United States General Accounting Office

GAO Report to the Congress

March 1998 FINANCIAL AUDIT

1997 Consolidated

Financial Statements

of the United States

Government

GAO/AIMD-98-127

B-279169

March 31, 1998

The President of the Senate

The Speaker of the House of Representatives

For the first time in the nation's history, the federal government has prepared

consolidated financial statements that have been subjected to an independent

audit. In accordance with the Chief Financial Officers Act, consolidated

financial statements for fiscal year 1997 were prepared by the Department of

the Treasury and audited by GAO. Our report is included in Treasury's

publication of the statements. This letter highlights our conclusions.

In summary, significant financial systems weaknesses, problems with

fundamental recordkeeping, incomplete documentation, and weak internal

controls, including computer controls, prevent the government from accurately

reporting a large portion of its assets, liabilities, and costs. These deficiencies

affect the reliability of the consolidated financial statements and much of the

underlying financial information. They also affect the government's ability to

accurately measure the full cost and financial performance of programs,

effectively and efficiently manage its operations, and ensure compliance with

laws and regulations. Major problems include the federal government's inability

to

-- properly account for and report billions of dollars of property, equipment,

materials, and supplies;

-- properly estimate the cost of most federal credit programs and the related

loans receivable and loan guarantee liabilities;

-- estimate and report material amounts of environmental and disposal

liabilities and related costs;

-- determine the proper amount of various reported liabilities, including

postretirement health benefits for military and federal civilian employees,

veterans compensation benefits, accounts payable, and other liabilities;

-- accurately report major portions of the net costs of government operations;

-- determine the full extent of improper payments that occur in major programs

and that are estimated to involve billions of dollars annually;

GAO/AIMD-98-127
 B-279169

-- properly account for billions of dollars of basic transactions, especially those

between governmental entities;

-- ensure that the information in the consolidated financial statements is

consistent with agencies' financial statements;

-- ensure that all disbursements are properly recorded; and

-- effectively reconcile the change in net position reported in the financial

statements with budget results.

These deficiencies prevented us from being able to form an opinion on the

reliability of the consolidated financial statements.

Considerable effort is already underway to address these problems. Several

individual agencies that have been audited for a number of years faced serious

deficiencies in their initial audits and have made good progress in resolving

them. With a concerted effort, the federal government, as a whole, can

continue to make progress toward generating reliable information on a regular

basis. Annual financial statement audits are essential to ensuring the

effectiveness of the improvements now underway.

We appreciate the cooperation and assistance we received from the Chief

Financial Officers and Inspectors General throughout government, as well as

Department of the Treasury and Office of Management and Budget officials, in

carrying out our responsibility to audit the government's consolidated financial

statements. We look forward to continuing to work with these officials to

achieve the CFO Act's financial management reform goals.

Our report was prepared under the direction of Gene L. Dodaro, Assistant

Comptroller General; Philip T. Calder, Chief Accountant; and Robert F. Dacey,

Director, Consolidated Audit and Computer Security Issues. If you have any

questions, please contact me on (202) 512-5600 or them on (202) 512-3317.

James F. Hinchman

Acting Comptroller General

of the United States

Page 2 GAO/AIMD-98-127


Contents

A Message from the Secretary of the Treasury 1

Management’s Discussion and Analy sis 2

General Accounting Office Report

Acting Comptroller General’s Statement 13

General Accounting Office Report 14

Consolidated Financial Statements

Balance Sheet 30

Statement of Net Cost 32

Statement of Changes in Net Position 40

Notes to the Financial Statements

Note 1 - Summary of significant accounting policies 43

Note 2 - Cash and other monetary assets 45

Note 3 - Loans receivable and loan guarantee liabilities 46

Note 4 - Taxes receivable 47

Note 5 - Inventories and related property 47

Note 6 - Property, plant, and equipment 48

Note 7 - Other assets 48

Note 8 - Accounts payable 49

Note 9 - Federal debt securities held by the public 49

Note 10 - Federal employee and veteran benefits payable 51

Note 11 - Environmental liabilities 54

Note 12 - Benefits due and payable 54

Note 13 - Other liabilities 55

Note 14 - Commitments and contingencies 55

Note 15 - Unreconciled transactions affecting the change in net position 57

Note 16 - Dedicated collections 57

Note 17 - Fiduciary trust funds 59

Stewardship Reporting (Unaudited)

Stewardship land 61

Stewardship responsibilities:

Social Security 63

Medicare 64

Supplemental Table (Unaudited)

Reconciliation of the Changes in Net Position

 to the Deficit on the Budgetary Basis 65

Appendix

List of significant U.S. Government entities included

 and entities excluded from the consolidated financial statements 66
A MESSAGE FROM THE SECRETARY

OF THE TREASURY

I am pleased to present the fiscal year 1997 Consolidated Financial Statements

of the United States Government — a truly historic undertaking. Never before has

the United States Government attempted to assemble comprehensive financial

statements covering all of its myriad activities and to subject those financial

statements to an audit. I am confident that in future years, as the data used to

prepare these financial statements continue to improve, these financial statements

will prove to be an important management tool for policy-makers and the public.

The publication of these audited financial statements represents yet another stage

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

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

supported the Government Management Reform Act, which mandated the issuance

of the audited financial statements which follow. The Administration has worked

through the Federal Accounting Standards Advisory Board to create the accounting

standards that form the basis for these financial statements.

Despite the substantial progress that has been made, however, further

improvements are clearly necessary. The audit report from the General Accounting

Office (GAO) discusses many areas in which the reliability of the current financial

statements must be enhanced and improved. As a result, the GAO was unable to

render an opinion on these statements. The Administration is therefore committed

to working with the GAO, Federal agencies, and other interested parties to achieve

the President’s goal of receiving an unqualified opinion from the GAO on the FY

1999 Consolidated Financial Statements. We believe that the publication of these

audited statements is an important step in providing American citizens with more

information about the operations of their government.

 Robert E. Rubin

Consolidated Financial Statements of the United States Government, Fiscal 1997
No other entity in the world compares in size and scope to the U.S. Government, which has continuing

responsibilities for the general welfare

of its citizens and for national defense

Yet, to this date, the U.S. Government

has never set forth a comprehensive

statement of its finances in accordance

with applicable accounting standards.

This document is the U.S. Government’s first preparation, in accordance

with new Federal accounting standards,

of comprehensive financial statements

that include all of its vast and complex

activities and that subject those financial

statements to the rigors of an audit. We

are pleased that these financial statements have been produced and subjected to audit on a timely basis within

the relevant statutory guidelines.

For over 200 y ears, effective management of the U.S. Government has suffered from a lack of comprehensive

financial information. The Administration is committed to addressing this

shortcoming. In 1994, the Administration strongly supported the Government Management Reform Act, which

mandated the issuance of annual

audited financial

statements for the

24 largest agencies

and for the Government as a whole. To

provide a sound basis for these financial statements, the Administration and the General Accounting Office (GAO) have worked through

the Federal Accounting Standards Advisory Board (FASAB) to create the accounting standards that form the basis

for these statements.

The Administration appreciates the

cooperation and assistance of the GAO

in auditing these financial statements in

a timely manner, and looks forward to

working with the GAO, Federal agencies, and other interested parties to continue improving the reliability of the

financial information upon which the

statements are based. The effort to provide a comprehensive and reliable set of

financial statements for the U.S. Government, which began in 1997, is ongoing and improvements are clearly

necessary. Because of current data limitations, the GAO is not able to render an

opinion on the reliability of these financial statements. The Administration is

committed to improving the reliability

of the financial information so that the

U.S. Government can achieve the President’s goal, as stated in the fiscal 1999

Budget, of receiving an unqualified opinion from the GAO on the fiscal 1999

Consolidated Financial Statements. In

addition, the Administration’s objectives for individual agencies are reflected in the Federal Financial

Management Status Report and FiveYear Plan issued by the Office of Management and Budget. That document

sets forth the dates by which agencies

have pledged to submit timely financial

statements with unqualified audit opinions.

The ongoing challenges involved in

obtaining reliable financial information

should not, however, obscure the progress that has been

made or the potential insights provided by

preparation and

audit of these statements. The Administration remains

committed to providing the President,

the Congress, and the American people

with reliable information about the financial position of the U.S. Government on an accrual basis — including

the cost of its operations and the financing sources used to fund these operations. Such information will ultimately

prove extremely helpful to policy-makers and the public.

It is worth emphasizing that the U.S.

Government does not have a single bottom line that reflects its financial status.

Its operations and scope are much too

complicated to be summarized in any

single number. But the information in-

“No other entity in the

world compares in size

and scope to the U.S.

Government.”

Consolidated Financial Statements 

of the United States Government, Fiscal 1997

Management’s Discussion and Analysis:

Introduction

2 Discussion and Analysis

Consolidated Financial Statements of the United States Government, Fiscal 1997
cluded in these statements provides a

view of the Government’s finances that

has not previously been presented in a

comprehensive form.

The accompanying financial statements are required by 31 U.S.C. 33

(e)(1) and consist of Management’s Discussion and Analysis (MD&A), a Balance Sheet, a Statement of Net Cost, a

Statement of Changes in Net Position,

Notes to the Financial Statements, and

Supplementary Information, which includes a stewardship section. Each section of these financial statements is

preceded by a description of the section’s contents.

Management’s Discussion and Analysis

This section explains the basis of accounting used to prepare the statements

and presents selected financial and economic information intended to assist

readers in their assessment of the U.S.

Government’s financial status. It also

summarizes financial management initiatives designed to continue improving

the reliability of the financial statements

and to address the issues identified in

GAO’s report on these financial statements.

Reporting entity 

and basis of accounting

Coverage

The financial statements cover the executive branch, as well as parts of the

legislative and judicial branches of the

U.S. Government. Information from

the legislative and judicial branches is

limited because those entities are not required to prepare comprehensive financial statements. For example, the

property, plant and equipment of the judicial branch and the Congress are not

reflected in these statements. In addition, government-sponsored enterprises

(such as Federal Home Loan Banks and

the Federal National Mortgage Association) are excluded because they are privately owned. The Federal Reserve

System is also excluded because monetary policy is conducted separately from

and independently of the other central

Government functions. The narrative associated with the Statement of Net Cost

describes the major functions of the

U.S. Government.

Accounting standards

In 1994, Congress passed and the

President signed the Government Management Reform Act, which required

the preparation and audit of financial

statements. At that time, the U.S. Government did not have a comprehensive

set of generally accepted accounting

standards. The three principals concerned with overall financial management in the U.S. Government (the

Secretary of the Treasury, the Director

of OMB, and the Comptroller General)

created the FASAB to address this void.

Just as the effort to improve the reliability of the financial statements is ongoing, the effort to produce and

implement a comprehensive set of accounting principles is also ongoing:

FASAB completed work on the basic

set of Federal financial accounting standards (FFAS) in 1996, but some of the

standards will not become effective until fiscal y ears 1998 and 1999.

The accounting standards developed

by FASAB are tailored to the Federal

Government’s unique characteristics

and special needs. For example, the U.S.

Government needs financial information that is useful in planning future

budgets and in controlling budgetary expenditures. Consequently net costs,

rather than profit, are used as the primary financial measure for assessing efficiency and effectiveness of Government

operations.

The Consolidated Financial Statements of the U. S. Government are gen-

“The Administration

remains committed to

providing the President,

the Congress, and the

American people with

reliable information

about the financial

position of the U.S.

Government.”

Discussion and Analysis 3

Consolidated Financial Statements of the United States Government, Fiscal 1997
erally prepared in accordance with applicable FFAS. The statements are on the

accrual basis unless otherwise noted.

Thus transactions are recorded in the accounting records when the events giving rise to the transactions occur, rather

than when cash is received or paid. By

contrast, the Federal budget is generally

based on budgetary concepts and policies adopted by the Congress and the Executive branch, which are generally on

the cash basis.

The most significant difference between FFAS and budgetary measures involves timing and other differences

between the recognition and measurement of revenues and costs. For example, accounting standards require

recognition of liabilities for costs related

to environmental clean-up when the

events resulting in such costs occur. By

contrast, only the amounts expended

currently are included as outlay s in the

budget. The effects of these differences

are reflected in the “Reconciliation of

the Changes in Net Position to the Deficit on the Budgetary Basis,” which is

presented in the supplementary section

of these financial statements.

These financial statements do not include information on natural resources

(depletable resources, such as mineral deposits and petroleum or renewable resources, such as timber) because

standards have not yet been recommended for recognizing and measuring

these assets. Nor are values for stewardship land (land not used in Government

operations) included in these financial

statements — information about the

composition and quantity of such land

is, however, reported in the stewardship

section in accordance with FFAS.

Finally, a comprehensive assessment

of the Government’s financial status

should recognize the Government’s sovereign powers to raise revenue and regulate commerce. These powers are not reflected in the following statements, but

should be considered in a comprehensive assessment of the Government’s financial condition.

Future changes

As noted above, the process of improving these financial statements is ongoing. For example, in future financial

statements, FASAB is proposing that

the value of national defense property,

plant, and equipment (weapons systems

and support property used in the performance of military missions and vessels held as part of the National Defense

Reserve Fleet) be removed from the balance sheet and that information about

these assets be reported in the stewardship section of the financial statements.

These assets are currently valued at $636

billion. In addition, future financial

statements will include information

about deferred maintenance (maintenance that was not performed when it

should have been or was scheduled).

The 1998 financial statements will

also expand the stewardship section,

which will include a current services assessment showing both the short- and

medium-term direction of current programs. The current services assessment

will present actual receipt and outlay

data for all programs for the year for

which the financial statements are prepared (the base year) and estimates for

at least six years subsequent to the base

year. This assessment will thus facilitate

evaluation of the sufficiency of future resources to sustain public services and to

meet current and future obligations as

they become due.

The stewardship section of these financial statements in future y ears will

“The accounting

standards developed by

FASAB are tailored to

the Federal

Government’s unique

characteristics and special

needs.”

“The 1998 financial

statements will include a

current services

assessment showing both

the short- and

medium-term direction

of current programs.”

4 Discussion and Analysis

Consolidated Financial Statements of the United States Government, Fiscal 1997
also include information about heritage

assets and stewardship investments.

Heritage assets are national monuments,

museums and library collections. Stewardship investments include:

•Non-federal phy sical property: the

Federal share of properties owned by

State and local governments (e.g. highways and airports).

•Human capital: Investments in education and training programs financed

by the Federal Government for the

benefit of the public.

• Research and development: Federal

Government investments in basic and

applied research and development.

These investments will be separately

identified in the stewardship section,

but will not be reported on the Consolidated Balance Sheet.

Economic and 

budgetary results

Economic conditions were extremely favorable in fiscal 1997. Over

the year ending in

September, the rate

of growth of economic activity accelerated, job gains

continued to be very

strong, and the unemployment rate

fell to 24-y ear lows.

At the same time, inflation was very well

contained, with the

underlying rate of inflation dropping to

levels not seen since the mid1960’s.

Strong growth in incomes contributed

to a decline in the Federal budget deficit

to its lowest level since 1974.

The economy in fiscal 1997

Real gross domestic product (GDP)

grew by 3.9 percent during fiscal 1997

(which encompasses the fourth quarter

of calendar 1996 through the third quarter of calendar 1997), the fastest rate of

growth since fiscal year 1984. Growth

was strongest in the first two quarters

of the fiscal year at a more than 4 percent annualized pace, then it moderated

to close to a 3 percent annualized rate in

the second half of the year.

The economy was led by strong

gains in consumer spending and in business capital investment. Consumer

spending, which accounts for about twothirds of real GDP, expanded by 3.8 percent during the fiscal year, much faster

than the 2.4 percent average pace in the

prior two fiscal years. Business investment spending grew by 10.8 percent during fiscal 1997, chiefly due to continued

strong gains in spending on capital

equipment such as computers and other

high technology goods. Residential construction started the fiscal year on a

weak note but strengthened over the

course of the year, posting a modest 2.2

percent increase for the year as a whole.

Restraining growth in fiscal 1997 was

further deterioration in net exports, as

accelerating domestic economic growth

continued to draw in imports at a faster

pace than the growth in exports.

Employment growth accelerated in

fiscal 1997 as the economy added 2.8

million new jobs, compared with gains

of 2.4 million and 2.6 million for the

previous two fiscal years. Most of the

new jobs were in

the private serviceproducing sector,

with especially

rapid growth in

business and engineering and management services.

Employment in

manufacturing increased by 126,000

in fiscal 1997, and

construction jobs

grew by more than

200,000 due to a pickup in both residential and nonresidential building. The unemployment rate fell below 5 percent at

the end of the fiscal year and averaged

5.1 percent for the y ear as a whole.

These rates were the lowest rates of unemployment in 24 years.

Despite healthy economic growth

and very low rates of unemployment,

price pressures did not build up during

the year; indeed, if any thing, inflation

declined. Broad measures of inflation remained extremely low, rising at rates

not seen since the mid-1960’s. Lower energy and food prices play ed a role in

holding inflation down, as prices for

these commodities eased after some

pickup in the prior year. Prices for

other goods and services were also well-

“Over the year ending in

September, the rate of

growth of economic

activity accelerated, job

gains continued to be

very strong, and the

unemployment rate fell

to 24-year lows.”

Discussion and Analysis 5

Consolidated Financial Statements of the United States Government, Fiscal 1997
contained. Total consumer prices increased by 2.2 percent during the fiscal

year and “core” prices (excluding the

food and energy components) also rose

a modest 2.2 percent. In fiscal 1996, in

contrast, total consumer prices increased by 3.1 percent and the underlying (“core”) rate of inflation was 2.6

percent.

Budget results

The Federal budget deficit improved

dramatically in fiscal 1997, falling to $22

billion from $107 billion a y ear earlier.

The 1997 deficit was the lowest in more

than two decades, and continues the substantial progress made over the past few

years in reducing the deficit. Since reaching an all-time high of $290 billion in fiscal 1992, the deficit has been cut by

almost 90 percent over the past five

years. As a share of GDP, the deficit

now stands at 0.3 percent, the lowest

percentage since fiscal 1969, when the

budget was last in surplus.

The fiscal 1997 deficit was well below the deficit that was forecast at the

start of the fiscal y ear, due in large part

to higher-than-expected receipts, which

increased by 8.7 percent in fiscal 1997.

Growth of receipts was led by strong

gains in individual income tax pay -

ments, reflecting rapid job and income

growth as well as high levels of capital

gains from the rising stock market. Corporate income tax receipts also grew rapidly as profits continued to rise.

Growth of outlays was just 2.7 percent in fiscal 1997, held down in part by

spectrum auction proceeds and inflows

to the deposit insurance account, both

of which are netted against outlays in

budget accounting. Excluding those two

categories, growth of outlay s in fiscal

1997 was approximately 3.5 percent,

still a very moderate increase. Most categories of outlay s posted only modest increases in spending compared with the

previous y ear, except for defense and a

few small programs, which grew at

slightly faster rates.

Improvements in the deficit have

continued into fiscal 1998. The Federal

Budget for fiscal 1999 projects the

budget to show a $10 billion deficit in

fiscal 1998 — followed by a nearly $10

billion surplus in fiscal 1999, which

would be the first surplus in 30 years.

Some outside analysts believe that results so far through the current fiscal

year suggest that the fiscal 1998 budget

may actually post a surplus — which

would be the first in 29 years — instead

of a small deficit.

Revenue and expense

summary

Revenue

Nonexchange revenue is the U.S.

Government’s primary source of revenue, and totaled $1,577 billion in 1997.

More than 95 percent of this total came

from tax receipts, with the remainder

coming from customs duties and other

miscellaneous receipts.

Earned revenues are inflows of resources that arise from exchange transactions. Exchange transactions occur

when each party to the transaction sacrifices value and receives value in return

— for example, when the U.S. Government sells goods or services to the public. During 1997, the Government

earned $158 billion in such revenue.

These revenues are offset against the

“The Federal budget

deficit improved

dramatically in fiscal

1997, falling to $22

billion from $107 billion

a year earlier.”

6 Discussion and Analysis

Consolidated Financial Statements of the United States Government, Fiscal 1997
gross cost of the related functions to arrive at the function’s net cost. The U.S.

Government also earned $12 billion

that was not offset against the cost of

any function.

Expenses by function

The net cost of U.S. Government operations was $1,603 billion for 1997.

Net cost represents the gross cost of operations less attributable earned revenues. The statement of net cost reflects

the cost incurred to carry out the national priorities identified by the President and the Congress. The functions

and subfunctions used to accumulate

costs associated with the national priorities are identified in the President’s

budget and described in detail in the

Consolidated Financial Statements section of this report. The accompanying

chart presents the percentage of the net

cost of Government operations represented by each of the U.S. Government’s functions.

Asset and liability summary

Assets

The assets of the U.S. Government

are the resources available to pay liabilities or to satisfy future service needs.

The assets presented on the balance

sheet are not a comprehensive list of

Federal resources. For example, the

Government’s most important financial

resource, its ability to tax and regulate

commerce, cannot be quantified and is

not reflected. Natural resources and

stewardship land (national parks, forests

and grazing lands) are other examples of

resources that are not included in the

$1,602 billion of Federal assets reported

at the end of 1997. The accompanying

chart depicts the major categories of reported assets as of September 30, 1997

as a percentage of reported total assets.

Detailed information about the components of these asset categories can be

found in the notes to the financial statements.

Liabilities

At the end of 1997, the U.S. Government reported liabilities of $6,605 billion. These liabilities are probable and

measurable future outflows of resources

arising out of past transactions or

events. The largest component of these

liabilities ($3,768 billion) is represented

by Federal debt securities held by the

public. The next largest component

($2,244 billion) relates to pension, disability , and health care costs for veterans, and retired military and Federal

employees.

Another liability, which will likely

require substantial future budgetary resources to liquidate, is related to environmental clean-up costs. As of

September 30, 1997, the cost of cleaning

up environmental contamination was estimated to be $212 billion. This figure is

subject to much uncertainty, however,

for two reasons. First, it does not include complete estimates from all agencies with likely environmental clean up

responsibilities. Second, agencies lack

substantial experience in estimating

clean-up costs. Therefore it is likely that

the liability estimate will be revised as

agencies gain experience in identifying

and estimating environmental clean-up

costs. The accompanying chart presents

Discussion and Analysis 7

Consolidated Financial Statements of the United States Government, Fiscal 1997
the percentage of total Federal liabilities

represented by each of the categories of

liabilities reported on the balance sheet.

Additional details about the U.S. Government’s reported liabilities can be

found in the notes to the financial statements.

Future commitments

The U.S. Government has substantial future commitments to its citizens,

including the provision of social insurance through the Social Security and

Medicare programs and other commitments associated with Federal insurance

and loan programs. Information about

the nature and extent of these commitments is presented below.

Financial condition of the Social

Security trust funds

Two trust funds have been established by law to finance the Social Security program (OASDI) -Federal Old

Age and Survivors Insurance (OASI)

and Federal Disability Insurance (DI).

OASI pays retirement and survivors

benefits and DI pay s benefits after a

worker becomes disabled. OASDI revenues consist of taxes on earnings that

are paid by employees, their employers,

and the self-employ ed. OASDI also receives revenue from taxation of part of

Social Security benefits. Revenues that

are not needed to pay current benefits

or administrative expenses are invested

in Treasury securities to earn interest

for the trust funds. The securities issued

to the trust funds are guaranteed as to

both principal and interest and backed

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

Government. All else equal, the issuance of securities to the trust funds reduces the amount Treasury must

borrow from the public. Conversely,

when the trust funds need cash, they redeem investments and raise the financing requirements of the Treasury (again,

all else equal).

The Board of Trustees of the OASI

and DI Trust Funds provides the President and the Congress with short range

(10 y ears) and long range (75 year) actuarial estimates of each trust fund. Because of the inherent uncertainty in

estimates for as long as 75 years into the

future, the Social Security Trustees use

three alternative sets of economic and

demographic assumptions to show a

range of possibilities. Most analysts use

the intermediate set of assumptions to

evaluate the financial condition of the

Social Security program.

The 75-year estimates assume that future workers (except for those working

in types of employment not mandatorily covered by the program) are covered by Social Security once they enter

the labor force. The estimates reflect the

impact of the retirement of the baby

boomers, as well as changing demographics (e.g. an increase in life expectancy and a decline in the birth rate).

For example, in 1960, 5 workers paid

for every beneficiary . Today, the ratio

of workers to beneficiaries is 3.3 to 1

and 30 years from now, when the baby

boom generation retires, it will drop to

2 to 1. The retirement component of

the program is financed largely on a

“pay -as-you-go” basis, i.e., current retirement benefits are largely financed by

current payroll contributions.

Under current legislation and using

intermediate assumptions, the Trustees

estimated in their 1997 report that by

2012 cash disbursements for the programs will exceed cash receipts and by

“The Administration

intends to work with

Congress on a bipartisan

basis to enact long-term

Social Security reform in

1999.”

8 Discussion and Analysis

Consolidated Financial Statements of the United States Government, Fiscal 1997
2029 the combined trust funds assets,

primarily investments in Treasury securities, will likely be exhausted. With no

change in the program, in 2012 the trust

funds are expected to begin using interest on their investments to cover the

cash shortfall and to pay benefits. Starting in 2019, they would begin redeeming their investments in Treasury

securities to provide the needed cash. In

2029 trust fund assets would be exhausted; at that time, tax revenues

would be sufficient to pay approximately 75 percent of the benefits due. In

these consolidated financial statements

(which eliminate intragovernmental assets and liabilities), the OASDI cash

shortfall would result in a decrease in

cash and/or an increase in amounts borrowed from the public.

After a year of public discussion in

1998, the Administration intends to

work with Congress on a bipartisan basis to enact long-term Social Security reform in 1999. Acting sooner rather than

later to address the long-term financing

needs of the program will make the required changes less disruptive and ensure that Social Security works as well

for future generations as it has for past

generations. Additional information

about the Social Security program can

be found in the stewardship section of

these financial statements.

Financial condition of the medicare

trust funds

Two trust funds have been established to finance the Medicare program.

The Medicare Part A Hospital Insurance (HI) Trust Fund is financed by a

2.9 percent tax on wages and salaries required to be paid equally by employees

and employers. The Medicare Part B

Supplementary Medical Insurance (SMI)

Trust Fund receives premium payments

on behalf of Medicare beneficiaries who

have elected coverage. These premiums

covered approximately 25 percent of

the fund’s costs in fiscal 1997. The remainder of the costs is funded by Congressional appropriations.

The 1997 trustee’s report projected

that the HI trust funds’ assets were expected to be depleted by 2001. However, the Balanced Budget Act of 1997,

which was enacted after the trustee’s report was issued, contained provisions

that reduce the growth of the programs’

costs. As a result of the Balanced Budget

Act of 1997, the HI trust fund assets are

not expected to be depleted until 2010.

That legislation also established a bipartisan commission to assess and recommend structural changes to ensure

Medicare’s long term viability . The

Commission is required to issue its report by March 1999. The accompanying

chart presents the end of year HI trust

fund balances. Additional information

about the Medicare program can be

found in the stewardship section of

these financial statements.

Other commitments

The Federal Government has significant commitments associated with Federal insurance and loan programs. These

programs include bank deposit insurance, national flood insurance, federal

crop insurance, and a range of other insurance commitments that total over

$2,774 billion. In addition, the U.S.

Government has guaranteed a substantial portion of this country’s housing,

agriculture and education loans. Although the face value of these guaran-

“The Federal

Government has

significant commitments

associated with Federal

insurance and loan

programs.”

Discussion and Analysis 9

Consolidated Financial Statements of the United States Government, Fiscal 1997
tees was in excess of $712 billion as of

September 30, 1997. The amounts reported for insurance and loan commitments represent the most conservative

possible assumptions of maximum risk

exposure. These amounts are not future

claims on Federal resources. However,

the risk of future outlays associated

with such commitments could be substantial. Additional details about the

U.S. Government’s future commitments are presented in the notes to the

financial statements.

Management initiatives

Since passage of the CFOs Act in

1990 and its expansion in 1994, much

has been accomplished. There is now a

comprehensive set of generally accepted

accounting standards in place. For the

first time in its history, the U.S. Government has prepared and subjected to

audit consolidated financial statements

covering all its vast and complex programs and activities.

The 24 agencies subject to the CFOs Act

are issuing audited

agency-wide financial statements. Government

corporations subject

to the Government

Corporation and

Control Act also are

issuing audited financial statements. While these accomplishments are significant, they are just a beginning.

The Administration has designated financial management as one of the President’s priority management objectives.

The Administration has expressed its

commitment to assuring the integrity of

Federal financial information and gaining an unqualified opinion on the 1999

Consolidated Financial Statements

of the U.S. Government. For the Administration to achieve these objectives,

agencies must improve the quality of

their financial information.

Reflecting the further progress that

is needed to produce reliable financial

statements, auditors were unable to render an opinion on the consolidated financial statements of the U.S.

Government because accurate information about the amount and value of certain assets, liabilities, and costs was lacking. Actions to correct these weaknesses

have been identified and are being implemented. For example, plans at Defense

include completing a new accounting

sy stems architecture, reviewing inventory accounting processes, and developing a department wide property

accountability system. OMB, Treasury,

and GAO are working with the major

credit agencies to improve reporting of

loans and loan guarantees.

In addition, Treasury plans to step

up its efforts with agencies’ to ensure effective cash disbursement reconciliations by providing frequent analysis of

cash reciept and disbursement differences so that they can be promptly resolved.

Treasury and OMB are coordinating

efforts to resolve the problems agencies

are having in eliminating transactions

between Federal agencies. Treasury and

OMB will strengthen guidance and requirements for

agencies to capture

information needed

to reconcile balances with their

Federal trading

partners. Treasury

will also begin the

modification of its

sy stems to support

agency efforts.

In an effort to

determine the full extent of improper

payments that occur in major Federal

programs, the OMB is working with

the GAO, Inspectors General and affected Federal agencies in identifying at

risk programs and designing a cost effective approach to assessing the extent of

improper payments and appropriate remediation measures. Audits of Federal

programs pursuant to the Single Audit

Act Amendments of 1996 and OMB Circular A- 133, “Audits of States, Local

governments, and Non-Profit Organizations,” will be the principal mechanism

for assessing the extent of improper payments.

Finally, Treasury will increase its formal and informal training of agency financial management personnel. The

training will address common errors

identified in agency information used in

the preparation of the U.S. Govern-

“The Administration has

designated financial

management as one of

the President’s priority

management objectives.”

10 Discussion and Analysis

Consolidated Financial Statements of the United States Government, Fiscal 1997
ment’s 1997 consolidated financial statements.

Year 2000 Conversion

The Year 2000 problem presents the

most sweeping and urgent information

technology challenge faced by public

and private organizations since the beginning of the information technology era.

For the past several

decades, information systems have

ty pically used two

digits to represent

the y ear, such as

“98" for 1998, in order to conserve electronic data and

storage space and reduce operating

costs. In this format,

2000 is indistinguishable from 1900 because both are represented as ”00". As a

result, if not modified, computer systems or applications that use dates or

perform date/time sensitive calculations

may generate incorrect results beyond

1999.

The Administration has devoted a

great deal of time and attention to this

issue. OMB requires Federal agencies to

report quarterly on their progress in addressing the issue of year 2000 conversion. More recently, the President has

established a council on Year 2000 Conversion led by an Assistant to the President. This person will oversee Federal

preparations, speak for the United

States in national and international forums, and coordinate with governments

at all levels.

The U.S. Government’s strategy for

resolving the Year 2000 problem has

five phases: awareness, assessment, renovation, validation, and implementation.

The milestone for completion of work

for the renovation phase is targeted for

September 1998. Other milestones are

January 1999 for

validation and

March 1999 for implementation. Priority is being given to

the 7,850 “mission

critical” systems. As

of February 15,

1998, OMB estimated that 35 percent have been

fixed, about 45 percent still need to be

repaired, 15 percent

will be replaced and

5 percent will be retired. OMB is monitoring agency progress and taking actions necessary to ensure milestones are met. The latest cost

estimate for corrective actions, provided

by agencies to OMB, is nearly $5 billion.

Additional Information

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

statements of the individual agencies

listed in the Appendix. In addition, related U.S. Government publications

such as the “Budget of the United States

Government’, the ”Treasury Bulletin,”

the “Monthly Treasury Statement of Receipts and Outlays of the United States

Government,” and the Trustee’s reports

for the Social Security and Medicare programs may be of interest.

“The Year 2000 problem

presents the most

sweeping and urgent

information technology

challenge faced by public

and private organizations

since the beginning of

the information

technology era.”

Discussion and Analysis 11

Consolidated Financial Statements of the United States Government, Fiscal 1997
12 Discussion and Analysis

Consolidated Financial Statements of the United States Government, Fiscal 1997
Comptroller General

of the United States

Washington, D.C. 20548

B-279169

March 31, 1998

The President

The President of the Senate

The Speaker of the House of Representatives

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

Management Reform Act, mandates important reforms in federal financial

management to promote greater accountability in managing the finances of our

national government. Among these reforms are requirements for the preparation

and audit of individual financial statements for the federal government’s 24 largest

departments and agencies and the annual submission of consolidated financial

statements for the U.S. government. GAO is required to audit the consolidated

statements, and our first report is enclosed.

These reforms are leading to marked improvements in federal financial

management. Several major agencies have made good progress in producing more

reliable financial information about their operations. However, as outlined in our

report, improvements in other areas of government financial operations have yet to

be made and critical governmentwide accounting issues still need to be addressed.

The federal government can achieve the fiscal accountability called for by the CFO

Act, but strong leadership, commitment, and additional concerted effort will be

necessary. 

We appreciate the cooperation and assistance we received from the Chief Financial

Officers and Inspectors General throughout government, as well as Department of

Treasury and Office of Management and Budget officials, in carrying out our

responsibility to audit the government’s consolidated financial statements. We look

forward to continuing to work with these officials to achieve the CFO Act’s

financial management reform goals.

James F. Hinchman

Acting Comptroller General

of the United States 

General Accounting Office Report 13

Consolidated Financial Statements of the United States Government, Fiscal 1997
United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-279169

The President

The President of the Senate

The Speaker of the House of Representatives

The Chief Financial Officers Act, as expanded by the Government Management Reform

Act, requires the Secretary of the Treasury, in coordination with the Director of the Office

of Management and Budget, to annually submit to the President and the Congress audited

consolidated financial statements of the U.S. government beginning with those for fiscal

year 1997. GAO is required to audit these statements.

In summary, significant financial systems weaknesses, problems with fundamental

recordkeeping, incomplete documentation, and weak internal controls, including

computer controls, prevent the government from accurately reporting a large portion of its

assets, liabilities, and costs. These deficiencies affect the reliability of the consolidated

financial statements and much of the underlying financial information. They also affect

the government’s ability to accurately measure the full cost and financial performance of

programs and effectively and efficiently manage its operations. Major problems included

the federal government’s inability to

—properly account for and report billions of dollars of property, equipment, materials,

and supplies;

—properly estimate the cost of most federal credit programs and the related loans

receivable and loan guarantee liabilities;

—estimate and report material amounts of environmental and disposal liabilities and

related costs;

—determine the proper amount of various reported liabilities, including postretirement

health benefits for military and federal civilian employees, veterans compensation

benefits, accounts payable, and other liabilities;

—accurately report major portions of the net costs of government operations;

—determine the full extent of improper payments that occur in major programs and that

are estimated to involve billions of dollars annually;

—properly account for billions of dollars of basic transactions, especially those between

governmental entities;

14 General Accounting Office Report

Consolidated Financial Statements of the United States Government, Fiscal 1997
—ensure that the information in the consolidated financial statements is consistent

with agencies’ financial statements;

—ensure that all disbursements are properly recorded; and

—effectively reconcile the change in net position reported in the financial

statements with budget results.

Such deficiencies prevented us from being able to form an opinion on the

reliability of the accompanying financial statements. They are the result of

widespread material internal control and financial systems weaknesses that

significantly impair the federal government’s ability to adequately safeguard

assets, ensure proper recording of transactions, and ensure compliance with laws

and regulations. Additionally, (1) serious computer control weaknesses expose the

government’s financial information to inappropriate disclosure, destruction,

modification, or fraud and (2) material control weaknesses affect the government’s

tax collection activities. Further, tests for compliance with selected provisions of

laws and regulations related to financial reporting disclosed material instances of

noncompliance discussed later in this report. 

Our audit of the federal government’s consolidated financial statements and the

Inspectors General (IG) audits of major component agencies’ financial statements

for fiscal year 1997 have resulted in (1) an identification and analysis of

deficiencies in the government’s recordkeeping and control systems and (2)

recommendations to correct them. Fixing these problems represents a significant

challenge because of the size and complexity of the federal government and the

discipline needed to comply with new accounting and reporting requirements.

Considerable effort is already underway to make such improvements. Several

individual agencies that have been audited for a number of years faced serious

deficiencies in their initial audits and made good progress in resolving them. With

a concerted effort, the federal government, as a whole, can continue to make

progress toward generating reliable information on a regular basis. Annual

financial statement audits are essential to ensuring the effectiveness of the

improvements now underway.

This report provides our (1) disclaimer of opinion on the government’s fiscal year

1997 consolidated financial statements, (2) report on internal controls, and (3)

report on compliance with selected provisions of laws and regulations related to

financial reporting. It also presents information on (1) the Year 2000 computing

problem, (2) issues affecting the government’s long-term financial condition, and

(3) actions underway to improve financial reporting across the federal government.

The objectives, scope, and methodology of our work are discussed in the appendix

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General Accounting Office Report 15

Consolidated Financial Statements of the United States Government, Fiscal 1997
to this report. We provided a draft of this report to senior Department of the Treasury

and Office of Management and Budget (OMB) officials, who expressed their

commitment to address the deficiencies this report outlines. Our work was done in

accordance with generally accepted government auditing standards.

DISCLAIMER OF OPINION

Because we were unable to determine the reliability of significant portions of the

accompanying consolidated financial statements for the reasons described above, we

are unable to, and we do not, express an opinion on the accompanying consolidated

financial statements for fiscal year 1997. However, we were able to determine that

amounts reported for environmental and disposal liabilities and liabilities for veterans

compensation benefits are understated by material amounts.

Additionally, certain agencies have not, at this date, finalized their individual financial

statements for fiscal year 1997. It is possible that additional recordkeeping and auditing

procedures will result in changes in those agency statements. Based on the audit

procedures we have performed, we are satisfied that any such changes will not

significantly affect our findings and conclusions in this report.

Because of the government’s serious systems, recordkeeping, documentation, and

control deficiencies, amounts reported in the consolidated financial statements and

related notes do not provide a reliable source of information for decision-making by the

government or the public. These deficiencies also diminish the reliability of any

information contained in the accompanying Management’s Discussion and Analysis

and any other financial management information—including budget information and

information used to manage the government day-to-day—which is taken from the same

data sources as the consolidated financial statements.

Material Deficiencies

The following sections describe material deficiencies we identified and discuss their

effect on the financial statements and the management of government operations.

 Property, Plant and Equipment and Inventories and Related Property The federal

government—one of the world’s largest holders of physical assets—does not have

accurate information about the amount of assets held to support its domestic and global

operations. Hundreds of billions of dollars of the more than $1.2 trillion of these

reported assets are not adequately supported by financial and/or logistical records.

These include (1) operating materials and supplies comprised largely of ammunition,

defense repairable items (such as navigational computers, landing gear, and

transmissions), and other military supplies and (2) buildings, military equipment, and

various government-owned assets in the hands of private sector contractors.

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16 General Accounting Office Report

Consolidated Financial Statements of the United States Government, Fiscal 1997
Because the government does not have complete and reliable information to support its

asset holdings, it could not satisfactorily verify the existence of all reported assets,

substantiate the amounts at which they were valued, or determine whether all of its

assets were included in its financial statements. For example, certain recorded military

property had, in fact, been sold or disposed of in prior years—or could not be

located—and an estimated $9 billion of known military operating materials and

supplies were not reported. These problems impair the government’s ability to (1)

know the location and condition of all its assets, including those used for military

deployment, (2) safeguard them from physical deterioration, theft, or loss, (3) prevent

unnecessary storage and maintenance costs or purchase of assets already on hand, and

(4) determine the full costs of government programs that use the assets.

 Loans Receivable and Loan Guarantee Liabilities Most federal credit agencies

responsible for federal lending programs were unable to properly report the cost of

these programs. Federal credit programs include direct loans and loan guarantees for

farms, rural utilities, low and moderate income housing, small business, veterans’

mortgages, and student loans. As of the end of fiscal year 1997, the government

reported $156 billion of loans receivable and $37 billion of liabilities for estimated

losses on defaulted guaranteed loans. However, the net loan amounts expected to be

collected and guarantee amounts expected to be paid could not be reasonably estimated

because of a lack of historical data or other evidence. In addition, some agencies did

not have adequate information to support the validity of their outstanding direct loans

or to track the specific loans that they have an obligation to guarantee. Until federal

credit agencies correct these serious data deficiencies, information supplied by them

about the cost of their credit programs, including information to support annual budget

requests for these programs, should be used with caution in making future budgetary

decisions, managing program costs, and measuring the performance of credit activities.

 Environmental Liabilities Liabilities for disposal of hazardous waste and

remediation of environmental contamination, reported at $212 billion, were materially

understated primarily because an estimate has not been developed for major weapons

systems, such as aircraft, missiles, ships and submarines, and for ammunition. Properly

stating these liabilities could assist in determining priorities for cleanup activities and

allow for appropriate consideration of future budgetary resources needed to carry out

these activities.

 Liabilities The systems and data were not available to accurately estimate

significant portions of the more than $2.2 trillion reported as federal employee and

veterans benefits liabilities. For example, to estimate the $218 billion reported as

military postretirement health benefit liabilities, the government used unaudited budget

information because the necessary cost data were not available. Also, the federal

government cannot provide adequate assurance about the reliability of historical claim

information at the insurance carrier-level used to estimate the $159 billion reported for

B-279169

General Accounting Office Report 17

Consolidated Financial Statements of the United States Government, Fiscal 1997
civilian postretirement health benefit liabilities. Additionally, the estimated liability

for veterans compensation benefits is materially understated because it does not

include estimates for anticipated changes in disability ratings and for incurred

claims not yet reported. In addition, some agencies do not maintain adequate

records and controls or have systems to ensure the accuracy and completeness of

data used to calculate estimates of a reported $98 billion of accounts payable and a

reported $169 billion of other liabilities such as those for litigation. 

These problems significantly affect the determination of the full cost of the

government’s current operations, as well as the extent of actual liabilities. Further,

commitments and contingencies were not properly reported because many amounts

represent the maximum risk exposure rather than the amount of loss that is

reasonably possible and certain commitments are not reported.

 Costs of Government Operations The government was unable to support

significant portions of the more than $1.6 trillion reported as the total net costs of

government operations. The previously discussed material deficiencies in reporting

assets and liabilities and the lack of effective reconciliations, as discussed below,

also affect reported net costs. Further, we were unable to determine whether the

amounts reported in the individual net cost categories reported in the Statement of

Net Cost and in the subfunction detail following the statement were properly

classified. Without accurate cost information, the federal government is limited in

its ability to control and reduce costs, assess performance, evaluate programs, and

set fees to recover costs where required.

The government is also unable to determine the full extent of improper

payments—that is, payments made for other than valid, authorized purposes. In this

regard, estimates of improper payments in major federal programs, such as

Medicare, total in the billions of dollars annually. The full extent of such payments,

however, is unknown because many agencies have not estimated the magnitude of

improper payments in their programs. The reasons for improper payments range

from mistakes to fraud and abuse. Such payments are likely to continue until

agencies implement better systems and controls.

 Unreconciled Transactions To make the consolidated financial statements

balance, Treasury recorded a net $12 billion item on the Statement of Changes in

Net Position, which it labeled unreconciled transactions. This out-of-balance

amount is the net of more than $100 billion of unreconciled transactions—both

positive and negative amounts—which Treasury attributes to the government’s

inability to properly identify and eliminate transactions between federal

government entities and to agency adjustments that affected net position.

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18 General Accounting Office Report

Consolidated Financial Statements of the United States Government, Fiscal 1997
Agencies’ accounts can be out of balance with each other, for example, when one or the

other of the affected agencies does not properly record a transaction with another agency

or the agencies record the transactions in different time periods. These out-of-balance

conditions can be detected and corrected by instituting procedures for reconciling

transactions between agencies. Generally, such reconciliations are not performed. These

unreconciled transactions result in material misstatements of assets, liabilities, revenues,

and/or costs.

 Preparation of Consolidated Financial Statements The federal government cannot

ensure that the information in the consolidated financial statements is consistent with

agency financial statements. Treasury relies on agencies to submit data needed to prepare

the federal government’s consolidated financial statements. Such data consists of

approximately 2,000 individual reporting components, each having many account

balances. However, several agencies were unable to provide assurance that amounts

submitted to Treasury agreed with their agency financial statements. In addition, many

agencies needed to make significant subsequent adjustments to their submissions in an

effort to properly classify amounts in the consolidated financial statements. We found

further misstatements, which Treasury corrected, totalling several hundred billion dollars

in agency-submitted information primarily because (1) agencies submitted incorrectly

coded financial data that contributed to the unreconciled transactions described above, (2)

agencies recorded similar transactions in different general ledger accounts, and (3) certain

amounts were materially misallocated to net cost categories.

These problems are compounded by the substantial volume of information submitted,

limitations in the federal government’s current general ledger account structure, and the

significant amount of other information that Treasury must gather to prepare the

consolidated financial statements. As a result, additional misstatements in the

government’s consolidated financial statements could exist.

 Cash Disbursement Activity Several major agencies are not effectively reconciling

disbursements. These reconciliations are a key control—similar in concept to individuals

reconciling personal checkbooks with a bank’s records each month. However, there were

(1) billions of dollars of unresolved gross differences between agencies’ and Treasury

records of cash disbursements as of the end of fiscal year 1997 and (2) large amounts of

unresolved differences arbitrarily written off by some agencies without adequately

determining whether their records may, in fact, have been correct. As a result, the

government is unable to ensure that all disbursements are properly recorded. Therefore,

its financial statements could contain significant misstatements.

 Reconciling the Change In Net Position with Budget Results The government did

not have a process to obtain information to effectively reconcile the reported change in

net position of $3 billion and the reported budget deficit of $22 billion. The reconciling

items comprising the difference are typically the result of timing differences in the

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General Accounting Office Report 19

Consolidated Financial Statements of the United States Government, Fiscal 1997
recognition and measurement of revenue and costs. Under budgetary accounting, the

budget deficit reflects outlays and receipts that generally are measured on a cash basis.

For financial statement reporting purposes, costs are reported when incurred rather

than when paid. Federal decisionmakers use budgetary accounting to control the use

of funds and for fiscal planning. Once the federal government produces reliable

consolidated financial statements, an effective reconciliation would provide additional

assurance of the reliability of budget results.

MATERIAL CONTROL WEAKNESSES

While the purpose of our work was not to express, and we do not express, an opinion

on internal controls, we found pervasive material weaknesses 1 in internal controls

across government that contribute to these deficiencies. These weaknesses, such as the

lack of effective reconciliations and poorly designed systems, result in ineffective

controls over (1) safeguarding the federal government’s assets from unauthorized

acquisition, use, or disposition, (2) ensuring that transactions are executed in

accordance with laws governing the use of budget authority and with other relevant

laws and regulations, and (3) ensuring the reliability of financial statements.

Individual agency financial statement audit reports describe the affect of such

weaknesses on specific agencies and identify additional internal control weaknesses,

some of which are material to individual agencies. We also found that (1) widespread

and serious computer control weaknesses affect virtually all federal agencies and

significantly contribute to many material deficiencies discussed above and (2) material

control weaknesses affect the government’s tax collection activities. The scope of our

evaluation of internal controls was limited by the deficiencies noted throughout this

report.

Computer Control Weaknesses

Widespread computer control weaknesses are placing enormous amounts of federal

assets at risk of fraud and misuse, financial information at risk of unauthorized

modification or destruction, sensitive information at risk of inappropriate disclosure,

and critical operations at risk of disruption. Significant information security

weaknesses in systems that handle the government’s unclassified information have

been reported in each of the major federal agencies. The most serious reported

problem is inadequately restricted access to sensitive data. In today’s highly

computerized and interconnected environment, such weaknesses are vulnerable to

exploitation by outside intruders as well as authorized users with malicious intent.

1

 A material weakness is a condition in which the design or operation of one or more

of the internal control components does not reduce to a relatively low level the risk

that errors or irregularities in amounts that would be material to the financial

statements may occur and not be detected promptly by employees in the normal course

of performing their duties.

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20 General Accounting Office Report

Consolidated Financial Statements of the United States Government, Fiscal 1997
The consequences of computer control weaknesses could be devastating and

costly—for instance, placing billions of dollars of payments and collections at risk

of fraud and impairing military operations. In addition to these potential

consequences at Treasury and Defense, identified weaknesses at agencies such as the

Department of Health and Human Service’s Health Care Financing Administration

and the Social Security Administration place sensitive medical and other personal

records at risk of disclosure.

Because computer control weaknesses are pervasive across government, in February

1997, we added information security to our list of federal high-risk areas. 2 The

problem persists, in large part, because agency managers have not fully instituted a

framework for assessing risk and ensuring that necessary policies and controls are in

place and remain effective on an ongoing basis. Over the past 2 years, we and the

IGs have issued more than 70 reports that identify computer control weaknesses in

the federal government and made recommendations to address them.

Tax Collection Activities

The federal government has material weaknesses in controls related to its tax

collection activities, which affect its ability to efficiently and effectively account for

and collect the government’s revenue. 3 This situation requires extensive reliance on

ad hoc programming and analysis and material audit adjustments to prepare basic

financial information. For example, the government currently does not obtain

information necessary to identify tax collections by every type of tax at the time of

collection. As a result, the government cannot separately report revenue for three of

the four largest revenue sources—Social Security, Hospital Insurance, and

individual income taxes. Because of this, the government had to report these three

tax types in the same line item on the Consolidated Statement of Changes in Net

Position. Additionally, excise tax revenues are distributed to the relevant trust funds

based on assessments rather than, as required by the Internal Revenue Code, on

collections.

2 High-Risk Series: An Overview (GAO/HR-97-1, February 1997) and High-Risk

Series: Information Management and Technology (GAO/HR-97-9, February 1997).

3 Financial Audit: Examination of IRS’ Fiscal Year 1997 Custodial Financial

Statements (GAO/AIMD-98-77, February 26, 1998).

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General Accounting Office Report 21

Consolidated Financial Statements of the United States Government, Fiscal 1997
Serious weaknesses also affect the federal government’s ability to effectively

manage its taxes receivable and other unpaid assessments. 4 The lack of appropriate

subsidiary systems to track the status of taxpayer accounts affects the government’s

ability to make informed decisions about collection efforts. This weakness, for

example, has resulted in the government pursuing and collecting, from individual

taxpayers, taxes that had already been paid. Additionally, the federal government is

vulnerable to loss of tax revenue due to weaknesses in controls over disbursements

for tax refunds. The government does not perform fundamental verification

procedures to ensure the validity of amounts claimed by taxpayers as overpayments

prior to making disbursements for refunds. Consequently, it does not have effective

controls to prevent the inappropriate payment of refunds, increasing its exposure to

lost revenue.

NONCOMPLIANCE WITH

LAWS AND REGULATIONS

Our objective was not to, and we do not, express an opinion on overall compliance

with laws and regulations. Tests for compliance with selected provisions of laws and

regulations related to financial reporting disclosed that, as discussed earlier, the

federal government makes improper payments in major programs such as Medicare.

Additionally, as described below, we noted material noncompliance related to

financial management system requirements. However, our work would not

necessarily disclose all material noncompliance. Further, the scope of our tests was

limited by the inability to audit the financial statements. Other instances of

noncompliance, some of which are material to individual federal agencies, are

reported in the individual agency financial statement audit reports.

The Federal Financial Management Improvement Act of 1996 requires auditors

performing financial audits to report whether agencies’ financial management

systems comply substantially with federal accounting standards, financial systems

requirements, and the government’s standard general ledger at the transaction level.

We reported in October 1997 5 that prior audit results and agency self-reporting all

point to significant challenges that agencies must meet to fully implement these

requirements. The significant financial management deficiencies discussed

throughout this report underscore the challenge.

4

 Other unpaid assessments consist of amounts for which (1) neither the taxpayer nor

a court has affirmed that the amounts are owed and (2) the government does not

expect further collections due to factors such as the taxpayer’s death, bankruptcy, or

insolvency.

5 Financial Management: Implementation of the Federal Financial Management

Improvement Act of 1996 (GAO/AIMD-98-1, October 1, 1997).

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22 General Accounting Office Report

Consolidated Financial Statements of the United States Government, Fiscal 1997
The majority of federal agencies’ financial management systems are not designed to meet

current accounting standards and systems requirements and cannot provide reliable

financial information for managing government operations and holding managers

accountable. Auditors’ reports for fiscal year 1997 agency financial audits are disclosing

the continuing poor shape in which agencies find their financial systems. As of the date of

this report, only four agency auditors have reported that their agency’s financial systems

comply with the act’s requirements.

YEAR 2000 COMPUTING CRISIS

The Year 2000 computing crisis is the most sweeping and urgent information technology

challenge facing public and private sector organizations. 6 The federal government is

extremely vulnerable due to its widespread dependence on computer systems to process

financial transactions and management information, deliver vital public services, and

carry out its operations. This challenge is made more difficult by the age and poor

documentation of the government’s existing systems and its lackluster track record in

modernizing systems to deliver expected improvements and meet promised deadlines.

Consequently, we surfaced the Year 2000 computing crisis as a high-risk area across

government in February 1997. Unless this issue is successfully addressed, serious

consequences could occur. For example,

—payments to veterans with service-connected disabilities could be severely delayed if

the system that issues them either halts or produces checks so erroneous that it must be

shut down and checks processed manually;

—the Social Security Administration process to provide benefits to disabled persons

could be disrupted if interfaces with state systems fail;

—federal systems used to track student loans could produce erroneous information on

loan status, such as indicating that a paid loan was in default;

—Internal Revenue Service (IRS) tax systems could be unable to process returns, thereby

jeopardizing revenue collection and delaying refunds; and

—the military services could find it extremely difficult to efficiently and effectively

equip and sustain its forces around the world.

6

 For the past several decades, information systems have typically used two digits to

represent the year, such as “98" for 1998, in order to conserve electronic data storage and

reduce operating costs. In this format, however, 2000 is indistinguishable from 1900

because both are represented as ”00." As a result, if not modified, computer systems or

applications that use dates or perform date- or time-sensitive calculations may generate

incorrect results beyond 1999.

B-279169

General Accounting Office Report 23

Consolidated Financial Statements of the United States Government, Fiscal 1997
In the past year, we have issued over 20 reports outlining actions underway in a wide

range of federal activities to address this challenge and providing numerous

recommendations for additional improvements needed. Moreover, the President recently

created a Council on Year 2000 Conversion, led by an Assistant to the President, to

oversee federal agencies’ Year 2000 efforts, speak for the United States in national and

international forums, and coordinate with governments at all levels, as well as with the

private sector. While some progress has occurred, a great deal of additional effort is

required to prevent serious disruptions in government operations and in financial

transactions and reporting. 7 We will continue to monitor this situation and make needed

recommendations.

FINANCIAL STATEMENT AND BUDGET DECISIONS:

ADDING THE LONG-TERM PERSPECTIVE

When the government is able to produce them, reliable consolidated financial statements

will be a valuable tool for analyzing the government’s financial condition. They will also

help inform budget deliberations by providing additional information beyond that

provided in the budget on the long-term cost implications for a wide range of government

programs. The largely cash-based budget and the financial statements offer different

perspectives which, when combined, can provide a fuller view of the costs of agency

programs and of the government’s commitments.

A view of the long-term sustainability of fiscal policies can also be helpful to

decisionmakers considering the government’s financial position and making decisions

about resource allocation. Such a picture requires projections of spending and revenues

into the future. In this context, the sovereign power to tax and the implied commitments

of social insurance programs—such as Social Security and Medicare—must be

considered in addition to those items that are quantified in the financial statements. For

example, if the combined Social Security trust funds’ disbursements exceed receipts, as

currently estimated to occur in 2012, the government’s financing needs will increase.

Since 1992, in a series of long-term simulations, we have analyzed various fiscal policy

alternatives and their long-term sustainability. 8

7 Year 2000 Computing Crisis: Strong Leadership and Effective Public/Private

Cooperation Needed to Avoid Major Disruptions (GAO/T-AIMD-98-101).

8

 The most recent of these reports are Budget Issues: Long-Term Fiscal Outlook

(GAO/T-AIMD/OCE-98-83, February 25, 1998) and Budget Issues: Analysis of

Long-Term Fiscal Outlook (GAO/AIMD/OCE-98-19, October 22, 1997).

B-279169

24 General Accounting Office Report

Consolidated Financial Statements of the United States Government, Fiscal 1997
FINANCIAL MANAGEMENT

IMPROVEMENTS UNDERWAY

The executive branch recognizes the extent and severity of the financial management

deficiencies discussed in this report and that addressing them will require concerted

improvement efforts across government. Financial management has been designated one

of the President’s priority management objectives, with the goal of having performance

and cost information in a timely, informative, and accurate way, consistent with federal

accounting standards. Also, the administration has made a commitment to complete

audits and gain unqualified opinions for all CFO Act agencies and the government as a

whole.

To help achieve this goal, strategies are being established involving specific agencies. For

example, plans at the Department of Defense include completing a new accounting

systems architecture, reviewing inventory accounting processes, and developing a

departmentwide property accountability system. Treasury and OMB are developing plans

to improve the accuracy and timeliness of governmentwide accounting and reporting.

OMB is also working with individual agencies to address problems precluding

unqualified audit opinions, which will require the active involvement of individual

agency IGs as well. We will continue to focus on financial systems and internal control

deficiencies at particular agencies. For example, we have issued a series of reports 9 on

the factors to be considered and the data that must be available to meet accounting

standards for Defense’s environmental and disposal liabilities. Also, we plan to further

evaluate Defense’s property and logistical systems to recommend additional corrective

actions to address weaknesses in accounting for major asset categories on the financial

statements. We are also working with the major credit agencies to improve reporting of

loans and loan guarantees.

9 Financial Management: Factors to Consider in Estimating Environmental Liabilities

for Removing Hazardous Materials in Nuclear Submarines and Ships

(GAO/AIMD-97-135R, August 7, 1997), Financial Management: DOD’s Liability for

Aircraft Disposal Can Be Estimated (GAO/AIMD-98-9, November 20, 1997), Financial

Management: DOD’s Liability for the Disposal of Conventional Ammunition Can Be

Estimated (GAO/AIMD-98-32, December 19, 1997), and Financial Management:

DOD’s Liability for Missile Disposal Can Be Estimated (GAO/AIMD-98-50R, January

7, 1998).

B-279169

General Accounting Office Report 25

Consolidated Financial Statements of the United States Government, Fiscal 1997
B-279169

In addition, the coordinated efforts of Treasury and OMB will be required to identify and

provide solutions for certain governmentwide deficiencies, such as the inability to

properly identify and eliminate transactions between federal entities. We will continue to

provide suggestions for resolving governmentwide problems and to monitor progress in

overcoming them.

Philip T. Calder

Chief Accountant

March 20, 1998

26 General Accounting Office Report

Consolidated Financial Statements of the United States Government, Fiscal 1997
OBJECTIVES, SCOPE, AND METHODOLOGY

The federal government is responsible for

—preparing the annual consolidated financial statements accurately and in conformity

with the basis of accounting described in note 1;

—establishing, maintaining, and assessing the internal control structure to provide

reasonable assurance that the broad control objectives of the Federal Managers’

Financial Integrity Act 10 are met, which include (1) safeguarding assets against loss

from unauthorized acquisition, use, or disposition, (2) ensuring the execution of

transactions in accordance with laws governing the use of budget authority and with

other laws and regulations that could have a direct and material effect on the

consolidated financial statements or that are listed in OMB’s audit guidelines 11 and

could have a material effect on the consolidated financial statements, and (3)

recording, processing, and summarizing transactions to permit the preparation of

reliable financial statements and to maintain accountability for assets; and

—complying with applicable laws and regulations.

Our objective was to audit the federal government’s fiscal year 1997 consolidated

financial statements. 

The Government Management Reform Act (GMRA) expanded on the requirements of the

CFO Act by requiring that the IGs of 24 major federal agencies annually audit

agencywide financial statements prepared by these agencies. 12 Our work was performed

in close coordination and cooperation with the IGs to achieve our joint audit objectives.

This work included separate GAO audits of certain material agency components as

discussed below. A significant portion of our work was performed at the Departments of

the Treasury, Defense, and Health and Human Services, and the Social Security

Administration. These agencies comprise a major portion of the amounts reported in the

federal government’s consolidated financial statements. At other federal agencies, we

focused largely on accounts that are material to the consolidated financial statements. We

10 The Federal Managers’ Financial Integrity Act requires agency managers to evaluate

and report annually to the President and the Congress on the adequacy of their internal

controls and accounting systems and what is being done to correct the problems.

11 OMB Bulletin 93-06, Audit Requirements for Federal Financial Statements, January 8,

1993.

12 GMRA authorized OMB to designate agency components that also would receive a

financial statement audit.

APPENDIX APPENDIX

General Accounting Office Report 27

Consolidated Financial Statements of the United States Government, Fiscal 1997
performed sufficient audit work to provide our report on the consolidated financial

statements, internal controls, and compliance with laws and regulations.

We separately audited the following material agency components

—We audited and expressed an unqualified opinion on the IRS custodial financial

statements for fiscal year 1997. These financial statements reported over $l.6 trillion of

tax revenue, $142 billion of tax refunds, and $28 billion of net federal taxes

receivable. 13

—We audited and expressed an unqualified opinion on the Schedule of Federal Debt

Managed by Treasury’s Bureau of the Public Debt. 14 This schedule reported (1) $3.8

trillion of federal debt held by the public comprising individuals, corporations, state or

local governments, the Federal Reserve System, and foreign governments and central

banks, (2) $1.6 trillion of federal debt held by federal entities, such as the Social

Security trust funds, and (3) $246 billion of interest on federal debt held by the public.

—We performed audit procedures on cash balances maintained and internal controls

over the cash receipts and disbursements processed by Treasury on behalf of the

federal government.

We provided the results of our work at Treasury to the Treasury Office of Inspector

General for consideration in its audit of Treasury’s fiscal year 1997 departmentwide

financial statements.

—We audited and expressed unqualified opinions on the December 31, 1997, financial

statements of the Bank Insurance Fund and on the December 31, 1996, financial

statements for all of the funds administered by the Federal Deposit Insurance

Corporation (FDIC). 15 We also performed additional audit procedures on FDIC’s

balances at September 30, 1997.

APPENDIX APPENDIX

13 Financial Audit: Examination of IRS’ Fiscal Year 1997 Custodial Financial Statements

(GAO/AIMD-98-77, February 26, 1998).

14 Financial Audit: Examination of the Bureau of the Public Debt’s Fiscal Year 1997

Schedule of Federal Debt (GAO/AIMD-98-65, February 27, 1998).

15 Financial Audit: Bank Insurance Fund’s 1997 Financial Statements (B-279515, March

25, 1998) and Financial Audit: Federal Deposit Insurance Corporation’s 1996 and 1995

Financial Statements (GAO/AIMD-97-111, June 30,1997).

28 General Accounting Office Report

Consolidated Financial Statements of the United States Government, Fiscal 1997
We also made significant preparations for the fiscal year 1997 audit work, including the

following.

—At the Department of the Treasury, we conducted audits of IRS’s financial statements

since fiscal year 1992 and conducted the initial financial statement audits of the U.S.

Customs Service.

—At the Department of Health and Human Services, we worked closely with the IG in

testing Medicare and Medicaid expenditures for fiscal year 1996, which resulted in the IG

reporting an estimated $23 billion of improper Medicare fee-for-service payments.

—At the Department of Defense, we conducted initial financial audits at the military

services over a period of several years. Also, leading up to the fiscal year 1997 audit, we

assessed progress in resolving weaknesses, including those related to disbursements,

inventories, and property and equipment.

—At the Social Security Administration, we focused our efforts on key areas such as

benefit expenditures, computer controls, and actuarial projections.

—At these and other agencies, we reviewed the fiscal year 1996 financial statement

audits performed by the IGs or their contractors and, for certain agencies, assisted in the

development of audit plans for fiscal year 1997 audits.

Agency-level financial statements and audit reports for the agencies covered by the CFO

Act provide additional information about the operations of each of these entities. For

example, these audits have identified numerous internal control and accounting systems

weaknesses and noncompliance, many of which are material to the respective agencies or

components. Further, as of the completion of our field work, several agencies received

unqualified opinions on fiscal year 1997 financial statements. These agencies are the:

—Social Security Administration.

—National Aeronautics and Space Administration.

—Nuclear Regulatory Commission.

—Department of Energy.

—General Services Administration.

—Department of Labor.

—Small Business Administration.

—Environmental Protection Agency.

APPENDIX APPENDIX

General Accounting Office Report 29

Consolidated Financial Statements of the United States Government, Fiscal 1997
United States Government 

Consolidated Financial Statements 

for the year ended September 30, 1997

Balance sheet

This statement shows the operating

assets of the Government that were acquired under fiscal 1997, and prior year

budgets; and which remain available as

resources to supply Government goods

and services in the future. It also shows

the Government’s operating liabilities

including debt held by the public. It includes some liabilities that have not yet

been funded by appropriations. The

net position shown in the statement reflects operating assets less liabilities.

The balance sheet does not include

values for certain assets or future responsibilities under social insurance programs such as Social Security and

Medicare. Excluded assets include land

not used in general operations, natural

resources and assets held solely for

their historical, cultural or artistic significance. The balance sheet also does

not reflect the Government’s power to

tax. Deferred maintenance is not

shown this year but will be disclosed in

future years after agencies implement

the new accounting standard requiring

such information.

The stewardship reporting section

provides information on the Government’s future responsibilities for social

insurance and on the Government’s

land not used in general operations. An

explanation of the nature of the social

insurance trust funds is included in

Note 16 together with information

about the receipts, disbursements and

assets of the major social insurance

trust funds. The stewardship reporting

section will be expanded in future

years to disclose additional information

required by recently approved accounting standards.

The line item “commitments and

contingencies” is display ed to inform

the reader that a note disclosure is presented, relating to certain existing conditions, situations or sets of

circumstances involving uncertainty as

to possible gain or loss. The amounts

stated there are in terms of maximum

theoretical risk exposure. However, it

is not likely that the maximum loss

will be incurred.

30 Consolidated Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
United States Government

Consolidated Balance Sheet

as of September 30, 1 997

(In billions of dollars)

Assets:

Cash and other monetary assets (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . 92.7

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.2

Loans receivable (Note 3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156.2

Taxes receivable (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.1

Inventories and related property (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . 209.4

Property, plant and equipment (Note 6). . . . . . . . . . . . . . . . . . . . . . . . . . . 1,017.0

Other assets (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.9

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601.5

Liabilities and net position:

Accounts payable (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.7

Federal debt securities held by the public (Note 9) . . . . . . . . . . . . . . . . . 3,768.2

Federal employee and veteran benefits payable (Note 10). . . . . . . . . . 2,243.7

Environmental liabilities (Note 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211.7

Benefits due and payable (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77.7

Loan guarantee liabilities (Note 3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.7

Other liabilities (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168.8

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,604.5

Commitments and contingencies (Note 14)

Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5,003.0

Total liabilities and net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601.5

The accompanying notes are an integral part of these financial statements.

Consolidated Financial Statements 31

Consolidated Financial Statements of the United States Government, Fiscal 1997
Statement of net cost

This statement shows the net cost

of Government operations for fiscal

1997, which is funded by taxation or

through Federal borrowing. The statement reflects the cost incurred to carry

out the national priorities as determined by law.

Cost is divided among major functions, which are the same as in the

budget except that the allocation of

cost to the functions is based on accounting standards. Thus, cost are reported on an accrual basis and allocated

differently than in the budget. For example, the cost of pensions and retiree

health benefits are allocated among all

the functions that employ workers

rather than as a subfunction in the income security function. A description

of each of the functions and the component of net cost for the activities included in such function is located

immediately following the statement.

The statement contains the following three components for each function:

The gross cost of Government operations; the revenues earned from the public for goods and services; and the net

cost of Government operations, which is

the gross cost less the revenue earned.

Gross cost

Gross cost includes the full cost of

the functions. These costs may be directly traced, assigned on a cause and effect basis or reasonably allocated to the

function.

Earned revenue

These are revenues that the U.S.

Government has earned by providing

goods and services to the public at a

price.

Net cost

The net cost of Government operations is the gross cost less the related

revenues.

32 Consolidated Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
United States Government

Consolidated Statement of Net Cost 

for the year ended September 30, 1997

(In billions of dollars) Gross cost

Earned

revenue Net cost

National defense . . . . . . . . . . . . . . . . . . . . . . . . . 251.9 18.4 233.5

Human resources:

Education, training, employment 

and social services. . . . . . . . . . . . . . . . . . . . . . . 46.6 2.2 44.4

Health. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125.5 1.2 124.3

Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207.7 20.5 187.2

Income security. . . . . . . . . . . . . . . . . . . . . . . . . . . 187.9 8.8 179.1

Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364.1 - 364.1

Veterans benefits and services. . . . . . . . . . . . . . 36.1 2.2 33.9

Total human resources . . . . . . . . . . . . . . . . . . . 967.9 34.9 933.0

Physical resources:

Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.0 12.8 5.2

National resources and environment . . . . . . . . 29.1 1.9 27.2

Commerce and housing credit . . . . . . . . . . . . . 86.7 72.4 14.3

Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.4 2.4 35.0

Community and regional development . . . . . . 12.2 1.9 10.3

Total physical resources . . . . . . . . . . . . . . . . . . 183.4 91.4 92.0

Net interest:

Treasury securities held by the public . . . . . . . 246.1 -.0 246.1

Other functions:

International affairs. . . . . . . . . . . . . . . . . . . . . . . . 24.8 5.3 19.5 

General science, space and technology. . . . . 16.8 0.1 16.7

Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 2.5 12.6

Administration of justice. . . . . . . . . . . . . . . . . . . . 27.1 1.9 25.2

General government . . . . . . . . . . . . . . . . . . . . . . 28.0 3.3 24.7

Total other functions . . . . . . . . . . . . . . . . . . . . . 111.8 13.1 98.7

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,761.1 157.8 1,603.3

The accompanying notes are an integral part of these financial statements.

Consolidated Financial Statements 33

Consolidated Financial Statements of the United States Government, Fiscal 1997
Net cost functional classification

The statement of net cost presents

information about the cost of the Government’s major functions. The objectives of each of the functions are

described below.

National defense

The cost of national defense includes the costs for providing military

forces to (1) deter war; (2) be prepared

to engage in war; and (3) preserve the

peace and security of the United States,

the Territories, Commonwealth, its possessions and any area occupied by the

United States. Such costs also include

training, equipping and compensating

the armed forces; developing, acquiring, utilizing and disposing of weapon

systems; conducting research and development to maintain technological superiority over potential adversaries, and

improving cost and performance of

weapon systems; and other defense related activities.

National defense includes changes in

estimated environmental liabilities. The

revised estimates resulted in a net decrease of $47.7 billion in environmental liabilities during fiscal 1997.

The accompanying table depicts the

changes in estimate by category.

Human resources

Education, training, employment

and social services

The objectives of the education,

training, employment and social services function are to promote the extension of knowledge and skills, enhance

employment and employment opportunities, protect workplace standards and

provide services to the needy.

Health

The cost of health is for promoting

physical and mental health, including

the prevention of illness and accidents,

and the Medicaid program. The Medicare program is the largest Federal

health program, but by law it is in a

separate subfunction for budget purposes. Also excluded from the health

subfunction is Federal health care for

military personnel and veterans.

Medicare

Medicare is composed of Federal

hospital insurance and Federal supplementary medical insurance. This function is not further subdivided into

subfunctions. For more information on

Medicare, see the note on stewardship

Changes to fiscal 1996 estimates

(In billions of dollars)

Environmental

management and 

legacy wastes . . . . . . . . . 43.3

Pipeline facilities . . . . . . . . . 2.7

Active facilities . . . . . . . . . . 1.4

High-level waste and

spent nuclear fuel . . . . . . . 

-0.1

Other changes 

in estimates. . . . . . . . . . . . 0.4

Total changes in

estimates . . . . . . . . . . . . 47.7

Education, training, employment and social services

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Elementary, secondary and 

vocational education . . . . . . . . . . . . . 14.5 - 14.5

Higher education . . . . . . . . . . . . . . . . . . 7.1 2.2 4.9

Research and general 

education aids. . . . . . . . . . . . . . . . . . . 1.9 - 1.9

Training and employment . . . . . . . . . . . 4.9 - 4.9

Other labor services . . . . . . . . . . . . . . . . 0.9 - 0.9

Social services . . . . . . . . . . . . . . . . . . . . . 16.3 - 16.3

Cost not allocated to subfunctions . . . 1.0 -.0 1.0

Total education, training,

employment and social services . . 46.6 2.2 44.4

34 Consolidated Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
responsibility in the stewardship reporting section and Note 16.

Income security

This includes the cost of providing

payments to persons for whom no current service is rendered. Included are

disability , unemployment, welfare and

similar programs, except for Social Security and income security for veterans. Also included are (1) the food

stamp, special milk and child nutrition

programs; (2) unemployment compensation and workers’ compensation;

(3)public assistance cash payments; (4)

benefits to the elderly and to coal miners; and (5) low- and moderate-income

housing benefits. The cost of Federal

pensions and retiree health benefits are

allocated to other functions.

Social Security

The cost of Social Security is for

payments to eligible beneficiaries of the

Old Age and Survivors Insurance and

Disability Insurance programs, which

are collectively referred to as “Social Security.” The Social Security program is

Health

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Health care services. . . . . . . . . . . . . . . . 120.8 4.5 116.3

Health research and training . . . . . . . . 2.6 0.7 1.9

Consumer and occupational

health and safety. . . . . . . . . . . . . . . . . 2.0 0.1 1.9 

Cost not allocated to subfunctions . . . 0.1 -4.1 4.2

Total health. . . . . . . . . . . . . . . . . . . . . . 125.5 1.2 124.3

Income security

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Unemployment compensation. . . . . . . 24.4 1.2 23.2

Housing assistance . . . . . . . . . . . . . . . . . 27.4 - 27.4

Food and nutritional assistance . . . . . . 36.4 - 36.4

General retirement and 

disability insurance. . . . . . . . . . . . . . . . 15.5 3.5 12.0

Other income security . . . . . . . . . . . . . . 73.2 2.9 70.3

Cost not allocated to subfunctions . . . 11.0 1.2 9.8

Total income security . . . . . . . . . . . . . 187.9 8.8 179.1

Veterans benefits and services

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Income security for veterans. . . . . . . . . 8.3 0.9 7.4

Veterans education, training 

and rehabilitation . . . . . . . . . . . . . . . . 1.8 - 1.8

Hospital and medical care for

veterans . . . . . . . . . . . . . . . . . . . . . . . . 16.3 0.5 15.8

Veterans housing . . . . . . . . . . . . . . . . . . 0.5 0.6 -0.1

Other veterans benefits and services . 1.6 0.2 1.4

Cost not allocated to subfunctions . . . 7.6 -.0 7.6

Total veterans benefits 

 and services . . . . . . . . . . . . . . . . . . . 36.1 2.2 33.9

Consolidated Financial Statements 35

Consolidated Financial Statements of the United States Government, Fiscal 1997
the single largest Federal program and

is funded primarily by payroll taxes.

For more information on Social Security, see the note on stewardship responsibility in the stewardship

reporting section and Note 16.

Veterans benefits and services

These programs provide benefits

and services, the eligibility for which is

related to prior military service. Included are veteran’s compensation, life

insurance, pensions, burial benefits, education, training, medical care, veterans

housing and administrative expenses of

the Department of Veterans Affairs.

Physical resources

Energy

The objective is to promote an adequate supply and appropriate use of energy to serve the needs of the economy.

Natural resources and environment

These costs are incurred for developing, managing and maintaining the nation’s natural resources and

environment. Excluded are the cost for

community water supply programs, basic sewer systems and waste treatment

plants, all of which are part of community or regional development programs.

Commerce and housing credit

These costs relate to the promotion

and regulation of commerce, housing,

and deposit insurance industries, which

pertain to (1) collection and dissemination of social and economic data; (2)

general purpose subsidies to business

and individuals including credit subsidies to housing; and (3) the Postal Service fund.

Transportation

Most of these costs relate to grants

to States and others for local or national transportation of passengers and

property. These costs include: (1) construction of facilities; (2) purchase of

equipment; (3) research, testing and

evaluation; and (4) operating subsidies

for transportation facilities (such as airports and railroads).

Energy

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Energy supply . . . . . . . . . . . . . . . . . . . . . 15.4 11.8 3.6

Energy conservation. . . . . . . . . . . . . . . . 0.5 - 0.5

Emergency energy preparedness . . . . 0.2 0.3 -0.1

Energy information, policy and

regulation . . . . . . . . . . . . . . . . . . . . . . . 0.7 - 0.7

Cost not allocated to subfunctions . . . 1.2 0.7 0.5

Total energy . . . . . . . . . . . . . . . . . . . . . 18.0 12.8 5.2

Natural resources and environment

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Water resources . . . . . . . . . . . . . . . . . . . 6.8 0.1 6.7

Conservation and land management 6.1 0.9 5.2

Recreational resources . . . . . . . . . . . . . 2.6 0.2 2.4

Pollution control and abatement. . . . . 6.8 0.3 6.5

Other natural resources . . . . . . . . . . . . . 2.5 0.2 2.3

Cost not allocated to subfunctions . . . 4.3 0.2 4.1

Total natural resources and

environment. . . . . . . . . . . . . . . . . . . . 29.1 1.9 27.2

36 Consolidated Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
Community and regional

development

These costs relate to the development of physical facilities or financial

infrastructures designed to promote viable community economies. Transportation facilities developed as integral

parts of community development programs are also included. Aid to businesses is not usually included in this

function unless such aid promotes the

economic development of depressed areas and is not designed to promote particular lines of business for their own

sake.

Net interest

Interest costs are primarily the

amounts accrued on Treasury securities

held by the public. Interest payments

on these securities are made by the

Treasury’s Bureau of Public Debt.

Other functions

International affairs

This function includes the cost of

maintaining peaceful relations, commerce and travel between the United

States and the rest of the world, and

promoting international security and

economic development abroad.

General science, space and

technology

This function includes the research

conducted by the National Science

Foundation, all space programs conducted by the National Aeronautics

and Space Administration (NASA) and

Community and regional development

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Community development. . . . . . . . . . . 4.9 - 4.9

Area and regional development . . . . . 2.1 0.5 1.6

Disaster relief and insurance . . . . . . . . . 4.6 1.4 3.2

Cost not allocated to subfunctions . . . 0.6 -.0 0.6

Total community and regional 

development. . . . . . . . . . . . . . . . . . . 12.2 1.9 10.3

Commerce and housing credit

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Mortgage credit . . . . . . . . . . . . . . . . . . . 3.0 5.5 -2.5

U.S. Postal Service . . . . . . . . . . . . . . . . . . 56.9 58.4 -1.5

Deposit insurance. . . . . . . . . . . . . . . . . . -2.5 5.9 -8.4

Other advancement of commerce. . . 5.5 14.1 -8.6

Cost not allocated to subfunctions . . . 23.8 -11.5 35.3

Total commerce and housing credit 86.7 72.4 14.3

Transportation

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Ground transportation . . . . . . . . . . . . . . 24.6 1.7 22.9

Air transportation . . . . . . . . . . . . . . . . . . 6.6 0.1 6.5

Water transportation . . . . . . . . . . . . . . . -0.5 0.6 -1.1

Other transportation. . . . . . . . . . . . . . . . 0.2 - 0.2

Cost not allocated to subfunctions . . . 6.5 -.0 6.5

Total transportation . . . . . . . . . . . . . . . 37.4 2.4 35.0

Consolidated Financial Statements 37

Consolidated Financial Statements of the United States Government, Fiscal 1997
general science research supported by

the Department of Energy.

Agriculture

These costs are for promoting the

economic stability of agriculture and

the nation’s capability to maintain and

increase agricultural production.

Administration of justice

These costs include programs to provide judicial services, police protection,

law enforcement (including civil

rights), rehabilitation and incarceration

of criminals, and the general maintenance of domestic order. It includes the

provision of court-appointed counsel

or other legal services for individuals.

It excludes the cost of the legislative

branch and police or guard activities to

protect Federal property. The cost of

National Guard personnel and military

personnel who are called upon occasionally to maintain public safety and the

cost of military police are included unGeneral science, space and technology

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

General science and basic research . 3.8 - 3.8

Space flight, research and

supporting activities. . . . . . . . . . . . . . . 12.3 0.1 12.2

Cost not allocated to subfunctions . . . 0.7 -.0 0.7

Total general science, space 

and technology . . . . . . . . . . . . . . . . 16.8 0.1 16.7

Agriculture

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Farm income stabilization . . . . . . . . . . . 10.6 2.2 8.4

Agricultural research and service. . . . . 3.5 0.3 3.2

Cost not allocated to subfunctions . . . 1.0 -.0 1.0

Total agriculture . . . . . . . . . . . . . . . . . . 15.1 2.5 12.6

International affairs

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

International development and 

humanitarian assistance . . . . . . . . . . . 10.7 3.1 7.6

International security assistance. . . . . . 2.2 - 2.2

Conduct of foreign affairs . . . . . . . . . . . 5.1 0.3 4.8

Foreign information and exchange

activities . . . . . . . . . . . . . . . . . . . . . . . . - - -

International financial programs. . . . . . 3.8 1.2 2.6

Cost not allocated to subfunctions . . . 3.0 0.7 2.3

Total international affairs. . . . . . . . . . . 24.8 5.3 19.5

38 Consolidated Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
General government

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Legislative functions . . . . . . . . . . . . . . . . 1.2 - 1.2

Executive direction 

and management. . . . . . . . . . . . . . . . 0.3 - 0.3

Central fiscal operations . . . . . . . . . . . . 8.3 2.2 6.1

General property and records

management. . . . . . . . . . . . . . . . . . . . 10.1 0.3 9.8

Central personnel management . . . . . 0.2 - 0.2

General purpose fiscal assistance . . . . 0.3 - 0.3

Other general government. . . . . . . . . . 0.9 0.1 0.8

Cost not allocated to subfunctions . . . 6.7 0.7 6.0

Total general government . . . . . . . . . 28.0 3.3 24.7

der the national defense function rather

than this function.

General government

These costs include the general overhead of the Federal Government, including legislative and executive activities, and provision of central fiscal, personnel and property activities. All

activities reasonably or closely associated with other functions are included

in those functions rather than general

government.

Administration of justice

(In billions of dollars)

Subfunctions Gross cost

Earned

revenue Net cost

Federal law enforcement activities . . . 13.2 1.1 12.1

Federal litigative and 

 judicial activities . . . . . . . . . . . . . . . . . 5.9 - 5.9

Federal correctional activities. . . . . . . . 3.3 0.3 3.0

Criminal justice assistance. . . . . . . . . . . 1.3 0.4 0.9

Cost not allocated to subfunctions . . . 3.4 0.1 3.3

Total administration of justice. . . . . . . 27.1 1.9 25.2

Consolidated Financial Statements 39

Consolidated Financial Statements of the United States Government, Fiscal 1997
Statement of changes

in net position

The statement of changes in net position reports the beginning net position,

the items that caused net position to

change during the reporting period and

the ending net position. It shows the net

cost of Government operations, revenues generated principally by the Government’s sovereign power to tax, levy

duties, and assess fines and penalties, as

well as any adjustments and unreconciled transactions that affect the net position.

Net cost of Government operations

Net cost of Government operations

is the cost of operations reported in the

statement of net cost.

Revenues: financing sources 

from non-exchange revenue

The main financing source for the

net cost of operations is non-exchange

revenue, which consists of taxes and

other revenue that the Federal Government generates under its governmental

powers or receives by donation.

Other earned revenue

Other earned revenues are exchange

revenues from the public with virtually

no cost associated with these earnings.

These items include revenues from spectrum auctions and rents and royalties on

the outer continental shelf lands.

Unreconciled transactions

Unreconciled transactions are adjustments made to balance the change in net

position.

Net position–beginning of period

The amount is the net position reported as of the beginning of the fiscal

year.

Net position–end of period

This is the amount reported as net position on the current year’s balance sheet.

40 Consolidated Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
United States Government

Consolidated Statement of Changes in Net Position

for the year ended September 30, 1997

(In billions of dollars)

Net cost of Government operations. . . . 1,603.3

Less:

Financing sources 

from non-exchange revenues:

Individual income tax and 

tax withholdings . . . . . . . . . . . . . . . . . . . 1,247.5

Corporation income taxes . . . . . . . . . . . 179.8

Unemployment taxes. . . . . . . . . . . . . . . . 27.8

Excise taxes . . . . . . . . . . . . . . . . . . . . . . . . 55.8

Estate and gift taxes. . . . . . . . . . . . . . . . . 19.7

Customs duties . . . . . . . . . . . . . . . . . . . . . 20.0

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 26.1

Total non-exchange revenues. . . . . . . 1,576.7

Other earned revenues . . . . . . . . . . . . . . 11.6

Excess of costs over revenues

before unreconciled transactions. . . . -15.0

Unreconciled transactions affecting 

the change in net position (Note 15) . 12.4

Change in net position. . . . . . . . . . . . . . . -2.6

Net position-beginning of period. . . . . -5,000.4

Net position-end of period . . . . . . . . . . 

-5,003.0

The accompanying notes are an integral part of these financial statements.

Consolidated Financial Statements 41

Consolidated Financial Statements of the United States Government, Fiscal 1997
42 Consolidated Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
United States Government

Notes to the Financial Statements

for the year ended September 30

Note 1. Summary of

significant accounting policies

A. Reporting entity

The consolidated financial statements include the financial status and activity of the executive, legislative and

judicial branches of the U.S. Government, including those Government corporations that are part of the Federal

Government. The Appendix contains a

list of significant U.S. Government entities included and entities excluded from

these consolidated financial statements.

For the purposes of this document,

“Federal Government” refers to the

U.S. Government. The fiscal year of the

U.S. Government ends September 30.

Material intragovernmental transactions

have been eliminated in consolidation,

except as described in Note 15.

B. Basis of accounting

The consolidated financial statements have been prepared in accordance

with Form and Content guidance specified by the Office of Management and

Budget (OMB) and the Statements of

Federal Financial Accounting Standards

(SFFAS). Under this basis of accounting, expenses generally are recognized

when incurred and non-exchange revenues are recognized on a modified cash

basis of accounting. Remittances of nonexchange revenues are recognized when

received and related receivables are recognized when measurable and legally

collectible. Refunds and related offsets

of non-exchange revenues are recognized when measurable and legally payable. Exchange revenues are recognized

when earned. This basis of accounting

differs from the basis of accounting used

for budgetary reporting. Beginning in

fiscal 1998, four additional accounting

standards will be effective regarding accounting for property, plant and equipment, managerial cost accounting,

revenue and other financing sources,

and supplementary stewardship reporting. The impact of these standards on

the consolidated financial statements is

currently being reviewed. 

C. Direct loans

and loan guarantees 

Direct loans obligated and loan guarantees committed after September 30,

1991, are recorded based on the present

value of net cash flows estimated over

the life of the loan or guarantee. Direct

loans made prior to October 1, 1991,

may be recorded under the present

value method or the allowance for loss

method (the outstanding principal reduced by an allowance for uncollectible

amounts when it is more likely than

not that the loans will not be collected

in full). Liabilities related to loan guarantees committed prior to October 1,

1991, may be recorded under the present value method or the allowance for

loss method (the amount the agency estimates will more likely than not require

a future cash outflow to pay default

claims).

D. Taxes receivable

“Taxes receivable” primarily consist

of uncollected tax assessments, penalties

and interest, where taxpayers have

agreed that the amounts are owed or a

court has determined that the assessments are owed. Unpaid assessments

where (1) neither taxpayers nor a court

have agreed that the amounts are owed

(compliance assessments); and (2) the

Government does not expect further

collections due to factors such as the taxpay er’s death, bankruptcy or insolvency

(write-offs) are not included in the financial statements. Taxes receivable are reported net of an allowance for the

estimated portion of the taxes receivable

deemed to be uncollectible.

E. Inventories and

related property

Inventories generally are valued at

historical cost or at an approximation

thereof. Historical cost methods include

first-in-first-out, weighted average and

moving average. The value of inventory

held for repair is reduced by the estimated repair cost. Excess, obsolete and

Notes to the Financial Statements 43

Consolidated Financial Statements of the United States Government, Fiscal 1997
unserviceable inventories are valued at

estimated net realizable values. 

F. Property, plant and

equipment

“Property , plant and equipment”

(PP&E) are recorded using purchase

price, replacement cost, standard cost

and other acceptable methods. Defense

weapons systems, which comprise most

of the PP&E, are not currently depreciated. Depreciation and amortization expense, which applies to other PP&E,

except land and limited duration land

rights and construction in progress, are

generally recognized using the straightline method over the assets estimated

useful lives. The Government Management Reform Act does not require the

legislative and judicial branches to report their financial information to

Treasury, therefore most PP&E in use

by those entities is not included in these

consolidated financial statements.

G. Retirement programs

“Pension expense and retirement

health benefits” and related liabilities

are recorded during the time that employee services are rendered. The liabilities for defined benefit pension plans

and retirement health benefits are recorded at estimated actuarial present

value of future benefits, less the estimated actuarial present value of normal

cost contributions made by, and for covered employ ees. 

“Normal cost” is the portion of the

actuarial present value of projected benefits allocated, under the actuarial

method, as expense for employee services rendered in the current year. Actuarial gains and losses (and prior and past

service cost, if any) are recognized immediately in the year they occur, without amortization.

H. Environmental liabilities

“Environmental liabilities” are recorded at the estimated current cost to

remediate hazardous waste and environmental contamination, assuming the use

of current technology. Remediation consists of removal, treatment and/or safe

containment. Where technology does

not exist to clean up hazardous waste,

only the estimable portion of the liability, typically safe containment, is recorded.

I. Contingencies

 Liabilities are recognized on the balance sheet when:

• a past transaction or event has occurred; and

• a future outflow or other sacrifice of

resources is probable and measurable.

The estimated contingent liability

may be a specific amount or a range of

amounts. If some amount within the

range is a better estimate than any other

amount within the range, that amount

is recognized. If no amount within the

range is a better estimate than any other

amount, the minimum amount in the

range is recognized.

Contingent liabilities that do not

meet the above criteria for recognition,

but for which there is a reasonable possibility that a loss has been incurred are

disclosed in Note 14.

For the fiscal year ended September

30, 1997, the amount of loss contingencies was not available therefore, the

amounts stated here represent the maximum theoretical risk exposure. However, it is not likely that the maximum

loss will be incurred.

J. Social insurance

A liability for social insurance programs (Social Security, Medicare, Unemployment Insurance, Railroad

Retirement and Black Lung) is recognized for any unpaid amounts due as of

the reporting date. No liability is recognized for future payments not yet due.

See “stewardship responsibilities” in the

stewardship reporting section for further information. 

K. Related party transactions

The Federal Reserve Banks (FRBs),

which are not part of the reporting entity, serve as the Federal Government’s

depositary and fiscal agent. They process Federal payments and deposits to

Treasury’s account and service Federal

debt securities. FRBs owned $440 billion of Federal debt securities held by

the public as of September 30, 1997.

FRB earnings that exceed statutory

amounts of surplus established for the

Federal banks are paid to the Federal

44 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
Government and are recognized as nonexchange revenue and totaled $19.6 billion for the y ear ended September 30,

1997. The primary source of these earnings is from interest earned on Federal

debt securities held by the FRBs.

FRBs issue Federal Reserve Notes,

which are the circulating currency of

the United States. These notes are collateralized by specific assets owned by the

FRBs, typically U.S. Government securities. Federal Reserve Notes are backed

by the full faith and credit of the

United States Government. 

The Federal Government does not

guarantee payment of the liabilities of

Government-sponsored enterprises such

as the Federal National Mortgage Association of the Federal Home Loan Mortgage Association, which also are

excluded from the reporting entity .

Note 2. Cash and other

monetary assets

Cash

Cash in the amount of $45.7 billion,

consists of: (1) U.S. Treasury balances

held at the Federal Reserve banks, net

of outstanding checks; (2) U.S. Treasury

balances in special depositaries that hold

the proceeds of certain tax payments

known as the U.S. Treasury Tax and

Loan Note accounts; (3) funds held outside of Treasury and the Federal Reserve by authorized fiscal officers or

agents; (4) monies held by Government

collecting and disbursing officers, agencies’ undeposited collections, unconfirmed deposits and cash transfers; and

(5) time deposits at financial institutions.

The U.S. Government maintains formal arrangements with numerous banks

to maintain time deposits known as

compensating balances. These balances

compensate the banks for services provided to the Federal Government, such

as maintaining zero-balance accounts

for the collection of public monies.

Gold

Gold is valued at the statutory price

of $42.2222 per fine troy ounce. As of

September 30, 1997, the number of fine

troy ounces was 260,914,524.931. In the

fiscal year ended September 30, 1996,

gold was valued using market value,

which represented the price reported

for gold on the London Fixing. The

market value of gold as of the reporting

date is $332.10 per fine troy ounce.

Gold has been pledged as collateral for

gold certificates issued to the Federal Reserve banks totaling $11.0 billion (see

Note 13).

Domestic monetary assets

 “Domestic monetary assets” are

composed of liquid assets other than

cash that are based on the U.S. dollar including coins, silver bullion and other

coinage metals. These items totaled $0.4

billion.

International monetary assets

 “International monetary assets” are

composed of liquid assets that are denominated on a basis other than the

U.S. dollar. Special Drawing Rights

(SDRs) are international reserve assets

created by the International Monetary

Fund (IMF), which have a U.S. dollar

equivalent of $10.0 billion calculated on

a weighted average of exchange rates for

the currencies of selected IMF member

countries. The value of a SDR was

$1.36521, as of September 30, 1997.

SDRs have been pledged as collateral

for borrowing from the Federal Reserve

banks. This liability totals $9.2 billion

and is included in Note 13. These assets

also include the U.S. reserve position in

the IMF, which has a U.S. dollar equivalent of $14.0 billion, and foreign currency and other monetary assets

denominated in foreign currency. International monetary assets have a U.S. dollar equivalent of $35.6 billion.

Cash and other monetary assets

as of September 30

(In billions of dollars)

Cash before 

outstanding checks . . . . . 49.6

Outstanding checks. . . . . . -3.9

Cash. . . . . . . . . . . . . . . . . . 45.7

Gold . . . . . . . . . . . . . . . . . . 11.0

Domestic monetary 

assets . . . . . . . . . . . . . . . . 0.4

International 

monetary assets . . . . . . . 35.6

Total cash and other 

monetary assets. . . . . . 92.7

Notes to the Financial Statements 45

Consolidated Financial Statements of the United States Government, Fiscal 1997
Note 3. Loans receivable 

and loan guarantee liabilities

Loans receivable

 The Federal Government is the nation’s largest source of credit and underwriter of risk. In 1990, the Federal

Credit Reform Act was enacted to improve the Government’s budgeting and

management of credit programs. The

primary focus of the Act is to provide

an accurate measure of the long-term

costs of both direct loans and loan guarantees and to recognize these costs at

the time when the loan is made. 

The Direct Student Loan program,

established in 1994, offers four ty pes of

education loans: Stafford, Unsubsidized

Stafford, PLUS for parents and Consolidation. Evidence of financial need is required for a students to receive

subsidized Stafford loans. The other

three loan programs are available to borrowers at all income levels. These loans

usually mature 9-13 y ears after the student is no longer enrolled and are unsecured. 

Rural electrification and telecommunications loans are for the construction

and operation of generating plants, electric transmission, and distribution lines

or systems. These loans carry an average maturity of greater than 20 y ears

and are usually secured.

The major programs funded through

the Rural Housing Insurance Fund Program account are: very low and low-tomoderate income home ownership

loans and guarantees, very low income

housing repair loans, domestic farm labor housing loans, housing site loans

and credit sales of acquired property.

Loan programs are limited to rural areas that include towns, villages and

other places that are not part of an urban area. The majority of these loans

mature in excess of 25 years and are secured by the property of the borrower.

Economic assistance loans provide

economic assistance to selected countries in support of U.S. efforts to promote stability and U.S. security

interests in strategic regions of the

world. 

Loan guarantees

The Federal Housing Administration (FHA) provides mortgage insurance to encourage lenders to make

credit available to expand home ownership. FHA predominately serves borrowers that the conventional market

does not adequately serve: first time

home buy ers, minorities, lower-income

families and residents of under-served areas. 

The Federal Family Education Loan

(FFEL) program, formerly known as

the Guaranteed Student Loan program,

was established in 1965. Like the Direct

Student Loan program, it also offers

Loans receivable as of September 30

(In billions of dollars) Gross

receivables

Allowance

losses

1

(pre-1992)

Allowance

for subsidy

(post-1991)

Net

receivables

Student loan programs . . . . . 42.0 14.6 0.1 27.3

Rural electrification and 

telecommunications. . . . . . 28.3 4.8 - 23.5

Rural housing insurance . . . . 20.9 7.4 - 13.5

Economic assistance loans . 12.5 5.1 - 7.4

Agriculture credit 

 insurance fund . . . . . . . . . . 10.7 1.5 0.6 8.6

Other loans receivable . . . . . 102.2 18.0 8.3 75.9

Total loans receivable. . . . . 216.6 51.4 9.0 156.2

1

 Includes related interest

46 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
four types of loans: Stafford, Unsubsidized Stafford, PLUS for parents and

Consolidation. 

Veteran housing benefits provide partial guarantee of residential mortgage

loans issued to eligible veterans and servicemen by private lenders. The guarantee allows veterans and servicemen to

purchase a home without a substantial

down payment.

Other loan guarantees include Small

Business Administration loans to minority businesses, Export-Import Bank

loans to promote U.S. exports, and the

Farm Service Agency for farm ownership and emergency and disaster loans.

Note 4. Taxes receivable

 “Net taxes receivable” are based on

projections of collectibility from a statistical sample.

Note 5. Inventories 

and related property

“Inventories and related properties”

consist of the following categories, net

of allowance:

• “Operating materials and supplies,”

which are comprised of tangible personal property purchased for use in

normal operations.

• “Stockpile materials,” which are strategic and critical materials held due

to statutory requirements for use in

national defense, conservation or national emergencies. 

• “Inventory held for sale,” which is

tangible personal property held for

sale net of allowances.

Inventories and 

related property 

as of September 30

(In billions of dollars)

Operating materials 

and supplies. . . . . . . . . . . . 161.8

Stockpile materials. . . . . . . . 41.8

Inventory held for sale. . . . . 1.7

Foreclosed property . . . . . . 1.3

Commodities . . . . . . . . . . . . 0.4 

Seized monetary 

instruments . . . . . . . . . . . . . 0.2

Forfeited property . . . . . . . . 0.2

Other related property . . . . 2.0

Total inventories Taxes receivable and related property . . . 209.4

as of September 30

(In billions of dollars)

Gross Federal 

tax receivables. . . . . . . . . 90.2

Allowance 

for doubtful amounts. . . . 62.1

Federal tax receivables, 

net . . . . . . . . . . . . . . . . . . 

28.1

Loan guarantees as of September 30

(In billions of dollars)

Face 

value of

guaranteed

loans

Amount 

guaranteed

Loan

guarantee

liability

Federal Housing Administration . . . . . 454.5 447.0 13.1

Federal Family Education . . . . . . . . . . 99.0 99.0 9.9

Veteran housing benefits. . . . . . . . . . . 198.0 69.4 4.1

All other loan guarantees . . . . . . . . . . 125.3 97.0 9.6

Total loan guarantees . . . . . . . . . . . . 876.8 712.4 36.7

Notes to the Financial Statements 47

Consolidated Financial Statements of the United States Government, Fiscal 1997
• “Foreclosed property,” which includes assets received in satisfaction

of a loan receivable or as a result of

payment of a claim under a guaranteed or insured loan (excluding commodities acquired under price

support programs).

• “Commodities,” which are items of

commerce or trade having an exchange value used to stabilize or support market prices.

• “Seized monetary instruments,”

which include only monetary instruments. Other seized property, including real property and tangible

personal property, are accounted for

in agency property management records until the property is forfeited,

returned or otherwise liquidated.

• “Forfeited property,” which is comprised of (1) monetary instruments,

intangible property, real property

and tangible personal property acquired through forfeiture proceedings; (2) property acquired by the

Government to satisfy a tax liability;

and (3) unclaimed and abandoned

merchandise.

• “Other related property,” which includes all other related property not

included above (such as property acquired through military base closings).

Note 6. Property, plant

and equipment

Certain types of fixed assets are not

reported as “property , plant and equipment” or elsewhere on the balance

sheet. These include natural resources,

stewardship land, monuments, museum

collections and library collections.

FASAB standards are addressing the issue of these unreported assets. Future

consolidated financial statements may

report them as supplementary stewardship information. Land not used in connection with the production of goods

and services is disclosed in the stewardship reporting section under stewardship land. In future financial statements,

values will be removed from the balance sheet for national defense “property, plant and equipment” and the

stewardship reporting section of the financial statements will be expanded to

include information about these assets.

Note 7. Other assets

Property, plant and equipment as of September 30

(In billions of dollars)

Cost or

other

basis

Accumulated

depreciation/

amortization Net

Buildings, structures and facilities . . 281.5 64.2 217.3

Military equipment . . . . . . . . . . . . . . 637.1 1.6 635.5

Furniture, fixtures and equipment . . 110.7 33.7 77.0

Assets under capital lease . . . . . . . . 6.6 0.3 6.3

Leasehold improvements. . . . . . . . . 1.4 0.4 1.0

Automated data 

processing software . . . . . . . . . . . . 2.0 1.0 1.0

Land . . . . . . . . . . . . . . . . . . . . . . . . . . 22.4 - 22.4

Construction in progress. . . . . . . . . . 56.5 - 56.5

Total property, plant 

and equipment. . . . . . . . . . . . . . . 1,118.2 101.2 1,017.0

Other assets as of September 30

(In billions of dollars)

Advances and 

prepayments. . . . . . . . . . 24.2

Securities and 

investments . . . . . . . . . . . 11.4

Other. . . . . . . . . . . . . . . . . . 27.3

Total other assets. . . . . . . 62.9

48 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
 “Other assets” consist of advances

and prepayments, securities and investments and other assets of the U.S. Government not otherwise classified.

Securities are shown at cost net of unamortized premiums and discounts.

Note 8. Accounts payable

“Accounts payable” are amounts

owed for accrued interest on the public

debt, goods and other property ordered

and received, and for services rendered

by other than employees.

Note 9. Federal debt securities

held by the public

Definitions of debt are as follows:

• “Gross Federal debt” includes Federal Government debt, whether issued by Treasury (public debt) or by

other agencies (agency debt). Gross

Federal debt securities held by the public as of September 30

(In billions of dollars) Average

interest rate

Treasury securities:

Marketable securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,439.8 6.668%

Non-marketable securities. . . . . . . . . . . . . . . . . . . . . . . . 1,967.7 7.235%

Non-interest bearing debt. . . . . . . . . . . . . . . . . . . . . . . . 5.6

Total Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . 5,413.1

Plus: Unamortized premium 

on Treasury securities. . . . . . . . . . . . . . . . . . . . . . . . . 20.2

Less: Unamortized discount 

 on Treasury’ securities . . . . . . . . . . . . . . . . . . . . . . . 78.2

Total Treasury securities, 

 net of unamortized premiums and discounts. . . . 5,355.1

Agency securities:

Tennessee Valley Authority . . . . . . . . . . . . . . . . . . . . . . . 27.4

U.S. Postal Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9

All other agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9

Less: Unamortized net discounts. . . . . . . . . . . . . . . . . . . 0.5

Total agency securities . . . . . . . . . . . . . . . . . . . . . . . . . 32.7

Total Federal debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,387.8

Less: Intragovernmental holdings, 

net of unamortized premiums 

and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,619.6

Total Federal debt securities 

 held by the public . . . . . . . . . . . . . . . . . . . . . . . . 3,768.2

Types of marketable securities

Bills: Short-term obligations issued with a term of 1 year or less.

Notes: Medium-term obligations issued with a term of at least 1 year, but not more than 10 years.

Bonds: Long-term obligations of more than 10 years.

Accounts payable as of September 30

(In billions of dollars)

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.6

Department of Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.4

U.S. Postal Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8

Department of Veterans Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1

National Aeronautics and Space Administration. . . . . . . . . . . . . . . 3.0

Office of Personnel Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8

Department of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5

Department of Health and Human Services. . . . . . . . . . . . . . . . . . . 2.5

All other departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.0

Total accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.7

Notes to the Financial Statements 49

Consolidated Financial Statements of the United States Government, Fiscal 1997
Federal debt is either held by the

public or by U.S. Government entities.

• “Debt held by the public” includes

Federal debt held outside the U.S.

Government by individuals, corporations, State or local governments, the

Federal Reserve System, and foreign

governments and central banks.

• “Intragovernmental holdings” are

comprised of Federal debt held by

Government trust funds, revolving

funds and special funds. 

“Federal debt held by the public”

amounted to $3,768.2 billion at the end

of fiscal 1997. The table on debt held by

the public reflects information on borrowing to finance Government operations. Debt is shown at face value with

unamortized premiums added and unamortized discounts subtracted. 

Intragovernmental holdings represent that portion of the total Federal

debt securities held as investments by

Federal entities, including major trust

funds. For more information on trust

funds see Note 16. Intragovernmental

holdings have been eliminated in consolidation for financial statement presentation purposes.

Securities that represent debt held

by the public are primarily issued by

the Department of the Treasury and include:

• Interest bearing marketable securities: bills, notes and bonds.

• Interest bearing non-marketable securities: foreign government series,

State and local government series, domestic series and savings bonds.

• Non-interest bearing debt: matured

and other debt.

As of September 30, 1997, most Federal debt ($5,328 billion) was subject to

a statutory limit (31 U.S.C. 3101),

which was $5,950 billion. The debt subject to the limit includes debt held by

the public and intragovernmental holdings, less most debt of Federal agencies,

the Federal Financing Bank debt and

Intragovernmental holdings: Federal debt securities 

held as investment by Government accounts 

as of September 30

(In billions of dollars)

Holdings over $100 billion:

Social Security Administration, 

Old Age and Survivors Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567.5

Office of Personnel Management, 

Civil Service Retirement and Disability. . . . . . . . . . . . . . . . . . . . . . . . 422.1

Department of Defense, Military Retirement. . . . . . . . . . . . . . . . . . . . 126.0

Department of Health and Human Services, 

Hospital Insurance Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116.6

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,232.2

Holdings over $15 billion:

Social Security Administration, Disability Insurance Trust Fund . . . . . 63.6

Department of Labor, Unemployment. . . . . . . . . . . . . . . . . . . . . . . . . 61.9

Federal Deposit Insurance Corporation funds . . . . . . . . . . . . . . . . . . 37.4

Department of Health and Human Services, 

Supplemental Medical Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.5

Department of Transportation, Highway Trust Fund . . . . . . . . . . . . . . 22.3

Railroad Retirement Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.2

Office of Personnel Management, Employees Life Insurance . . . . . 18.0

Department of the Treasury, Exchange Stabilization Fund . . . . . . . . 15.5

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272.4

Other programs and funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.8

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,607.4

Plus: Unamortized net premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2

Total intragovernmental holdings . . . . . . . . . . . . . . . . . . . . . . . . . 1,619.6

50 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
miscellaneous debt, and the unamortized net premiums on intragovernmental holdings, plus unamortized net

discounts on public issues of Treasury

notes and bonds (other than zero-coupon bonds).

Note 10. Federal employee

and veteran benefits payable

 The Federal Government offers its

employees, both civilian and military,

retirement benefits, life and health insurance, and other benefits. 

The Federal Government administers more than 40 pension plans. The

largest are administered by OPM for civilian employees and by the Department of Defense (DOD) for military

personnel. The Federal Government

has both defined benefit and defined

contribution pension plans, although

the largest are defined benefit plans.

Civilian employees 

Pensions

The largest civilian pension plan is

administered by OPM and covers approximately 90 percent of all Federal

Change in actuarial accrued pension liability 

and components of related expense

(In billions of dollars) Civilian

employees

Military

1 employees

Actuarial accrued pension liability, 

as of September 30, 1996 . . . . . . . . . . . . . . . . . . . . . 911.3 625.8

Pension expense:

Normal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.7 11.1

Interest on unfunded liability. . . . . . . . . . . . . . . . . . . . 63.0 40.1

Actuarial gains (-)/losses . . . . . . . . . . . . . . . . . . . . . . . -10.5 -5.0

Total pension expense. . . . . . . . . . . . . . . . . . . . . . . . 72.2 46.2

Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41.3 -30.3

Actuarial accrued pension liability, 

 as of September 30, 1997 . . . . . . . . . . . . . . . . . . 942.2 641.7

1

 OPM only.

Federal employee and 

veteran benefits payable 

as of September 30

(In billions of dollars)

Civilian employees:

Pensions . . . . . . . . . . . . . . . . 977.2

Health benefits. . . . . . . . . . . 158.9

Other benefits . . . . . . . . . . . 29.2

Total Federal employee

benefits. . . . . . . . . . . . . . . 1,165.3

Military employees:

Pensions . . . . . . . . . . . . . . . . 641.7

Compensation and 

 burial benefits. . . . . . . . . . 197.4

Health benefits. . . . . . . . . . . 218.0

Other benefits . . . . . . . . . . . 21.3

Total military benefits . . . . 1,078.4

Total Federal employee

and veteran 

benefits payable . . . . . 2,243.7

Significant assumptions used in determining the pension liability

and the related expense include:

Civilian

employees

Military

employees

Rate of interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.00% 6.50%

Rate of inflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 3.50%

Projected salary increases. . . . . . . . . . . . . . . . . . . . 4.25% 4.00%

Notes to the Financial Statements 51

Consolidated Financial Statements of the United States Government, Fiscal 1997
civilian employees. It includes two components of defined benefits: the Civil

Service Retirement System (CSRS) and

the Federal Employ ee’s Retirement System (FERS). The basic benefit components of CSRS and FERS are financed

and operated through the Civil Service

Retirement and Disability Fund

(CSRDF). CSRDF monies are generated

primarily from employees, agency contributions, payments from the general

fund and interest on investments in Federal debt securities (see Note 16, under

CSRDF, for further discussion).

The Federal Retirement Thrift Investment Board is an independent Government agency that operates the Thrift

Savings Plan. The fund’s assets are

owned by the Federal employees and retirees covered by CSRS and FERS. For

this reason, the fund is excluded from

the consolidated financial statements

and the fund’s holdings of Federal debt

are considered part of the Federal debt

held by the public rather than Federal

debt held by the Government. FERS

employees may contribute up to 10 percent of their base pay to the plan,

which is matched by the Government

up to 5 percent. CSRS employ ees may

contribute up to 5 percent of their base

pay with no Government match. 

The Thrift Savings Plan’s total investment, as of September 30, 1997, was

$51.5 billion. Investments include U.S.

Government non-marketable securities

($24.8 billion), which are included in total Federal debt securities held by the

public in the balance sheet. 

Health benefits 

Civilian retirees pay the same insurance premium as active employees under the Federal Employee Health

Benefits Program (FEHBP). These premiums cover only a portion of the

Significant assumptions used in determining the post-retirement health

benefits liability and the related expense include:

Civilian

employees

Military

employees

Rate of interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.00% 6.75%

Rate of health care inflation . . . . . . . . . . . . . . . . . . 7.00% 2.50-8.00%

Change in accrued post-retirement health benefits liability 

and components of related expense 

(In billions of dollars) Civilian 

employees

Military

employees

Actuarial post-retirement health benefits 

 liability, as of September 30, 1996 . . . . . . . . . . 148.6 210.3

Post-retirement health benefits expense:

Normal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 5.2

Interest on unfunded liability . . . . . . . . . . . . . . . . 10.5 14.3

Actuarial gains (-)/losses . . . . . . . . . . . . . . . . . . 

- -4.9

Total post-retirement 

health benefit expense. . . . . . . . . . . . . . . . . . 16.0 14.6

Claims paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5.7 -6.9

Actuarial accrued post-retirement 

health benefits liability, 

as of September 30,1997 . . . . . . . . . . . . . . . 158.9 218.0

52 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
costs. Although the Government contribution for the premiums of active employees in FEHBP is paid by the

employing agency , the Government

contribution for civilian retirees is

funded through appropriations.

Other benefits

The Federal Employees Group Life

Insurance program is largely funded by

employee contributions. The employees

life insurance program finances payments to private insurance companies

for Federal employee’s group life insurance and is administered by OPM.

Military employees

(including veterans) 

Pensions

The DOD Military Retirement

Trust Fund accumulates funds in order

to finance liabilities of DOD under military retirement and survivor benefit programs. The fund provides retirement

benefits for military personnel and their

survivors.

The military retirement system applies to the Army , Navy, Marine Corps

and Air Force. The system is a funded,

non-contributory , defined benefit plan.

It includes non-disability retired pay , disability retired pay, retired pay for reserve service and survivor annuity

programs. 

Compensation and burial benefits

Veterans compensation is pay able as

a disability benefit or a survivor’s benefit. Entitlement to compensation depends on the veteran’s disabilities

incurred in, or aggravated during active

military service, death while on duty or

death resulting from service connected

disabilities, if not in active duty.

 Burial benefits include a burial and

plot or interment allowance payable for

a veteran who, at the time of death, was

entitled to receive compensation, pension or whose death occurred in a VA

facility.

Health benefits 

Military retirees and their dependents are entitled to health care in military medical facilities if the facility can

provide the needed care. Until they

reach age 65, military retirees and their

dependents also are entitled to health

care financed by the Civilian Health

and Medical Programs of the Uniformed Services (CHAMPUS). No premium is charged for CHAMPUS

financed care, but there are deductible

and copayment requirements. After

they reach 65 years of age, military retirees are entitled to Medicare.

The costs for military retiree health

care include costs of buildings, equipment, education and training, staffing,

operations and maintenance of military

medical treatment facilities. They also

consist of claims paid by CHAMPUS

and the administration of the program.

Other benefits

 VA insurance includes the following programs: United States Government Life Insurance, National Service

Life Insurance, Veterans Insurance and

Indemnities, Veterans Special Life Insurance, Veterans Reopened Insurance,

Service Disabled Veterans Insurance

and Servicemen’s Group Life Insurance.

The National Service Life Insurance

was established in 1940 for the World

War II servicemen and veterans and remained open until 1951. Of the original

22 million policies issued, approximately 2 million remain. Under this

program the maximum coverage is limited to $10,000.

Veterans Special Life Insurance was

established in 1951 for servicemen who

served in the Korean War and the postKorean period through 1957. Approximately 800,000 policies were issued of

which, 252,300 remain. 

Veterans compensation and

burial benefits payable 

as of September 30

(In billions of dollars)

Veterans. . . . . . . . . . . . . . . . 158.5

Survivors . . . . . . . . . . . . . . . . 37.1

Burial benefits . . . . . . . . . . . 1.8

Total veterans

compensation 

and burial benefits 

payable. . . . . . . . . . . . . . . 197.4

Notes to the Financial Statements 53

Consolidated Financial Statements of the United States Government, Fiscal 1997
Note 11. Environmental

liabilities

During World War II and the Cold

War, the United States developed a massive industrial complex to research, produce and test nuclear weapons. The

nuclear weapons complex included nuclear reactors, chemical processing buildings, metal machining plants,

laboratories and maintenance facilities.

The resulting environmental liabilities

are the costs associated with removing,

containing and/or disposing of hazardous waste from the properties. “Environmental liabilities,” as used in this

report, applies only to cleanup costs

from Federal operations known to result in hazardous waste, which the Federal Government is required by Federal,

State or local statutes, and/or regulations that have been approved as of the

balance sheet date regardless of the effective date of cleanup.

The DOD is responsible for cleaning

up and disposing of hazardous materials

in facilities it operates or has operated

and has recorded a $27.8 billion liability

for these costs. DOD has not currently

recorded any liability for national defense assets (primarily disposal of

weapon systems like aircraft, ships and

submarines) and ammunitions (primarily hazardous materials).

“Environmental management and

legacy wastes” include costs for environmental restoration, nuclear material and

facility stabilization, and waste treatment, storage and disposal activities at

each installation. It also includes costs

for related activities such as landlord responsibilities, program management

and legally prescribed grants for participation and oversight by Native American tribes, and regulatory agencies.

“Active facilities” represent anticipated

remediation costs for those facilities

that are conducting ongoing operations

but will ultimately require stabilization,

deactivation and decommissioning.

Projects with no current feasibility

remediation approach are excluded

from the estimate. Significant projects

not included are:

• Nuclear explosion test areas (such as

the Nevada test site).

• Large surface water bodies (such as

the Clinch and Columbia rivers).

• Most ground water (even with treatment, future use will be restricted). 

• Some special nuclear material (such

as uranium hexafluoride).

Note 12. Benefits due

and payable

Benefits due and payable 

as of September 30

(In billions of dollars)

Federal Old-Age and 

Survivors Insurance . . . . . 28.1

Federal Hospital 

Insurance 

(Medicare, Part A) . . . . . 16.9

Grants to States 

for Medicaid . . . . . . . . . . 14.1

Federal Supplemental 

Medical Insurance 

(Medicare, Part B). . . . . . 10.5

Federal Disability 

Insurance . . . . . . . . . . . . . 6.2

Other benefits 

due and payable . . . . . . 1.9

Total benefits 

due and payable. . . . . 77.7

Environmental liabilities 

as of September 30

(In billions of dollars)

Environmental

management and 

legacy waste . . . . . . . . . . 141.3

Defense: clean-up costs . . 27.8

Active facilities . . . . . . . . . . 20.7

Pipeline facilities . . . . . . . . . 8.8

High-level waste . . . . . . . . . 6.7

Other environmental 

liabilities . . . . . . . . . . . . . . . 6.4

Total environmental 

liabilities . . . . . . . . . . . . . . 211.7

54 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
These amounts are benefits owed to

the recipients or medical service providers of the above programs as of the fiscal yearend but not yet paid. For a

description of the programs, see the supplemental information in Section 4, under Social Security and Medicare.

“Other Benefits due and payable” include unemployment benefits, Black

Lung benefits and Railroad Retirement

pension benefits.

Note 13. Other liabilities

“Deferred revenue” is revenue received but not yet earned. “Contingent

liabilities” are the estimated value of

probable losses. “Exchange Stabilization Fund” includes SDR certificates issued to the Federal Reserve banks and

allocations from the International Monetary Fund. “Insurance program" liabilities include bank deposit insurance,

guarantees of pension benefits, life insurance, medical insurance and insurance

against damage to property (home,

crops and airplanes) caused by perils

such as flooding and other natural disasters, war-risk and insolvency. “Accrued

wages and benefits” are the estimated liability for salaries and wages of civilian

and commissioned officers that have

been earned but are unpaid, and

amounts of funded annual leave and

other employee benefits that have been

earned but are unpaid. “Advances from

others” are amounts received for goods

and services to be furnished. “Other” liabilities include gold certificates issued

to the Federal Reserve banks, other actuarial liabilities, deposit funds and suspense accounts.

Note 14. Commitments

and contingencies

The Federal Government’s commitments and contingencies include longterm leases, loan and credit guarantees,

and deposit and pension insurance.

They do not include commitments for

long-term procurements. 

FASAB standards require disclosure

of contingencies when a loss is considered to be more likely than not, but less

than probable, and when the amount of

possible loss can be reasonably estimated, or when the loss is probable but

the amount is not measurable.

For the fiscal year ended September

30, 1997, the amount of possible loss

contingencies was not available for consolidation. Therefore, the amounts

stated here represent the maximum

theoretical risk exposure. However, it is

not likely that the maximum loss will

be incurred. 

In fiscal 1998, contingencies will be

reported using the basis prescribed by

FASAB Statement No. 5.

The U.S. Government is also subject

to other contingencies, including litigation, that arise in the normal course of

operations. Although there can be no assurance as to the ultimate disposition of

these matters, it is management’s

opinion, based upon information

currently available, that the expected

outcome of these matters, individually

or in the aggregate, except for the following litigation, will not have a material adverse affect on the consolidated

financial statements.

The U.S. Court of Federal Claims

has not yet imposed any damage awards

against the United States in any of the

125 supervisory goodwill cases. However, while it is likely that the United

States will have to pay some amount of

damages on the claims, the ultimate

costs cannot be reasonably estimated at

this time.

Other liabilities 

as of September 30

(In billions of dollars)

Deferred revenue. . . . . . . . 27.2

Contingent liabilities. . . . . . 16.9

Exchange 

Stabilization Fund . . . . . . . 15.9

Insurance programs. . . . . . 14.6

Accrued wages 

 and benefits . . . . . . . . . . 12.8

Advances from others . . . . 6.8

Other . . . . . . . . . . . . . . . . . . 74.6

Total other liabilities . . . . . 168.8

Notes to the Financial Statements 55

Consolidated Financial Statements of the United States Government, Fiscal 1997
Commitments and contingencies as of September 30

(In billions of dollars)

Commitments

Long-term leases:

General Services Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6

U.S. Postal Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9

Other long-term leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9

Total commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.4

Contingencies

Insurance:

FDIC bank insurance fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,028.0

FDIC savings association insurance fund . . . . . . . . . . . . . . . . . . . . . 684.3

Department of Veteran Affairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.0

National Credit Union Administration . . . . . . . . . . . . . . . . . . . . . . . . 2.8

Department of Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0

Other insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.7

Total insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,773.8

Government loan and credit guarantees:

Department of Housing and Urban Development . . . . . . . . . . . . . 447.1

Department of Education. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.0

Department of Veteran Affairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.4

Small Business Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.2

Export-Import Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1

Department of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5

Other Government loan and credit guarantees. . . . . . . . . . . . . . . 32.1

Total Government loan and credit guarantees . . . . . . . . . . . . . . 712.4

Unadjudicated claims:

Department of Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80.9

Department of Health and Human Services . . . . . . . . . . . . . . . . . . 0.9

Other unadjudicated claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.9

Total unadjudicated claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.7

Other contingencies:

Department of Housing and Urban Development . . . . . . . . . . . . . 8.3

Other contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.5

Total other contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137.8

Total contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,731.7

Total commitments and contingencies. . . . . . . . . . . . . . . . . . . 3,753.1

56 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
Note 15. Unreconciled

transactions affecting

the change in net position

 The reconciliation of the “change in

net position” requires that the difference between ending and beginning net

position equals the excess of cost over

revenues plus or minus prior period adjustments. The unreconciled transactions needed to bring the change in net

position into balance net to $12.4 billion. The three primary factors affecting

this out-of-balance situation are (1)

agency misclassification of intragovernmental transactions; (2) changes in valuation of balance sheet assets and

liabilities, which were not identified by

agencies as prior period adjustments;

and (3) timing differences and errors in

the reporting of transactions.

The identification and reporting of

these unreconciled transactions are a priority project of the financial community within the Federal Government.

Note 16. Dedicated collections

The term “trust fund,” as used in

this report and in Federal budget accounting, is frequently misunderstood.

In the private sector, “trust” refers to

funds of one party held by a second

party (the trustee) in a fiduciary capacity. In the Federal budget, the term

“trust fund” means only that the law requires the funds be accounted for separately and used only for specified

purposes and that the account was designated as a “trust fund.” A change in law

may change the future receipts and the

terms under which the fund’s resources

are spent.

The “trust fund assets” represent all

sources of receipts and amounts due the

trust fund regardless of source. This includes “related governmental transactions,” which are transactions between

two different entities within the Federal

Government (for example, monies received by one entity of the Government

from another entity of the Government).

The “intragovernmental assets” are

comprised of investments in Federal

debt securities, related accrued interest

and fund balance with Treasury. These

amounts are eliminated in preparing

these consolidated financial statements.

 The “consolidated assets” represent

only the amounts due from individuals

and other entities outside the U.S. Government. This means that all related

governmental transactions are removed

to give a view of the U.S. Government’s

position as a whole.

The majority of the funds’ assets are

invested in intragovernmental Federal

Dedicated collections as of September 30

mnn Assets

(In billions of dollars) Receipts

Disbursements Trust fundLess: IntragovernmentalConsolidated

Federal Old Age and Survivors

Insurance Trust Fund. . . . . . . . . . . 387.5 318.4 577.5 577.5 - 

Federal Disability Trust Fund . . . . . . 60.3 46.6 64.6 64.6 - 

Hospital Insurance 

Trust Fund (Medicare, Part A) . . . 128.3 137.7 118.9 118.9 - 

Supplementary Medical Insurance

(Medicare, Part B). . . . . . . . . . . . . . 81.0 73.5 35.1 35.1 - 

Unemployment Trust Fund . . . . . . . 32.6 24.4 63.1 63.1 - 

Hazardous Substance

Superfund . . . . . . . . . . . . . . . . . . . 0.7 1.4 5.6 5.6 - 

Highway Trust Fund . . . . . . . . . . . . . 25.3 24.5 22.3 22.3 - 

Airport and Airway Trust Fund . . . . 4.7 5.8 6.5 6.5 - 

Civil Service Retirement

and Disability Fund . . . . . . . . . . . . 70.4 72.7 430.9 430.6 0.3 

Military Retirement Fund. . . . . . . . . 26.2 46.1 143.2 143.2 - 

Notes to the Financial Statements 57

Consolidated Financial Statements of the United States Government, Fiscal 1997
debt securities. These securities will require redemption if a fund’s disbursements exceed its receipts. Redeeming

these securities will increase the Government’s financing needs and require increased borrowing from the public.

By law, certain expenses (costs) related to the administration of the above

funds are not charged to the funds and

are financed by other financing sources.

Federal Old Age and

Survivors Insurance Trust Fund

The fund provides assistance and protection against the loss of earnings due

to retirement or death. The assistance is

in the form of money payments or

medical care. The Federal Old Age and

Survivors Trust Fund is administered

by the Social Security Administration

(SSA).

The Federal Old Age and Survivors

Insurance Fund is financed primarily by

payroll taxes. The fund also receives additional income from interest earnings

on Federal debt securities, Federal agencies’ payments for the Social Security

benefits earned by military and Federal

civilian employees, and Treasury payments for a portion of income taxes

paid on Social Security benefits.

Federal Disability Trust Fund

The Federal Disability Trust Fund

provides assistance and protection

against the loss of earnings due to a

wage earner’s disability. The assistance

is in the form of money payments or

medical care. The Federal Disability

Trust Fund is administered by SSA.

The Federal Disability Trust Fund,

like the Federal Old Age and Survivors

Insurance Trust Fund, is financed primarily by payroll taxes. The fund also

receives additional income from interest

earnings on Federal debt securities, Federal agencies’ payments for the Social Security benefits earned by military and

Federal civilian employees, and a portion of income taxes paid on Social Security benefits. 

Federal Hospital Insurance

Trust Fund

The Hospital Insurance Trust Fund

finances the Hospital Insurance Program, which funds the cost of hospital

and related care for individuals age 65

or older who meet certain insured

status requirements, and for eligible disabled people. The program is administered by the Department of Health and

Human Services (HHS).

The Hospital Insurance Trust Fund

(also known as Medicare, Part A) is financed primarily by payroll taxes. It

also receives additional income from interest earnings on Federal debt securities, Federal agencies’ payments for the

Social Security benefits earned by military and Federal civilian employ ees, and

a portion of income taxes paid on Social

Security benefits.

Federal Supplemental

Medical Insurance Trust Fund

The Supplemental Medical Insurance

Trust Fund (also known as Medicare,

Part B) provides supplementary medical

insurance for eligible participants to

cover medical expenses not covered by

Medicare, Part A. The program is administered by HHS.

The Supplemental Medical Insurance

Trust Fund is funded by appropriations, premiums charged to enrollees

and interest earned on investments in

Federal debt securities.

Unemployment Trust Fund

The Unemployment Trust Fund protects workers who lose their jobs

through no fault of their own. Unemployment insurance is a unique Federal/State partnership based on Federal

law, which is executed through State

law by State officials. The program is administered by the Department of Labor.

The Unemployment Trust Fund is

funded primarily by taxes on employers. However, it also has income from

interest earned on investments in Federal debt securities and appropriations

have supplemented its income during periods of high and extended unemployment.

Hazardous Substance Superfund

 The Hazardous Substance Superfund was authorized to address public

health and environmental threats from

spills of hazardous materials and from

sites contaminated with hazardous substances. The fund is administered by the

Environmental Protection Agency.

58 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
The Hazardous Substance Superfund

is financed by excise taxes collected on

petroleum and chemicals, environmental taxes from all corporations with

income in excess of $2 million and interest earned on investments in Federal

debt securities.

Highway Trust Fund

The Highway Trust Fund was established to promote domestic interstate

transportation, moving people and

transporting goods. The fund provides

Federal grants to States for highway construction and related transportation purposes. The Highway Trust Fund is

administered by the Department of

Transportation.

The Highway Trust Fund is financed entirely by earmarked taxes on

gasoline and other fuels, certain tires, vehicle and truck use, and by interest

earned on investments in Federal debt

securities.

Airport and Airway Trust Fund

The Airport and Airway Trust Fund

provides for airport improvement, maintenance of the facilities and equipment,

research and also for a portion of the operations. The Airport and Airway Trust

Fund is administered by the Department of Transportation.

The Airport and Airway Trust Fund

is financed by taxes received from transportation of persons and property in

the air, fuel used in non-commercial aircraft, international departure taxes and

by interest earned on investments in

Federal debt securities.

Civil Service Retirement

and Disability Fund

CSRDF covers two Federal civilian

retirement sy stems: CSRS, for employees hired before 1984 and FERS, for employees hired after 1983.

CSRDF is financed by Federal civilian employees’ contributions, agencies’

contributions on behalf of the employ -

ees, appropriations and interest earned

on investments in Federal debt securities.

Military Retirement Trust Fund

The Military Retirement Trust Fund

provides retirement benefits for Army,

Navy, Marine Corps and Air Force personnel and their survivors. The fund is

financed by DOD contributions, appropriations and interest earned on investments in Federal debt securities.

Note 17. Fiduciary trust funds

The fiduciary trust funds differ from

other dedicated collections reported in

Note 16, in that the Federal Government holds fiduciary funds on behalf of

some other entity (for example, individual, tribes and foreign governments).

No person or group of persons has a direct ownership interest in the monies

held by the trust funds reported in

Note 16.

The U.S. Federal Government has a

fiduciary responsibility for several deposit and trust funds. The Department

of the Interior has responsibility for the

assets held in trust on behalf of American Indian Tribes and individuals. The

fiduciary funds are held in accounts for

approximately 315 tribes, 317,000 individual Indian accounts and other funds,

including the Alaska Native Escrow

Fund. The assets held in trust for Native Americans are owned by the trust

beneficiaries and are not Federal assets.

Therefore, these amounts are not reflected in the consolidated balance sheet

or statement of net costs.

Fiduciary trust fund balances presented below do not include trust land

managed by the U.S. Government.

U.S. Government as trustee 

for Indian fiduciary trust funds

statement of changes 

in trust fund balances 

as of September 30 

(unaudited)

(In billions of dollars)

Receipts . . . . . . . . . . . . . . . 1.2

Disbursements. . . . . . . . . . . 1.0

Receipts in excess 

of disbursements . . . . . . . 0.2

Trust fund balances, 

beginning of year . . . . . . 2.7

Trust fund balances, 

end of year. . . . . . . . . . . . 

2.9

Notes to the Financial Statements 59

Consolidated Financial Statements of the United States Government, Fiscal 1997
60 Notes to the Financial Statements

Consolidated Financial Statements of the United States Government, Fiscal 1997
United States Government 

Consolidated Stewardship Reporting 

for the year ended September 30, 1997 (Unaudited)

The stewardship reporting section

of this report provides information on

certain resources entrusted to the Federal Government and certain responsibilities assumed by it. These resources

and responsibilities do not meet the criteria for assets and liabilities that are required to be reported in the financial

statements but are important to understanding the operations and financial

condition of the Federal Government.

The section this year includes information on land not used in general operations and on major social insurance

programs: Social Security and Medicare

parts A and B. The scope of this section will be expanded in the future.

The information on social insurance

is supplemented by Note 16. Social insurance is financed through trust funds,

and Note 16 provides general information about the nature of dedicated collections and trust funds in the Federal

Government and specific information

about the receipts, disbursements and

assets of the largest funds with dedicated collections.

Stewardship land

Stewardship land is land owned by

the Federal Government not used in,

or held for use in, general government

services. Therefore, excluded from stewardship lands are lands used as part of

general government operations (e.g.

military bases and the Tennessee Valley

Authority), and lands administered by

the Bureau of Indian Affairs held in

trust on behalf of the Indians.

The majority of stewardship land is

“public domain” land — that is, large areas of territory acquired by the nation

between 1781 and 1867. All areas of

the nation other than the lands belonging to the original 13 colonies and the

state of Texas were acquired as public

domain. During this time, the Federal

Government acquired land equal to

79.4 percent of the current acreage of

the United States, spending a total of

$85.1 million.

Bureau of Land Management

The Bureau of Land Management

(BLM) is responsible for managing a variety of land types. BLM subdivides

their management responsibility into

five primary land types: (1) rangeland;

(2) forest land; (3) riparian and wetlands; (4) aquatic areas and (5) other

habitat and wastelands.

Rangeland is land on which the native vegetation is predominately

grasses, grass-like plants, forbs, or

shrubs suitable for grazing or browsing

use. Rangelands include lands revegetated either naturally or artificially to

provide a forage cover that is managed

like native vegetation. Rangelands inUnited States Government stewardship land as of September 30

(In millions of acres)

Totals

Predominate land use

U.S. Forest

Service

National

Park Service

U.S. Fish

and Wildlife

Service

Bureau of

Land

ManagementTotal by

type of use

Percent of

total

Bureau of Land

Management land. . 259.0 259.0 41%

National wildlife 

refuge. . . . . . . . . . . . . 67.4 67.4 11%

National parks . . . . . . . 49.4 49.4 8%

National forest . . . . . . . 153.3 153.3 25%

National grassland . . . 3.8 3.8 1%

Wilderness area . . . . . . 34.7 28.0 20.7 5.0 88.4 14%

Total acres . . . . . . . . . 191.8 77.4 88.1 264.0 621.3 100%

Stewardship Reporting 61

Consolidated Financial Statements of the United States Government, Fiscal 1997
clude natural grasslands, savannahs,

shrublands, most deserts, tundra, alpine communities, coastal marshes and

wet meadows. Rangelands total 165

million acres, including 5 million acres

in the Alaska Reindeer Range.

Forest land encompasses approximately 11 million acres. About 7 million acres are in Alaska, with 4

million more in the 11 western states.

These forested lands are of great variety and include black and white

spruce in Alaska; aspen, lodgepole

pine, ponderosa pine, interior Douglas

fir, and associated species of the Intermountain West; the pinyon-juniper

woodlands of the Great Basin and

Southwest; and the Douglas fir, hemlock, and cedar forests of western Oregon and northern California.

Riparian areas are lands adjacent to

creeks, streams, lakes, and rivers totaling 183,000 miles in length and 7 million acres in area. These areas,

containing scarce water and vegetation

in the otherwise arid western United

States, are important to fish and wildlife species, as well as to livestock.

Since they filter the water flowing

through them, riparian-wetland areas

can effect the health of the entire watersheds. Wetlands are areas inundated

or saturated by surface or ground

water at a frequency and duration sufficient to support vegetation that is typically adapted for life in saturated soil.

Wetlands include bogs, marshes, shallows, muskegs, wet meadows, estuaries

and riparian areas. Wetlands total 16

million acres.

Aquatic areas are areas of water

flow or standing water that include

about 4 million acres of lakes and reservoirs. These waters contain a wide variety of aquatic species that range from

rare resident species, such as the desert

pupfish to endangered and threatened

anadromous species, such as steelhead

and chinook salmon.

Wastelands are areas that generally

do not provide forage in sufficient

amounts to sustain wildlife or grazing

animals. This land category includes

such areas as mountain tops, glaciers,

barren mountains, sand dunes, playas,

hot, dry deserts and other similar areas

totaling 20 million acres.

U.S. Forest Service

The U.S. Forest Service has the responsibility for the management of

191.8 million acres of Federally owned

lands for the sustained use of outdoor

recreation, range, timber, watershed,

and the management of wildlife and fish.

Forest land contains 155 named national forests. Within the national forests, livestock grazing for cattle, horses,

sheep and goats was permitted on over

103.4 million acres of rangeland. The

Forest Service sold 4.0 billion board-feet

of lumber and supervised the harvest of

3.3 billion board-feet of lumber in the

fiscal 1997 and reforested 0.3 million

acres primarily with genetically improved seedlings.

Wilderness land contains 34.7 million acres in 44 states, Puerto Rico and

the U.S. Virgin Islands, and is served by

33,000 miles of trails.

The Forest Service also manages 20

named grasslands on 3.8 million acres

and about 4,348 miles of the wild and

scenic river sy stem.

U.S. Fish and Wildlife Service

The U.S. Fish and Wildlife Service

has the responsibility for the management of 88.1 million acres of Federally

owned lands held primarily for wildlife

conservation. It has four goals: (1) to

preserve, restore, and enhance in their

natural ecosystems all species of animals

and plants that are endangered or threatened with becoming endangered; (2) to

perpetuate the migratory bird resource;

(3) to preserve a natural diversity and

abundance of fauna and flora and (4) to

provide and understanding and appreciation of fish and wildlife ecology, and to

provide refuge visitors a safe, wholesome and enjoyable recreational experience oriented toward wildlife.

The U.S. Fish and Wildlife Service

subdivides its management responsibility into the following categories:

• National wildlife refuges–512 sites on

67.4 million acres and

• Wilderness areas–362 sites on 20.7 million acres.

The service also manages eight wild

and scenic rivers totaling 1,390 miles in

length.

National Park Service

The National Park Service has the responsibility for the management of 77.4

million acres of Federally owned lands,

including 13.1 million acres designated

as wilderness, the purpose of which is

to conserve the scenery, nature, historic

objects and the wildlife therein for the

62 Stewardship Reporting

Consolidated Financial Statements of the United States Government, Fiscal 1997
enjoyment of the public and future generations.

Other types of park areas include:

national rivers, parkways, national lakeshores, historic parks, scenic trails, wild

and scenic rivers, military parks, reserves, battlefields and other parks.

Stewardship responsibilities

Social Security

The Social Security Act was enacted

in 1935 and included, among other elements, programs providing benefits for

retirement.

Two trust funds have been established by law to account for the OASI

and the DI programs. OASI pays retirement and survivors benefits and DI

pay s benefits after a worker becomes

disabled.

Revenue to OASDI consists of taxes

on earnings that are paid by employees, their employ ers and the self-employed. OASDI also receives revenue

from the taxation of part of Social Security benefits. Revenues that are not

needed to pay current benefits or administrative expenses are invested in

special issue U.S. Government securities guaranteed as to both principal and

interest and backed by the full faith

and credit of the U.S. Government.

The Board of Trustees of the OASI

and DI Trust Funds provides the President and the Congress with short-range

(10 year) and long-range (75-year) actuarial estimates of each trust fund in its

annual report. Because of the inherent

uncertainty in estimates for as long as

75 years into the future, SSA Trustees

use three alternative sets of economic

and demographic assumptions to show

a range of possibilities. Assumptions

are made about many economic, demographic, and programmatic factors, including gross domestic product,

earnings, the Consumer Price Index, unemployment, fertility, immigration,

mortality, and disability incidents and

termination. The assumptions used in

the table below, generally r eferred to as

the intermediate assumption, reflect the

best estimate of expected future experience.

The present values of actuarial estimates have been computed as of the beginning of the valuation period,

September 30, 1997. The expenditures

consist of the sum of the present value

of all estimated payments during the 75-

year valuation period, and the contributions consist of the sum of the present

value of all estimated non-interest income during the period. The estimates

have been prepared on the basis of the

financing method regarded by both the

Congress and the trustees of the trust

funds as the appropriate one to use for

social insurance programs—namely that

future workers will be covered by the

program as they enter the labor force. 

Under current legislation and using

intermediate assumptions, the DI trust

fund and the OASI trust fund are projected to be exhausted in 2015 and 2031

respectively. Combined OASDI expenditures will exceed current tax income

beginning in 2012, and they will exceed

total current income (including current

interest income) for calendar y ears

Summary of acreage

(In millions of acres)

Type of park area Acreage

National parks . . . . . . . 49.4

National preserves . . . 21.4

National recreation

areas . . . . . . . . . . . . . 3.3

National 

monuments. . . . . . . . 1.7

National seashores . . . 0.5

Other park areas. . . . . 1.1

Total acres. . . . . . . . . 77.4

Social Security present value (PV) actuarial estimates for the

period of 75 years into the future, beginning September 30, 1997

(In trillions of dollars)

OASI DI OASDI

PV of actuarial contributions to the year 2072. . . . 15.3 2.5 17.8

PV of actuarial expenditures to the year 2072 . . . 18.2 3.1 21.3

PV of future resources needed . . . . . . . . . . . . . . . . 2.9 0.6 3.5

Net assets of Social Security 

(as of September 30, 1997) . . . . . . . . . . . . . . . . . . 0.6 0.1 0.7

Stewardship Reporting 63

Consolidated Financial Statements of the United States Government, Fiscal 1997
2019 and later. Thus, current tax income plus a portion of annual interest

income will be needed to meet expenditures for the years 2012 through

2018. Thereafter, in addition to current tax income and current interest income, a portion of the principal (i.e.,

combined OASDI assets) will be

needed each year until the trust fund

assets are totally exhausted in 2029. At

that point, current tax income will be

sufficient to pay approximately 75 percent of the benefits due.

Medicare 

 Revenue to Federal Hospital Insurance Trust Fund (HI–Medicare, Part

A) consists of taxes on earnings that

are paid by employees, their employers, and the self-employed. HI also receives revenue from part of the

taxation of Social Security benefits and

from interest on its investments. Revenues that are not needed to pay current benefits or administrative

expenses are invested in special issue

U.S. Government securities guaranteed as to both principal and interest

and backed by the full faith and credit

of the U.S. Government.

HI (Medicare, Part A) has an actuarial deficit of $1,845.3 billion as computed 25 y ears (to calendar year 2022)

into the future. It includes the book

value of assets as of September 30,

1997, and the present value of various

program income items expected to be

received through the year 2022, less:

(1) the present value of outlays

through the year 2022, (2) claims incurred to October 1, 1997, but unpaid

as of that date, and (3) any administrative expenses related to those claims.

Under current legislation, incorporating

the changes from the Balanced Budget

Act, and using intermediate assumptions from the 1997 trustees report,

Medicare, Part A is projected to be exhausted in 2010.

The Federal Supplementary Medical

Insurance Trust Fund (SMI—Medicare,

Part B) benefits and administrative expenses are financed by monthly premiums paid by Medicare beneficiaries and

additional contributions by the Federal

Government. The Omnibus Budget Reconciliation Act of 1990 set specific

monthly premium levels for five calendar y ears beginning in 1991. The

monthly premium in calendar year 1997

covered 25 percent of the SMI program’s estimated 1997 cost. 

The Federal Supplementary Medical

Insurance Trust Fund (SMI—Medicare,

Part B) has a surplus of $29,237 billion

which represents the amount of the estimated book value of the trust fund assets as of September 30, 1997, less

unpaid benefits and related administrative expenses.

The Federal Accounting Standards

Advisory Board is considering adding

three other social insurance programs

for presentation in future consolidated

statements as stewardship responsibilities: the Railroad Retirement Trust

Fund, the Black Lung Trust Fund and

the Unemployment Insurance Program.

Medicare, Part A, present value estimates for the period of 

25 years into the future, beginning September 30

(In billions of dollars)

PV of actuarial contributions to the year 2022 . . . . . . . . . . . . . . . 2,432.8

PV of actuarial expenditures to the year 2022 . . . . . . . . . . . . . . . 4,278.1

PV of future resources needed. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,845.3

Assets in Medicare Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118.9

Medicare Part B, estimates as of September 30

(In billions of dollars)

Total trust fund assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.1

Total unpaid benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0

Excess of Trust Fund assets over unpaid benefits . . . . . . . . . . . . 29.1

64 Stewardship Reporting

Consolidated Financial Statements of the United States Government, Fiscal 1997
United States Government 

Consolidated Supplemental Information 

for the year ended September 30, 1997

Reconciliation of the changes in net position 

to the deficit on the budgetary basis 

for the year ended September 30

(Unaudited)

(In billions of dollars)

Change in net position . . . . . . . . . . . . . . . . . . . . . . . . . . -2.6

Timing and other differences in the recognition or

measurement of revenue:

Earned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -102.0

Non-exchange revenue. . . . . . . . . . . . . . . . . . . . . . . . . -3.2

Other earned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . -11.6

Timing and other differences in the recognition or

measurement of cost:

Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18.6

Human resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34.3

Physical resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.3

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1

Other functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.4

Non-recurring items:

Unreconciled transactions affecting the change 

in net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

-12.4

Deficit (-) for the year on the budgetary basis . . . . . . -21.9

Supplemental Table and Appendix 65

Consolidated Financial Statements of the United States Government, Fiscal 1997
Appendix: List of significant

U.S. Government entities

included and entities

excluded from these

Consolidated Financial

Statements

These financial statements include

the executive, legislative and judicial

branches of the Federal Government.

Excluded from this consolidated financial statement are privately owned

Government sponsored enterprises

such as the Federal Home Loan Banks

and the Federal National Mortgage Association. The Federal Reserve System

is also excluded because organizations

and functions pertaining to monetary

policy are traditionally separate from

and independent of the other central

Government organizations and functions.

Significant entities included in this

consolidation

Executive Office of the President

Office of Management and Budget

Department of Agriculture

Department of Commerce

Department of Defense

Department of Education

Department of Energy

Department of Health and 

Human Services

Department of Housing and 

Urban Development

Department of the Interior

Department of Justice

Department of Labor

Department of State

Department of the Air Force

Department of the Army

Department of the Navy

Department of the Treasury

Department of Transportation

Department of Veterans Affairs

U.S. Postal Service

Agency for International Development

Central Intelligence Agency

Commodity Credit Corporation

Commodity Futures Trading

Commission

Corporation for Public Broadcasting

Environmental Protection Agency

Export-Import Bank of the United States

Farm Credit Administration

Federal Communications Commission

Federal Deposit Insurance Corporation

Federal Emergency Management Agency

Federal Trade Commission

General Services Administration

National Aeronautics and 

Space Administration

National Archives and 

Records Administration

National Credit Union Administration

National Science Foundation

National Transportation Safety Board

Office of Personnel Management

Pension Benefits Guaranty Corporation

Securities and Exchange Commission

Small Business Administration

Smithsonian Institution

Social Security Administration

Tennessee Valley Authority

U.S. Nuclear Regulatory Commission

U.S. Army Corps of Engineers

U.S. Information Agency

Other boards and commissions

Library of Congress

Government Printing Office

General Accounting Office

Congressional Budget Office

Other legislative and judicial (cash

transactions only)

Significant entities excluded from

this consolidation

Federal Reserve Banks

Board of Governors 

of the Federal Reserve System 

Farm Credit System

Thrift Savings Plan

Federal Home Loan Banks

Financing Corporation

Freddie Mac

Fannie Mae

Sallie Mae

Resolution Funding Corporation

Army and Air Force Exchange Service

Navy Exchange Service Command

Marine Corps Exchange

66 Supplemental Table and Appendix

Consolidated Financial Statements of the United States Government, Fiscal 1997

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