- Bureau of the Fiscal Service
- Financial Report of the United States Government
- Management's Discussion & Analysis

# Management's Discussion & Analysis

## Financial Management

###  Grants and Cooperative Agreements 

In FY 2023, the federal government obligated  approximately $1.2 trillion for grants and cooperative agreements, according to USAspending.gov. This figure does not include obligations for other types of financial  assistance, such as loans or direct appropriations. A large portion of grant  funding was provided under the Bipartisan Infrastructure Law and the IRA of 2022  while additional funding continued to support the nation’s response to the pandemic  through the ARP, the CARES Act, and other  COVID-19 funding. Improving access to key financial assistance data continues  to be a priority for OMB. 

In 2023, OMB undertook an initiative to update the Guidance on Grants  and Agreements published in 2 CFR to reduce  the administrative burden for federal agencies and recipients, as well as to  clarify the guidance and make it more accessible. These updates will represent  the most substantial changes to the guidance since its release in December 2013  and will reduce unnecessary compliance requirements and ensure that assistance  is delivered in a more effective and impactful way and to the communities that  most need it.

On August 19, 2023, OMB issued M-23-19 Establishment of the COFFA. This council  created a leadership body in the federal government for oversight and  management of federal financial assistance. The COFFA launched a partnership  among federal grant-making agencies, providing a single forum to inform federal  financial assistance policy, oversight, and technology activities. The COFFA is  also responsible for providing strategic direction, policy recommendations, and  priority-setting for other government-wide grant-related activities.

### Payment Integrity

Preventing improper payments in the federal government continues to be a management priority. To be successful in preventing improper payments, there must be a focus on systemic enhancements intended to make payments correctly the first time with an emphasis on minimizing monetary loss. An improper payment is any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirement. The term “improper payment” consists of two main components: 1) improper payments resulting in a monetary loss to the government; and 2) improper payments that do not result in a monetary loss to the government. Monetary loss occurs when payments are made to the wrong recipient and/or in the wrong amount. Improper payments that do not result in a monetary loss include under payments and payments made to the right recipient for the right amount, but the payment was not made in accordance with statute or regulation. The federal government, through the CFO community, continues to develop strategies to better analyze and prevent monetary loss. 

Agencies with programs reporting more than $100.0 million in monetary  loss provide a quarterly scorecard at PaymentAccuracy.gov. These  scorecards provide information on the actions taken and progress made on  preventing improper payments that would result in monetary loss to the federal  government. Details, including FY 2023 improper payment data, for programs with  at least $100.0 million in monetary loss can also be found at  PaymentAccuracy.gov. This website also includes payment integrity information  that had previously been reported in agency financial reports, such as information  about program compliance, corrective actions, and accountability mechanisms. 

OMB will continue to work with agencies, the CFO Council, and other  stakeholders to improve the identification of the root causes of improper  payments that result in monetary loss and to prevent improper payments from  occurring. 

### Agency Financial Report Audits 

Since the passage of the CFO Act, the federal financial community has made significant progress in financial accounting and reporting.  As shown in Table  10,  for FY 2023, 19 of the 24 CFO Act agencies obtained an unmodified opinion from the independent auditors on their financial statements.29 In addition, 52 auditor-identified material weaknesses were identified for FY 2023, two more than in FY 2022. Twenty-eight of these are associated with DOD. The other 24 material weaknesses are associated with non-DOD agencies. Although virtually all federal agencies have adopted and maintained disciplined financial reporting operations, implemented effective internal controls over financial reporting, and integrated transaction processing with accounting records, weaknesses in financial management practices continue to prevent the government as a whole from achieving an audit opinion.

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### Financial Management Systems

Federal agencies improved, but continue to face challenges, in  implementing financial management systems that meet federal requirements. The  number of CFO Act agencies reporting lack of substantial compliance with one or  more of the three Section 803(a) requirements of the FFMIA remained at  seven in FY 2023, and the number of auditors reporting lack of substantial  compliance with one or more of the three Section 803(a) FFMIA requirements remained  at eight in FY 2023.

Because of the federal government’s size and diversity, its financial  management infrastructure consists of both legacy and modernized systems and  standardized and customized systems. Treasury works closely with agencies to  manage systems for collecting and disbursing the government’s cash and  financing disbursements when necessary, recording and reporting on those  collections and disbursements, and reporting on all government revenues,  expenses, assets, and liabilities. 

Treasury was designated as the Financial Management Systems QSMO in 2020  and continues to pursue financial management improvement strategies that have  government-wide implications. These strategies include standing up a financial  management systems marketplace and developing system standards, standardized  processes, system requirements, and system interfaces. These efforts are providing  a path to the decommissioning of legacy systems and migration to updated  systems, leveraging modernized technologies. In addition, agencies continue to  coordinate with the Treasury QSMO to improve their financial management and  financial reporting systems as described in their financial reports,  congressional budget justifications, and performance plans. DOD continues to  address its material weaknesses in financial reporting, and is bringing its  financial systems into compliance with federal financial management systems  requirements, including the FFMIA.

HHS was designated as the Grants QSMO in 2021 and continues working to  modernize and streamline the government’s vast and aging legacy grants  management systems. The goal of this effort is to allow agencies to  successfully manage grants through the entire award cycle and allow grants  management systems to interface with agency financial management systems.

### Internal Controls

Federal managers are responsible for developing and maintaining effective internal controls. Internal controls help to ensure effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. Safeguarding assets is a goal of each of these three objectives.

OMB Circular  No. A-123 implements  the requirements of 31  U.S.C. 3512 (c) and (d)  (commonly known as the *Federal Managers’  Financial Integrity Act)*by providing agencies a framework for assessing  and managing risks strategically and tactically. The Circular reflects GAO’s *Standards for Internal Control in the  Federal Government* and contains multiple appendices that address one or  more of the objectives of effective internal control. 

- Appendix A provides for agencies to use a  risk-based approach to assess, document, test, and report on internal controls  over reporting and data integrity; 
- Appendix B requires agencies to maintain internal  controls that reduce the risk of fraud, waste, and error in government charge  card programs; 
- Appendix C implements the requirements for  effective estimation and remediation of improper payments; and 
- Appendix D defines requirements for  determining compliance with the FFMIA that are intended to reduce the cost,  risk, and complexity of financial system modernizations. 

As noted above, the total number of reported material weaknesses for CFO Act agencies was 52 for FY 2023, two more than in FY 2022. Effective internal controls are a challenge at the agency level and at the government-wide level, with GAO reporting that at the government-wide level, material weaknesses resulted in ineffective internal control over financial reporting. While progress is being made at many agencies and across the government in identifying and resolving internal control deficiencies, additional work is needed.

### Legal Compliance

Federal agencies are required to comply with a wide range of laws and regulations, including appropriations, employment, and health and safety, among others. Responsibility for compliance rests with agency management and compliance is addressed as part of agency financial statement audits. Agency auditors test for compliance with selected laws and regulations related to financial reporting and certain individual agency audit reports contain instances of noncompliance. None of these instances were material to the government-wide financial statements; however, GAO reported that its work on compliance with laws and regulations was limited by the material weaknesses and scope limitations discussed in its report.

### Conclusion

The federal government has seen significant progress in financial management since the passage of the CFO Act more than 30 years ago, but significant challenges remain to realizing the intended financial management reforms of the act. The issues that the federal government faces today require financial managers to improve both the efficiency and effectiveness of financial management activities, which includes moving toward integrated government operations with standardized business processes, systems, and data. Together with Treasury and OMB, agencies are building on tools and capabilities to improve financial accountability and transparency.

### Footnotes

29 The 19 entities include HHS, which received an unmodified (“clean”) opinion on all statements except the SOSI and the SCSIA. (Back to Content)

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            Table of Contents
            Current Report: Fiscal Year 2023
 - 
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            By Section
            A Message from the Secretary of the Treasury - 
PDF version
Table of Contents - 
PDF version
The Nation By The Numbers
Executive Summary
 - 
PDF version
Results in Brief
Where We Are Now
An Unsustainable Fiscal Path
Reporting on Climate Change
Find Out More

Management's Discussion & Analysis
 - 
PDF version
The Government's Financial Position and Condition
An Unsustainable Fiscal Path
Financial Management
Reporting on Climate Change
Additional Information

Statement of the Comptroller General of the United States - 
PDF version
Financial Statements
 - 
 PDF version
Statements of Net Cost
Statements of Operations and Changes in Net Position
Reconciliations of Net Operating Cost and Budget Deficit
Statements of Changes in Cash Balance from Budget and Other Activities
Balance Sheets
Statements of Long-Term Fiscal Projections
Statements of Social Insurance
Statement of Changes in Social Insurance Amounts

Notes to the Financial Statements - 
PDF version
Note 1. Summary of Significant Accounting Policies - 
PDF version
Note 2. Cash and Other Monetary Assets - 
PDF version
Note 3. Accounts  Receivable, Net - 
PDF version
Note 4. Loans Receivable, Net and Loan Guarantee Liabilities - 
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Note 5. Inventory and Related Property, Net - 
PDF version
Note 6. General Property, Plant, and Equipment, Net - 
PDF version
Note 7. Investments - 
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Note 8. Investments in Government-Sponsored Enterprises - 
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Note 9. Advances and Prepayments - 
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Note 10.   Other Assets - 
PDF version
Note 11. Accounts Payable - 
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Note 12. Federal Debt and Interest Payable - 
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Note 13. Federal Employee and Veteran Benefits Payable - 
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Note 14. Environmental and Disposal Liabilities - 
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Note 15. Benefits Due and Payable - 
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Note 16. Insurance and Guarantee Program Liabilities - 
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Note 17. Advances from Others and Deferred Revenue - 
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Note 18.  Other Liabilities - 
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Note 19. Collections and Refunds of Federal Revenue - 
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Note 20. Commitments - 
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Note 21. Contingencies - 
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Note 22. Funds from Dedicated Collections - 
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Note 23. Fiduciary Activities - 
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Note 24. Long-Term Fiscal Projections - 
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Note 25. Social Insurance  - 
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Note 26. Stewardship Property, Plant, and Equipment - 
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Note 27.  Disclosure Entities and Related Parties - 
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Note 28. Public-Private Partnerships  - 
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Note 29. COVID-19 Activity - 
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Note 30.  Subsequent Events  - 
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Required Supplementary Information (Unaudited) - 
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The Sustainability of Fiscal Policy - 
PDF version
Social Insurance - 
PDF version
Deferred Maintenance and Repairs - 
PDF version
Other Claims for Refunds - 
PDF version
Tax Assessments - 
PDF version
Federal Oil and Gas Resources - 
PDF version
Federal Natural Resources Other than Oil and Gas - 
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Land and Permanent Land Rights - 
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Other Information (Unaudited) - 
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Tax Burden - 
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Tax Gap - 
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Tax Expenditures - 
PDF version
Unmatched Transactions and Balances - 
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Appendices            
Appendix A: Reporting Entity - 
PDF version
Appendix B: Glossary of Acronyms - 
PDF version

U.S. Government Accountability Office Independent Auditor's Report - 
PDF version
Related Resources

            Certain material weaknesses, limitations, and uncertainties prevented the Government Accountability Office from expressing an opinion on the U.S. Government's consolidated financial statements included in the *Financial Report* and, therefore, GAO disclaimed an opinion on such statements. Certain information included on or referenced in this website, such as individual agency financial reports that were audited by other auditors, is separate from and not specifically reported in the *Financial Report* and therefore not covered by GAO's disclaimer. 
            
Last modified 03/13/24

            
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