under current legislation and using intermediate assumptions, the OASI and DI Trust Funds are projected to be 

exhausted in 2043 and 2028, respectively. Combined OASDI expenditures will exceed annual tax income beginning 

in 2017 and will exceed total annual income (including interest income) for calendar years 2027 and later. Thus, tax 

income plus a portion of interest income will be needed to meet expenditures for the years 2017 through 2026. 

Thereafter, in addition to tax income and interest income, a portion of the principal (combined OASDI assets) will 

be needed each year until the trust fund assets are totally exhausted in 2041. At that point, annual program tax 

income will be sufficient to pay only approximately 73 percent of the benefits due. 

Chart 1 shows actuarial estimates of combined OASDI annual income (excluding interest) and expenditures for 

1960-2076 in nominal dollars. The estimates are for the open-group population, all persons projected to participate 

in the OASDI program as covered workers or beneficiaries, or both, during that period. Thus, the estimates include 

payments from, and on behalf of, workers who will enter covered employment during the period, as well as those 

already in covered employment at the beginning of that period. These estimates also include expenditures made to, 

and on behalf of, such workers during that period. 

Currently, Social Security tax revenues exceed benefit payments, and the system is building large trust fund 

reserves to help finance the retirement of the baby-boom generation. Under current estimates, benefit payments will 

begin to exceed program tax income in 2017, and Social Security will start using annual trust fund interest to help 

pay benefits. Starting around 2027, Social Security will need to use the trust fund reserves themselves to help pay 

benefits; by about 2041, the trust fund reserves will be exhausted. The trust fund interest and reserves are in the form 

of Treasury securities that must be redeemed. The Government will need to raise taxes (other than OASDI payroll 

taxes), increase borrowing from the public, and/or cut spending for other programs to redeem the securities. 

However, if the Government changes the law to increase OASDI taxes and/or reduce OASDI benefits, then this 

redemption could be reduced or delayed. 
STEWARDSHIP INFORMATION (UNAUDITED) 71 

Chart 1—Estimated OASDI Income (Excluding Interest) and Expenditures 

1960-2076 

(In billions of dollars) 

30,000 

25,000 

20,000 

15,000 

10,000 

5,000 

0 

Income excluding interest 

Expenditures 

Historical data 

1960 19701980 19902000201020202030 2040 205020602070 

Calendar years 

Chart 2 shows estimated annual income excluding interest and exp enditures expressed as percentages of 

taxable payroll. As presently constructed, the program receives most of its income from the 6.2 percent payroll tax 

that employees and employers each pay on taxable wages and salaries (for a combined payroll tax rate of 12.4 

percent of taxable payroll), and the 12.4 percent that is paid on taxable self-employment income. Because estimated 

annual income excluding interest consists primarily of payroll taxes, when expressed as a percentage of taxable 

payroll, it is close in magnitude to the OASDI payroll tax rate. The amount by which the income exceeds the tax rate 

reflects revenue transferred to the trust funds based on Federal income-taxation of OASDI benefits. When estimated 

expenditures are compared to income as percentages of taxable payroll, they necessarily reflect a similar pattern as 

when compared in nominal dollars. Whether expressed as percentages of taxable payroll or in nominal dollars, prior 

to 2017, estimated annual expenditures are less than estimated annual income, excluding interest, whereas in 2017 

and thereafter expenditures are more. 

The Statement of Social Insurance on page 65 shows that the present value of the excess of income (excluding 

interest) over expenditures for the 75-year period is -$4,562 billion. If augmented by the trust fund assets at the start 

of the period (January 1, 2002), it is -$3,350 billion. This excess does not equate to the actuarial balance in the 

Trustees’ Report. To reconcile these values, it should be considered that the excess (including the starting trust fund 

assets) would need to take into account the cost of attaining a target trust fund balance by the end of the period. The 

present value of this cost is $270 billion, which reduces the excess to -$3,619 billion. This reduced (more negative) 

excess, when expressed as a percentage of taxable payroll, is defined by the Trustees in their annual reports to be the 

actuarial balance. Thus, the excess of -$3,619 billion equates to the actuarial balance of -1.87 percent of taxable 

payroll reported in the 2002 Trustees’ Report. 

One interpretation of this negative actuarial balance (-1.87 percent of the taxable payroll) is that it represents 

the magnitude of the increase in the combined payroll tax rate for the 75-year period that would result in an actuarial 

balance of zero. The combined payroll tax rate is 12.4 percent today and is currently scheduled to remain at that 

level. An increase of 1.87 percentage points in this rate in each year of the 75-year projection period—about 0.94 

percentage points for employees and employers each, resulting in a total rate for each of 7.14 percent—is estimated 

to produce enough income to pay all benefits due under current law for that period. Equivalent benefit reductions, or 

combinations of both tax increases and benefit reductions, could be made to achieve the same effect. Any 

accumulation and subsequent redemption of substantial trust fund assets may have economic and public policy 

implications that go beyond the operation of the OASDI program itself. Discussion of these broader issues is not 

within the scope of this report. 
72 STEWARDSHIP INFORMATION (UNAUDITED) 

Chart 2—Estimated OASDI Income (Excluding Interest) and Expenditures

as a Percentage of Taxable Payroll

1960-2076

25% 

20% 

15% 

10% 

5% 

Income excluding interest 

Expenditures 

Historical data 

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 

Chart 3 shows estimated annual income, excluding interest, and expenditures, expressed as percentages of 

GDP. Analyzing these cashflows in terms of percentage of the GDP, which represents the total value of goods and 

services produced in the United States, provides a measure of the size of the OASDI program in relation to the 

capacity of the national economy to sustain it. 

Chart 3—Estimated OASDI Income (Excluding Interest) and Expenditures

as a Percentage of GDP

1960-2076

8% 

7% 

6% 

5% 

4% 

3% 

2% 

Income excluding interest 

Expenditures 

Historical data 

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 

As shown in Chart 4, there were about 29 OASDI beneficiaries for every 100 covered workers in 2001. As 

indicated, this ratio is expected to increase substantially in the future. The most rapid increase will occur as the 

relatively large number of persons born during the baby boom (from the end of World War II through the mid1960s) reaches retirement age and begins to receive benefits. At the same time, the relatively small number of 

persons born during the subsequent period of low fertility rates will comprise the labor force. Between 2030 and 

2050, the number of workers per beneficiary is estimated to remain relatively stable as the baby-boom generation 

diminishes in size. After 2050, this ratio is expected to continue to increase at a slower pace, reflecting the 

increasing numbers of beneficiaries due to projected increases in life expectancy. Under the intermediate 
STEWARDSHIP INFORMATION (UNAUDITED) 73 

assumption, by the end of 2076, the number of OASDI beneficiaries per 100 covered workers is projected to 

increase to 55. 

Chart 4—Estimated Number of OASDI Beneficiaries per 100 Covered Workers 

1960-2076 

65 

55 

45 

35 

25 

15 

Historical data 

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 

Actuarial Assumptions and Sensitivity Analysis 

Actual future income from OASDI payroll taxes and other sources, and actual future expenditures for benefits 

and administrative expenses, will depend upon a large number of factors: the size and composition of the population 

that is receiving benefits, the level of monthly benefit amounts, the size and characteristics of the work force 

covered under OASDI, and the level of workers’ earnings. These factors will depend, in turn, upon future marriage 

and divorce rates, birth rates, death rates, migration rates, labor force participation and unemployment rates, 

disability incidence and termination rates, retirement age patterns, productivity gains, wage increases, cost-of-living 

increases, and many other economic and demographic factors. 

While it is reasonable to assume that actual trust fund experience will fall within the range defined by the three 

alternative sets of assumptions used in the Trustees’ report, no definite assurance can be given that this will occur 

because of the uncertainty inherent in projections of this type and length. In general, a greater degree of confidence 

can be placed in the assumptions and estimates for the earlier years than for the later years. Nonetheless, even for the 

earlier years, the estimates are only an indication of the expected trend and potential range of future program 

experience. 

The assumptions fluctuate in the earlier years of the projection period before reaching their ultimate values for 

the remainder of the 75-year projection period. The following table summarizes the ultimate values assumed for the 

key economic and demographic factors underlying the actuarial estimates shown in this report. 

The estimates used in this presentation are based on the assumption that the programs will continue as 

presently constructed. They are also based on various economic and demographic assumptions, including those in 

the following table. 
74 STEWARDSHIP INFORMATION (UNAUDITED) 

Social Security Intermediate Assumptions 

Average Annual 

Percentage Change In: 

Period Life 

Expectancy 

at Birth3 

Year 

Total 

Fertility 

Rate1 

Age-SexAdjusted 

Death 

Rate2 

(per 

100,000) Male 

Net 

Annual 

Immigration 

(Persons 

per 

Year) 

RealWage 

Differential4 

(Percentage 

Points) 

Average 

Annual 

Wage 

in 

Covered 

Employment CPI5 

Real 

GDP6 

Average 

Annual 

Interest 

Rate7 

2002 2.12 804.3 73.9 79.5 900,000 1.8 3.1 1.3 0.7 4.9% 

2005 2.10 789.6 74.3 79.7 900,000 1.2 4.1 2.9 3.2 6.4% 

2010 2.07 759.8 74.9 80.1 900,000 1.0 4.1 3.0 2.2 6.0% 

2020 1.99 698.1 76.0 81.0 900,000 1.1 4.1 3.0 1.8 6.0% 

2030 1.95 642.2 77.1 81.9 900,000 1.1 4.1 3.0 1.8 6.0% 

2040 1.95 593.2 78.0 82.8 900,000 1.1 4.1 3.0 1.8 6.0% 

2050 1.95 550.0 79.0 83.5 900,000 1.1 4.1 3.0 1.7 6.0% 

2060 1.95 511.9 79.8 84.3 900,000 1.1 4.1 3.0 1.7 6.0% 

2070 1.95 478.1 80.7 85.0 900,000 1.1 4.1 3.0 1.7 6.0% 

1 The total fertility rate for any year is the average number of children who would be born to a woman in her lifetime if she 

were to experience the birth rates by age observed in, or assumed for, the selected year, and if she were to survive the 

entire childbearing period. The ultimate total fertility rate is assumed to be reached in 2026. 2 The age-sex-adjusted death rate is the crude rate that would occur in the enumerated total population as of April 1, 1990, if 

that population were to experience the death rates by age and sex observed in, or assumed for, the selected year. It is a 

summary measure and not a basic assumption; it summarizes the basic assumptions from which it is derived. 3 The period life expectancy for a group of persons born in a given year is the average that would be attained by such 

persons if the group were to experience in succeeding years the death rates by age observed in, or assumed for, the given 

year. It is a summary measure and not a basic assumption; it summarizes the effects of the basic assumptions from which 

it is derived. 4 The real-wage differential is the difference between the percentage increases, before rounding, in the average annual wage 

in covered employment, and the average annual CPI. 5 The CPI is the annual average value for the calendar year of the CPI for Urban Wage Earners and Clerical Workers. 

6 The real GDP is the value of total output of goods and services, expressed in 1996 dollars. It is a summary measure and 

not a basic assumption; it summarizes the effects of the basic assumptions from which it is derived. 7 The average annual interest rate is the average of the nominal interest rates, which, in practice, are compounded 

semiannually, for special-issue Treasury obligations sold only to the trust funds in each of the 12 months of the year. 

Female 

Present value amounts attempt to demonstrate what future cashflow amounts would be if shown in interest 

discounted dollars. This is done by discounting, or removing, the increase in these cashflows that is caused by 

interest. Even small changes in the estimated amount of future interest over the next 75 years have dramatic impact 

on present value calculations. Given the cashflow estimates between the high and low interest-rate assumptions, the 

present value of OASDI expenditures over income ranges from $6,681 billion to $3,264 billion using ultimate 

annual real interest rates of 2.2 percent to 3.7 percent, respectively, compared to $4,562 billion using the 

intermediate ultimate annual real interest rate of 3.0 percent. These interest rate assumptions do not influence the 

future cashflow in the OASDI program. 

Charts of cashflows with varying assumptions that have not been adjusted for interest, as well as other 

assumptions that are not expected to have a material impact on OASDI, can be found in Social Security’s 

Performance and Accountability Report and on the web at www.ssa.gov/finance. 

These assumptions and the other values on which these displays are based reflect the intermediate assumptions 

of the 2002 Trustees’ Report. Estimates made in certain prior years have changed substantially because of revisions 
STEWARDSHIP INFORMATION (UNAUDITED) 75 

to the assumptions based on changed conditions or experience, and to changes in actuarial methodology. It is 

reasonable to expect more changes for similar reasons in future reports. 

Death Rates 

The assumptions regarding future death rates have a substantial impact on estimated future cashflows in the 

OASDI program. The following table shows the present values of the estimated OASDI expenditures in excess of 

income for the 75-year period, using various assumptions about future reductions in death rates. The analysis was 

developed by varying the percentage decrease assumed to occur during 2001-2076 in death rates by age, sex, and 

cause of death. The decreases assumed for this period, summarized as average annual reductions in the age-sexadjusted death rate, are 0.32, 0.75, and 1.33 percent per year, where 0.75 percent is the intermediate assumption in 

the 2002 Trustees’ Report. (The resulting cumulative decreases in the age-sex-adjusted death rate during the same 

period are 21, 43 and 63 percent, respectively.) These assumptions do not apply uniformly to all ages. Some 

variation by age was assumed in recognition of historical patterns and to ensure that, in terms of the financial status 

of the OASDI program, estimates based on the summarized 0.32 percent and 1.33 percent reduction assumptions 

would be more optimistic and more pessimistic, respectively, than those based on the intermediate assumption. 

As the following table demonstrates, if the reduction in death rate is changed from 0.75 percent, the Trustees’ 

intermediate assumption, to 0.32 percent, meaning that people die younger, the shortfall for the period of estimated 

OASDI income relative to expenditures would decrease to $3,300 billion, from $4,562 billion; if the annual 

reduction were changed to 1.33 percent, meaning that people live longer, the shortfall would increase to $6,092 

billion. 

Present Value of Estimated OASDI Expenditures in Excess of 

Income with Various Death Rate Assumptions 

Valuation Period: 2002-2076 

Average Annual Reduction in Death Rates 0.32% 0.75% 1.33% 

Expenditures in excess of income 

(In billions of present -value dollars) $3,300 $4,562 $6,092 

Real-Wage Differential 

The following table shows the present values of the estimated OASDI expenditures in excess of income for the 

75-year period, using various assumptions about the ultimate real-wage differential. These assumptions are that the 

ultimate real-wage differential will be 0.6, 1.1, and 1.6 percentage points, where 1.1 percentage point is the 

intermediate assumption in the 2002 Trustees’ Report. In each case, the ultimate annual increase in the CPI is 

assumed to be 3.0 percent (as used in the intermediate assumptions), yielding ultimate percentages increases in the 

average annual wage in covered employment of 3.6, 4.1, and 4.6 percent, respectively. 

As the following table demonstrates, if the ultimate real-wage differential is changed from 1.1 percentage 

point, the Trustees’ intermediate assumption, to 0.6 percentage point, the shortfall for the period of estimated 

OASDI income relative to expenditures would increase to $5,028 billion from $4,562 billion; if the ultimate realwage differential were changed from 1.1 to 1.6 percentage points, the shortfall would decrease to $3,873 billion. 

Present Value of Estimated OASDI Expenditures 

in Excess of Income with Various Ultimate Real-Wage Assumptions 

Valuation Period: 2002-2076 

Ultimate percentage change in wages, CPI 3.6% - 3.0% 4.1% - 3.0% 4.6% - 3.0% 

Expenditures in excess of income 

(In billions of present -value dollars) $5,028 $4,562 $3,873 

Differences among the estimates of annual net cashflow based on the three assumptions about the ultimate 

real-wage differential become apparent early in the projection period. Higher real-wage differentials increase both 

wages and initial benefit levels. Because the effects on wages and, therefore, on payroll taxes are immediate, while 
76 STEWARDSHIP INFORMATION (UNAUDITED) 

the effects on benefits occur with a substantial lag, annual net cashflow is higher (less negative in later years) for 

higher assumed real-wage differentials. In the early years, when the effects on benefits are quite small and while the 

effects on wages are compounding, the patterns of the estimates of annual net cashflow based on the three 

assumptions diverge fairly rapidly. 

Total Fertility Rate 

The following table shows the present value of the estimated excess of OASDI expenditures over income for 

the 75-year period, using various assumptions about the ultimate total fertility rate. These assumptions are 1.7, 1.95, 

and 2.2 children per woman, where 1.95 is the intermediate assumption in the 2002 Trustees’ Report. The total 

fertility rate is assumed to change from its current level and to reach the selected ultimate value in 2026. 

As the following table demonstrates, if the ultimate total fertility rate is changed from 1.95 children per 

woman, the Trustees’ intermediate assumption, to 1.7, the shortfall for the period of estimated OASDI income 

relative to expenditures would increase to $5,041 billion, from $4,562 billion; if the ultimate rate were changed to 

2.2, the shortfall would decrease to $4,102 billion. 

Present Value of Estimated OASDI Expenditures 

in Excess of Income with Various Ultimate Total Fertility Rate Assumptions 

Valuation Period: 2002-2076 

Ultimate total fertility rate (children per woman) 1.7 1.95 2.2 

Expenditures in excess of income 

(In billions of present -value dollars) $5,041 $4,562 $4,102 

Consumer Price Index 

The following table shows the present value of the estimated OASDI expenditures in excess of income for the 

75-year period, using various assump tions about the ultimate rate of change in the CPI. 

These assumptions are that the ultimate annual increase in the CPI will be 2.0, 3.0, and 4.0 percent, where 3.0 

percent is the intermediate assumption in the 2002 Trustees’ Report. In each case, the ultimate real-wage differential 

is assumed to be 1.1 percentage point (as used in the intermediate assumptions), yielding ultimate percentage 

increases in average annual wages in covered employment of 3.1, 4.1, and 5.1 percent, respectively. 

As the following table demonstrates, if the ultimate annual increase in the CPI is changed from 3.0 percent, the 

Trustees’ intermediate assumption, to 2.0 percent, the shortfall for the period of estimated OASDI income relative to 

expenditures would increase to $4,907 billion, from $4,562 billion; if the ultimate annual increase in the CPI were 

changed to 4.0 percent, the shortfall would decrease to $4,191 billion. This seemingly counter-intuitive result—that 

higher CPI-increases result in decreased shortfalls, and vice versa—occurs because varying CPI-increases while 

retaining the same annual real-wage differentials affects earnings (and, therefore, taxes) sooner than benefits (and, 

therefore, expenditures). 

Present Value of Estimated OASDI Expenditures 

in Excess of Income with Various Ultimate CPI-Increase Assumptions 

Valuation Period: 2002-2076 

Ultimate percentage change in wages, CPI 3.1% - 2.0% 4.1% - 3.0% 5.1% - 4.0% 

Expenditures in excess of income 

(In billions of present -value dollars) $4,907 $4,562 $4,191 
STEWARDSHIP INFORMATION (UNAUDITED) 77 

Federal Hospital Insurance 

Medicare Part A 

Federal Hospital Insurance (Medicare Part A) Trust Fund revenue consists primarily of taxes on earnings paid 

by employees, their employers, and the self-employed. The fund also receives revenue from part of the taxation of 

Social Security benefits and from interest on its investments in Treasury securities. Revenues not needed to pay 

current benefits of the Medicare Part A program or administrative expenses are invested in special issue Treasury 

securities. 

The present values of actuarial estimates were computed as of the beginning of the valuation period, January 1, 

2002. The contributions consist of the sum of the present value of various program income items expected to be 

received through fiscal 2076. The expenditure consists of the sum of the present value of estimated payments 

through fiscal 2076, claims incurred through September 30, 2002, which were unpaid as of that date, and 

administrative expenses related to those claims. Under intermediate assumptions from the 2002 Trustees’ Report, 

and based on current legislation in place, the fund is projected to be exhausted in calendar year 2030. 

Chart 5—Present Value of Estimated Medicare Part A 

Income (Excluding Interest) and Expenditures 

2002-2076 

(In billions of dollars) 

220 

200 

180 

160 

140 

120 

100 

80 

60 

Income excluding interest 

Expenditures 

40 

2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 

Medicare Part A Cashflow as a Percentage of Taxable Payroll 

Each year, estimates of the financial and actuarial status of the Medicare Part A program are prepared for the 

next 75 years. Because of the difficulty in comparing dollar values for different periods without some type of 

relative scale, income and expenditure amounts are shown relative to the earnings in covered employment that are 

taxable under the Medicare Part A program (referred to as “taxable payroll”). 

Chart 6 illustrates income excluding interest and expenditures as a percentage of taxable payroll over the next 

75 years. Although the long-range financial outlook for the Medicare Part A program has improved substantially in 

recent years because of the Balanced Budget Act of 1997, favorable economic conditions, and efforts to curb fraud 

and abuse, the program remains seriously underfunded through 2076. This is due in part to health care cost increases 

that exceed wage growth; a more significant cause, however, is the impending retirement of those born during the 

1946-1965 baby boom. 
78 STEWARDSHIP INFORMATION (UNAUDITED) 

Chart 6—Estimated Medicare Part A Income (Excluding Interest) and Expenditures

as a Percentage of Taxable Payroll

2002-2076

12.0% 

11.0% 

10.0% 

9.0% 

8.0% 

7.0% 

6.0% 

5.0% 

4.0% 

3.0% 

2.0% 

Income excluding interest 

Expenditures 

2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 

Medicare Part A Cashflow as a Percentage of Gross Domestic Product 

Expressing Medicare-incurred disbursements as a percentage of GDP gives a relative measure of the size of the 

program compared to the general economy. GDP represents the total value of goods and services produced in the 

United States. This measure provides an idea of the relative financial resources that will be necessary to pay for 

Medicare services. 

Chart 7 shows income excluding interest and expenditures for the Medicare Part A program over the next 75 

years expressed as a percentage of GDP. In 2001, the expenditures were $143.4 billion, which was 1.4 percentage of 

GDP. Following slight reductions in 2003 and 2004, this percentage increases steadily throughout the entire 75-year 

period. 

Chart 7—Estimated Medicare Part A Income (Excluding Interest) and Expenditures

as a Percentage of GDP

2002-2076

6.0% 

5.0% 

4.0% 

Income excluding interest 

Expenditures 

3.0% 

2.0% 

1.0% 

0.0% 

2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 
STEWARDSHIP INFORMATION (UNAUDITED) 79 

Worker-to-Beneficiary Ratio 

Another way to evaluate the long-range outlook of the Medicare Part A program is to examine the projected 

number of Medicare Part A beneficiaries per 100 covered workers. Chart 8 illustrates this ratio over the next 75 

years. For the most part, current workers pay for current benefits. The relatively smaller number of persons born 

after the baby boom will therefore finance the retirement of the baby-boom generation. In 2001, a group of 100 

workers provided benefits for 25 beneficiaries. In 2030, however, after the last baby boomer turns 65, a group of 100 

workers will provide benefits to 42 beneficiaries. The projected ratio continues to increase until there will be 51 

beneficiaries per 100 workers in 2076. 

Chart 8—Estimated Number of Medicare Part A Beneficiaries per 100 Covered Workers 

2002-2076 

55 

50 

45 

40 

35 

30 

25 

20 

2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 

Actuarial Assumptions and Sensitivity Analysis 

In order to make projections regarding the future financial status of the Medicare Part A and Medicare Part B 

programs, various assumptions have to be made. First, the estimates presented here are based on the assumption that 

the programs will continue under present law. In addition, the estimates depend on many economic and 

demographic assumptions, including changes in wages and the CPI, fertility rates, immigration rates, and interest 

rates. In most cases, these assumptions vary from year to year during the first 5 to 30 years before reaching their 

ultimate values for the remainder of the 75-year projection period. 

The following chart and amounts are presented for analysis of the major assumptions influencing estimates in 

Medicare’s future cashflows. Present value amounts attempt to demonstrate what future cashflow amounts would be 

if shown in today’s dollars. Discounting or removing the increase in these cashflows that is caused by interest, 

sometimes referred to as inflation, does this. Even small changes in the estimated amount of future interest over the 

next 75 years have dramatic impact on present value calculations. Given the cashflow assumptions between the 

highest and lowest expected interest assumptions, the present value of Medicare Part A expenditures over income 

ranges from $7,892 billion to $3,812 billion using interest rates of 2.2 percent to 3.7 percent, respectively. 

Charts of cashflows with varying assumptions that have not been adjusted for interest, as well as other 

assumptions that are not expected to have a material impact on Medicare, can be found in the CMS Financial Report 

and on the web at www.cms.gov. 

The following table shows some of the underlying assumptions used in the projections of Medicare spending 

displayed in this report. Further details on these assumptions are available in the OASDI and Medicare Trustees’ 

Reports for 2002. 
80 STEWARDSHIP INFORMATION (UNAUDITED) 

Medicare Intermediate Assumptions 

Annual Percentage 

Change in: 

Year 

Fertility 

Rate1 

Net 

Immigration 

Real Wage 

Differential2 Wages CPI 

Real 

GDP 

Real Interest 

Rate3 

2002 2.13 900,000 1.8 3.1 1.3 0.7 3.6 

2005 2.10 900,000 1.2 4.1 2.9 3.2 3.5 

2010 2.07 900,000 1.0 4.1 3.0 2.2 3.0 

2020 1.99 900,000 1.1 4.1 3.0 1.8 3.0 

2030 1.95 900,000 1.1 4.1 3.0 1.8 3.0 

2040 1.95 900,000 1.1 4.1 3.0 1.8 3.0 

2050 1.95 900,000 1.1 4.1 3.0 1.7 3.0 

2060 1.95 900,000 1.1 4.1 3.0 1.7 3.0 

2070 1.95 900,000 1.1 4.1 3.0 1.7 3.0 

2076 1.95 900,000 1.1 4.1 3.0 1.6 3.0 

1 The total fertility rate for any year is the average number of children who would be born to a woman in her lifetime if she 

were to experience the birth rates by age observed in, or assumed for, the selected year, and if she were to survive the 

entire childbearing period. The ultimate total fertility rate is assumed to be reached in 2026. 2 The real-wage differential is the difference between the percentage increas es, before rounding, in the average annual 

wage in covered employment, and the average annual CPI. 3 Average rate of interest earned on new trust fund securities, beyond rate of inflation. 

Estimates made in prior years have changed substantially sometimes because of revisions to the assumptions, 

which are due either to changed conditions or to more recent experience. Furthermore, it is important to recognize 

that actual conditions are very likely to differ from the projections presented here, since the future cannot be 

anticipated with certainty. In order to illustrate the magnitude of the sensitivity of the long-range projections, three 

of the key assumptions were varied individually to determine the impact on the Medicare Part A actuarial present 

values and net cashflow. The assumptions varied were health care cost factors, the fertility rate, and the real-wage 

differential. 

The sensitivity of the projected Medicare Part A net cashflow to variations in future mortality rates is also of 

interest. At this time, however, relatively little is known about the relationship between improvements in life 

expectancy and the associated changes in health status and per-beneficiary health expenditures. As a result, it is not 

possible at present to prepare meaningful estimates of the Medicare Part A mortality sensitivity. CMS is sponsoring 

a current research effort that is expected to provide the information necessary to produce such estimates. 

For this analysis, the intermediate economic and demographic assumptions in the 2002 Annual Report of the 

Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Trust Funds are used as 

the reference point. Each selected assumption is varied individually to produce three scenarios. All present values 

are calculated as of January 1, 2002, and are based on estimates of income and expenditures during the 75-year 

projection period. 

Health Care Costs 

The following table shows the net present value of cashflow during the 75-year projection period under three 

alternative assumptions of the annual growth rate in the aggregate cost of providing covered health care services to 

beneficiaries. These assumptions are that the ultimate annual growth rate in such costs, relative to taxable payroll, 

will be 1 percent slower than the intermediate assumptions, the same as the intermediate assumptions, and 1 percent 

faster than the intermediate assumptions. In each case, the taxable payroll will be the same as that which was 

assumed for the intermediate assumptions. 
STEWARDSHIP INFORMATION (UNAUDITED) 81 

Present Value of Estimated Medicare Part A Expenditures in Excess of Income 

under Various Health Care Cost Assumptions 

Annual cost/payroll relative growth rate -1 percentage 

point 

Intermediate 

assumptions 

+1 percentage 

point 

Expenditures in excess of income 

(In billions of present -value dollars) $906 $5,126 $12,047 

The above table demonstrates that if the ultimate growth rate assumption is 1 percentage point lower than the 

intermediate assumptions, the deficit of expenditures in excess of income decreases from $5,126 to $906. On the 

other hand, if the ultimate growth rate assumption is 1 percentage point higher than the intermediate assumptions, 

the deficit increases substantially to $12,047 billion. 

Fertility Rate 

The total fertility rate for any year is the average number of children who would be born to a woman in her 

lifetime if she were to experience the birth rates by age observed in, or assumed for, the selected year, and if she were 

to survive the entire childbearing period. The table below shows the net present value of cashflow during the 75-year 

projection period under three alternative ultimate fertility rate assumptions: 1.7, 1.95, and 2.2 children per woman. 

Present Value of Estimated Medicare Part A Expenditures in Excess of Income 

under Various Fertility Rate Assumptions 

Ultimate fertility rate 1.7 1.95 2.2 

Expenditures in excess of income 

(In billions of present -value dollars) $5,266 $5,126 $4,989 

The table above demonstrates that if the assumed ultimate fertility rate is decreased from 1.95 to 1.7, the 

projected deficit of expenditures in excess of income increases from $5,126 billion to $5,266 billion. On the other 

hand, if the ultimate fertility rate is increased from 1.95 to 2.2 children per woman, the deficit decreases to $4,989 

billion. 

Real-Wage Differential 

The following table shows the net present value of cashflow during the 75-year projection period under three 

alternative ultimate real-wage differential assumptions: 0.6, 1.1, and 1.6 percentage points. In each case, the CPI is 

assumed to be 3.0 percent, yielding ultimate percentage increases in average annual wages in covered employment 

of 3.6, 4.1, and 4.6 percent, respectively. 

Present Value of Estimated Medicare Part A Expenditures in Excess of Income 

under Various Real-Wage Assumptions 

Ultimate percentage increase in wages—CPI 3.6% - 3.0% 4.1% - 3.0% 4.6% - 3.0% 

Ultimate percentage increase in real-wage 

differential 0.6% 1.1% 1.6% 

Expenditures in excess of income 

(In billions of present -value dollars) $5,361 $5,126 $4,812 

The above table demonstrates that if the ultimate real-wage differential assumption is decreased from 1.1 

percentage points to 0.6 percentage points, the deficit of expenditures in excess of income increases from $5,126 
82 STEWARDSHIP INFORMATION (UNAUDITED) 

billion to $5,361 billion. On the other hand, if the ultimate real-wage differential assumption is increased from 1.1 

percentage points to 1.6 percentage points, the deficit decreases to $4,812 billion. 

Federal Supplementary Medical Insurance 

Medicare Part B 

The Medicare Part B program differs fundamentally from the Medicare Part A program by the way it is 

financed. In particular, Medicare Part B financing is not based on payroll taxes; instead, it is based on monthly 

premiums and income from the general fund of the U.S. Treasury. General fund transfers account for approximately 

75 percent of the Medicare Part B Trust Fund’s income. 

Since the income to the Medicare Part B Trust Fund from beneficiary premiums and the general fund is 

adjusted annually to match expected costs, the trust fund is always in actuarial balance. By law, income and 

expenditures will continue to be virtually the same. However, as shown in the trust fund illustration on page 69, 

transfers from the general fund of the U.S. Treasury draw from the same resources as any other social insurance 

program that is experiencing a negative cashflow. Moreover, the general fund transfers occur from one account of 

the Government to another and do not represent an external, earmarked source of tax or other revenue. Therefore, 

for the purposes of this report, with the objective of presenting the financial operations of these programs from a 

Governmentwide consolidated perspective, transfers from the general fund of the Treasury are excluded. This is the 

same reason that interest earned on Federal debt securities is eliminated for this and all other social insurance 

programs —again, because such payments represent intragovernmental transfers. 

The elimination of this major revenue source to the Medicare Part B Trust Fund produces information that 

appears to be significantly different from that presented in CMS’ Financial Report, as well as the annual Trustees’ 

Report on the Medicare Part B Trust Fund. From the perspective of the financial status of the Medicare Part B Trust 

Fund (as shown in CMS’ Financial Report and the Trustees’ Report), it is appropriate to consider all sources of 

income to the fund. Thus, the accounting treatment of Medicare Part B general revenues (and trust fund interest 

earnings) vary appropriately depending on whether an overall consolidated or trust fund perspective is shown. 

Chart 9 shows the actuarial estimates of Medicare Part B premiums and expenditures for each of the next 75 

years, in nominal dollars. Income includes monthly premiums paid by, or on behalf of, beneficiaries. Expenditures 

include benefit payments as well as administrative expenses. 

Estimated Medicare Part B Premiums and Expenditures 

Chart 9—Estimated Medicare Part B Premium Income and Expenditures 

2002-2076 

(In billions of dollars) 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

0 

Premium income 

Expenditures 

2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 
STEWARDSHIP INFORMATION (UNAUDITED) 83 

Chart 10 shows expenditures for the Medicare Part B program over the next 75 years expressed as a percentage 

of GDP. In 2001, Medicare Part B expenditures were $101.4 billion, which was 1.0 percent of GDP. After 2005, this 

percentage is projected to increase steadily, reflecting growth in the volume and intensity of Medicare Part B 

services provided per beneficiary throughout the projection period, together with the effects of the baby boom 

retirement. 

Chart 10—Estimated Medicare Part B Premium Income and Expenditures

as a Percentage of GDP

2002-2076

4.0% 

3.5% 

3.0% 

2.5% 

2.0% 

1.5% 

1.0% 

0.5% 

0.0% 

Premium Income 

Expenditures 

2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 

Estimated Medicare Part B Premiums and Expenditures 

The Medicare Part B program’s actuarial assumptions are the same as those used in Medicare Part A, presented 

on pages 77-82. Since the unique funding mechanism of Medicare Part B allows its trust fund to remain in actuarial 

balance, the data on various sensitivity analyses are not routinely compiled. It is planned that future editions of the 

Financial Report will regularly contain this information. 

Railroad Retirement 

Railroad retirement pays full annuities at age 60 to workers with 30 years of service. For those with less than 

30 years of service, reduced annuities are payable at age 62 and unreduced annuities are payable at full retirement 

age, which is gradually rising from 65 to 67, depending on year of birth. The Railroad Retirement program pays 

disability annuities based on total or occupational disability. It also pays annuities to spouses, divorced spouses, 

widow(er)s, remarried widow(er)s, surviving divorced spouses, children, and parents of deceased railroad workers. 

Medicare covers qualified railroad retirement beneficiaries in the same way as Social Security beneficiaries. 

The RRB and SSA share jurisdiction over the payment of retirement and survivor benefits. RRB has 

jurisdiction over the payment of retirement benefits if the employee had at least 5 years (if performed after 1995) of 

railroad service. Additionally, for survivor benefits, RRB requires that the employee’s last regular employment 

before retirement or death be in the railroad industry. If a railroad employee or his or her survivors do not qualify for 

railroad retirement benefits, the RRB transfers the employee’s railroad retirement credits to SSA. SSA treats them as 

Social Security credits. 

Payroll taxes paid by railroad employers and their employees provide the primary source of income for the 

Railroad Retirement Survivor Benefit program. By law, railroad retirement taxes are coordinated with Social 

Security taxes. Employees and employers pay tier I taxes at the same rate as Social Security taxes. Tier II taxes 

finance railroad retirement benefit payments that are higher than Social Security levels. 
84 STEWARDSHIP INFORMATION (UNAUDITED) 

Other sources of program income include: financial interchanges with the Social Security trust funds; interest 

on investments; Federal income taxes on railroad retirement benefits; and appropriations (provided after 1974 as part 

of a phase out of certain vested dual benefits). 

RRSIA, enacted on December 21, 2001, provided several changes in benefit and financing provisions into law, 

including the transfer of the investment responsibility from the Railroad Retirement System Trust funds managed by 

the RRB to the newly created NRRIT (see page 67). 

Chart 11—Estimated Railroad Retirement Income (Excluding Interest) and Expenditures 

2002-2076 

(In billions of dollars) 

45 

40 

35 

30 

25 

20 

15 

10 

5 

0 

Income excluding interest 

Expenditures 

2000 2010 2020 2030 2040 2050 2060 2070 

Calendar years 
STEWARDSHIP INFORMATION (UNAUDITED) 85 

Railroad Retirement Program Actuarial Surplus (or Deficiency) 1,2 

Under Employment Assumption 2 

75-Year Projection as of January 1, 2002 

(In billions of present -value dollars) 

Estimated future income (excluding interest) 3 received from or on behalf of: 

Former employees and dependents ........................................................................................ 51.1 

Current employees and dependents ........................................................................................ 60.5 

Future employees and dependents.......................................................................................... 30.8 

All participants ....................................................................................................................... 142.4 

Estimated future expenditures: 

4 

Former employees and dependents ........................................................................................ 73.8 

Current employees and dependents ........................................................................................ 75.8 

Future employees and dependents.......................................................................................... 12.8 

All participants ....................................................................................................................... 162.4 

Estimated future excess of income over expenditures ............................................................... ( 20.0) 

1

 Represents combined values for the Railroad Retirement Account, Social Security Equivalent Benefit 

Account, and National Railroad Retirement Investment Trust. 2

 The data used reflect the provisions of RRSIA of 2001. Comparable data for prior to fiscal 2001 by 

participant groupings are not available. Following is the actuarial surplus (in millions) under the prior 

law as of the dates stated below: 

September 30, 1998 $4,083 

September 30, 1999 

September 30, 2000 3

 Future income (excluding interest) includes tier I taxes, tier 2 taxes, income taxes on benefits, 

financial interchange income, advances from general revenues, and repayments of advances from 

general revenues. The calculations assume that all future transfers required by current law under the 

financial interchange will be made. 4

 Future expenditures include benefit and administrative costs. 

Note: Detail may not add to totals due to rounding. Employee and beneficiary status are determined as of 1/1/2001, 

whereas present values are as of 1/1/2002. 

7,292 

10,238 

The average railroad employment is assumed to be 237,000 in 2001. The employment assumption that is based 

on a model developed by the Association of American Railroads, assumes that (1) passenger employment will 

remain at the level of 45,000, and (2) the employment base, excluding passenger employment, will decline at a 

constant 3.0 percent annual rate for 25 years, at a reducing rate over the next 25 years, and remain level thereafter. 

Black Lung (Part C) 

The Black Lung Disability program compensates eligible coal miners who are disabled because of 

employment-related pneumoconiosis (black lung disease). The program provides both medical and survivor 

benefits. Under Part C, the Black Lung Disability Trust Fund (BLDTF) provides benefit payments to eligible 

disabled miners when no responsible mine operator can be assigned the liability. The Department of Labor (DOL) 

administers Part C of the Black Lung Disability Benefits program. 

Excise taxes on coal mine operators, based on the sale of coal, partially fund the black lung disability payments 

and the related administrative and interest costs. Intragovernmental advances to the BLDTF, which must be repaid 

with interest, fund the shortfall. 

Under current conditions, analysts project that scheduled reduction in taxes on coal sales will decrease cash 

inflows for the year 2014 and beyond. Between the years 2013 and 2015, projections estimate a 57 percent decrease 
86 STEWARDSHIP INFORMATION (UNAUDITED) 

in excise tax collections. By the year 2040, the rate reduction is expected to decrease cash inflows by more than 

$12.7 billion. 

Chart 12 shows the estimated Black Lung expenditures (excluding interest payments) and excise tax 

collections for the period 2003-2040. Under the intermediate assumptions for the next 38 years, the Black Lung 

Trust Fund will collect $16.7 billion in excise taxes on coal and pay $6.4 billion for benefits and administrative 

costs. However, this favorable cashflow will not be sufficient to repay the intragovernmental debt that resulted from 

previous deficits. Currently this debt is $7.7 billion. Cumulative net cash outflows including interest payments on 

the debt are projected to reach $58.3 billion by the year 2040, increasing the debt to $49.3 billion on September 30, 

2040. 

Chart 12—Estimated Black Lung Expenditures and Excise Tax Collections 

2003-2040 

(In millions of dollars) 

800 

700 

600 

500 

400 

300 

200 

100 

0 

Excise taxes on coal 

Benefit and administrative cost 

2000 2010 2020 2030 2040 

Fiscal years 

Unemployment Insurance 

The Unemployment Insurance program was created in 1935 to provide temporary partial wage replacement to 

unemployed workers who lost their jobs. The program is administered through a unique system of Federal and State 

partnerships, established in Federal law, but executed through conforming State laws by State officials. DOL 

provides broad policy guidance and program direction, while program details such as benefit eligibility, duration and 

amount of benefits are established through individual State unemployment insurance statutes and administered 

through State unemployment insurance agencies. 

The program is financed through the collection of Federal and State unemployment taxes that are credited to 

the Unemployment Trust Fund and reported as Federal tax revenue. The fund was established to account for the 

receipt, investment, and disbursement of unemployment taxes. Federal unemployment taxes are used to pay for 

Federal and State administration of the unemployment insurance program, veterans’ employment services, State 

employment services, and the Federal share of extended unemployment insurance benefits. Federal unemployment 

taxes also are used to maintain a loan account within the Unemployment Trust Fund, from which insolvent States 

may borrow funds to pay benefits. 
STEWARDSHIP INFORMATION (UNAUDITED) 87 

Estimated Unemployment Trust Fund Contributions 

and Expenditures 

September 30, 2003–September 30, 2012 

(Expected Economic Conditions) 

Contributions to September 30, 2012 ......................................................................................... 472.1 

Expenditures to September 30, 2012 ......................................................................................... 489.3 

Expenditures in excess of contributions 

(In billions of current dollars) ................................................................................................ 17.2 

Charts 13 through 15 demonstrate the effect on accumulated Unemployment Trust Fund assets of projected 

total cash inflows and cash outflows over a 10-year period ending September 30, 2012, under expected economic 

conditions, and mild recessionary and deep recessionary unemployment scenarios. Each scenario uses an open group 

that includes current and future participants of the Unemployment Insurance programs. 

For expected economic conditions, the estimates are based on an expected unemployment rate of 5.68 percent 

during fiscal 2003, decreasing to 4.90 percent in fiscal 2008 and thereafter. Under the mild recessionary scenario, 

the expected unemployment rate will peak at 7.43 percent in fiscal 2004, and for the deep recession scenario, the 

expected unemployment rate will rise to 10.15 percent in fiscal 2005. 

Chart 13—Estimated Unemployment Fund Cashflow

Using Expected Economic Conditions

2003-2012

(In billions of dollars) 

80 

70 

60 

50 

40 

30 

Contributions 

Expenditures 

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

Fiscal years 
88 STEWARDSHIP INFORMATION (UNAUDITED) 

Chart 14—Estimated Unemployment Fund Cashflow 

Using a Mild Recessionary Unemployment Rate 

2003-2012 

(In billions of dollars) 

80 

70 

60 

50 

40 

30 

Contributions 

Expenditures 

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

Fiscal years 

Chart 15—Estimated Unemployment Fund Cashflow 

Using a Deep Recessionary Unemployment Rate 

2003-2012 

(In billions of dollars) 

80 

70 

60 

50 

40 

30 

Contributions 

Expenditures 

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

Fiscal years 

Unemployment Trust Fund Solvency 

Chart 16 shows the adequacy of each State’s accumulated Unemployment Trust Fund assets to provide for 

future unemployment benefits. To be considered minima lly solvent, a State’s reserve balance should provide for one 

year’s projected benefit payment needs based on the highest level of benefit payments experienced by the State. 
STEWARDSHIP INFORMATION (UNAUDITED) 89 

Chart 16—Unemployment Trust Fund Solvency as of September 30, 2002 

Alabama 

Alaska 

Arizona 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

District of Columbia 

Florida 

Georgia 

Hawaii 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire 

New Jersey 

New Mexico 

New York 

North Carolina 

North Dakota 

Ohio 

Oklahoma 

Oregon 

Pennsylvania 

Puerto Rico 

Rhode Island 

South Carolina 

South Dakota 

Tennessee 

Texas 

Utah 

Vermont 

Virgin Islands 

Virginia 

Washington 

West Virginia 

Wisconsin 

Wyoming 

0 1 2 3 

Years of benefit payments held in reserve 
90 STEWARDSHIP INFORMATION (UNAUDITED) 

Stewardship Investments 

Stewardship investments focus on Government programs aimed at providing long-term benefits by improving 

the Nation’s productivity and enhancing economic growth. These investments can be provided through direct 

Federal spending or grants to State and local governments for certain education and training programs, research and 

development, and federally financed but not federally-owned property, such as bridges and roads. When incurred, 

these investments are included as expenses in determining the net cost of operations. 

Stewardship Investments 

for the Years Ended September 30 

(In billions of dollars) 

Fiscal 

2002 

Restated 

Fiscal 

2001 

Restated 

Fiscal 

2000 

Restated 

Fiscal 

1999 

Investments in non-Federal physical property................................ 44.7 39.6 36.5 32.1 

Investments in human capital ................................ 62.3 51.0 42.3 45.5 

Research and development: 

Investments in basic research................................ 22.9 19.2 18.6 17.4 

Investments in applied research................................ 21.7 17.9 16.6 16.3 

Investments in development ................................ 44.5 39.5 38.8 40.9 

Total investments ................................................................ 196.1 167.2 152.8 152.2 

Non-Federal Physical Property 

The Government makes grants and provides funds for the purchase, construction, and/or major renovation of 

State and local government physical properties. Cost for non-Federal physical property programs are included as 

exp enses in the Statements of Net Cost and are reported as investments in the table above. They are measured on the 

same accrual basis of accounting used in the Financial Report statements. 

Human Capital 

The Government runs several programs that invest in human capital. Those investments go toward increasing 

and maintaining a healthy economy by educating and training the general public. Costs do not include training 

expenses for Federal workers. 

Research and Development 

Federal investments in research and development comprise those expenses for basic research, applied research, 

and development that are intended to increase or maintain national economic productive capacity or yield other 

future benefits. 

• Investments in basic research are for systematic studies to gain knowledge or understanding of the fundamental 

aspects of phenomena and of observable facts without specific applications toward processes or products in 

mind. 

• Investments in applied research are for systematic studies to gain knowledge or understanding necessary for 

determining the means by which a recognized and specific need may be met. 
STEWARDSHIP INFORMATION (UNAUDITED) 91 

• Investments in development are the systematic use of the knowledge and understanding gained from research for 

the production of useful materials, devices, systems, or methods, including the design and development of 

prototypes and processes. 

Current Services Assessment 

The Current Services Assessment table shows the Office of Management and Budget’s (OMB’s) estimate of 

budget receipts, outlays, and surplus or deficit if no changes were made to laws that have already been enacted. 

Receipts and mandatory outlays, such as Social Security benefits and net interest, involve ongoing activities that 

generally operate under permanent legal authority; the underlying statutes generally specify the tax rates or benefit 

rates, and the conditions for who must pay taxes or who is eligible to receive benefits. The current services estimates 

of receipts and mandatory spending assume that they continue in the future as specified by current laws. 

Discretionary spending is spending that generally is funded by annual appropriations acts. The current services 

estimates for discretionary spending assume that discretionary funding for fiscal 2003 is based on enacted 

appropriations for DOD and extension of the continuing resolution to cover the entire year for other appropriations. 

It also assumes that discretionary funding for subsequent years holds constant in real terms. 

Because laws already enacted provide the basis for current services estimates, they do not constitute a proposed 

budget. For the same reason, they do not predict the most likely budget outcomes. 

The current services estimates may be used to help assess the sustainability of programs under current law. 

That is, they may be used to project whether future resources can sustain public services and meet obligations as 

they come due. In this way, they can warn of future problems inherent in current law. They also can provide a 

benchmark against which tax and spending proposals can be compared to assess the magnitude of proposed changes. 

Moreover, they can provide an analytical perspective on Government by showing the short- and medium-term 

direction of programs under current law. 

The following schedule presents the actual budget results for fiscal 2002 and the current services estimates for 

all Federal taxes and spending programs for the subsequent 6 years. It shows receipts by source and outlays by 

function. The estimates for these years are the same as the current services estimates published in the President’s 

budget for fiscal 2004. 
92 STEWARDSHIP INFORMATION (UNAUDITED) 

Current Services Assessment Receipt and Outlay Estimates 

as Presented in the President’s Budget 

Fiscal Year 

(In billions of dollars) 

Base 

Year 

2002 2003 2004 2005 2006 2007 2008 

Receipts by Source: 

Individual income taxes ................................ 858 877 954 1,029 1,095 1,163 1,236 

Corporation income taxes ................................ 148 146 174 233 240 245 252 

Social insurance and 

retirement receipts................................ 701 727 765 812 848 888 925 

Excise taxes................................ 67 68 71 73 75 77 79 

Other receipts................................ 79 74 83 88 95 97 101 

Adjustment for revenue 

uncertainty ................................ - (25) (15) - - - -

Total receipts ................................ 1,853 1,867 2,031 2,235 2,352 2,469 2,593 

Outlays by Function: 

National defense................................ 349 376 384 394 401 411 421 

Social Security................................ 456 478 497 515 537 563 592 

Medicare................................................................ 231 245 253 266 272 290 307 

Income security ................................ 313 330 323 336 345 352 365 

Health................................................................ 197 222 239 257 276 296 317 

Veteran benefits and services ................................ 51 56 59 64 64 63 69 

Education, training, employment, 

and social services ................................ 71 84 83 81 82 83 84 

Transportation ................................ 62 65 63 63 64 65 67 

Other programmatic functions ................................ 160 169 173 174 174 177 180 

Net interest................................................................ 171 161 173 193 205 211 214 

Undistributed offsetting receipts ................................ (48) (54) (56) (68) (71) (70) (73) 

Total outlays ................................ 2,011 2,131 2,189 2,276 2,348 2,440 2,541 

Surplus or (deficit) ................................ (158) (264) (158) (40) 5 29 51 

Note: Details may not add to totals due to rounding. 
NOTES TO THE FINANCIAL STATEMENTS 93 

United States Government
 


Notes to the Financial Statements
 


for the Years Ended September 30, 2002
 


and September 30, 2001
 


Note 1. Summary of Significant Accounting Policies 

A. Reporting Entity 

This Financial Report includes the financial status and activities of the executive branch, the legislative branch 

(the U.S. Senate and the U.S. House of the Representatives report on a cash basis), and the judicial branch (also 

reports on a cash basis) of the Government. This includes corporations that are part of the Government. The 

Appendix contains a list of significant Government entities included in these financial statements, as well as a partial 

list of entities excluded. The financial reporting period ends September 30 and is the same used for the annual 

budget. 

Material intragovernmental transactions were eliminated in consolidation, except as described in Note 

16 ——Unreconciled Transactions Affecting the Change in Net Position. 

B. Basis of Accounting and Revenue Recognition 

This Financial Report is based on Generally Accepted Accounting Principles (GAAP). These principles 

typically recognize: 

• Expenses when incurred. 

•	 Non-exchange (unearned) revenues on a modified cash basis of accounting. Non-exchange revenues arise 

primarily from the exercise of the Government’s power to tax and levy duties, fines and penalties. Remittances 

of non-exchange revenue are recognized when received. Related receivables are recognized when measurable 

and legally collectible. Refunds and other offsets are recognized when measurable and legally payable and are 

netted against non-exchange revenue. 

•	 Exchange (earned) revenues when earned. Exchange (earned) revenues arise when a Government entity provides 

goods and services to the public for a price. Earned revenue represents revenue earned from user charges, such 

as admission fees to Federal parks and insurance premiums that are recognized when the Government provides 

the goods or services. 

This basis of accounting differs from that used for budgetary reporting, which is primarily on a cash basis 

according to accepted budget concepts and policies. (See Reconciliations of Net Operating Cost and Unified Budget 

Surplus (or Deficit) on page 56. 

This Financial Report presents comparative fiscal 2001 data. Some balances previously reported for fiscal 

2001 are reclassified. Interest accrued by Treasury on debt held by the public, which was included in prior years in 

Note 9—Accounts Payable, is now reported in Note 10—Federal Debt Securities Held by the Public and Accrued 

Interest. 

New for fiscal 2002 is the implementation of SFFAS No. 24. Under the provisions of SFFAS No. 24, two new 

principal statements are included in the Financial Report: Reconciliations of Net Operating Cost and Unified Budget 

Surplus (or Deficit) and Statements of Changes in Cash Balance from Unified Budget and Other Activities. These 

Statements reconcile net operating cost with the President’s budget surplus (or deficit) and explain how the annual 

budget surplus (or deficit), which is derived from the Treasury Central Accounting and Reporting System, relates to 

the change in the Government’s operating cash. 
94 NOTES TO THE FINANCIAL STATEMENTS 

In addition, SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles, was also 

implemented at the Governmentwide reporting level for fiscal 2002. SFFAS No. 21 amends SFFAS No. 7 to require 

that reporting entities restate prior period financial statements for material errors discovered in the current period, if 

such statements are provided for comparative purposes, and if the effect of error would be material to the financial 

statements in either period. 

C. Direct Loans and Loan Guarantees 

Direct loans obligated and loan guarantees committed after fiscal 1991 are reported based on the present value 

of the net cashflows estimated over the life of the loan or guarantee. The difference between the outstanding 

principal of the loans and the present value of their net cash inflows is recognized as a subsidy cost allowance; the 

present value of estimated net cash outflows of the loan guarantees is recognized as a liability for loan guarantees. 

The subsidy expense for direct or guaranteed loans disbursed during a year is the present value of estimated net cash 

outflows for those loans or guarantees. A subsidy expense also is recognized for modifications made during the year 

to loans and guarantees outstanding and for reestimates made as of the end of the year to the subsidy allowances or 

loan guarantee liability for loans and guarantees outstanding. 

Direct loans obligated and loan guarantees committed before fiscal 1992 are valued under two different 

methodologies within the Government: the allowance-for-loss method and the present-value method. Under the 

allowance-for-loss method, the outstanding principal of direct loans is reduced by an allowance for uncollectible 

amounts; the liability for loan guarantees is the amount the agency estimates would more likely than not require 

future cash outflow to pay default claims. 

Under the present-value method, the outstanding principal of direct loans is reduced by an allowance equal to 

the difference between the outstanding principal and the present value of the expected net cashflows. The liability 

for loan guarantees is the present value of expected net cash outflows due to the loan guarantees. 

D. Accounts and Taxes Receivable 

Accounts receivable represents claims to cash or other assets from entities outside the Government that arise 

from the sale of goods or services, duties, fines, certain license fees, recoveries, or other provisions of the law. 

The category taxes receivable consists primarily of uncollected tax assessments, penalties, and interest when 

taxpayers have agreed the amounts are owed, or a court has determined the assessments are owed. The Balance 

Sheets do not include unpaid assessments when neither taxpayers nor a court have agreed that the amounts are owed 

(compliance assessments) or the Government does not expect further collections due to factors such as the 

taxpayer’s death, bankruptcy, or insolvency (writeoffs). Taxes receivable are reported net of an allowance for the 

estimated portion deemed to be uncollectible. 

E. Inventories and Related Property 

Inventories within the Government are valued using historical cost, net realizable value, and latest acquisition 

cost (see Note 6—Inventories and Related Property, Net). Historical cost methods include first-in -first-out, weighted 

average, and moving average. Estimated repair costs reduce the value of inventory held for repair. Excess, obsolete, 

and unserviceable inventories are valued at estimated net realizable values. When latest acquisition cost is used to 

value inventory held for sale, it is adjusted for holding gains and losses in order to approximate historical cost. 

The related property portion of the inventory and related property line includes operating materials and 

supplies, stockpile materials, commodities, seized and monetary instruments, and forfeited property. Operating 

materials and supplies are valued at historical cost, latest acquisition cost, and standard price using the purchase and 

consumption method of accounting. Operating materials and supplies that are valued at latest acquisition cost and 

standard pricing are not adjusted for holding gains and losses. 
NOTES TO THE FINANCIAL STATEMENTS 95 

F. Property, Plant and Equipment 

Property, plant and equipment used in Government operations are carried at cost. Depreciation and 

amortization expense applies to property, plant and equipment reported on the Balance Sheets except for land, 

unlimited duration land rights and construction in progress. Depreciation is recognized using the straight-line 

method over the estimated useful lives of the assets. Refer to the Stewardship Information section for assets 

excluded in this section. 

G. Federal Employee and Veteran Benefits Payable 

Federal employee and veteran benefits payable are recorded during the time employee services are rendered. 

The related liabilities for defined benefit pension plans and post-retirement health benefits are recorded at estimated 

present value of future benefits, less the estimated present value of future normal cost contributions. 

Normal cost is the portion of the actuarial present value of projected benefits allocated as an expense for 

employee services rendered in the current year. Actuarial gains and losses (and prior and past service cost, if any) 

are recognized immediately in the year they occur, without amortization. Due to the effect of Public Law No. 106-

398 (National Defense Authorization Act) enacted October 30, 2000, TRICARE benefits are extended to military 

retirees and their beneficiaries eligible for Medicare. 

H. Environmental and Disposal Liabilities 

Environmental and disposal liabilities are recorded at the estimated current cost of removing, containing and/or 

disposing of hazardous waste and environmental contamination, assuming the use of current technology. Hazardous 

waste is a solid, liquid, or gaseous waste that, because of its quantity or concentration, presents a potential hazard to 

human health or the environment. Remediation consists of removal, decontamination, decommissioning, site 

restoration, site monitoring, closure and post-closure cost, treatment, and/or safe containment. Where technology 

does not exist to clean up hazardous waste, only the estimable portion of the liability, typically safe containment, is 

recorded. 

I. Deferred Maintenance 

Deferred maintenance is maintenance that was not performed when it should have been or scheduled 

maintenance that was delayed or postponed. Maintenance is the act of keeping fixed assets in acceptable condition, 

including preventative maintenance, normal repairs, and other activities needed to preserve the assets, so they 

continue to provide acceptable services and achieve their expected life. Maintenance excludes activities aimed at 

expanding the capacity of assets or otherwise upgrading them to serve needs different from those originally 

intended. Deferred maintenance information is disclosed in the Supplemental Information to the Financial 

Statements. 

Deferred maintenance expenses are not accrued in the Statements of Net Cost or recognized as liabilities on the 

Balance Sheets. 

J. Commitments and Contingencies 

In the normal course of business, the Government has a number of unfulfilled commitments that will require 

the use of its financial resources. Note 18—Commitments and Contingencies describes the components of the 

Government’s actual commitments that need to be disclosed because of their nature and/or their amount. They 

include long-term leases, undelivered orders, and other commitments. 

Liabilities for contingencies are recognized on the Balance Sheets when both: 

• A past transaction or event has occurred. 
96 NOTES TO THE FINANCIAL STATEMENTS 

• A future outflow or other sacrifice of resources is probable and measurable. 

The estimated contingent liability may be a specific amount or a range of amounts. If some amount within the 

range is a better estimate than any other amount within the range, then that amount is recognized. If no amount 

within the range is a better estimate than any other amount, then the minimum amount in the range is recognized. 

Contingent liabilities that do not meet the above criteria for recognition, but for which there is at least a 

reasonable possibility that a loss may have been incurred, are disclosed in Note 18. 

K. Social Insurance 

A liability for social insurance programs (Social Security, Medicare, railroad retirement, black lung and 

unemployment) is recognized for any unpaid amounts due as of the reporting date. No liability is recognized for 

future benefit payments not yet due. For further information, see the Stewardship Information section on 

Stewardship Responsibilities, and Note 19—Dedicated Collections. 

L. Related Party Transactions 

Federal Reserve Banks (FRBs), and private banks, which are not part of the reporting entity, serve as the 

Government’s depositary and fiscal agent. They process Federal payments and deposits to Treasury’s account and 

service Treasury securities. FRBs owned $603 billion and $558 billion of Treasury securities held by the public as of 

September 30, 2002, and 2001, respectively. FRB earnings that exceed statutory amounts of surplus established for 

FRBs are paid to the Government and are recognized as non-exchange revenue. Those earnings totaled $23.7 billion 

and $26.1 billion for the years ended September 30, 2002, and 2001, respectively. The primary source of these 

earnings is from interest earned on Treasury securities held by the FRBs. Also, as described in Note 14Other 

Liabilities, the FRB holds certificates and special drawing rights certificates. 

FRBs issue Federal Reserve notes, the circulating currency of the United States. Specific assets owned by 

FRBs, typically Treasury securities, collateralize these notes. Federal Reserve notes are backed by the full faith and 

credit of the Government. 

The Government does not guarantee payment of the liabilities of Government-sponsored enterprises such as 

the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, which are privately 

owned. These enterprises also are excluded from the reporting entity. 

Note 2. Cash and Other Monetary Assets 

Cash and Other Monetary Assets as of September 30 

(In billions of dollars) 2002 2001 

Operating cash................................................................................................ 60.9 44.2 

Other cash ................................................................................................ 28.3 14.2 

Total cash................................................................................................ 89.2 58.4 

International monetary assets................................................................ 41.0 38.1 

Gold................................................................................................ 10.9 10.9 

Domestic monetary assets ................................................................ 0.5 0.6 

Total cash and other monetary assets ................................................................ 141.6 108.0 
NOTES TO THE FINANCIAL STATEMENTS 97 

Cash 

Total cash consists of: 

•	 Operating cash of the Government representing balances from tax collections; customs duties; other revenues; 

Federal debt receipts; and other various receipts, net of checks outstanding, that are held in the Federal Reserve 

Banks, foreign and domestic financial institutions, and in the U.S. Treasury tax and loan accounts. 

• Other cash representing the balances of petty cash and other funds held in agencies’ books, plus time deposits in 

financial institutions. 

The Government maintains formal arrangements with numerous financial institutions for holding time deposits 

known as “compensating balances.” These balances, which are included in other cash, totaled $27.4 billion and 

$13.4 billion as of September 30, 2002, and 2001, respectively. These balances compensate financial institutions for 

services provided to the Government, such as maintaining zero-balance accounts for the collection of public monies. 

Operating cash and the other cash of the Government are either insured (for balances up to $100,000) by the Federal 

Deposit Insurance Corporation (FDIC), or collateralized by securities pledged by financial institutions. 

International Monetary Assets 

International monetary assets include the U.S. reserve position in the International Monetary Fund (IMF), U.S. 

holdings of Special Drawing Rights (SDRs), official reserves of foreign currency, and gold. 

The U.S. reserve position in the IMF reflects the reserve asset portion of the financial subscription that the 

United States has paid in as part of its participation in the IMF. The IMF promotes international monetary 

cooperation and a stable payments system to facilitate growth in the world economy. Its primary activities are 

surveillance of member economies, financial assistance as appropriate, and technical assistance. 

Only a portion of the required payment to the IMF is made in the form of reserve assets; the remainder is 

payable in the form of a letter of credit from the United States to the IMF. 

The balance available under the letter of credit totaled $28.2 billion and $29.3 billion for the years ended 

September 30, 2002, and 2001, respectively. The U.S. reserve position in the IMF has a U.S. dollar equivalent of 

$20.9 billion and $18.4 billion for the years ended September 30, 2002, and 2001, respectively. 

SDRs are international monetary reserves is sued by the IMF. These interest-bearing assets can be obtained by 

IMF allocations, transactions with IMF member countries, interest earnings on SDR holdings, or U.S. reserve 

position in the IMF. SDR holdings are an asset of Treasury’s Exchange Stabilization Fund (ESF), which held SDRs 

totaling $11.7 billion and $10.9 billion equivalent for the years ended September 30, 2002, and 2001, respectively. 

The IMF allocates SDRs to its members in proportion to each member’s quota in the IMF. The SDR Act of 

1968 authorized the Secretary of the Treasury to issue SDR Certificates (SDRCs) to the Federal Reserve in 

exchange for dollars. The amount of SDRCs outstanding cannot exceed the dollar value of SDR holdings. The 

Secretary of the Treasury determines when Treasury will issue or redeem SDRCs. SDRCs outstanding totaled $2.2 

billion for the years ended September 30, 2002, and 2001, respectively, and are included in Note 14—Other 

Liabilities. 

As of September 30, 2002, and 2001, other liabilities included $6.5 billion and $6.3 billion, respectively, of 

interest-bearing liability to the IMF on the ESF balance sheet for SDR allocations. The SDR allocation item 

represents the cumulative total of SDRs distributed by the IMF to the United States in allocations that occurred in 

1970, 1972, 1979, 1980 and 1981. 

Gold 

Gold is valued at the statutory price of $42.2222 per fine troy ounce. The number of fine troy ounces was 

258,713,310 as of September 30, 2002, and 2001. The market value of gold on the London Fixing as of the reporting 

date was $323.70 and $293.10 per fine troy ounce for the years ended September 30, 2002, and 2001, respectively. 

Gold totaling $10.9 billion for each year ended September 30, 2002, and 2001, was pledged as collateral for gold 

certificates issued and authorized to the FRBs by the Secretary of the Treasury. Treasury may redeem the gold 

certificates at any time. See Note 14—Other Liabilities. 
98 NOTES TO THE FINANCIAL STATEMENTS 

Domestic Monetary Assets 

Domestic monetary assets consist of liquid assets, other than cash, that are based on the U.S. dollar, including 

coins, silver bullion, and other coinage metals. 

Note 3. Accounts Receivable, Net 

The category of accounts receivable, that includes related interest receivable, represents claims to cash or other 

assets from entities outside the Government. An allowance for estimated losses due to uncollectible amounts is 

established when it is more likely than not the receivables will not be totally collected. The allowance method varies 

among the agencies in the Government. Methods include statistical sampling of receivables, specific identification 

and intensive analysis of each case, aging methodologies, and percentage of total receivables based on historical 

collection. Accounts receivable are net of an allowance for uncollectible accounts: The allowance amounts are $15.3 

billion and $17.2 billion for the years ended Septemb er 30, 2002, and 2001, respectively. 

Accounts Receivable as of September 30 

(In billions of dollars) 2002 2001 

Department of Defense ................................................................................................ 6.4 4.6 

Social Security Administration................................................................ 5.7 4.4 

Department of Energy ..................................................................... 4.4 4.6 

Department of Health and Human Services ................................................................ 4.1 4.2 

Department of Agriculture................................................................ 1.9 2.3 

Department of Interior ................................................................................................ 1.3 1.6 

Department of Veterans Affairs ................................................................ 1.2 1.3 

Department of the Treasury ................................................................ 0.8 0.5 

Department of Housing and Urban Development ................................ 0.8 0.8 

Tennessee Valley Authority ................................................................ 0.6 0.7 

Department of Labor ................................................................................................ 0.6 0.6 

Federal Communications Commission ................................................................ 05 0.8 

Environmental Protection Agency ................................................................ 0.5 0.5 

Department of Education ................................................................ 0.2 2.6 

All other departments ................................................................................................ 3.0 4.7 

Total accounts receivable, net ................................................................ 32.0 34.2 

Note 4. Loans Receivable and Loan Guarantee Liabilities, Net 

The Government uses two methods, direct loans and loan guarantee programs, to accomplish the same goals. 

These goals are to promote the Nation’s welfare by making direct loans and guaranteeing non-Federal loans to 

segments of the population not served adequately by non-Federal institutions. For those unable to afford credit at the 

market rate, Federal credit programs provide subsidies in the form of direct loans offered at an interest rate lower 
NOTES TO THE FINANCIAL STATEMENTS 99 

than the market rate. For those to whom non-Federal financial institutions are reluctant to grant credit because of the 

high risk involved, Federal credit programs guarantee the payment of these non-Federal loans and absorb the cost of 

defaults. 

The amount of the long-term cost of post-1991 direct loans and loan guarantees outstanding equals the subsidy 

cost allowance for direct loans and the liability for loan guarantees as of the fiscal year-end. The amount of the longterm cost of pre-1992 direct loans and loan guarantees equals the allowance for uncollectible amounts (or present 

value allowance) for direct loans and the liability for loan guarantees. The long-term cost is based on all direct loans 

and guaranteed loans disbursed in this fiscal year and previous years that are outstanding as of the end of this fiscal 

year. It includes the subsidy cost of these loans and guarantees estimated as of the time of loan disbursement and 

subsequent adjustments such as modifications, reestimates, amortizations, and writeoffs. 
100 NOTES TO THE FINANCIAL STATEMENTS 

Direct Loans and Loan Guarantees as of September 30 

Face Value 

of Loans 

Outstanding 

Long-term 

Cost of Loans 

and 

Guarantees 

Outstanding 

Net Loans 

Receivable 

Amount 

Guaranteed 

by the 

Government 

Subsidy 

Expense for 

the Fiscal Year 

Ended 

September 30 

(In billions of dollars) 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 

Direct Loan Programs: 

Federal Direct Student Loans ................................ 80.0 70.5 (4.8) (4.3) 84.8 74.8 0.9 1.8 

Rural Utilities Service ................................ 39.5 38.8 3.1 3.7 36.4 35.1 0.2 0.5 

Rural Housing Service................................ 28.2 28.8 7.2 5.3 21.0 23.5 (0.3) 1.1 

Federal Family Education Loans ................................ 17.8 19.5 11.5 13.9 6.3 5.6 - -

Food for Progress credits ................................ 10.2 10.5 5.5 5.9 4.7 4.6 (0.3) -

U.S. Agency for International 

Development ................................ 9.0 9.6 3.3 4.3 5.7 5.3 - -

Housing and Urban 

Development ................................ 8.5 8.6 0.5 0.4 8.0 8.2 - -

Agricultural Credit Insurance 

Fund ................................................................ 4.4 4.3 1.4 1.5 3.0 2.8 0.1 2.2 

Direct Loans for Spectrum 

auction sales ................................ 5.3 5.6 - (0.4) 5.3 6.0 - (5.5) 

Export Credit Guarantees ................................ 6.9 7.1 3.2 3.7 3.7 3.4 - -

Export-Import Bank Loans ................................ 7.5 7.6 (0.2) (0.1) 7.7 7.7 0.1 0.1 

Disaster Loan programs ................................ 3.2 3.6 (0.6) (0.1) 3.8 3.7 0.1 1.8 

All other programs................................ 28.4 29.5 (0.4) 1.3 28.8 28.2 0.3 (1.4) 

Total ................................................................ 248.9 244.0 29.7 35.1 219.2 208.9 1.1 0.6 

Guaranteed Loan Programs: 

Federal Family Education Loans ................................ 182.0 160.0 11.7 8.4 179.0 157.0 4.5 (0.3) 

Subsidized Federal Housing 

Administration Loans ................................ 106.8 107.9 5.5 6.9 95.8 95.9 (0.6) -

Export-Import Bank guarantees ................................ 30.3 29.6 1.7 3.2 30.3 29.6 1.8 1.3 

Veterans Housing Benefit 

program................................................................ 216.1 218.5 5.6 5.3 69.5 71.4 (0.1) -

Small Business Loans ................................ 50.1 46.6 1.5 1.1 40.4 37.5 0.7 (0.1) 

Israeli Loan Guarantee program................................ 9.2 9.2 0.7 0.6 9.2 9.2 - -

Urban and Environmental 

program ................................ 2.1 2.2 0.4 0.5 2.1 2.2 - -

Overseas Private Investment 

Corporation Credit program ................................ 3.0 3.4 0.5 0.6 3.0 3.4 - -

Rural Housing Service................................ 13.9 13.0 0.3 0.4 12.5 11.6 (0.1) -

Health Education Assistance 

Loans................................................................ 2.7 3.2 0.3 0.4 2.7 3.2 - -

Export Credit Guarantee 

programs ................................ 4.9 4.4 0.4 0.3 4.7 4.3 - -

Unsubsidized Federal Housing 

Administration Loans ................................ 501.3 493.7 (1.7) (0.9) 467.7 459.5 (2.6) -

All other programs................................ 22.0 21.3 1.2 0.9 19.3 18.9 0.2 (0.8) 

Total ................................................................ 1,144.4 1,113.0 28.1 27.7 936.2 903.7 3.8 0.1 
NOTES TO THE FINANCIAL STATEMENTS 101 

Net loans receivable includes related interest and foreclosed property, and is included in the assets section of 

the Balance Sheets. 

The total subsidy expense is the cost of direct loans and loan guarantees recognized during the fiscal year. It 

consists of the subsidy expense incurred for direct and guaranteed loans disbursed during the fiscal year, for 

modifications made during the fiscal year of loans and guarantees outstanding, and for reestimates as of the end of 

the fiscal year of the cost of loans and guarantees outstanding. This expense is included in the Statements of Net 

Cost. 

Major Loan Programs 

The Department of Education has two major education loan programs. The first major education loan program, 

the Federal Direct Student Loan program, established in fiscal 1994, offers four types of education loans: Stafford, 

Unsubsidized Stafford, PLUS for parents, and consolidation loans. Evidence of financial need is required for a 

student to receive a subsidized Stafford loan. The other three types of loans are available to borrowers at all income 

levels. These loans usually mature 9 to 13 years after the student is no longer enrolled. They are unsecured. The 

second major education loan program, the Federal Family Education Loan program established in fiscal 1965, has 

both direct and guaranteed loan programs. Like the Federal Direct Student Loan program, it offers four types of 

loans: Stafford, Unsubsidized Stafford, PLUS for parents, and consolidation loans. 

USDA, Rural Utilities Service loans are for the construction and operation of electric generating plants, 

transmission and distribution lines, telecommunication lines, and related systems. These loans carry an average 

maturity of greater than 20 years and are usually secured. 

The major Federal rural housing programs are funded through the Rural Housing Insurance Fund program 

account. These programs include: 

• Very low- and low-to-moderate-income home ownership loans and guarantees. 

• Very low-income housing repair loans. 

• Multifamily housing loans and guarantees. 

• Domestic farm labor housing loans. 

• Housing site loans. 

• Credit sales of acquired property. 

Loan programs are limited to rural areas that include towns, villages, and other places not part of an urban area. 

The majority of these loans mature in excess of 25 years and is secured by the property of the borrower. 

The Department of Housing and Urban Development, Federal Housing Administration (FHA) provides 

mortgage insurance to encourage lenders to make credit available to expand home ownership. FHA predominately 

serves borrowers the conventional market does not serve adequately. This includes first-time homebuyers, 

minorities, lower-income families, and residents of under-served areas. 

The VA’s Veterans Housing Benefit program provides partial guarantee of residential mortgage loans issued to 

eligible veterans, reservists and service members by private lenders. This guarantee allows veterans, reservists, and 

service members to purchase a home without a substantial down payment. 

The Export-Import Bank aids in financing and promoting U.S. exports. To accomplish its objectives, the 

bank’s authority and resources are used to: 

•	 Assume commercial and political risk that exporters or private institutions are unwilling or are unable to 

undertake. 

• Overcome maturity and other limitations in private sector financing. 

• Assist U.S. exports to meet foreign officially sponsored export credit competition. 

• Provide leadership and guidance in export financing to the U.S. exporting and banking communities and to 

foreign borrowers. 

Repayment terms for these loans are usually 1 to 7 years. 

The U.S. Agency for International Development (USAID) provides economic assistance to selected countries 

in support of U.S. efforts to promote stability and security interests in strategic regions of the world. 

Other loan programs include the Small Business Administration (SBA) general business loan guarantees and 

disaster loans; and the Farm Service Agency farm ownership, emergency, and disaster loans. 
102 NOTES TO THE FINANCIAL STATEMENTS 

Note 5. Taxes Receivable, Net 

Taxes receivable are the gross tax receivables net of allowance for doubtful accounts. The allowance for 

doubtful accounts is based on projections of collectibility from a statistical sample of taxes receivable. The interest 

receivable related to taxes receivable totaled $0.1 billion and $0.1 billion for the years ended September 30, 2002, 

and 2001, respectively. 

Taxes Receivable as of September 30 

(In billions of dollars) 2002 2001 

Gross taxes receivable ................................................................ 89.4 82.2 

Allowance for doubtful accounts ................................................................ (68.0) (61.1) 

Taxes receivable, net ................................................................ 21.4 21.1 

Note 6. Inventories and Related Property, Net 

Inventories and Related Property as of September 30 

Defense 

All 

Others Total Defense 

All 

Others Total 

(In billions of dollars) 2002 2001 

Inventory purchased for resale ................................ 59.4 0.5 59.9 54.5 0.5 55.0 

Inventory held in reserve for future sale ................................ 2.8 - 2.8 3.9 - 3.9 

Inventory held for repair................................ 42.0 0.8 42.8 25.1 0.9 26.0 

Inventory—Excess, obsolete and 

unserviceable ................................................................ 4.5 - 4.5 11.8 - 11.8 

Operating materials and supplies held 

for use ................................................................ 74.9 4.6 79.5 49.1 2.8 51.9 

Operating materials and supplies held 

in reserve for future use ................................ 5.1 0.1 5.2 34.5 4.9 39.4 

Operating materials and supplies— 

Excess, obsolete and unserviceable ................................ 1.9 0.1 2.0 1.7 - 1.7 

Stockpile materials ................................................................ 2.1 38.3 40.4 2.4 37.7 40.1 

Other related property................................ 2.3 3.7 6.0 2.3 2.7 5.0 

Total allowance for inventories and 

related property ................................................................ (48.9) (2.0) (50.9) (49.3) (1.7) (51.0) 

Total inventories and related property, net ................................ 146.1 46.1 192.2 136.0 47.8 183.8 

Inventory is tangible personal property that is (1) held for sale, principally to Federal agencies, (2) in the 

process of production for sale, or (3) to be consumed in the production of goods for sale or in the provision of 

services for a fee. 

Inventory purchased for resale is the cost or value of tangible personal property purchased by an agency for 

resale. DOD, which accounts for nearly all of the inventory purchased for resale and future sale in the Government, 

generally uses the Latest Acquisition Cost (LAC) method, which is revalued for holding gains and losses. 

Inventory held in reserve for future sale is inventory not readily available, or inventory that will be needed in 

the future. 
NOTES TO THE FINANCIAL STATEMENTS 103 

Inventory held for repair is damaged inventory, and operating materials and supplies that require repair to 

make it suitable for sale (inventory), or is more economical to repair than to dispose of (operating materials and 

supplies). 

Inventory—Excess, Obsolete, and Unserviceable inventory: 

•	 Excess inventory is that which exceeds the demand expected in the normal course of operations and which does 

not meet management’s criteria to be held in reserve for future sale. 

• Obsolete inventory is that which no longer is needed due to changes in technology, laws, customs, or operations.
 


• Unserviceable inventory is inventory damaged beyond economic repair. 
 


• Excess, obsolete, and unserviceable inventory is reported at net realizable value.
 


Operating materials and supplies held for use are tangible personal property to be consumed in normal operations. 
 


Operating materials and supplies held in reserve for future use are materials retained because they are not 
 


readily available in the market or because they will not be used in the normal course of operations, but there is more 

than a remote chance that they will eventually be needed. DOD, which accounts for most of the reported operating 

materials and supplies, uses LAC and Standard Price under the purchase and consumption methods of accounting to 

value operating materials and supplies and does not adjust for holding gains and losses, which does not approximate 

historical cost. 

Operating materials and supplies—Excess, Obsolete, and Unserviceable: 

•	 Excess operating materials and supplies are materials that exceed the demand expected in the normal course of 

operations, and do not meet management’s criteria to be held in reserve for future use. 

•	 Obsolete operating materials and supplies are materials that are n o longer needed due to changes in technology, 

laws, customs, or operations. 

•	 Unserviceable operating materials and supplies are materials damaged beyond economic repair. DOD, which 

accounts for most of the reported excess, obsolete, and unserviceable operating materials and supplies, does not 

value excess, obsolete, and unserviceable operating materials and supplies at net realizable value. 

Stockpile materials include strategic and critical materials held in reserve for use in national defense, 

conservation, or national emergencies due to statutory requirements; for example, nuclear materials and oil, and 

stockpile materials that are authorized to be sold. The amount reported by the DOD is stockpile materials held for 

sale, and the amount reported in all others is stockpile materials held in reserve, and is reported by the Department 

of Energy (DOE). 

Other related property: 

•	 Commodities include items of commerce or trade that have an exchange value used to stabilize or support 

market prices. 

•	 Seized monetary instruments are comprised of only monetary instruments that are awaiting judgment to 

determine ownership. The related liability is included in other liabilities. Other property seized by the 

Government, such as real property and tangible personal property, is not included as a Government asset. It is 

accounted for in agency property-management records until the property is forfeited, returned, or otherwise 

liquidated. 

•	 Forfeited property is comprised of monetary instruments, intangible property, real property, and tangible 

personal property acquired through forfeiture proceedings; property acquired by the Government to satisfy a tax 

liability; and unclaimed and abandoned merchandise. 

• Other property not classified above. 

Note 7. Property, Plant and Equipment, Net 

The category of property, plant and equipment consists of tangible assets including land, buildings, structures, 

automated data processing software, and other assets used to provide goods and services. Certain types of tangible 

assets, collectively referred to as national defense assets, are currently a category of Stewardship Information that is 

not required to be reported in these Statements. 

FASAB has recommended SFFAS No. 23, Eliminating the Category National Defense Property, Plant and 

Equipment, which removes national defense assets from Stewardship Information and includes them on the Balance 

Sheet as part of property, plant and equipment. SFFAS No. 23 is currently pending final approval by Congress. 
104 NOTES TO THE FINANCIAL STATEMENTS 

Property, Plant and Equipment as of September 30 

Cost 

Accumulated 

Depreciation/ 

Amortization Net Cost 

Accumulated 

Depreciation/ 

Amortization Net 

(In billions of dollars) 2002 2001 

Buildings, structures, and 

facilities ................................................................ 301.0 146.7 154.3 292.8 141.6 151.2 

Furniture, fixtures, and 

equipment ................................ 177.4 99.0 78.4 160.3 89.0 71.3 

Construction in progress ................................ 61.5 N/A 61.5 54.4 N/A 54.4 

Land and land improvements ................................ 31.3 7.9 23.4 32.0 8.8 23.2 

Automated data processing 

software ................................ 6.9 3.2 3.7 5.7 2.9 2.8 

Assets under capital lease ................................ 1.9 0.7 1.2 1.7 0.6 1.1 

Leasehold improvements................................ 3.3 1.6 1.7 3.1 1.4 1.7 

Other property, plant and 

equipment ................................ 0.5 - 0.5 1.0 - 1.0 

Total property, plant and 

equipment, net ................................ 583.8 259.1 324.7 551.0 244.3 306.7 

Note 8. Other Assets 

Other Assets as of September 30 

(In billions of dollars) 2002 2001 

Securities and investments ................................................................ 36.1 35.6 

Advances and prepayments................................................................ 22.9 21.5 

Other ................................................................................................ 6.4 6.3 

Total other assets ................................................................................................ 65.4 63.4 

Securities and investments are presented at cost, net of unamortized premiums and discounts. 
NOTES TO THE FINANCIAL STATEMENTS 105 

Note 9. Accounts Payable 

Accounts Payable as of September 30 

(In billions of dollars) 2002 2001 

Department of Defense................................................................................................ 24.9 23.2 

Department of Energy................................................................................................ 3.3 3.7 

Department of Agriculture ................................................................................................ 3.1 3.3 

Department of Veterans Affairs ................................................................ 2.6 2.4 

Department of Transportation................................................................................................ 2.5 3.5 

National Aeronautics and Space Administration ................................................................ 2.4 2.8 

Department of Justice................................................................................................ 2.4 2.0 

United States Postal Service................................................................................................ 2.3 2.0 

General Services Administration................................................................ 2.0 1.9 

Department of Housing and Urban Development ................................................................ 1.4 1.5 

Tennessee Valley Authority................................................................................................ 1.3 1.4 

Department of Treasury - excluding interest on debt ................................ 1.2 0.7 

Agency for International Development ................................................................ 1.1 1.2 

Department of Health and Human Services ................................................................ 0.7 0.6 

Executive Office of the President ................................................................ 0.1 0.9 

All other departments................................................................................................ 4.5 5.1 

Total accounts payable ................................................................................................ 55.8 56.21 

1 See Note 1B- Basis of Accounting and Revenue Recognition. 

The Accounts Payable table includes accounts payable for goods and property ordered and received, and for 

services rendered by other than Federal employees. 

Note 10. Federal Debt Securities Held by the Public and 

Accrued Interest 

Definitions of Debt 

Debt Held by the Public�Federal debt held outside the Government by individuals, 

corporations, State or local governments, Federal Reserve Banks, and foreign governments 

and central banks. 

Intragovernmental Debt Holdings�Federal debt held by Government trust funds, revolving 

funds, and special funds. 
106 NOTES TO THE FINANCIAL STATEMENTS 

Federal Debt Securities Held by the Public and Accrued Interest 

(In billions of dollars) 

Balance 

September 

30, 2001 

Net 

Change 

During 

Fiscal 

2002 

Balance 

September 

30, 2002 

Average 

Interest 

Rate 

2002 

Average 

Interest 

Rate 

2001 

Treasury Securities (Public): 

Marketable securities 

Treasury bills................................ 734.8 133.4 868.2 1.7% 3.5% 

Treasury notes ................................ 1,528.1 87.2 1,615.3 4.7% 5.8% 

Treasury bonds ................................ 652.3 (14.5) 637.8 8.0% 8.0% 

Total marketable Treasury 

securities ................................ 2,915.2 206.1 3,121.3 

Non-marketable securities ................................ 424.1 7.7 431.8 6.0% 6.3% 

Net unamortized premium/ 

(discounts)................................ (46.0) 6.7 (39.3) 

Total Treasury securities, net 

(public)................................ 3,293.3 220.5 3,513.8 

Agency Securities: 

Tennessee Valley Authority ................................ 24.9 - 24.9 

All other agencies ................................ 1.6 - 1.6 

Total agency securities, net of 

unamortized premiums and 

discounts ................................ 26.5 - 26.5 

Accrued interest payable1 39.5 (6.6) 32.9 

Total Federal debt securities 

held by the public and 

accrued interest ................................ 3,359.3 213.9 3,573.2 

Types of marketable securities: 

Bills – Short-term obligations issued with a term of 1 year or less. 

Notes – Medium-term obligations issued with a term of at least 1 year, but not more than 10 years. 

Bonds – Long-term obligations of more than 10 years. 

1 See Note 1B- Basis of Accounting and Revenue Recognition. 

This table details Government borrowing to finance operations and shows marketable and non-marketable 

securities at face value including accrued interest and excluding unamortized discounts. 

Securities that represent Federal debt held by the public are issued primarily by the Treasury and include: 

• Interest-bearing marketable securities (bills, notes, and bonds). 

•	 Interest-bearing nonmarketable securities (foreign series, State and local government series, domestic series, and 

savings bonds). 

• Non interest-bearing marketable and nonmarketable securities (matured and other). 

Section 3111 of Title 31, U.S.C., authorizes the Secretary of the Treasury to use money received from the sale 

of an obligation and other money in the general fund of the Treasury to buy, redeem, or refund, at or before 

maturity, outstanding bonds, notes, certificates of indebtedness, Treasury bills, or savings certificates of the 

Government. During fiscal 2002 and 2001, the Secretary of the Treasury authorized the redemption of $12.5 and 

$33.8 billion of outstanding unmatured marketable Treasury securities at a premium of $3.8 and $10.6 billion, 

respectively. These early redemption transactions are known as Treasury “buybacks.” The net change of the Federal 

debt securities held by the public and accrued interest includes $12.5 billion and $33.6 billion during fiscal 2002 and 

2001, respectively, related to these buybacks. 
NOTES TO THE FINANCIAL STATEMENTS 107 

As of September 30, 2002, and 2001, respectively, $6,161.4 billion and $5,732.8 billion of debt was subject to 

a statutory limit (31 U.S.C. § 3101). That limit was $6,400 billion and $5,950 billion as of September 30, 2002, and 

2001, respectively. The debt subject to the limit includes Treasury securities held by the public and Government 

guaranteed debt of Federal agencies (shown in the table above) and intragovernmental debt holdings (shown in the 

table below). 

Intragovernmental debt holdings represent the portion of the gross Federal debt held as investments by 

Government entities. This includes major trust funds. For more information on trust funds, see Note 19- Dedicated 

Collections. These intragovernmental debt holdings are eliminated in the consolidation of these financial statements. 

Intragovernmental Debt Holdings: Federal Debt Securities 

Held as Investments by Government Accounts as of September 30 

(In billions of dollars) 

Balance 

2001 

Net 

Change 

During 

Fiscal 

2002 

Balance 

2002 

Social Security Administration, Federal Old-Age and 

Survivors Insurance ................................................................ 1,034.1 139.6 1,173.7 

Office of Personnel Management, civil service 

retirement and disability................................................................ 542.6 31.1 573.7 

Department of Health and Human Services, Hospital 

Insurance ................................................................ 197.1 31.8 228.9 

Department of Defense, military retirement ................................ 157.0 5.4 162.4 

Social Security Administration, Federal Disability 

Insurance ................................................................ 135.8 19.5 155.3 

Department of Labor, unemployment ................................ 88.6 (20.3) 68.3 

Department of Health and Human Services, Federal 

Supplementary Medical Insurance ................................ 42.0 (3.2) 38.8 

Federal Deposit Insurance Corporation funds ................................ 440 0.5 44.5 

Department of Transportation, Highway Trust Fund ................................ 24.1 (5.3) 18.8 

Railroad Retirement Board ................................................................ 26.9 (1.6) 25.3 

Office of Personnel Management, Employees’ Life 

Insurance ................................................................ 23.7 1.6 25.3 

Housing and Urban Development, Federal Housing ................................ 17.3 4.0 21.3 

Department of Veterans Affairs................................................................ 14.0 (0.1) 13.9 

Department of Transportation, Airport and Airway 

Trust Fund ................................................................ 13.7 (2.7) 11.0 

Department of Energy, nuclear waste disposal................................ 211 2.3 23.4 

All other programs and funds................................................................ 86.2 4.2 90.4 

Subtotal................................................................................................ 2,468.2 206.8 2,675.0 

Less: Unamortized net discounts ................................ 6.2 (4.7) 1.5 

Total intragovernmental debt holdings, net................................ 2,462.0 211.5 2,673.5 

Note 11. Federal Employee and Veteran Benefits Payable 

The Government offers its employees life and health insurance, as well as retirement and other benefits. These 

benefits apply to civilian and military employees. 

The Federal Government administers more than 40 pension plans. OPM administers the largest civilian plan. 

DOD, meanwhile, administers the largest military plan. The Government offers both defined benefit and defined 

contribution pension plans. The largest are defined benefit plans. The changes in actuarial accrued post-retirement 
108 NOTES TO THE FINANCIAL STATEMENTS 

pension and health benefits liability and components of related expense for the years ended September 30, 2002, and 

2001, respectively, are presented below. 

Federal Employee and Veteran Benefits Payable as of September 30 

Civilian1 Military Total1 

(In billions of dollars) 2002 2001 2002 2001 2002 2001 

Pension ................................ 1,129.8 1,112.9 730.0 708.3 1,859.8 1,821.2 

Post-retirement health 

benefits ................................ 221.4 205.2 592.0 580.9 813.4 786.1 

Veterans compensation 

and burial benefits................................ N/A N/A 849.2 691.9 849.2 691.9 

Liability for other benefits ................................ 46.9 41.1 20.1 20.5 67.0 61.6 

Total Federal employee 

and veteran benefits 

payable................................ 1,398.1 1,359.2 2,191.3 2,001.6 3,589.4 3,360.8 

1

 Does not include U.S. Tax Court and judicial branch. 

Change in Actuarial Accrued Pension Liability 

and Components of Related Expenses 

(In billions of dollars) Civilian 1 Military Total 1 

Actuarial accrued pension liability 

as of September 30, 2001 ................................................................ 1,112.9 708.3 1,821.2 

Pension Expense: 

Normal costs ................................................................ 23.2 18.5 41.7 

Interest on liability ................................................................ 73.9 43.0 116.9 

Actuarial (gains)/losses ................................................................ (31.2) (4.9) (36.1) 

Total pension expense ................................................................ 65.9 56.6 122.5 

Less benefits paid................................................................ 49.0 34.9 83.9 

Actuarial accrued pension liability 

as of September 30, 2002................................................................ 1,129.8 730.0 1,859.8 

1

 Does not include U.S. Tax Court and judicial branch. 

Significant Assumptions Used in Determining Pension Liability 

and the Related Expense 

Civilian Military 

(In percentages) 2002 2001 2002 2001 

Rate of interest................................................................ 6.75% 6.75% 6.25% 6.25% 

Rate of inflation................................................................ 3.75% 3.75% 3.0% 3.50% 

Projected salary increases ................................................................ 4.25% 4.25% 3.5% 3.50% 
NOTES TO THE FINANCIAL STATEMENTS 109 

Change in Actuarial Accrued Post-Retirement Health Benefits Liability 

and Components of Related Expenses 

(In billions of dollars) Civilian Military Total 

Actuarial accrued post-retirement health benefits 

liability, as of September 30, 2001 ................................ 205.2 580.9 786.1 

Post-Retirement Health Benefits Expense: 

Normal costs ................................................................ 8.7 13.1 21.8 

Interest on liability................................................................ 13.9 34.7 48.6 

Actuarial (gains)/losses ................................................................ 1.8 (26.2) (24.4) 

Total post-retirement health benefits expense ................................ 24.4 21.6 46.0 

Less claims paid ................................................................ 8.2 10.5 18.7 

Actuarial accrued post-retirement health benefits 

liability, as of September 30, 2002................................ 221.4 592.0 813.4 

Significant Assumptions Used in Determining Post-Retirement 

Health Benefits and the Related Expense 

Civilian Military 

(In percentages) 2002 2001 2002 2001 

Rate of interest................................................................ 6.75% 6.75% 6.25% 6.25% 

Rate of health care cost inflation ................................ 7.0% 7.0% 2.1-16.73% 4.8-13% 

Civilian Employees 

Pensions 

OPM administers the largest civilian pension plan, which covers approximately 90 percent of all Federal 

civilian employees. This plan includes two components of defined benefits. These are the Civil Service Retirement 

System (CSRS) and the Federal Employees’ Retirement System (FERS). The basic benefit components of the CSRS 

and the FERS are financed and operated through the Civil Service Retirement and Disability Fund (CSRDF). 

CSRDF monies are generated primarily from employees’ contributions, agency contributions, payments from 

the general fund, and interest on investments in securities. See Note 19—Dedicated Collections. 

The Federal Retirement Thrift Investment Board, an independent Government agency, administers the Thrift 

Savings Plan (TSP) Fund. Federal employees and retirees covered by CSRS and FERS own the fund’s assets. These 

financial statements exclude this fund because the employees own its assets. 

Treasury securities held by the fund are included and classified as Treasury securities held by the public. FERS 

employees may contribute up to 13 percent of base pay to the plan, which the Government matches up to 5 percent. 

CSRS employees may contribute up to 7 percent of base pay with no Government match. 

The TSP Fund held $44.9 billion and $36.8 billion in nonmarketable Treasury securities for the years ended 

September 30, 2002, and 2001, respectively. The Federal Government’s related liability is included in total federal 

debt securities held by the public and accrued interest in the Balance Sheets. 

Health Benefits 

Civilian retirees pay the same insurance premium as active employees under the Federal Employees Health 

Benefits Program. These premiums cover only a portion of the costs. 
110 NOTES TO THE FINANCIAL STATEMENTS 

Other Benefits 

Employee and annuitant contributions and interest on investments fund a portion of the Federal Employees’ 

Group Life Insurance program. OPM administers this program, although claims are paid through private insurance 

companies. 

Military Employees (Including Veterans) 

Pensions 

The DOD Military Retirement Fund finances military retirement and survivor benefit programs. 

The military retirement system consists of a funded, noncontributory, defined benefit plan. It applies to the 

Departments of the Army, Navy, Air Force, and Marine Corps. This system includes non-disability retirement pay, 

disability retirement pay, and retirement pay for reserve service and survivor annuity programs. 

Health Benefits 

Military benefits entitle retirees and their dependents to health care in military medical facilities if a facility can 

provide the needed care. Until they reach age 65, military retirees and their dependents also are entitled to be 

reimbursed for the cost of health care from civilian providers. A premium is charged to enroll in DOD’s civilian care 

program. In addition, there are deductible and copayment requirements for civilian care. Medicare covers military 

retirees after they reach 65 years of age. 

Military retiree health care figures include the cost of education and training, staffing, buildings and 

equipment, as well as the operation and maintenance of medical facilities. They also include claims paid to civilian 

providers and the cost of administering the program. 

The large net increase ($293 billion) in Military Retirement Health Benefits (MRHB) actuarial liability as of 

September 30, 2001, included the effect of Public Law No. 106-398 (the National Defense Authorization Act) that 

was signed into law on October 30, 2000. Under this legislation, TRICARE benefits were extended to military 

retirees and their beneficiaries eligible for Medicare, and a fund was established to pay these benefits. In fiscal 2002, 

the actuarial liability was reduced by $36.5 billion. This decrease, when combined with the actuarial gains and 

losses and related costs, resulted in a much smaller net increase to the MRHB. The Act also included a number of 

other enhanced medical benefits in addition to the specific Medicare eligible benefits. 

Some of the Act’s provisions include: 

•	 On April 1, 2001, Medicare eligible military retirees and their beneficiaries became eligible for a worldwide 

pharmacy benefit, including Military Treatment Facilities, National Mail Order Pharmacy, and retail pharmacy 

benefit. 

•	 On October 1, 2001, TRICARE became the secondary payer to Medicare for Medicare eligible military retirees 

and their beneficiaries. 

• The catastrophic cap was reduced from $7,500 to $3,000 for retiree families and other active duty family 

benefits. 

One of the specific initiatives included in the President’s Management Agenda for fiscal 2002 is the 

coordination of DOD and VA medical programs and systems. 

Compensation and Burial Benefits 

The Government compensates disabled veterans and their survivors. Veterans compensation is payable as a 

disability benefit or a survivor’s benefit. Entitlement to compensation depends on the veteran’s disabilities having 

been incurred in, or aggravated during, active military service; death while on duty; or death resulting from serviceconnected disabilities, if not in active duty. 

Burial benefits include a burial and plot or interment allowance payable for a veteran who, at the time of death, 

qualified to receive compensation or a pension, or whose death occurred in a VA facility. 

The liability for veterans compensation and burial benefits payable increased by $157.3 billion and $139.3 

billion in fiscal 2002 and 2001, respectively. The primary factors contributing to this increase were changes in 

interest rate and other actuarial assumptions. 
NOTES TO THE FINANCIAL STATEMENTS 111 

Veterans Compensation and Burial Benefits as of September 30 

(In billions of dollars) 2002 2001 

Veterans................................................................................................ 721.7 574.0 

Survivors ................................................................................................ 124.1 115.1 

Burial benefits.......................................................................................... 3.4 2.8 

Total compensation and burial benefits payable ................................ 849.2 691.9 

Other Benefits 

Veterans insurance includes the following programs: 

•	 United States Government Life Insurance, established in 1919 to handle new issues and the conversion of World 

War I Risk Term Insurance. 

• National Service Life Insurance, established in 1940 to meet the needs of World War II service personnel. 

•	 Veterans Special Life Insurance, established in 1951 for Korean veterans who did not have service-connected 

disabilities. 

• Service-Disabled Veterans Insurance, established in 1951 for veterans with service-connected disabilities. 

•	 Veterans Reopened Insurance, which established a 1-year reopening in 1965 of National Service Life Insurance 

for certain disabled World War II and Korean veterans. 

Note 12. Environmental and Disposal Liabilities 

Environmental and Disposal Liabilities as of September 30 

(In billions of dollars) 2002 2001 

Department of Energy: 

Environmental management baseline estimates ................................ 161.8 184.2 

Active and surplus facilities—other programs ................................ ................................ 26.6 31.4 

High-level waste and spent nuclear fuel disposition................................ 14.8 14.6 

Other................................................................................................ 6.5 8.1 

Total Department of Energy ................................................................ 209.7 238.3 

Department of Defense: 

Active installations ................................................................................................ 13.9 13.1 

Training ranges and non-range unexploded ordnance ................................ 12.9 16.4 

Chemicals weapons disposal ................................................................ 12.8 14.2 

Nuclear powered aircraft carriers and submarines ................................ 9.8 10.0 

Other................................................................................................ 9.9 9.6 

Total Department of Defense................................................................ 59.3 63.3 

All other agencies................................................................................................ 4.0 5.2 

Total environmental and disposal liabilities ................................................................ 273.0 306.8 

During World War II and the Cold War, the United States developed a massive industrial complex to research, 

produce, and test nuclear weapons. The nuclear weapons complex included nuclear reactors, chemical-processing 

buildings, metal machining plants, laboratories, and maintenance facilities. 
112 NOTES TO THE FINANCIAL STATEMENTS 

At all the sites where these activities took place, some environmental contamination occurred. This 

contamination was caused by the production, storage and use of radioactive materials and hazardous chemicals, 

which resulted in contamination of soil, surface water, and groundwater. The environmental legacy of nuclear 

weapons production also includes thousands of contaminated areas and buildings, and large volumes of waste and 

special nuclear materials requiring treatment, stabilization, and disposal. 

Of those environmental liabilities, this report presents only cleanup costs from Federal operations known to 

result in hazardous waste that the Government is required to clean up by Federal, State, or local statutes and/or 

regulations. Two of these statutes are the Nuclear Waste Policy Act of 1992, which provides for permanent disposal 

of the Nation’s high-level radioactive waste and spent nuclear fuel; and Public Law 105-204, which requires a plan 

for the conversion of depleted uranium hexaflouride. 

DOE is responsible for managing the legacy of contamination from the nuclear weapons complex. The 

components of the liability are: (1) environmental management baseline estimates, (2) anticipated remediation costs 

of active and surplus facilities that ultimately will require stabilization, deactivation and decommis sioning, (3) highlevel waste and spent nuclear fuel disposition, and (4) other environmental liabilities. The environmental 

management baseline estimate includes projections of the technical scope, schedule, and costs for environmental 

restoration; managing nuclear materials waste treatment, storage and disposal activities; and post-cleanup 

monitoring and stewardship at each installation. The baseline estimate includes costs for related activities such as 

landlord responsibilities, program management, and legally prescribed grants for participation and oversight by 

Native American tribes and regulatory agencies. Active and surplus facilities represent anticipated remediation costs 

for those facilities that are conducting ongoing operations but ultimately will require stabilization, deactivation, and 

decommissioning. 

Projects with no current feasible remediation approach are excluded from the baseline estimate. Significant 

projects not included are: 

• Nuclear explosion test areas (e.g., Nevada test site). 

• Large surface water bodies (e.g., Clinch and Columbia Rivers). 

• Most ground water (even with treatment, future use will be restricted). 

The active and surplus facility component of the liability is largely based on a cost-estimating model which 

extrapolates stabilization, deactivation and decommissioning costs from facilities included in the baseline estimates 

to those active and surplus facilities with the same characteristics. Cost estimates are updated each year to reflect 

current year constant dollars, the transfer of clean up and management responsibilities for these facilities by other 

programs to the baseline estimate, changes in facility size or contamination assessments, and estimated clean-up for 

newly contaminated facilities. 

The high-level waste and spent nuclear fuel disposition liability reflect DOE’s share of the estimated future 

cost to provide for permanent disposal of the Nation’s high-level radioactive waste and spent nuclear fuel, plus the 

unfunded portion of actual costs incurred to date and accrued interest on the unfunded costs. The Nuclear Waste 

Policy Act of 1982 established DOE’s responsibility to provide for permanent disposal of the Nation’s spent nuclear 

fuel and high-level radioactive waste. DOE performed comprehensive scientific tests to determine the suitability of 

the Yucca Mountain site for this purpose. The characterization of the Yucca Mountain site is complete, and in July 

2002, the President signed into law the Congressional Joint Resolution designating Yucca Mountain as the site for 

the Nation’s first repository. It is scheduled to open in 2010, and at that time, it will accept spent nuclear fuel from 

commercial utilities and DOE’s high-level waste and spent nuclear fuel. 

DOD is required to clean up contamination resulting fromwaste disposal practices, leaks, spills and other 

activities that have created a public health or environmental risk. DOD must restore active installations, installations 

affected by base realignment or closure, and other areas formerly used as defense sites. DOD also bears 

responsibility for disposal of chemical weapons and environmental costs associated with the disposal of weapons 

systems (primarily nuclear powered aircraft carriers and submarines). DOD is responsible, as well, for training range 

and other non-range unexploded ordnance cleanup. 

DOD is required by law to adhere to the Comprehensive Environmental Response, Compensation Liability Act 

(CERCLA) and Superfund Amendment and Reauthorization Act (SARA) to clean up contamination resulting from 

past waste disposal practices, leaks, spills, and other activities which have created a risk to public health or the 

environment. The Army is DOD’s Executive Agent for cleaning up contamination at sites formerly used by DOD. 

CERCLA requires the Army to clean-up contamination in coordination with regulatory agencies, other responsible 

parties, and current property owners. 

DOD currently uses two independently validated models to estimate and report its environmental liabilities: the 

Remedial Action Cost Engineering Requirements model and Navy’s cost to complete system. These two methods of 

valuation are used in this note’s table. 
NOTES TO THE FINANCIAL STATEMENTS 113 

DOD was unable to fully implement elements of Federal GAAP and OMB Bulletin No. 01-09 due to 

limitations of its financial management processes and systems, including nonfinancial feeder systems and processes. 

Note 13. Benefits Due and Payable 

These amounts are the benefits owed to program recipients or medical service providers as of the fiscal 

yearend that have not been paid. For a description of the programs, see the Stewardship Responsibilities section 

under Stewardship Information. 

Benefits Due and Payable as of September 30 

(In billions of dollars) 2002 2001 

Federal Old-Age and Survivors Insurance................................................................ 34.1 32.4 

Grants to States for Medicaid................................................................ 16.3 13.4 

Federal Hospital Insurance (Medicare Part A)................................................................ 14.1 13.6 

Federal Supplementary Medical Insurance (Medicare Part B) ................................ 14.1 13.5 

Federal Disability Insurance................................................................................................ 12.2 9.5 

Unemployment insurance ................................................................................................ 2.1 1.4 

Supplemental security income ................................................................ 1.4 1.3 

Railroad retirement................................................................................................ 0.8 0.7 

Other benefits ................................................................................................ 0.2 0.2 

Total benefits due and payable ................................................................ 95.3 86.0 
114 NOTES TO THE FINANCIAL STATEMENTS 

Note 14. Other Liabilities 

Other Liabilities as of September 30 

(In billions of dollars) 2002 2001 

Insurance programs ................................................................................................ 48.8 33.2 

Accrued wages and benefits ................................................................ 28.2 27.3 

Deferred revenue ................................................................................................ 260 28.3 

Gold certificates ................................................................................................ 109 10.9 

Other debt ................................................................................................ 9.3 9.7 

Exchange stabilization fund................................................................ 8.7 8.5 

Deposit funds and undeposited collections ................................................................ 6.6 6.8 

Advances from foreign governments................................................................ 5.4 4.9 

Contractual services ................................................................................................ 3.9 4.2 

Advances from others ................................................................................................ 3.7 2.2 

Energy Employees Occupational Illness Compensation Act ................................ 2.8 3.2 

Other miscellaneous liabilities ................................................................ 47.6 48.9 

Total other liabilities ................................................................................................ 201.9 188.1 

Insurance programs include bank deposit insurance, guarantees of pension benefits, and life and medical 

insurance. They also include insurance against damage to property (home, crops, and airplanes) caused by perils 

such as flooding and other natural disasters, risk of war, and insolvency. 

Accrued wages and benefits consist of the estimated liability for civilian and military salaries and wages 

earned but unpaid. They also include funded annual leave and other employee benefits that have been earned but are 

unpaid. 

Deferred revenue refers to revenue received but not yet earned, such as payments received in advance from 

outside sources for future delivery of products or services. 

Gold certificates include monetized portions of gold and certificates deposited in FRBs. 

Other debt includes Government obligations, whether secured or unsecured, not included in public debt. 

Exchange stabilization fund includes SDR certificates issued to the FRBs and allocations from the IMF. 

Deposit funds are deposits held and maintained by the Government on behalf of a third party and include 

unclassified deposited funds that are amounts offsetting undeposited collections, as well as funds deposited in 

clearing accounts and suspense accounts that await disposition or reclassification. 

Advances from foreign governments consist of amounts received from foreign governments for goods and 

services to be provided. 

Contractual services consist of contractual obligations of DOD. 

Advances from others are amounts received in advance for future delivery of goods or services. 

The Energy Employees Occupational Illness Compensation Act authorized compensation for certain illnesses 

suffered by the employees of the Department and contractors who performed work for the nuclear weapons 

program. 

Other miscellaneous liabilities include amounts accrued for contingent liabilities, mainly from DOL, DOE, 

DOI, DOD and FDIC, and other liabilities from the Department of Transportation (DOT), VA, USDA, and 

Treasury. 
 NOTES TO THE FINANCIAL STATEMENTS 115 

Note 15. Collections and Refunds of Federal Revenue 

Collections of Federal Revenue for the Year Ended September 30, 2002 

Tax Year to Which Collections Relate 

(In billions of dollars) 

Federal 

Revenue 

Collections 2002 2001 2000 

Prior 

Years 

Individual income tax and tax 

withholdings ................................ 1,713.4 1,104.1 584.2 15.3 9.8 

Corporation income taxes ................................ 211.0 112.9 88.8 1.0 8.3 

Estate and gift taxes ................................ 27.2 0.1 23.6 1.4 2.1 

Excise taxes ................................................................ 69.0 50.6 18.0 0.1 0.3 

Customs duties ................................ 19.8 19.8 - - -

Fees and licenses ................................ 1.0 1.0 - - -

Unemployment taxes ................................ 26.3 24.5 1.7 - 0.1 

Railroad retirement taxes ................................ 4.6 3.5 1.1 - -

Federal Reserve earnings ................................ 23.7 18.1 5.6 - -

Fines, penalties, interest, and 

other taxes ................................................................ 2.0 1.3 0.7 - -

Subtotal ................................................................ 2,098.0 1,335.9 723.7 17.8 20.6 

Less: Amounts collected for 

Non-Federal entities ................................ 0.4 

Total ................................................................ 2,097.6 
116 NOTES TO THE FINANCIAL STATEMENTS 

Collections of Federal Revenue for the Year Ended September 30, 2001 

Tax Year to Which Collections Relate 

(In billions of dollars) 

Federal 

Revenue 

Collections 2001 2000 1999 

Prior 

Years 

Individual income tax and tax 

withholdings ................................ 1,843.8 1,155.4 665.8 14.0 8.6 

Corporation income taxes ................................ 186.4 99.2 79.8 0.7 6.7 

Estate and gift taxes ................................ 29.2 0.6 25.1 1.2 2.3 

Excise taxes ................................................................ 68.2 49.2 18.6 0.1 0.3 

Custom duties ................................ 19.7 19.7 - - -

Fees and licenses ................................ 0.9 0.9 - - -

Unemployment taxes ................................ 27.0 25.0 1.9 - 0.1 

Railroad retirement taxes ................................ 4.7 3.6 1.1 - -

Federal Reserve earnings ................................ 26.1 21.6 4.5 - -

Fines, penalties, interest, and 

other taxes ................................................................ 2.7 2.0 0.7 - -

Total ................................................................ 2,208.7 1,377.2 797.5 16.0 18.0 

Treasury is the Government’s principal revenue-collecting agency. 

Collections of individual income tax and tax withholdings include estimated income tax payments by individuals, 

Social Security and Medicare taxes, and individual income tax withholdings, but do not include Federal tax refunds. 

Individual income and tax withholdings include refunds and Earned Income Tax Credit (EITC) payments. 

EITC is a refundable credit for taxpayers who work and whose earnings fall below the established ceiling. A 

refundable credit is first used to offset any individual taxes owed; any remaining amounts are issued to the taxpayer. 

In fiscal 2002, the IRS issued $27.8 billion in EITC refunds; $66 million were applied to advance EITC, and an 

additional $4.7 billion of the EITC credits were applied to reduce taxpayer liability. (In fiscal 2001, $26.1 billion of 

EITC refunds were issued, $72 million were applied to advance EITC, and an additional $5.1 billion of EITC 

refunds were applied to reduce taxpayer liability.) All of these EITC amounts are included in gross cost in the 

Statements of Net Cost as a component of Treasury. Amounts reported for corporate income taxes in tax year 2002 

include corporate taxes of $5 billion for tax year 2003. (Similarly, amounts reported for corporate income taxes 

collected in fiscal 2001 include corporate taxes of $5 billion for tax year 2002.) Taxes collected are reported in the 

Revenue section of the Statements of Operations and Changes in Net Position, and are presented on a modified cash 

basis. On the other hand, collections reported in the table in Note 15 are reported on a gross cash basis. 

The Statement of Operations and Changes in Net Position reports total revenue of $1,877.7 billion and 

$2,013.7 billion for fiscal 2002 and 2001, respectively. The difference between collections, net of refunds, and total 

revenue is primarily due to changes in taxes receivable, imputed revenue for the EITC and Child Tax Credit, other 

collecting entities and other earned revenue. 

The Current Services Assessment table in the Stewardship section of this document also includes the 

Government’s receipts and outlays. The total amounts included in the table for the years 2002 and 2001 are the same 

as those described in Note 15 but classified differently. The classifications differ because the budget classifies some 

collections and refunds differently. For example, Note 15 nets part of the EITCs (amounts in excess of offsets to 

individual taxes owed) in receipts, while the budget reports them as outlays. Meanwhile, the Statements of Net Cost 

reports refunds and EITCs as expenses. 
 NOTES TO THE FINANCIAL STATEMENTS 117 

Federal Tax Refunds Disbursed for the Year Ended September 30, 2002 

Tax Year to Which Refunds Relate 

(In billions of dollars) 

Refunds 

Disbursed 2002 2001 2000 

Prior 

Years 

Individual income tax and tax 

withholdings ................................ 212.4 0.5 194.2 12.5 5.2 

Corporation income taxes ................................ 67.4 2.2 15.6 14.3 35.2 

Unemployment taxes ................................ 0.1 - 0.1 - -

Excise taxes................................................................ 1.1 0.3 0.5 0.1 0.3 

Estate and gift taxes ................................ 0.8 - 0.2 0.3 0.3 

Custom duties ................................ 1.5 0.8 0.2 0.1 0.4 

Total................................................................ 283.3 3.8 210.8 27.3 41.4 

Federal Tax Refunds Disbursed for the Year Ended September 30, 2001 

Tax Year to Which Refunds Relate 

(In billions of dollars) 

Refunds 

Disbursed 2001 2000 1999 

Prior 

Years 

Individual income tax and tax 

withholdings ................................ 210.3 1.4 195.7 9.4 3.8 

Corporation income taxes ................................ 38.6 1.3 14.8 8.2 14.3 

Unemployment taxes ................................ 0.1 - 0.1 - -

Excise taxes................................................................ 0.9 0.3 0.4 - 0.2 

Estate and gift taxes ................................ 1.0 - 0.3 0.4 0.3 

Custom duties ................................ 0.9 0.4 0.2 0.1 0.2 

Total................................................................ 251.8 3.4 211.5 18.1 18.8 

Note 16. Unreconciled Transactions Affecting 

the Change in Net Position 

The reconciliation of the Change in Net Position requires that the difference between ending and beginning net 

position equals the excess of revenues over net cost, plus or minus prior period adjustments. 

The unreconciled transactions needed to bring the change in net position into balance amounted to a net value 

of $17.1 billion and $17.3 billion for the years ended September 30, 2002, and 2001, respectively. 

The three primary factors affecting this out-of-balance situation are: 

• Improper recording of intragovernmental transactions by agencies. 
 

•	 Transactions affecting Balance Sheet assets and liabilities not identified properly by agencies as prior period 
 

adjustments. 

• Timing differences and errors in reporting transactions. 

The Federal financial community considers the identification and accurate reporting of these unreconciled 

transactions a priority. 
118 NOTES TO THE FINANCIAL STATEMENTS 

Note 17. Prior Period Adjustments 

Prior Period Adjustments to Fiscal Years 2002 and 2001 

Increases to 

Net Position 

Reconciliations of 

Net Operating Cost 

(In billions of dollars) 2002 2001 2002 2001 

Department of Treasury ................................................................ (3.1) - - -

National Aeronautics and Space Administration................................ 2.9 0.6 2.9 0.6 

Department of Defense ................................................................ 2.0 (5.3) 2.0 (5.3) 

Department of Agriculture................................................................ (1.3) - (1.3) -

Department of Transportation ................................................................ 1.3 2.1 1.3 2.1 

Department of Labor ................................................................ 1.2 - 1.2 -

All other adjustments to prior periods ................................ 0.5 4.0 0.5 4.0 

Total prior period adjustments................................ 3.5 1.4 6.6 1.4 

Prior period adjustments for fiscal 2002 consist of $3.5 billion in net adjustments to correct errors in prior 

periods. 

Significant components of this net adjustment include: 

• A $3.1 billion adjustment by Treasury to operating cash to correct the balance in outstanding checks. 

•	 A $2.9 billion net correction by the National Aeronautics and Space Administration (NASA) to property, plant 

and equipment. 

•	 A $2.0 billion net adjustment by DOD for correction of errors to unexpended appropriations, progress payments, 

environmental liabilities and inventory valuation. 

•	 A $1.3 billion net adjustment by USDA for correction of errors to property, plant and equipment and accounts 

payable. 

• A $1.3 billion net adjustment by DOT for corrections of errors to environmental liabilities and legal claims. 

• A $1.2 billion adjustment by DOL for correction of errors to equity. 

• A $0.5 billion net adjustments resulting from corrections of errors composed of smaller debits and credits from 

different agencies. 

Prior period adjustments for fiscal 2001 consist of $1.4 billion in net adjustments to correct errors in prior 

periods. 

Significant components of this net adjustment include: 

• A $5.3 billion adjustment by DOD for correction of errors in determining the environmental cleanup liability. 

• A $2.1 billion adjustment by DOT to correct accruals, property and inventory. 

•	 A $0.6 billion correction by NASA to property, plant and equipment. For comparative presentation reasons, last 

year this amount was included in other, bringing the net amount reported to ($0.5) billion. 

•	 Other $4.0 billion includes: A $5.1 billion adjustment by SSA for correction of errors in determining eligibility 

for disability benefits. For comparative presentation reasons, last year it was reported as a single item. A ($1.1) 

billion net adjustment to prior period resulting from a correction composed of smaller debits and credits from 

different agencies. 

Note 18. Commitments and Contingencies 

The Government has entered into contractual commitments that require future use of financial resources. It has 

significant amounts of long-term lease obligations as shown in the table below. Undelivered Orders represent the 

value of goods and services ordered that have not yet been received. 
 NOTES TO THE FINANCIAL STATEMENTS 119 

Contingent liabilities related to the loan guarantee programs are described in Note 4—Loans Receivable and 

Loan Guarantee Liabilities, Net. 

A contingency is an existing condition or situation involving uncertainty as to a possible loss. A loss is 

considered reasonably possible if the future confirming event(s) is more than remote, but less than probable. These 

contingencies do not include existing conditions or situations where the future occurring event is only considered 

remote, nor do they include contingencies that would result in a gain. 

The Government is also subject to contingencies including litigation. These contingencies arise in the normal 

course of operations and their ultimate disposition is unknown. Based on information currently available, however, 

it is management’s opinion that the expected outcome of these matters, individually or in the aggregate, will not 

have a material adverse effect on the financial statements, except for litigation described in the next paragraph. 

Numerous cases are pending involving, among many other matters, supervisory goodwill at savings and loan 

institutions, harbor maintenance fees, individual Native American money accounts and tribal accounts revenues. 

While it is likely that the United States will have to pay some amount of damages on these claims, it is difficult to 

predict the outcome of litigation and, therefore, the ultimate total costs cannot be reasonably estimated at this time. 

The Government has unused statutory lines of credit to Government-sponsored enterprises totaling $10 billion, 

as well. 
120 NOTES TO THE FINANCIAL STATEMENTS 

Commitments as of September 30 

Capital 

Leases 

Operating 

Leases 

Capital 

Leases 

Operating 

Leases 

(In billions of dollars) 2002 2001 

Long-term Leases: 

General Services Administration................................ 0.3 17.4 0.3 17.2 

Department of Justice ................................................................ 0.1 10.9 0.1 7.9 

U.S. Postal Service................................................................ 0.8 9.6 0.8 9.4 

Department of Health and Human Services ................................ 0.1 1.7 - 1.2 

Department of Agriculture................................ - 0.5 0.1 2.4 

Department of Interior ................................................................ - 1.6 - 1.7 

Department of Veterans Administration ................................ - 1.4 - 1.4 

Department of Commerce ................................ - 1.3 - 2.2 

Other long-term leases ................................................................ 1.1 3.2 1.3 2.7 

Total long-term leases ................................ 2.4 47.6 2.6 46.1 

2002 2001 

Undelivered Orders: 

Department of Housing and Urban 

Development ................................................................ 83.7 89.5 

Department of Transportation ................................ 63.8 74.21 

Department of Health and Human Services ................................ 51.2 60.6 

Department of the Navy ................................................................ 48.6 42.7 

Department of Treasury ................................................................ 47.7 20.01 

Department of Education................................ 35.3 22.51 

Department of the Air Force ................................ 34.0 26.4 

Other Defense agencies ................................................................ 33.1 29.2 

Department of the Army ................................................................ 25.2 24.2 

Department of Agriculture................................ 23.7 21.1 

Department of Justice ................................................................ 12.4 12.8 

Environmental Protection Agency ................................ 10.9 9.6 

Department of Energy ................................................................ 9.1 8.0 

U.S. Agency for International Development ................................ 8.8 8.3 

Department of Labor ................................................................ 7.8 8.5 

General Service Administration................................ 6.7 4.8 

National Science Foundation................................ 5.6 4.9 

Federal Emergency Management Agency ................................ 5.4 5.6 

Other undelivered orders ................................ 25.8 25.01 

Total undelivered orders ................................ 538.8 497.91 

Other Commitments: 

Callable capital subscriptions for multi-lateral 

development banks ................................................................ 69.8 69.4 

Department of Agriculture................................ 23.3 15.91 

Tennessee Valley Authority ................................ 9.1 9.5 

National Oceanic and Atmospheric 

Administration satellites and weather systems................................ 7.4 8.4 

Department of Transportation ................................ 4.3 4.0 

Real property activities ................................................................ 3.2 3.4 

All other programs ................................................................ 1.5 3.31 

Total other commitments ................................ 118.6 113.9 

1 Restated. 
 NOTES TO THE FINANCIAL STATEMENTS 121 

Contingencies as of September 30 

(In billions of dollars) 2002 2001 

Insurance: 

Pension Benefit Guaranty Corporation ................................................................ 35.5 11.0 

Federal Deposit Insurance Corporation ................................................................ 7.3 7.0 

Other insurance programs ................................................................................................ 0.5 0.1 

Total insurance programs ................................................................................................ 43.3 18.1 

Unadjudicated Claims: 

Department of Commerce ................................................................................................ 4.5 7.01 

Department of Agriculture................................................................................................ 1.7 -

Department of Interior ................................................................................................ 1.4 0.5 

Other unadjudicated claims ................................................................................................ 1.8 1.4 

Total unadjudicated claims ................................................................ 9.4 8.91 

Other Contingencies: 

Department of Army................................................................................................ 10.2 8.8 

Administrative order against Tennessee Valley Authority................................ 3.0 3.0 

Other contingencies ................................................................................................ 4.1 9.61 

Total other contingencies ................................................................................................ 17.3 21.41 

1 Restated. 

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 & 

Statement of Net Cost Footnote disclosure No disclosure 
122 NOTES TO THE FINANCIAL STATEMENTS 

Note 19. Dedicated Collections 

Dedicated Collections as of September 30* 

Receipts Disbursements 

Trust Fund Net 

Assets 

Less Intragovernmental 

Net Assets 

Consolidated 

Assets 

(In billions of dollars) 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 

Federal Old-Age and 

Survivors Insurance 

Trust Fund ................................ 530.4 518.5 389.6 377.1 1,193.3 1085.0 1,192.2 1,083.8 0.8 1.2 

Civil Service Retirement 

and Disability Fund ................................ 80.1 77.9 49.0 47.4 583.7 552.3 583.4 552.0 0.3 0.3 

Federal Hospital 

Insurance Trust Fund 

(Medicare Part A)................................ 177.9 173.7 147.9 143.9 235.3 203.7 233.6 203.7 1.7 -

Military Retirement 

Fund ................................ 42.4 40.6 35.1 34.2 176.5 169.2 176.5 169.2 - -

Federal Disability 

Insurance Trust Fund ................................ 86.2 83.9 66.5 67.8 159.2 153.1 157.6 151.9 1.6 1.2 

Unemployment Trust 

Fund ................................ 32.7 34.1 51.1 31.6 70.8 91.5 69.6 90.7 1.2 0.8 

Federal Supplementary 

Medical Insurance 

Trust Fund 

(Medicare Part B) ................................ 105.6 95.3 108.9 98.4 40.8 42.7 39.5 42.7 1.3 -

Highway Trust Fund ................................ 32.2 31.5 37.7 37.4 22.0 26.2 21.0 26.2 1.0 -

Railroad Retirement 

Trust Fund................................ 5.6 5.1 8.9 8.4 22.8 24.0 22.8 23.9 - 0.1 

Airport and Airway 

Trust Fund................................ 9.6 10.0 11.3 9.4 11.7 14.1 11.0 13.9 0.7 0.2 

Hazardous Substance 

Superfund ................................ 1.0 1.1 1.5 1.3 3.3 4.3 3.3 3.8 - 0.5 

Black Lung Disability 

Trust Fund................................ 0.6 0.5 1.0 1.0 0.1 - - - 0.1 -

*By law, certain expenses (costs) related to the administration of the above funds are not charged to the funds and are 

financed by other sources. 

The table above depicts selected trust funds that have been chosen based on their financial activity. 

Additionally, the Federal Government has many other dedicated collections and trust funds. 

In the Federal budget, the term “trust fund” means only that the law requires a particular fund be accounted for 

separately, used only for a specified purpose, and designated as a trust fund. A change in law may change the future 

receipts and the terms under which the fund’s resources are spent. In the private sector, trust fund refers to funds of 

one party held and managed by a second party (the trustee) in a fiduciary capacity. 

Trust fund net assets represent the unexpended balance from all sources of receipts and amounts due the trust 

funds, regardless of source, including related Governmental transactions. These are transactions between two 

different entities within the Government (for example, monies received by one entity of the Govern ment from 

another entity of the Government). 

Intragovernmental net assets are comprised of investments in Federal debt securities, related accrued interest, 

and fund balances with Treasury. These amounts were eliminated in preparing these financial statements. 

Consolidated assets represent only the net assets from activity with individuals and organizations outside the 

Government. All related Governmental balances are removed to present the Government’s position as a whole. 
 NOTES TO THE FINANCIAL STATEMENTS 123 

Most of the trust fund assets are invested in intragovernmental debt holdings. These securities require 

redemption if a fund’s disbursements exceeds its receipts. Redeeming these securities will increase the 

Government’s financing needs and require more borrowing from the public (or less repayment of debt), or will 

result in higher taxes than otherwise would have been needed, or less spending on other programs than otherwise 

would have occurred, or some combination thereof. 

Depicted below is a description of all the funds included in the table Dedicated Collections as of September 30, 

which also includes the names of the Government agencies that administer each particular fund. For detailed 

information concerning revenues by type, program expenses, other expenses and other financial sources, as well as 

other changes in fund balance, please refer to the financial statements of the corresponding administering agencies. 

Federal Old-Age and Survivors Insurance Trust Fund 

This trust fund provides assistance and protection against the loss of earnings due to retirement or death in the 

form of money payments. SSA administers the Federal Old-Age and Survivors Insurance Trust Fund. 

Payroll and self-employment taxes primarily fund the Federal Old-Age and Survivors Insurance Trust Fund. 

Interest earnings on Treasury securities, Federal agencies’ payments for the Social Security benefits earned by 

military and Federal civilian employees, and Treasury payments for a portion of income taxes paid on Social 

Security benefits provide the fund with additional income. The law establishing the Federal Old-Age and Survivors 

Insurance Trust Fund and authorizing the depositing of amounts to the credit of the trust fund is set forth in 42 

U.S.C. § 401. 

Civil Service Retirement and Disability Fund 

The Civil Service Retirement and Disability Fund covers two Federal civilian retirement systems: the Civil 

Service Retirement System (CSRS), for employees hired before 1984, and the Federal Employee Retirement System 

(FERS), for employees hired after 1983. OPM administers the CSRS and the FERS systems. The laws establishing 

the Civil Service Retirement and Disability Fund and authorizing the depositing of amounts to the credit of the trust 

fund are set forth in 5 U.S.C. § 8334-8348. Funding sources include: 

• Federal civilian emp loyees’ contributions. 

• Agencies’ contributions on behalf of employees. 

• Appropriations. 

• Interest earned on investments in Treasury securities. 

Federal Hospital Insurance Trust Fund 

(Medicare Part A) 

The Federal Hospital Insurance Trust Fund finances the Hospital Insurance program (Medicare Part A). This 

program funds the cost of inpatient hospital and related care for individuals age 65 or older who meet certain insured 

status requirements, and eligible disabled people. HHS administers the program. 

The Federal Hospital Insurance Trust Fund is financed primarily by payroll taxes, including those paid by 

Federal agencies. It also receives income from interest earnings on Treasury securities and a portion of income taxes 

paid on Social Security benefits. The law establishing the Federal Hospital Insurance Trust Fund and authorizing the 

depositing of amounts to the credit of the trust fund is set forth in 42 U.S.C. § 1395i. 

Military Retirement Fund 

The Military Retirement Fund provides retirement benefits for Army , Navy, Marine Corps, and Air Force 

personnel, and their survivors. The fund is financed by DOD contributions, appropriations, and interest earned on 

investments in Federal debt securities. DOD administers the Military Retirement Fund. The laws establishing the 
124 NOTES TO THE FINANCIAL STATEMENTS 

Military Retirement Fund and authorizing the depositing of amounts to the credit of the trust fund is set forth in 10 

U.S.C. § 1461-1467. 

Federal Disability Insurance Trust Fund 

The Federal Disability Insurance Trust Fund provides assistance and protection against the loss of earnings due 

to a wage earner’s disability in the form of money payments. SSA administers the Federal Disability Insurance Trust 

Fund. 

Like the Federal Old-Age and Survivors Insurance Trust Fund, payroll taxes primarily fund the Federal 

Disability Insurance Trust Fund. The fund also receives income from interest earnings on Treasury securities, 

Federal agencies’ payments for the Social Security benefits earned by military and Federal civilian employees, and a 

portion of income taxes paid on Social Security benefits. The law establishing the Federal Disability Insurance Trust 

Fund and authorizing the depositing of amounts to the credit of the trust fund is set forth in 42 U.S.C. § 401. 

Unemployment Trust Fund 

The Unemployment Trust Fund protects workers who lose their jobs. The program is administered through a 

unique system of Federal and State partnerships, established in Federal law, but executed through conforming State 

laws by State officials. DOL administers the Federal operations of the program. 

Taxes on employers primarily fund the Unemployment Trust Fund. However, interest earned on investments in 

Treasury securities also provides income to the fund. Appropriations have supplemented the fund’s income during 

periods of high and extended unemployment. The law establishing the Unemployment Trust Fund and authorizing 

the depositing of amounts to the credit of the trust fund is set forth in 42 U.S.C. § 1104. 

Federal Supplementary Medical Insurance Trust Fund 

(Medicare Part B) 

The Federal Supplementary Medical Insurance Trust Fund finances the Supplementary Medical Insurance 

program (Medicare Part B) that provides supplementary medical insurance for enrolled eligible participants to cover 

physician and outpatient services not covered by Medicare Part A. HHS administers the program. 

Medicare Part B financing is not based on payroll taxes; it is based on monthly premiums and income from the 

general fund of the Treasury. The law establishing the Federal Supplementary Medical Insurance Trust Fund and 

authorizing the depositing of amounts to the credit of the trust fund is set forth in 42 U.S.C. § 1395t. 

Highway Trust Fund 

The Highway Trust Fund was established to promote domestic interstate transportation and to move people and 

goods. The fund provides Federal grants to States for highway construction and related transportation purposes. 

DOT administers the Highway Trust Fund. The law establishing the Highway Trust Fund and authorizing the 

depositing of amounts to the credit of the trust fund is set forth in 26 U.S.C. § 9503. Funding sources include 

earmarked taxes on gasoline and other fuels, certain tires, and vehicle and truck use, and interest on Treasury 

securities. 

Railroad Retirement Trust Fund 

The Railroad Retirement Trust Fund provides annuities and survivor benefits to eligible railroad employees 

and their survivors. The fund also pays disability annuities based on total or occupational disability. Payroll taxes 

paid by railroad employers and their employees provide the primary source of income for the Railroad Retirement 
 NOTES TO THE FINANCIAL STATEMENTS 125 

Survivor Benefit program. The law establishing the Railroad Retirement Trust Fund and authorizing the depositing 

of amounts to the credit of the trust fund is set forth in 45 U.S.C. § 231n. 

During fiscal 2002, RRSIA, enacted on December 21, 2001, provided several changes in benefits and financing 

provisions for employees and widow(er)s. RRSIA also created NRRIT to administer the new fund, which is allowed 

to invest in Federal debt securities as well as other investments outside of the U.S. Government (see Railroad 

Retirement in the Stewardship Information section). 

Airport and Airway Trust Fund 

The Airport and Airway Trust Fund provides for airport improvement and airport facilities maintenance. It also 

funds airport equipment, research, and a portion of the Federal Aviation Administration’s administrative operational 

support. DOT administers the Airport and Airway Trust Fund. The law establishing the Airport and Airway Trust 

Fund and authorizing the depositing of amounts to the credit of the trust fund is set forth in 26 U.S.C. § 9502. 

Funding sources include: 

•	 Taxes received from transportation of persons and property in the air, as well as fuel used in non-commercial 

aircraft. 

• International departure taxes. 

• Interest earned on investments in Treasury securities. 

Hazardous Substance Superfund 

The Hazardous Substance Superfund was authorized to address public health and environmental threats from 

spills of hazardous materials and from sites contaminated with hazardous substances. The Environmental Protection 

Agency (EPA) administers the fund. The law establishing the Hazardous Substance Superfund and authorizing the 

depositing of amounts to the credit of the trust fund is set forth in 26 U.S.C. § 9507. Funding sources include: 

• Excise taxes collected on petroleum, chemicals, and imported substances (expired in 1995). 

•	 Environmental taxes from corporations with alternative minimum taxable income in excess of $2 million 

(expired in 1995). 

• Fines, penalties, and cost recoveries from responsible parties. 

• Appropriations. 

• Interest earned on investments in Treasury securities. 

Black Lung Disability Trust Fund 

The Black Lung Disability Trust Fund provides benefits to coal miners who are totally disabled due to 

pneumoconiosis (black lung disease). It also covers surviving dependents of miners who died due to 

pneumoconiosis. 

Excise taxes on coal mine operators, based on the sale of coal, partially fund black lung disability payments as 

well as related administrative and interest costs. Intragovernmental advances to the BLDTF, which must be repaid 

with interest, fund the shortfall. DOL administers the BLDTF. The law establishing the BLDTF and authorizing the 

depositing of amounts to the credit of the trust fund is set forth in 26 U.S.C. § 9501. 

Note 20. Indian Trust Funds 

The Indian Trust Funds differ from other dedicated collections reported in Note 19. DOI has responsibility for 

the assets held in trust on behalf of American Indian tribes and individuals. 

DOI, through the Office of the Special Trustee’s (OST’s) Office of Trust Funds Management, holds trust funds 

in accounts for approximately 315 tribes. It maintains approximately 1,400 accounts for Tribal and Other Special 

Trust Funds (including the Alaska Native Escrow Fund). 
126 NOTES TO THE FINANCIAL STATEMENTS

The balances that have accumulated in the Tribal and Other Special Trust Funds have resulted from judgment 

awards, settlements of claims, land use agreements, royalties on natural resource depletion, and other proceeds 

derived directly from trust resources and investment income.

The trust fund balances included in the Trust Funds Held for Indian Tribes and Other Special Trust Fund 

contain two categories: the trust funds held for Indian tribes (considered non-Federal funds) and the trust funds held 

by DOI for future transfer to a tribe upon satisfaction of certain conditions or where the corpus of the fund is nonexpendable (considered Federal funds).

The table below depicts only the trust funds held for Indian tribes, since the trust funds considered Federal 

funds are included in DOI’s financial statements.

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) 2002 2001

Receipts ................................................................................................ 434.7 536.1

Disbursements................................................................................................383.4 467.3

Receipts in excess of disbursements ................................................................51.3 68.8

Trust fund balances, beginning of year ................................................................ 2,805.0 2,736.2

Trust fund balances, end of year................................................................2,856.3 2,805.0

OST also maintains about 252,000 open Individual Indian Monies (IIM) accounts. The IIM fund is primarily a 

deposit fund for individuals who have a beneficial interest in the trust funds. The IIM account-holders realize 

receipts primarily from royalties on natural resource depletion, land use agreements, and enterprises have a direct 

relationship to trust fund resources and investment income. Funds related to the IIM Trust Fund are included in the 

following table.

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) 2002 2001

Receipts ................................................................................................ 191.3 225.9

Disbursements................................................................................................

184.1 221.7

Receipts in excess of disbursements ................................................................ 7.2 4.2

Trust fund balances, beginning of year ................................................................

404.1 399.9

Trust fund balances, end of year................................................................ 411.3 404.1

The amounts presented in the above two tables were prepared using a cash basis of accounting, which is a 

comprehensive basis of accounting other than GAAP. Receivables and payables are not recorded, and investments 
 NOTES TO THE FINANCIAL STATEMENTS 127 

premiums and discounts are not amortized in the Trust Funds Held for Indian Tribes and Other Special Trust Fund. 

Receipts are recorded when received and disbursements when paid, and investments are stated at historical cost. The 

only basis of accounting difference between the Trust Funds Held for Indian Tribes and Other Special Trust Fund 

and the IIM Trust Fund is that the latter records the receivables and payables related to accrued interest and 

dividends when earned, including amortization of investment discounts and premiums, and investments are stated at 

amortized cost. 

Note 21. Subsequent Event/Department of Homeland 

Security 

On March 1, 2003, the Department of Homeland Security (DHS) was created. This new Cabinet-level 

department merged 22 agencies and 170,000 employees. It is organized into four organizational divisions: Border 

and Transportation Security; Emergency Preparedness and Response; Chemical, Biological, Radiological and 

Nuclear Countermeasures; and Information Analysis and Infrastructure Protection. 

The mission of DHS is to: 

• Prevent terrorist attacks within the United States. 

• Reduce America’s vulnerability to terrorism. 

• Minimize the damage and recover from attacks that do occur. 

The mission of homeland security previously has been carried out by numerous Federal agencies protecting 

borders, securing infrastructure, regulating the flow of goods and people entering the country, and performing 

various other homeland security functions. DHS consolidates many of these vital functions into a single more 

efficient organization. 
128 NOTES TO THE FINANCIAL STATEMENTS 

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SUPPLEMENTAL INFORMATION (UNAUDITED) 129 

United States Government 

Supplemental Information for the Year 

Ended September 30, 2002 (Unaudited) 

Deferred Maintenance 

Deferred maintenance is the estimated cost to bring Government-owned property to an acceptable condition, 

resulting from not performing maintenance on a timely basis. Deferred maintenance excludes the cost of expanding 

the capacity of assets or upgrading them to serve needs different from those originally intended. The consequences 

of not performing regular maintenance could include increased safety hazards, poor service to the public, higher 

costs in the future, and inefficient operations. Estimated deferred maintenance costs are not accrued in the 

Statements of Net Cost or recognized as a liability on the Balance Sheets. 

The amounts disclosed for deferred maintenance on the table below have been measured using the following 

three methods: 

•	 Condition assessment surveys are periodic inspections of the Government-owned property to determine the 

current condition and estimated cost to bringthe property to an acceptable condition. 

•	 Life-cycle cost forecast is an acquisition or procurement technique that considers operation, maintenance, and 

other costs in addition to the acquisition cost of assets. 

• Management analysis method is founded on inflation-adjusted reductions in maintenance funding since the base 

year. 

Some deferred maintenance has been deemed critical. Such amounts and conditions are defined by the 

individual agencies with responsibility for the safekeeping of these assets. Low and high estimates are based on the 

materiality of the estimated cost of returning the asset to the acceptable condition versus the total value of the 

corresponding asset. 

Deferred Maintenance as of September 30 

Deferred Maintenance 

Cost Range 

Low 

Estimate 

High 

Estimate 

Critical 

Maintenance 

(In billions of dollars) 2002 2001 2002 2001 2002 2001 

Asset Category: 

General property, plant and equipment................................ 17.1 10.6 25.2 26.3 3.3 5.1 

Heritage assets ................................................................ 1.0 0.6 1.1 1.0 - -

National defense assets ................................................................ 1.2 1.1 1.2 1.2 - -

Total stewardship assets ................................................................ 2.2 1.7 2.3 2.2 - -

Total deferred maintenance ................................ 19.3 12.3 27.5 28.5 3.3 5.1 
130 SUPPLEMENTAL INFORMATION (UNAUDITED) 

Unexpended Budget Authority 

Unexpended budget authority is the sum of the unobligated and obligated, but unliquidated, budget authority. 

Unobligated budget authority, including trust fund balances, is the cumulative amount of budget authority that 

is not obligated and that remains available for obligation. In 1-year accounts, the unobligated balance is not available 

for new obligations after the end of the fiscal year. In multiyear accounts, the unobligated balance may be carried 

forward and remains available for obligation for the period specified. In no-year accounts, the unobligated balance is 

carried forward until specifically rescinded by law or until the purposes for which it was provided have been 

accomplished. The total unobligated budget authority amount balance for fiscal 2002 is $342.8 billion. 

Obligated budget authority is the cumulative amount of budget authority that has been obligated but not 

liquidated. This balance can be carried forward for a maximum of 5 years after the appropriation has expired. The 

total obligated budget authority amount balance for fiscal 2002 is $741.1 billion. 

Tax Burden 

The Internal Revenue Code provides for progressive rates of tax, whereby higher incomes are generally subject 

to higher rates of tax. The tables present the latest available information on income tax and related income, 

deductions and credit for individuals by income level and for corporations by size of assets. 

Individual Income Tax Returns for Tax Year 2000 

Size of Adjusted Gross Income 

Under 

$30,000 

$30,000 

under 

$75,000 

$75,000 

under 

$150,000 

Greater 

than 

$150,000 

Tax burden, percentage of gross 

income ............................................... 6% 11% 15% 25% 

Average tax per return ........................... $793 $5,301 $15,368 $110,320 

Percent of total deductions on taxable 

income ............................................... 30% 31% 20% 19% 

Percent of total credits against tax 

liability................................................ 22% 42% 17% 19% 

Corporation Income Tax Returns for Tax Year 1999 

Size of Total Assets 

Under 

$10 

million 

$10 million 

under 

$50 million 

$50 million 

under 

$250 million 

Greater 

than 

$250 million 

Tax burden, percentage of gross 

income ............................................... 0.37% 0.50% 0.10% 1.00% 

Average tax per return ........................... $3,561 $168,393 $759,184 $14,844,845 

Percent of total deductions on 

taxable income ................................ 26% 8% 7% 59% 

Percent of total credits against tax 

liability................................................ 4% 1% 2% 93% 
SUPPLEMENTAL INFORMATION (UNAUDITED) 131 

Other Claims for Refunds 

Management has estimated amounts that may be paid out as other claims for tax refunds. This estimate 

represents an amount (principal and interest) that may be paid for claims pending judicial review by the Federal 

courts or, internally, by appeals. The total estimated payout (including principal and interest) for cla ims pending 

judicial review by the Federal courts is $5.1 billion and $7.7 billion for fiscal 2002 and 2001, respectively. For those 

under appeal, the estimated payout is $8.4 billion and $13.6 billion for fiscal 2002 and 2001, respectively. Although 

these refund claims have been deemed to be probable, they do not meet the criteria in SFFAS No. 5 for reporting the 

amounts in the Balance Sheets or for disclosure in the Notes to the Financial Statements. However, they meet the 

criteria in SFFAS No. 7 for inclusion as supplemental information. To the extent judgments against the Government 

for these claims prompt other similarly situated taxpayers to file similar refund claims, these amounts could become 

significantly greater. 
132 SUPPLEMENTAL INFORMATION (UNAUDITED) 

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APPENDIX 133 

Appendix: List of Significant Government Entities 

Included and Excluded from the Financial Statements 

This Financial Report includes the executive branch with their corresponding departments and entities, the 

legislative and judicial branches, and other independent establishments and Government corporations. Excluded are 

privately owned Government-sponsored enterprises such as the Federal Home Loan Banks and the Federal National 

Mortgage Association. The Federal Reserve System is excluded because organizations and functions pertaining to 

monetary policy are traditionally separate from, and independent of, other central Government organizations and 

functions. 

Significant Entities Included in these Statements: 

Department of Agriculture (USDA) 

www.usda.gov 

Department of Commerce (DOC) 

www.doc.gov 

Department of Defense (DOD) 

www.defenselink.mil 

Department of Education (ED) 

www.ed.gov 

Department of Energy (DOE) 

www.energy.gov 

Department of Health and Human Services (HHS) 

www.hhs.gov 

Department of Housing and Urban Development (HUD) 

www.hud.gov 

Department of the Interior (DOI) 

www.doi.gov 

Department of Justice (DOJ) 

www.usdoj.gov 

Department of Labor (DOL) 

www.dol.gov 

Department of State (State) 

www.state.gov 

Department of the Air Force (Air Force) 

www.af.mil 

Department of the Army (Army) 

www.army.mil 

Army Corps of Engineers 

www.usace.army.mil 

Department of the Navy (Navy) 

www.navy.mil 

Department of Transportation (DOT) 

www.dot.gov 

Department of the Treasury (Treasury) 

www.ustreas.gov 

Department of Ve terans Affairs (VA) 

www.va.gov 

U.S. Agency for International Development (USAID) 

www.usaid.gov 

Commodity Credit Corporation (CCC) 

Commodity Futures Trading Commission (CFTC) 

www.cftc.gov 

Environmental Protection Agency (EPA) 

www.epa.gov 

Executive Office of the President 

Export-Import Bank of the United States (Ex-Im Bank) 

www.exim.gov 

Farm Credit Administration (FCA) 

www.fca.gov 

Federal Communications Commission (FCC) 

www.fcc.gov 

Federal Deposit Insurance Corporation (FDIC) 

www.fdic.gov 

Federal Emergency Management Agency (FEMA) 

www.fema.gov 

Federal Trade Commission (FTC) 

www.ftc.gov 

General Accounting Office (GAO) 

www.gao.gov 

General Services Administration (GSA) 

www.gsa.gov 

Government Printing Office (GPO) 

www.gpo.gov 

Library of Congress (LC) 

www.loc.gov 

National Aeronautics and Space Administration (NASA) 

www.nasa.gov 

National Archives and Records Administration (NARA) 

www.nara.gov 

National Credit Union Administration (NCUA) 

www.ncua.gov 

National Science Foundation (NSF) 

www.nsf.gov 

National Transportation Safety Board (NTSB) 

www.ntsb.gov 

Nuclear Regulatory Commission (NRC) 

www.nrc.gov 

Office of Management and Budget (OMB) 

www.whitehouse.gov/omb 
134 APPENDIX 

Entities Included, cont. 

Office of Personnel Management (OPM) 

www.opm.gov 

Pension Benefit Guaranty Corporation (PBGC) 

www.pbgc.gov 

Railroad Retirement Board (RRB) 

www.rrb.gov 

U.S. Securities and Exchange Commission (SEC) 

www.sec.gov 

Small Business Administration (SBA) 

www.sba.gov 

Smithsonian Institution 

www.si.edu 

Social Security Administration (SSA) 

www.ssa.gov 

Tennessee Valley Authority (TVA) 

www.tva.gov 

U.S. Postal Service (USPS) 

www.usps.gov 

Significant Entities Excluded from these Statements: 

Army and Air Force Exchange Service
 


Board of Governors of the Federal Reserve System 
 


(Including the Federal Reserve Banks) 

Federal National Mortgage Association (Fannie Mae) 

Farm Credit System 

Federal Home Loan Banks 

Federal Retirement Thrift Investment Board 

Financing Corporation 

Federal Home Loan Mortgage Corporation 

(Freddie Mac) 

Marine Corps Exchange 

Navy Exchange Service Command 

Resolution Funding Corporation 

U.S.A. Education Inc. (Sallie Mae) 

Thrift Savings Fund