U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 228

Independent Auditor’s Report

The President

The President of the Senate

The Speaker of the House of Representatives

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

ended September 30, 2021, and 2020, we found the following:

• Certain material weaknesses1in internal control over financial reporting and other limitations on the 

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

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

ended September 30, 2021, and 2020.2

• Significant uncertainties (discussed in Note 25, Social Insurance, to the consolidated financial 

statements), primarily related to the achievement of projected reductions in Medicare cost growth, 

prevented us from expressing an opinion on the sustainability financial statements,3 which consist of 

the 2021 and 2020 Statements of Long-Term Fiscal Projections;4the 2021, 2020, 2019, 2018, and 

2017 Statements of Social Insurance;5 and the 2021 and 2020 Statements of Changes in Social 

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

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

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

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

misstatements on a timely basis.

2The accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020, 

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

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

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

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

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

U.S. government for fiscal years 1997 through 2020.

3We have previously reported that significant uncertainties prevented us from expressing an opinion on the sustainability 

financial statements (Statements of Social Insurance for fiscal years 2010 through 2020 and Statements of Long-Term Fiscal 

Projections for fiscal years 2015 through 2020). The Statements of Social Insurance were first presented for fiscal year 2006 

and the Statements of Long-Term Fiscal Projections were first presented for fiscal year 2015.

4The 2021 and 2020 Statements of Long-Term Fiscal Projections present, for all the activities of the federal government, the 

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

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

spending from the prior year. These statements also present the fiscal gap, which shows the combination of noninterest 

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

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

Projections is September 30.

5The Statements of Social Insurance present the present value of revenue and expenditures for social benefit programs, 

primarily Social Security and Medicare. These statements are presented for the current year and each of the 4 preceding 

years as required by U.S. generally accepted accounting principles. For the Statements of Social Insurance, the valuation date 

is January 1 for the Social Security and Medicare programs, October 1 for the Railroad Retirement program, and September 

30 for the Black Lung program. 
229 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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

opinion on the 2021 and 2020 Statements of Long-Term Fiscal Projections.

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

2021.

• Material weaknesses and other scope limitations, discussed above, limited tests of compliance with 

selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year 

2021.

This audit report discusses the following in more detail.

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

emphasis of matters—the federal government’s response to the COVID-19 pandemic, long-term 

fiscal challenges, and equity investments in the Federal National Mortgage Association (Fannie 

Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac); (2) required 

supplementary information (RSI)6 and other information7included with the consolidated financial 

statements in the Fiscal Year 2021 Financial Report of the United States Government (2021 

Financial Report); and (3) information on Chief Financial Officers Act of 1990 (CFO Act) agency 

financial management systems.

• Our report on internal control over financial reporting. 

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

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

comments on a draft of this audit report.

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

Report on the Consolidated Financial Statements

The Secretary of the Treasury, in coordination with the Director of OMB, is required to annually submit 

audited financial statements for the U.S. government to the President and Congress. GAO is required 

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

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

2021, and 2020, and the sustainability financial statements, consisting of the 2021 and 2020 

Statements of Long-Term Fiscal Projections; the 2021, 2020, 2019, 2018, and 2017 Statements of 

Social Insurance; the 2021 and 2020 Statements of Changes in Social Insurance Amounts; and the 

related notes to the financial statements. 

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

section of the Fiscal Year 2021 Financial Report of the United States Government. 

7Other information consists of information in the Fiscal Year 2021 Financial Report of the United States Government other 

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

States.

8The Government Management Reform Act of 1994 has required such reporting, covering the executive branch of 

government, beginning with financial statements prepared for fiscal year 1997. 31 U.S.C. § 331(e). The consolidated financial 

statements include the legislative and judicial branches.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 230

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

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

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

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

Management’s Responsibility

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

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

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

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

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

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

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

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

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

Auditor’s Responsibility

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

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

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

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

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

statements.

Basis for Disclaimers of Opinion on the Consolidated Financial Statements

Accrual-Based Consolidated Financial Statements 

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

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

September 30, 2021, and 2020, principally because of limitations related to certain material 

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

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

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

statements and related notes may not be reliable.

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

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

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

9Such limitations include the following: (1) The Department of Defense received a disclaimer of opinion on its fiscal years 2021 

and 2020 financial statements. (2) The Small Business Administration (SBA) received a disclaimer of opinion on its fiscal year 

2021 balance sheet and its remaining statements were unaudited. SBA also received a disclaimer of opinion on its fiscal year 

2020 financial statements. (3) The Department of Labor received a qualified opinion on its fiscal year 2021 financial 

statements but received an unmodified opinion on its fiscal year 2020 financial statements. (4) The fiscal year 2021 Schedules 

of the General Fund of the U.S. Government were not audited to allow Treasury sufficient time to continue to implement a

remediation plan to address the issues we reported as part of our disclaimer of opinion on the fiscal year 2020 Schedules of

the General Fund. Also, for fiscal years 2021 and 2020, the financial information for Security Assistance Accounts was 

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

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

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

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

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

consolidated financial statements; 

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

Small Business Administration (SBA);

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

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

complete and properly reported; 

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

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

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

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

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

generally accepted accounting principles; and 

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

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

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

financial statements and other financial data.

These material weaknesses continued to (1) hamper the federal government’s ability to reliably report a 

significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal 

government’s ability to reliably measure the full cost, as well as the financial and nonfinancial 

performance, of certain programs and activities; (3) impair the federal government’s ability to 

adequately safeguard significant assets and properly record various transactions; and (4) hinder the 

federal government from having reliable, useful, and timely financial information to operate effectively 

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

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

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

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

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

federal government operations.

In addition, the federal government did not adequately account for and report on the Special Financial 

Assistance Program for Financially Troubled Multiemployer Plans (SFA program) established by the 

American Rescue Plan Act of 2021 (ARPA).10 ARPA established the SFA program to provide payments 

to eligible multiemployer pension plans to enable them to pay benefits at plan levels through 2051. 

10ARPA, Pub. L. No. 117-2, § 9704, 135 Stat. 4, 190-99 (Mar. 11, 2021), classified at 29 U.S.C. §§ 1305(i), 1432.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 232

Plans are not required to repay amounts received from the SFA program, which is funded by 

appropriations from the General Fund of the U.S. Government.11

Total cost of payments to eligible multiemployer pension plans under the SFA program is estimated to 

range from $66 billion to $147 billion, with an estimated mean of $97 billion.12 Fiscal year 2021 liabilities 

and net costs were reduced by about $60 billion, representing Pension Benefit Guaranty Corporation’s 

previously recorded multiemployer plan liability related to those plans expected to be eligible to receive 

SFA program payments. However, while the cost and liability reduction assumed that the SFA program 

payments would be made, the federal government did not recognize the increase in liabilities and costs 

related to the estimated SFA program payments to those plans. 

Sustainability Financial Statements

Significant uncertainties (discussed in Note 25, Social Insurance, to the consolidated financial 

statements), which primarily relate to the achievement of projected reductions in Medicare cost growth, 

affect the sustainability financial statements. In addition, the material weakness related to the 

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

Balance from Budget and Other Activities hampers the federal government’s ability to demonstrate the 

reliability of historical budget information used for certain key inputs to the 2021 and 2020 Statements 

of Long-Term Fiscal Projections. As a result of these significant uncertainties and this material 

weakness, readers are cautioned that amounts reported in the 2021 and 2020 Statements of LongTerm Fiscal Projections; the 2021, 2020, 2019, 2018, and 2017 Statements of Social Insurance; the 

2021 and 2020 Statements of Changes in Social Insurance Amounts; and the related notes to these 

financial statements may not fairly present, in all material respects, the sustainability information for 

those years in accordance with U.S. generally accepted accounting principles.

These significant uncertainties primarily relate to the following:

• Medicare projections in the 2021 and 2020 Statements of Long-Term Fiscal Projections and the 

2021, 2020, 2019, 2018, and 2017 Statements of Social Insurance were based on benefit formulas 

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

productivity improvements for most categories of Medicare providers,13 based on full implementation 

of the provisions of the Patient Protection and Affordable Care Act, as amended (PPACA),14 and 

11The General Fund is a component of Treasury’s central accounting function. It is a stand-alone reporting entity that 

comprises the activities fundamental to funding the federal government (e.g., issued budget authority, cash activity, and debt 

financing activities).

12See Pension Benefit Guaranty Corporation (PBGC), FY 2020 Projections Report (Sept. 2021), accessed on Feb. 9, 2022, 

https://www.pbgc.gov/documents/fy-2020-projections-report. As discussed therein, these estimates are based on provisions of 

PBGC’s interim final rule (86 Fed. Reg. 36,598) published in July 2021, and may change once the final rule is issued. 

13Under the Patient Protection and Affordable Care Act’s productivity adjustment provisions, productivity improvements are 

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

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

provider categories affected include inpatient/outpatient hospital services, skilled nursing facilities, home health care, 

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

14PPACA, Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation 

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

amendments made by the Health Care and Education Reconciliation Act of 2010.
233 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

physician payment updates specified by the Medicare Access and CHIP Reauthorization Act of 

2015 (MACRA).15

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

the projections under current law presented in the 2021, 2020, 2019, 2018, and 2017 Statements of 

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

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

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

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

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

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

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

significant uncertainties concerning the achievement of these projected reductions in Medicare 

payment rate updates.

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

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

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

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

illustrative alternative projection in Note 25, Social Insurance, exceeds the $48.2 trillion estimate in 

the 2021 Statement of Social Insurance by $9.9 trillion. 

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

cost growth also affect the projected Medicare and Medicaid costs reported in the 2021 and 2020 

Statements of Long-Term Fiscal Projections.

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

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

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

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

projections.16 Key drivers of uncertainty about the excess cost growth rate include the future 

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

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

As discussed in the RSI section of the 2021 Financial Report, the projections are very sensitive to 

changes in the health care cost growth assumption.

As discussed in Notes 25, Social Insurance, and 26, Long-Term Fiscal Projections, to the consolidated 

financial statements, the sustainability financial statements are based on management’s assumptions. 

These sustainability financial statements present the present value of the U.S. government’s estimated 

future receipts and future spending using a projection period sufficient to illustrate long-term 

sustainability.17 The sustainability financial statements are intended to aid users in assessing whether 

15MACRA, Pub. L. No. 114-10, title I, § 101, 129 Stat. 87, 89 (Apr. 16, 2015). MACRA included many provisions that affect 

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

reimbursement payment rates to physicians and certain nonphysician medical providers, and established an alternative set of 

annual updates.

16The excess cost growth rate is the increase in health care spending per person relative to the growth of GDP per person 

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

17The projection period used for the Social Security, Medicare, and Railroad Retirement social insurance programs is 75 years. 

The projection period used for the Black Lung program is 25 years.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 234

future resources will likely be sufficient to sustain public services and to meet obligations as they come 

due. 

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

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

the 2021 Financial Report, current policy is based on current law but includes several adjustments. In 

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

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

statutory limit on federal debt; 

• continued discretionary appropriations are assumed throughout the projection period; 

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

projected point of trust fund depletion; and

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

are assumed to be reauthorized.

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

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

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

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

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

consequences. The RSI section of the 2021 Financial Report includes unaudited information on how 

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

Statements of Social Insurance. The projections in the sustainability financial statements are not 

forecasts or predictions. 

The 2021 sustainability financial statements are based on the economic assumptions that underlie the 

2021 Social Security Trustees’ Report. Those assumptions include the Trustees’ best estimates of the 

effects of the COVID-19 pandemic and the 2020 recession, which were not reflected in the 2020 

projections. Further, the projections included in the Statements of Long-Term Fiscal Projections were 

adjusted, where possible, for the effects of the COVID-19 pandemic and economic recovery spending 

that are judged to be temporary. Budget totals that cannot be adjusted result in higher projections of 

future spending. Consequently, there is an unusually large degree of uncertainty about the impact of 

the COVID-19 pandemic and economic recovery spending on the projections. 

As discussed in the unaudited RSI section of the 2021 Financial Report, the combined Social Security 

trust funds are projected to be depleted in 2034.18 Further, based on the achievement of the cost 

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

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

scheduled future benefits. For Social Security, future revenues were projected to be sufficient to pay 78 

percent of scheduled benefits in 2034, the year of projected trust funds (combined) depletion, and 

decreasing to 74 percent of scheduled benefits in 2095. For Medicare Hospital Insurance (Part A), 

future revenues were projected to be sufficient to pay 91 percent of scheduled benefits in 2026, the 

18The projected depletion date for the combined Social Security trust funds is hypothetical and often used for simplicity to 

illustrate the solvency of the Social Security program by combining the separate Federal Old-Age and Survivors Insurance 

trust fund and the Federal Disability Insurance trust fund. For the Federal Old-Age and Survivors Insurance trust fund, future 

revenues were projected to be sufficient to pay 76 percent of scheduled benefits in 2033, the year of projected trust fund 

depletion, decreasing to 72 percent in 2095. For the Federal Disability Insurance trust fund, future revenues were projected to 

be sufficient to pay 91 percent of scheduled benefits in 2057, the year of projected trust fund depletion, increasing to 92 

percent in 2095.
235 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

year of projected trust fund depletion, declining to 78 percent by 2045, and then increasing to 91 

percent of scheduled benefits in 2095.

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

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

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

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

Other Limitations on the Scope of Our Work

For fiscal years 2021 and 2020, there were other limitations on the scope of our work, in addition to the 

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

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

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

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

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

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

fiscal years 2021 and 2020, primarily because certain federal entities provided them insufficient or no 

representations.

Disclaimers of Opinion on the Consolidated Financial Statements

Accrual-Based Consolidated Financial Statements 

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

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

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

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

statements as of and for the fiscal years ended September 30, 2021, and 2020.

Sustainability Financial Statements

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

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

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

2021 and 2020; the Statements of Social Insurance for 2021, 2020, 2019, 2018, and 2017; and the 

Statements of Changes in Social Insurance Amounts for 2021 and 2020. Accordingly, we do not 

express an opinion on these sustainability financial statements.

Emphasis of Matters

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

statements and the Management’s Discussion and Analysis section of the 2021 Financial Report into 

context. Our disclaimers of opinion noted above are not modified with respect to these matters.

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

The federal government took unprecedented actions in response to the COVID-19 pandemic to protect 

public health and reduce economic impacts on individuals and businesses during fiscal years 2021 and 

2020. These ongoing efforts are reflected in the net cost, assets, liabilities, and budget deficit reported 

in the U.S. government’s consolidated financial statements for fiscal years 2021 and 2020. 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 236

The federal government’s response to the COVID-19 pandemic includes net costs for fiscal years 2021 

and 2020 related to small business loan guarantees of $297 billion (2021) and $527 billion (2020), 

primarily for the Paycheck Protection Program (PPP); economic impact payments and recovery rebate 

credits of $570 billion (2021) and economic impact payments of $275 billion (2020); and Department of 

Labor program costs of $313 billion (2021) and $352 billion (2020), primarily related to unemployment 

benefits. 

Significant assets and liabilities as of September 30, 2021, and 2020, resulting from the federal 

government’s response to the COVID-19 pandemic include 

• advances of $254 billion (2021) and $173 billion (2020), primarily as a result of aid to state, local,

territorial, and tribal governments and Medicare providers; 

• loans under the Economic Injury Disaster Loan (EIDL) program, representing almost all of the $244 

billion (2021) and $181 billion (2020) in net disaster loans;

• equity investments in special purpose vehicles of $26 billion (2021) and $108 billion (2020), which 

the Federal Reserve established during fiscal year 2020 to enhance the liquidity of the U.S. 

financial system;19

• cash and other monetary assets of $1,927 billion (2020) resulting from the Department of the 

Treasury maintaining an elevated cash balance to maintain prudent liquidity in light of the size and 

relative uncertainty of COVID-19 pandemic–related outflow;20 and

• loan guarantee liabilities of $231 billion (2021) and $520 billion (2020), primarily related to the 

PPP.21

COVID-19 pandemic–related budget expenditures totaled $1.8 trillion in fiscal year 2021 and $1.6 

trillion in fiscal year 2020, increasing the budget deficit. During fiscal year 2020, primarily due to a 

budget deficit of $3.1 trillion and an increase in cash and other monetary assets, debt held by the public 

increased by $4.2 trillion to $21.0 trillion. During fiscal year 2021, primarily due to a budget deficit of 

$2.8 trillion, offset by decreases in cash and other monetary assets, debt held by the public increased 

by $1.3 trillion to $22.3 trillion.

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

statements are discussed throughout the 2021 Financial Report and summarized in Note 30 to the 

consolidated financial statements. The ultimate cost of these actions and any future actions in response 

to the pandemic and their impact on the federal government’s financial condition will not be fully known 

for some time.

Long-Term Fiscal Challenges

The 2021 Statement of Long-Term Fiscal Projections and related information in Note 26, Long-Term 

Fiscal Projections, to the consolidated financial statements and in the unaudited RSI section of the 

2021 Financial Report show that based on current revenue and spending policies, the federal 

19As discussed in Note 8, Investments in Special Purpose Securities, to the consolidated financial statements, equity 

investments in special purpose vehicles decreased to $26 billion in fiscal year 2021 from $108 billion in fiscal year 2020 

primarily because the Department of the Treasury and the Federal Reserve amended several of the special purpose vehicle 

agreements and the Federal Reserve returned equity investments to Treasury. 

20As discussed in Note 2, Cash and Other Monetary Assets, to the consolidated financial statements, cash and other monetary 

assets decreased in fiscal year 2021 because Treasury reduced the cash balance in fiscal year 2021 to well under its prudent 

policy level because of debt limit constraints. 

21The change from fiscal year 2020 to fiscal year 2021 is primarily due to new guarantees of $304 billion, offset by loan 

forgiveness payments to lenders of $558 billion.
237 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

government continues to face an unsustainable long-term fiscal path. At the end of fiscal years 2021 

and 2020, debt held by the public was approximately 100 percent of gross domestic product (GDP), up 

from approximately 79 percent at the end of fiscal year 2019. The projections show that debt held by 

the public will reach its historical high of 106 percent of GDP in 2024 and will grow faster than the 

economy over the long term. For the 2021 projections, debt held by the public as a share of GDP (debtto-GDP) at the end of the 75-year projection period is projected to be 701 percent. Annual budget 

deficits are projected to continue throughout the 75-year projection period. Over the long term, the 

imbalance between spending and revenue that is built into current policy and law is projected to lead to 

continued growth of debt-to-GDP. This situation—in which debt held by the public grows faster than 

GDP—means that the federal government’s long-term fiscal path is unsustainable. 

Under the 2021 Financial Report projections, spending for the major health and retirement programs 

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

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

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

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

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

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

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

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

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

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

than assumed in the projections. 

In addition, based on the 2021 Financial Report projections, spending on net interest (primarily interest 

on debt held by the public) will surpass Social Security spending and become the largest category of 

spending in 2034. Net interest is projected to increase from 1.6 percent of GDP in fiscal year 2021 to 

6.0 percent of GDP in fiscal year 2034 (about 20 percent of 2034 projected total spending), and to 31.7 

percent of GDP in fiscal year 2096 (about 56 percent of 2096 projected total spending).

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

rising in the long term.22 GAO, CBO, and the 2021 Financial Report all project that debt-to-GDP will 

surpass its historical high (106 percent in 1946) in the next 10 years. Each of these long-term 

projections uses somewhat different assumptions, but their overall conclusions are the same: based on 

current revenue and spending policies, the federal government’s fiscal path is unsustainable.

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

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

exposures, place additional pressure on the federal budget. They result in responsibilities, programs, 

and activities that may legally commit or create expectations for future federal spending based on

current policy, past practices, or other factors. A more complete understanding of fiscal exposures can 

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

resources. 

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

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

22For more information on GAO’s simulations, see GAO, America’s Fiscal Future, accessed on Feb. 9, 2022, 

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

The 2021 Long-Term Budget Outlook (Washington, D.C.: Mar. 4, 2021). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 238

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

are driven primarily by rising health care costs and known demographic trends. 

The 2021 Financial Report also discusses the fiscal gap, which is a measure of how much primary 

deficits must be reduced through policy changes (some combination of revenue increases or spending 

cuts) over the next 75 years in order to make fiscal policy sustainable.23 For example, based on 

projections in the 2021 Financial Report, if policymakers choose to achieve a debt-to-GDP target of 100 

percent—the level the federal government reached at the end of fiscal years 2020 and 2021—over a 

75-year period (fiscal years 2022 to 2096), they would need to make policy changes that increase 

projected revenues by 32 percent, reduce projected noninterest spending by 25 percent, or a 

combination of the two, over this period. The projections show that the longer such policy changes are 

delayed, the more significant the changes will need to be.

Equity Investments in Fannie Mae and Freddie Mac

As discussed in Notes 9, Investments in Government-Sponsored Enterprises, and 21, Commitments, to 

the consolidated financial statements, in 2008, during the financial crisis, the federal government placed 

Fannie Mae and Freddie Mac under conservatorship and entered into preferred stock purchase 

agreements with these government-sponsored enterprises (GSE) to help ensure their financial stability. 

The agreements with the GSEs could affect the federal government’s financial condition. As of 

September 30, 2021, the federal government reported about $221 billion of investments in the GSEs, 

which is net of about $38 billion in valuation losses. The reported maximum remaining contractual 

commitment to the GSEs, if needed, is $254.1 billion.

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

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

consolidated financial statements. However, as discussed in Note 1, Summary of Significant 

Accounting Policies, to the consolidated financial statements, there are many factors affecting these 

assumptions and estimates that are inherently subject to substantial uncertainty arising from the 

uniqueness of the transactions and the likelihood of future changes in general economic, regulatory, 

and market conditions. As such, there will be differences between the estimated values as of 

September 30, 2021, and the actual results, and such differences may be material. 

Also, as discussed in Note 1, Summary of Significant Accounting Policies, to the consolidated financial 

statements, the assets, liabilities, and results of operations of Fannie Mae and Freddie Mac are not 

consolidated into the federal government’s consolidated financial statements. Treasury and OMB have 

determined that these entities do not meet the criteria for consolidation.24 The ultimate role of the GSEs 

could affect the federal government’s financial condition and the financial condition of certain federal 

entities, including the Federal Housing Administration (FHA), which in the past expanded its lending 

role in distressed housing and mortgage markets. In addition, as discussed in Note 22, Contingencies, 

to the consolidated financial statements, the Government National Mortgage Association (Ginnie Mae) 

guarantees the performance of about $2.1 trillion in securities backed by federally insured mortgages—

$1.1 trillion of which were insured by FHA and $1 trillion by other federal entities, such as the 

Department of Veterans Affairs.

23The primary deficit is the difference between noninterest spending and receipts.

24For additional information on the GSE preferred stock purchase agreements and valuation of the investment in the GSEs, 

see Note 9, Investments in Government-Sponsored Enterprises, to the consolidated financial statements. For additional 

information on the criteria used to determine which federal entities are included in the reporting entity for the consolidated 

financial statements, as well as the reasons for not including certain entities, such as Fannie Mae and Freddie Mac, see app.

A of the 2021 Financial Report. 
239 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Other Matters

Required Supplementary Information

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

Board (FASAB) require that the RSI be presented in the 2021 Financial Report to supplement the 

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

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

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

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

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

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

Other Information

Other information included in the 2021 Financial Report contains a wide range of information, some of 

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

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

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

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

do not express an opinion or provide any assurance on the other information in the 2021 Financial 

Report.

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

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

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

financial statements and the sustainability financial statements.

CFO Act Agency Financial Management Systems

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

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

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

agencies and Congress.25 The Federal Financial Management Improvement Act of 1996 (FFMIA) was 

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

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

and increase accountability throughout the year. 

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

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

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

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

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

Ledger at the transaction level. 

For fiscal years 2021 and 2020, auditors of nine of the 24 CFO Act agencies reported that the agencies’ 

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

25The Federal Financial Management Improvement Act of 1996, which is reprinted in 31 U.S.C. § 3512 note, defines “financial 

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

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

support personnel dedicated to the operation and maintenance of system functions.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 240

requirements. Agency management at the 24 CFO Act agencies also annually report on FFMIA 

compliance. For fiscal years 2021 and 2020, agency management of eight (2021) and seven (2020) of 

the 24 CFO Act agencies reported that their agencies’ financial management systems did not comply 

substantially with one or more of the three FFMIA requirements. Based on agency financial reports, 

differences in the assessments of substantial compliance between the auditors and agency 

management reflect differences in management’s and auditors’ views regarding the effect of reported 

deficiencies on agency financial management systems. 

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

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

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

other limitations discussed in this audit report.

Report on Internal Control over Financial Reporting

Management’s Responsibility

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

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

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

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

reporting, based on criteria established under the Federal Managers’ Financial Integrity Act (FMFIA).26

Auditor’s Responsibility

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

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

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

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

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

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

relevant to preparing performance information and ensuring efficient operations. 

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

financial reporting for fiscal year 2021 that come to our attention as a result of our audit.27 Based on the 

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

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

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

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

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

standards.

Definitions and Inherent Limitations of Internal Control over Financial Reporting

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

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

2631 U.S.C. § 3512(c), (d) (commonly referred to as FMFIA). This act requires executive agency heads to evaluate and report 

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

actions to correct significant problems. 

27A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less 

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

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

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

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

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

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

could have a material effect on the financial statements.

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

and correct, misstatements due to fraud or error.

Material Weaknesses Resulted in Ineffective Internal Control over Financial Reporting 

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

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

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

detected and corrected, on a timely basis. 

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

discussed previously, we found two other continuing material weaknesses in internal control, related to 

the federal government’s inability to 

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

actions are taken to reduce them and 

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

on an ongoing basis.

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

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

management of federal government operations.

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

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

• taxes receivable,

• federal grants management, and 

• Medicare social insurance information.

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

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

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

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

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

statements.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 242

Intended Purpose of Report on Internal Control over Financial Reporting

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

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

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

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

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

financial reporting is not suitable for any other purpose.

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

Management’s Responsibility

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

laws, regulations, contracts, and grant agreements. 

Auditor’s Responsibility

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

with regard to the accompanying U.S. government’s consolidated financial statements.

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

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

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

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

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

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

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

laws, regulations, contracts, and grant agreements is not suitable for any other purpose.
243 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Agency Comments

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

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

continuing commitment to addressing the problems this report outlines.

Robert F. Dacey

Chief Accountant

U.S. Government Accountability Office

February 9, 2022
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 244

Appendix I

Objectives, Scope, and Methodology

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

consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020, 

and (2) sustainability financial statements, which consist of the 2021 and 2020 Statements of LongTerm Fiscal Projections; the 2021, 2020, 2019, 2018, and 2017 Statements of Social Insurance; and 

the 2021 and 2020 Statements of Changes in Social Insurance Amounts. Our objectives also included 

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

applicable laws, regulations, contracts, and grant agreements. 

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

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

responsible for annual audits of agency-wide financial statements that these agencies prepare.28

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

statements.29 The Accountability of Tax Dollars Act of 2002 requires most other executive branch 

entities to prepare financial statements annually and have them audited.30 The Office of Management 

and Budget (OMB) and the Department of the Treasury have identified 40 federal entities that are 

significant to the U.S. government’s fiscal year 2021 consolidated financial statements, including the 24 

CFO Act agencies.31 We consider these 40 entities to be significant component entities for purposes of 

our audit of the consolidated financial statements.

For the significant component entities audited by inspectors general or independent public accountants, 

we performed our work in coordination and cooperation with them to achieve our respective audit 

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

focused on determining the current status of the material weaknesses that contributed to our disclaimer 

of opinion on the accrual-based consolidated financial statements and the other material weaknesses 

affecting internal control that we reported in our report on the consolidated financial statements for 

fiscal year 2020.32 We also separately audited the financial statements of certain component entities, 

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

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

statements as of and for the fiscal years ended September 30, 2021, and 2020.33 In fiscal years 

2021 and 2020, IRS collected about $4.1 trillion (2021) and $3.5 trillion (2020) in tax payments and 

paid about $1.1 trillion (2021) and $736 billion (2020) in refunds and other payments to taxpayers. 

For fiscal year 2021, we also reported that although internal controls could be improved, IRS 

maintained, in all material respects, effective internal control over financial reporting. In addition, we 

reported that we found no reportable noncompliance for fiscal year 2021 with provisions of 

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

2831 U.S.C. § 3521(e). GMRA authorized the Office of Management and Budget to designate agency components that also 

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

2931 U.S.C. § 331(e)(2). 

3031 U.S.C. § 3515.

31See app. A of the Fiscal Year 2021 Financial Report of the United States Government for a list of the 40 entities.

32GAO, Financial Audit: FY 2020 and FY 2019 Consolidated Financial Statements of the U.S. Government, GAO-21-340R

(Washington, D.C.: Mar. 25, 2021). 

33GAO, Financial Audit: IRS’s FY 2021 and FY 2020 Financial Statements, GAO-22-104649 (Washington, D.C.: Nov. 10, 

2021). 
245 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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

Treasury’s Bureau of the Fiscal Service for the fiscal years ended September 30, 2021, and 2020.34

For these 2 fiscal years, the schedules reported (1) about $22.3 trillion (2021) and $21.0 trillion 

(2020) of federal debt held by the public,35 (2) about $6.1 trillion (2021) and $5.9 trillion (2020) of 

intragovernmental debt holdings,36 and (3) about $392 billion (2021) and $371 billion (2020) of 

interest on federal debt held by the public. We also reported that although internal controls could be 

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

reporting relevant to the Schedule of Federal Debt as of September 30, 2021. In addition, we 

reported that we found no reportable noncompliance for fiscal year 2021 with provisions of 

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

Federal Debt.

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

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

fiscal years ended September 30, 2021, and 2020.37 We also reported that SEC maintained, in all 

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

IPF as of September 30, 2021. In addition, we reported that we found no reportable noncompliance 

for either SEC or IPF for fiscal year 2021 with provisions of applicable laws, regulations, contracts, 

and grant agreements we tested. 

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

(FHFA) financial statements as of and for the fiscal years ended September 30, 2021, and 2020.38

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

financial reporting as of September 30, 2021. In addition, we reported that we found no reportable 

noncompliance for fiscal year 2021 with provisions of applicable laws, regulations, contracts, and 

grant agreements we tested.

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

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

ended September 30, 2021, and 2020.39 We also reported that OFS maintained, in all material 

respects, effective internal control over financial reporting for TARP as of September 30, 2021. In 

addition, we reported that we found no reportable noncompliance for fiscal year 2021 with 

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

34GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2021 and FY 2020 Schedules of Federal Debt, GAO-22-104592

(Washington, D.C.: Nov. 9, 2021). 

35Debt held by the public on the Schedules of Federal Debt represents federal debt that Treasury issued and that is held by 

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

Reserve, and foreign governments.

36Intragovernmental debt holdings represent federal debt that Treasury owes to federal government accounts, primarily federal 

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

37GAO, Financial Audit: Securities and Exchange Commission’s FY 2021 and FY 2020 Financial Statements, GAO-22-104738

(Washington, D.C.: Nov. 15, 2021).

38GAO, Financial Audit: Federal Housing Finance Agency’s FY 2021 and FY 2020 Financial Statements, GAO-22-105109

(Washington, D.C.: Nov. 15, 2021). 

39GAO, Financial Audit: Office of Financial Stability’s (Troubled Asset Relief Program) FY 2021 and FY 2020 Financial 

Statements, GAO-22-105173 (Washington, D.C.: Nov. 10, 2021). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 246

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

Protection’s (CFPB)40 financial statements as of and for the fiscal years ended September 30, 2021, 

and 2020.41 We also reported that CFPB maintained, in all material respects, effective internal 

control over financial reporting as of September 30, 2021. In addition, we reported that we found no 

reportable noncompliance for fiscal year 2021 with provisions of applicable laws, regulations, 

contracts, and grant agreements we tested. 

• We audited and expressed a disclaimer of opinion on the Schedules of the General Fund of the 

U.S. Government42 as of and for the fiscal year ended September 30, 2020.43 Underlying scope 

limitations, which were the basis for our disclaimer of opinion on the Schedules of the General 

Fund, related to readily (1) identifying and tracing General Fund transactions to determine whether 

they were complete and properly recorded in the correct general ledger accounts and line items 

within the Schedules of the General Fund and (2) providing documentation to support the account 

attributes assigned to Treasury Account Symbols that determine how transactions are reported in 

the Schedules of the General Fund.44 The Schedules of the General Fund as of and for the fiscal 

year ended September 30, 2021, were not audited to allow Treasury sufficient time to develop and 

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

year 2020 Schedules of the General Fund.

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

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

Government.

We considered the significant entities’ fiscal years 2021 and 2020 financial statements and the related 

auditors’ reports that the inspectors general or independent public accountants prepared. We did not 

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

We considered the disclaimers of opinion that the Department of Defense (DOD) Office of Inspector 

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

ended September 30, 2021, and 2020.45 The disclaimers of opinion were partially based on the 

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

Corps, Defense Health Program, Defense Information Systems Agency, Defense Logistics Agency, 

U.S. Special Operations Command, and U.S. Transportation Command. DOD OIG also reported 

material weaknesses in internal control over financial reporting (28 in fiscal year 2021 and 26 in fiscal 

year 2020), including those related to (1) property, plant, and equipment; (2) inventory and related 

40The Bureau of Consumer Financial Protection, which was established by the Dodd-Frank Wall Street Reform and Consumer 

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

is often referred to as the Consumer Financial Protection Bureau.

41GAO, Financial Audit: Consumer Financial Protection Bureau’s FY 2021 and FY 2020 Financial Statements, GAO-22-

105067 (Washington, D.C.: Nov. 15, 2021). 

42The General Fund is a component of Treasury’s central accounting function. It is a stand-alone reporting entity that 

comprises the activities fundamental to funding the federal government (e.g., issued budget authority, cash activity, and debt 

financing activities). 

43GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2020 Schedules of the General Fund, GAO-21-362 (Washington, 

D.C.: Apr 15, 2021).

44A Treasury Account Symbol is a unique identifier associated with a federal entity’s individual appropriation, receipt, or other 

fund account that Treasury assigns in collaboration with OMB.

45Department of Defense, United States Department of Defense Agency Financial Report for Fiscal Year 2020 (Arlington, Va.: 

Nov. 15, 2021).
247 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

property; (3) environmental and disposal liabilities; (4) reconciliations of disbursement activity; (5) 

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

We considered the disclaimers of opinion that the Small Business Administration’s (SBA) auditor issued 

on SBA’s balance sheet as of September 30, 2021 (its remaining statements were unaudited), and 

SBA’s financial statements as of and for the fiscal year ended September 30, 2020.46 The disclaimers 

of opinion were based on SBA’s inability to provide adequate evidential matter in support of a 

significant number of transactions and account balances related to COVID-19 relief programs, such as 

the Paycheck Protection Program and the expanded Economic Injury Disaster Loan program, because 

of inadequate processes and controls. SBA’s auditor also reported material weaknesses in internal 

control over financial reporting (five in fiscal year 2021 and seven in fiscal year 2020), largely pertaining 

to these programs.

Our audit approach for the 2021 and 2020 Statements of Long-Term Fiscal Projections focused 

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

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

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

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

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

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

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

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

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

in Social Insurance Amounts,47 we considered the entity’s 2021, 2020, 2019, 2018, and 2017 

Statements of Social Insurance and the 2021 and 2020 Statements of Changes in Social Insurance 

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

accountants prepared. 

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

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

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

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

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

accepted government auditing standards. 

46Small Business Administration, Agency Financial Report for Fiscal Year 2021 (Washington, D.C.: Nov. 15, 2021).

47These entities are SSA, HHS, the Railroad Retirement Board, and the Department of Labor.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 248

Appendix II

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

Consolidated Financial Statements

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

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

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

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

operations.48 The federal government did not have sufficient appropriate evidence to support 

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

described below. 

Property, Plant, and Equipment and Inventories and Related Property 

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

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

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

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

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

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

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

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

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

or loss; (2) account for acquisitions and disposals of such assets and reliably report asset balances; (3) 

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

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

that use these assets.

Loans Receivable and Loan Guarantee Liabilities

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

COVID-19 pandemic response, reported internal control deficiencies related to SBA’s implementation 

of provisions in the CARES Act and related COVID-19 relief laws. SBA’s auditor reported several 

material weaknesses in internal control related to the Paycheck Protection Program (PPP) and disaster 

loans under the Economic Injury Disaster Loan (EIDL) program. These weaknesses included control 

deficiencies in (1) approvals, reporting, review, forgiveness, and service provider oversight related to 

PPP and (2) eligibility, recording, and service provider oversight related to the EIDL program. In 

addition, the auditor reported that SBA did not properly design and implement effective entity-level 

controls to establish an internal control system that produces reliable and accurate financial reporting. 

These internal control deficiencies significantly increased the risks of misstatements, noncompliance, 

fraud, and improper payments.

In addition, internal control deficiencies related to loans receivable and loan guarantee liabilities 

continued to exist at several other federal entities. These deficiencies were associated with accounting 

and reporting for credit programs and the related financing activities, including estimating the cost of 

credit programs and determining the value of loans receivable and loan guarantee liabilities.

48The material weakness related to the Reconciliations of Budget Deficit to Net Operating Cost and Changes in Cash Balance 

also contributed to our disclaimer on the 2021 and 2020 Statements of Long-Term Fiscal Projections.
249 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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

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

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

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

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

Liabilities and Commitments and Contingencies 

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

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

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

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

liabilities included in federal employee and veteran benefits payable. These unsupported amounts 

relate to the cost of direct health care that DOD-managed military treatment facilities provided. In 

addition, auditors reported internal control deficiencies at several other federal entities that related to 

material liabilities. Further, the federal government could not determine whether commitments and 

contingencies, including any related to treaties and other international agreements entered into to 

further the federal government’s interests, were complete and properly reported. 

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

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

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

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

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

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

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

Cost of Government Operations and Disbursement Activity 

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

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

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

those related to DOD and SBA.

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

control deficiencies in reconciling disbursement activity. For fiscal years 2021 and 2020, inadequate 

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

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

adjustments, which could also affect the balance sheet.

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

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

Improperly recorded disbursements could result in misstatements in the financial statements and in 

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

(President’s Budget) concerning obligations and outlays. 

Intragovernmental Activity and Balances 

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

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

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

intragovernmental activity and balances in their entity financial statements. When preparing the 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 250

consolidated financial statements, intragovernmental activity and balances between federal entities 

should be in agreement and must be subtracted out, or eliminated, from the financial statements. If the 

two federal entities engaged in an intragovernmental transaction do not both record the same 

intragovernmental transaction in the same year and for the same amount, the intragovernmental 

transactions will not be in agreement, and if not properly resolved, would result in errors (i.e., 

differences or unmatched amounts) in the consolidated financial statements. 

The Office of Management and Budget (OMB) and Treasury have issued guidance directing 

component entities to reconcile intragovernmental activity and balances with their trading partners and 

resolve identified differences. In addition, the guidance directs the chief financial officers (CFO) of 

significant component entities to report to Treasury, their respective inspectors general, and GAO on 

the extent and results of their intragovernmental activity and balance reconciliation efforts as of the end 

of the fiscal year.

To support this process during fiscal year 2021, Treasury continued to provide information and 

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

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

addition, Treasury’s quarterly scorecard process49 highlights differences needing the entities’ attention, 

identifies differences that need to be resolved through a formal dispute resolution process,50 and 

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

identify and monitor systemic root causes of intragovernmental differences and related corrective action 

plans. As a result of these and other actions, a significant number of intragovernmental differences 

were identified and resolved. 

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

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

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

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

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

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

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

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

resulted in a risk of material misstatements. In addition, other material weaknesses reported by DOD’s 

auditor could contribute to this material weakness. 

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

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

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

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

Treasury’s and OMB’s continued strong leadership. 

49For each quarter, Treasury produces a scorecard for each significant entity, as well as any other component entity reporting 

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

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

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

50When an entity and its respective trading partner cannot resolve an intragovernmental difference, Treasury guidance directs 

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

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

Preparation of Consolidated Financial Statements

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

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

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

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

internal control deficiencies detailed in our previously issued management reports.51 However, the 

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

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

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

(U.S. GAAP). During our fiscal year 2021 audit, deficiencies in the preparation of the consolidated 

financial statements included the following.

• For fiscal year 2021, auditors reported internal control deficiencies at several component entities 

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

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

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

DOD and SBA reported material weaknesses in entity-level controls. 

• For fiscal year 2021, auditors reported internal control deficiencies at several component entities 

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

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

statements were consistent with underlying records. 

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

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

and balances. To make the fiscal years 2021 and 2020 consolidated financial statements balance, 

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

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

and balances primarily represent unresolved differences in intragovernmental activity and balances 

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

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

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

Specifically, for fiscal years 2021 and 2020, Treasury recorded a net $0.2 billion (2021) and $11.5 

billion (2020) of unmatched transactions and balances on the Statements of Operations and 

Changes in Net Position. Treasury recorded a net $1.7 billion (2021) and $3.1 billion (2020) of 

unmatched transactions and balances on the Balance Sheets as of September 30. Treasury 

recorded an additional net $1.5 billion (2021) and $1.8 billion (2020) of unmatched transactions in 

the Statements of Net Cost. Unresolved intragovernmental differences (i.e., unmatched 

transactions and balances) result in errors in the consolidated financial statements. The ultimate 

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

cannot be fully determined and could be material. 

51Most of the issues that we identified in fiscal year 2021 existed in fiscal year 2020, and many have existed for a number of 

years. Most recently, in August 2021, we reported on the status of the issues we identified to Treasury and OMB and provided 

recommendations for corrective action. See GAO, Management Report: Continued Improvements Needed in the Processes 

Used to Prepare the U.S. Consolidated Financial Statements, GAO-21-587 (Washington, D.C.: Aug. 12, 2021). 
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 252

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

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

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

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

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

which of these agreements may result in commitments or contingencies. 

However, Treasury’s reporting of certain financial information required by U.S. GAAP continues to 

be impaired. Because of certain control deficiencies noted in this audit report—for example, 

commitments and contingencies related to treaties and other international agreements—Treasury is 

precluded from determining if U.S. GAAP requires additional disclosure in the consolidated financial 

statements, which could be material. In addition, for fiscal year 2021, Treasury did not have 

adequate procedures to assess the impact of the Special Financial Assistance Program for 

Financially Troubled Multiemployer Plans (SFA program) established by the American Rescue Plan 

Act of 2021 (ARPA) on the accrual-based consolidated financial statements (see the basis for 

disclaimer of opinion section above).52 Further, Treasury’s ability to report information in accordance 

with U.S. GAAP will also remain impaired until federal entities can provide Treasury with the 

complete and reliable information required to be reported in the consolidated financial statements.

In fiscal year 2021, Treasury continued to take corrective actions intended to resolve internal control 

deficiencies in the processes used to prepare the consolidated financial statements. In addition, 

Treasury and OMB continued to enhance guidance for component entity financial reporting, including 

the implementation of a new balance sheet format that more directly links component-level information 

to the government-wide balance sheet.

However, until these deficiencies have been fully addressed, the federal government’s ability to 

reasonably assure that the consolidated financial statements are consistent with the underlying audited 

federal component entities’ financial statements, properly balanced, and in accordance with U.S. GAAP 

will be impaired. It is important that Treasury (1) continues to improve its systems and processes and 

(2) remains committed to maintaining the progress that has been made in this area and building on that 

progress to make needed improvements that fully address the magnitude of the financial reporting 

challenges it faces. Resolving the remaining internal control deficiencies continues to be a difficult 

challenge and will require a strong and sustained commitment from Treasury, OMB, and federal 

entities.

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

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

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

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

cash balances. The budget deficit is calculated by subtracting actual budget outlays (outlays) from 

actual budget receipts (receipts).53 The outlays and receipts are key inputs to the Statements of LongTerm Fiscal Projections.

52ARPA, Pub. L. No. 117-2, § 9704, 135 Stat. 4, 190-99 (Mar. 11, 2021), classified at 29 U.S.C. §§ 1305(i), 1432. ARPA 

established the SFA program to provide payments to eligible multiemployer pension plans to enable them to pay benefits at 

plan levels through 2051.

53The budget deficit, receipts, and outlays amounts, with minor adjustments, are reported in Treasury’s Monthly Treasury 

Statement and the President’s Budget.
253 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

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

Schedules of the General Fund of the U.S. Government provides information supporting the 

Statements of Changes in Cash Balance from Budget and Other Activities.54 However, as reported in 

our disclaimer of opinion on the fiscal year 2020 Schedules of the General Fund, Treasury was unable 

to readily provide sufficient appropriate evidence to support certain information reported in the 

Schedules of the General Fund.55 With regard to the Reconciliation Statements, such limitations 

primarily related to readily identifying and tracing transactions to determine whether they were complete 

and properly recorded in the Schedules of the General Fund. Specifically, certain amounts are netted 

and recorded at a summarized level thus preventing Treasury from readily obtaining the necessary 

details, at the transaction level, to support financial reporting for certain line items in the Statements of 

Changes in Cash Balance from Budget and Other Activities. 

During fiscal year 2021, Treasury continued to implement procedures and develop new transaction 

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

Treasury uses to compute the budget deficit reported in the Reconciliation Statements. Because of the 

nature and complexity of the issues identified, some of the control deficiencies are expected to be 

remediated over several years and will largely depend on federal agencies implementing and properly 

reporting activity using the new transaction codes. 

As of the end of fiscal year 2021, Treasury’s processes and procedures for preparing the Reconciliation 

Statements were not effective in (1) identifying and reporting all the items in the Reconciliation 

Statements, (2) properly supporting amounts used in calculating the budget deficit, and (3) reasonably 

assuring that the information in these statements was fully consistent with the underlying information in 

the significant component entities’ audited financial statements and other financial data. Consequently, 

there may be misstatements in the Reconciliation Statements.

In fiscal year 2021, as in prior years, we noted that several entities’ auditors reported internal control 

deficiencies related to monitoring, accounting, reconciliation, and reporting of budgetary transactions, 

including deficiencies related to federal entities’ budget and accrual reconciliations.56 These control 

deficiencies could affect the reporting and calculation of the net outlay amounts in the entities’ 

Statements of Budgetary Resources. In addition, such deficiencies may also affect the entities’ ability to 

report reliable budgetary information to Treasury and OMB and may affect the budget deficit reported in 

the Reconciliation Statements. Treasury also reports the budget deficit in its Combined Statement of 

Receipts, Outlays, and Balances and in other federal government publications.57

54The General Fund is a component of Treasury’s central accounting function. It is a stand-alone reporting entity that 

comprises the activities fundamental to funding the federal government (e.g., issued budget authority, cash activity, and debt 

financing activities).

55GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2020 Schedules of the General Fund, GAO-21-362 (Washington, 

D.C.: Apr. 15, 2021). The fiscal year 2021 Schedules of the General Fund were not audited to allow Treasury time to continue 

to implement a remediation plan to address the issues we reported as part of our disclaimer of opinion on the fiscal year 2020 

Schedules of the General Fund.

56Statement of Federal Financial Accounting Standards (SFFAS) 53, Budget and Accrual Reconciliation: Amending SFFAS 7, 

and 24, and Rescinding SFFAS 22, became effective for periods beginning after September 30, 2018, and provides for the 

budget and accrual reconciliation (BAR) to replace the statement of financing. The BAR explains the relationship between an 

entity’s net outlays on a budgetary basis and its net cost of operations during the period. 

57Treasury’s Combined Statement of Receipts, Outlays, and Balances presents budget results and cash-related assets and 

liabilities of the federal government with supporting details. According to Treasury, this report is the recognized official 

publication of receipts and outlays of the federal government based on entity reporting.
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 254

Appendix III

Other Material Weaknesses

Material weaknesses in internal control discussed in this audit report resulted in ineffective controls 

over financial reporting. In addition to the material weaknesses discussed in appendix II that contributed 

primarily to our disclaimer of opinion on the accrual-based consolidated financial statements, we found 

two other continuing material weaknesses in internal control. This appendix describes these 

weaknesses and highlights their primary effects on the accrual-based consolidated financial statements 

and on the management of federal government operations.

Improper Payments 

We have reported improper payments—payments that should not have been made or that were made 

in an incorrect amount—as a material deficiency or material weakness in internal control in our audit 

reports on the U.S. government’s consolidated financial statements since fiscal year 1997.58 The 

federal government is unable to determine the full extent to which improper payments occur and 

reasonably assure that appropriate actions are taken to reduce them. Reducing improper payments is 

critical to safeguarding federal funds. The Payment Integrity Information Act of 2019 (PIIA)59 requires 

federal executive agencies60 to do the following: 

1. Review all programs and activities. 

2. Identify those that may be susceptible to significant improper payments. 

3. Estimate the annual amount of improper payments for those programs and activities identified as 

susceptible to significant improper payments. 

4. Implement actions to reduce improper payments and set reduction targets with respect to the risksusceptible programs and activities. 

5. Report on the results of addressing the foregoing requirements.61

Sixteen agencies reported improper payment estimates totaling about $281 billion for fiscal year 2021, 

based on improper payment estimates reported individually by 86 federal programs or activities in 

www.paymentaccuracy.gov.62 Most of the estimate was concentrated in the following areas: 

Department of Health and Human Services’ (HHS) Medicaid ($99 billion); Department of Labor’s (DOL) 

58Under the Payment Integrity Information Act of 2019 (PIIA), Pub. L. No. 116-117, 134 Stat. 113 (Mar. 2, 2020), an improper 

payment is statutorily defined as any payment that should not have been made or that was made in an incorrect amount 

(including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable 

requirements. It includes any payment to an ineligible recipient, any payment for an ineligible good or service, any duplicate 

payment, any payment for a good or service not received (except for such payments where authorized by law), and any 

payment that does not account for credit for applicable discounts. See 31 U.S.C. § 3351(4). PIIA also provides that when an 

executive agency’s review is unable to discern whether a payment was proper as a result of insufficient or lack of 

documentation, this payment must also be included in the improper payment estimate. 31 U.S.C. § 3352(c)(2).

59PIIA, Pub. L. No. 116-117, 134 Stat. 25413 (Mar. 2, 2020), which is codified at 31 U.S.C. §§ 3351-58.

60An executive agency, as that term is defined under title 31 of the U.S. Code, means a department, an agency, or an 

instrumentality in the executive branch of the U.S. government. 31 U.S.C. § 102.

61See 31 U.S.C. § 3352. 

62An official U.S. government website managed by Office of Management and Budget (OMB), www.paymentaccuracy.gov 

contains, among other things, information about current and historical rates and amounts of estimated improper payments. 
255 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

Unemployment Insurance ($78 billion); and HHS’s Medicare—comprising three programs—($50 

billion).

63 In addition, four other programs reported improper payment estimates of $5 billion or more.64

The fiscal year 2021 government-wide total of reported estimated improper payments, among programs 

and activities that reported estimates, increased by about $75 billion from the fiscal year 2020 estimate 

of about $206 billion. The specific programs and activities included in the government-wide total of 

reported improper payment estimates may change from year to year. While decreases in estimated 

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

increases for certain other programs and activities.65 For example, DOL reported an increase of about 

$70 billion in estimated improper payments for Unemployment Insurance in fiscal year 2021. This large 

increase resulted from (1) the doubling of the improper payment rate from 9.2 percent in fiscal year 

2020 to 18.9 percent in fiscal year 2021 and (2) the large increase of reported outlays in the 

Unemployment Insurance program from $87 billion in fiscal year 2020 to $413 billion in fiscal year 

2021. In addition, HHS reported an increase of estimated improper payments of about $12 billion for 

Medicaid in fiscal year 2021. 

It is important to note that reported improper payment estimates include overpayments, 

underpayments, and payments for which the agency could not find sufficient documentation, and may 

also be based on payment data and sampling drawn from periods that do not coincide with the fiscal 

year for which the estimates are reported. Federal agencies reported over 91 percent of the 

government-wide estimate as overpayments.

The $281 billion of reported improper payment estimates for fiscal year 2021 generally do not include 

estimates related to the expenditures to fund response and recovery efforts for the COVID-19 

pandemic, such as the Small Business Administration’s Paycheck Protection Program.66 Under OMB 

guidance, a risk assessment to determine susceptibility to significant improper payments should be 

completed after the first 12 months of program operations.67 OMB guidance also states that in the fiscal 

year following the fiscal year in which the risk assessment was conducted, programs that are 

determined to be susceptible to the risk of significant improper payments are to develop and report 

improper payment estimates, including root causes and corrective actions. In addition to the COVID-19 

programs, we also identified some risk-susceptible programs for which agencies did not report fiscal 

year 2021 estimated improper payment amounts, including HHS’s Temporary Assistance for Needy 

63Medicare comprises Fee-For-Service, Part C, and Part D programs. 

64The other four programs with reported improper payment estimates greater than $5 billion in fiscal year 2021 were the (1) 

Department of the Treasury’s Earned Income Tax Credit, (2) Social Security Administration’s Supplemental Security Income, 

(3) HHS’s Children's Health Insurance Program, and (4) Treasury’s Additional Child Tax Credit.

65For fiscal year 2021, agencies reported decreases in total estimated improper payments in excess of $1 billion for four 

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

activities. The four programs and activities with a decrease in excess of $1 billion were the Department of Veterans Affairs’

Community Care, Department of Defense’s (DOD) Civilian Pay, DOD’s Military Pay-Air Force, and DOD’s Military Pay-Army. 

The five programs and activities with increases in excess of $1 billion were the Department of Education’s Title I Grants to 

Local Educational Agencies, HHS’s Medicaid, HHS’s Medicare Advantage (Part C), Treasury’s Earned Income Tax Credit, and 

DOL’s Unemployment Insurance. 

66See the Payment Integrity enclosure to GAO, COVID-19: Urgent Actions Needed to Better Ensure an Effective Federal 

Response, GAO-21-191 (Washington, D.C.: Nov. 30, 2020), for our matter for congressional consideration related to 

accelerating the reporting of improper payments estimates for COVID-19 relief funds.

67OMB, Appendix C to OMB Circular A-123, Requirements for Payment Integrity Improvement, OMB Memorandum M-21-19 

(Washington, D.C.: Mar. 5, 2021).
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 256

Families, HHS’s Advance Premium Tax Credit, and the Department of Agriculture’s Supplemental 

Nutrition Assistance Program.

If an agency’s inspector general determines that the entity is not in compliance with the criteria listed in 

PIIA, such as reporting an improper payment rate of 10 percent or greater for any risk-susceptible 

program or activity, that agency must submit a plan to Congress describing the actions that it will take 

to come into compliance. For example, the Department of Defense (DOD) Office of Inspector General 

(OIG) found that DOD did not comply with two such criteria. Specifically, DOD OIG reported that DOD 

did not publish reliable improper payment estimates for seven of its 11 risk-susceptible programs and 

did not meet its improper payment reduction targets. For fiscal year 2021, agencies reported estimated 

improper payment rates of 10 percent or greater for 26 risk-susceptible programs and activities,68

accounting for about 87 percent of the government-wide total of reported estimated improper payments. 

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

fiscal year 2021 financial statement audit reports, such as financial system limitations and information 

system control weaknesses. Such deficiencies could significantly increase the risk that improper 

payments may occur and not be detected promptly. 

The fiscal year 2021 President’s Budget included program integrity proposals at multiple agencies 

aimed at reducing improper payments.69 Also, efforts continue to implement PIIA requirements to better 

identify and prevent improper payments, waste, fraud, and abuse, as well as to recover overpayments. 

In addition, the statutory Do Not Pay initiative under PIIA requires agencies to review prepayment and 

pre-award procedures and ensure a thorough review of available databases to determine program or 

award eligibility before the release of any federal funds. PIIA also directs the Office of Management and 

Budget to annually identify a list of high-priority federal programs for greater levels of oversight and 

review and requires each agency responsible for administering one of these high-priority programs to 

submit a program report to its inspector general annually and make the report available to the public.70

Finally, the federal government reported recovery of over $22 billion in overpayments for fiscal year 

2021.

Until the federal government has implemented effective processes to determine the full extent to which 

improper payments occur and has taken appropriate actions across agencies and programs and 

activities to effectively reduce improper payments, it will not have reasonable assurance that the use of 

federal funds is adequately safeguarded. 

Information Security 

GAO has reported information security (controls in information technology systems, or IT controls) as a 

government-wide material weakness since fiscal year 1997.71 During our fiscal year 2021 audit, we 

found that serious and widespread IT control deficiencies continued to place federal assets at risk of 

68The improper payment rate reflects the estimated improper payments as a percentage of total annual outlays.

69Office of Management and Budget, Budget of the United States Government, Fiscal Year 2021 (Washington, D.C.: Feb. 10, 

2020).

70OMB has designated high-priority programs as those programs and activities with improper payment monetary loss (also 

known as overpayments) estimates that exceed $100 million annually. 

71We have also designated information security as a government-wide high-risk area since 1997. For more information, see 

GAO, High-Risk Series: Dedicated Leadership Needed to Address Limited Progress in Most High-Risk Areas, GAO-21-119SP

(Washington, D.C.: Mar. 2, 2021).
257 U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT

inadvertent or deliberate misuse, unauthorized modification or destruction of financial information, 

inappropriate disclosure of sensitive information, and disruption of critical operations. Seventeen of the 

24 agencies covered by the Chief Financial Officers Act of 1990 reported material weaknesses or 

significant deficiencies in IT controls. Specifically, control deficiencies were identified related to (1) 

security management; (2) access to computer data, equipment, and facilities; (3) changes to and 

configuration of information system resources; (4) segregation of incompatible duties; and (5) 

contingency planning. Such control deficiencies increase the risk of unauthorized access to, 

modification of, or disclosure of sensitive data and programs and disruptions of critical operations.

Most of the significant component entities that reported IT controls as a material weakness or 

significant deficiency for fiscal year 2021 identified weaknesses related to security management, 

access controls, configuration management, or combinations thereof. Security management is the 

foundation of a security-control structure and reflects senior management’s commitment to addressing 

security risks. Security management programs should provide a framework and continuous cycle of 

activity for managing risk, developing and implementing effective security policies, assigning 

responsibilities, and monitoring the adequacy of the entity’s IT controls. Without a well-designed 

security management program, IT controls may be inadequate; responsibilities may be unclear,

misunderstood, or improperly implemented; and controls may be inconsistently applied. In addition, 

such conditions may lead to insufficient protection of sensitive or critical resources, improper or 

unauthorized changes to information systems, and disproportionately low expenditures for controls over 

high-risk resources. 

Recent IT security events highlight the urgent need for federal entities to strengthen their security 

management program to identify and resolve deficiencies. Over the past 2 years, the Cybersecurity & 

Infrastructure Security Agency has issued eight emergency directives and alerts identifying certain 

vulnerabilities that posed an unacceptable risk to federal entities. Additionally, in May 2021, the 

President issued Executive Order 14028, Improving the Nation’s Cybersecurity, which directed the 

Secretary of Homeland Security, in consultation with the Attorney General, to establish a Cyber Safety 

Review Board to review and assess the threat activity, vulnerabilities, and mitigation activities of, and 

federal entity responses to, significant cyber incidents.72

Until federal entities strengthen their security management program and resolve their reported 

deficiencies, federal information technology systems will continue to be at risk of inadvertent or 

deliberate misuse, unauthorized modification or destruction of financial information, inappropriate 

disclosure of sensitive information, and disruption of critical operations.

72The White House, Improving the Nation’s Cybersecurity, Executive Order 14028 (Washington, D.C.: May 12, 2021), 

reprinted in 86 Fed. Reg. 26,633 (May 17, 2021).
U.S. GOVERNMENT ACCOUNTABILITY OFFICE INDEPENDENT AUDITOR’S REPORT 258

Appendix IV

Significant Deficiencies

In addition to the material weaknesses discussed in appendixes II and III, we found three significant 

deficiencies in the federal government’s internal control related to maintaining effective internal controls 

at certain federal entities, as described below. 

Taxes Receivable

During fiscal year 2021, a significant deficiency continued to affect the federal government’s ability to 

manage its taxes receivable effectively. While the Department of the Treasury’s Internal Revenue 

Service (IRS) made necessary and appropriate adjustments derived from a statistical estimation 

process to correct its financial statements, IRS’s underlying records did not always reflect the correct 

amount of taxes owed to the federal government at interim periods and year-end because of financial 

system limitations and other control deficiencies that led to errors in taxpayers’ accounts. Such 

inaccurate tax records impair management’s ability to effectively manage taxes receivable throughout 

the year and place an undue burden on taxpayers who may be compelled to respond to IRS inquiries 

caused by errors in taxpayer accounts.

Federal Grants Management

In fiscal year 2021, several federal entities’ auditors continued to identify internal control deficiencies 

related to grants management.73 Reported deficiencies primarily related to accounting for grants, 

monitoring of grant activities, and conducting grant closeout. These internal control deficiencies could 

adversely affect the federal government’s ability to provide reliable financial statements as well as 

reasonable assurance that grants are awarded properly, recipients are eligible, and federal grant funds 

are used as intended. 

Medicare Social Insurance Information

In fiscal year 2021, auditors for the Department of Health and Human Services (HHS) identified internal 

control deficiencies in certain controls related to the sufficiency of the review of methodologies and 

related calculations and estimates that HHS used to prepare its Statement of Social Insurance for the 

Medicare program. Specifically, HHS’s auditor identified formula errors in certain spreadsheets used to 

prepare the Statement of Social Insurance that HHS’s monitoring and review function did not detect. 

Such control deficiencies could result in misstatements to the Statement of Social Insurance.

73Key entities contributing to the significant deficiency for federal grants management include the Small Business 

Administration, the Department of Homeland Security, and the Department of Health and Human Services.