FY 2018 AGENCY FINANCIAL REPORT

ABOUT THIS REPORT

Our Agency Financial Report

(AFR) for Fiscal Year (FY) 2018

presents the Department of the

Treasury’s (Treasury,

Department, or our) financial

information relative to our vital

mission and stewardship of the

resources entrusted to us. The

AFR also highlights our

priorities, accomplishments, and challenges implementing

programs that promote conditions for sustaining economic

growth and stability at home and abroad, protecting the

integrity of our nation’s financial system, and effectively

managing the United States (U.S.) government’s finances

and resources. In accordance with Office of Management

and Budget’s (OMB) Circular A-136, Financial Reporting

Requirements, we produce the following reports: (i) an

AFR issued on November 15, 2018 and (ii) an Annual

Performance Report (APR) submitted with Treasury’s

congressional budget justification, to be issued by

February 1, 2019. The AFR will be available online at

https://home.treasury.gov/about/budget-financial-reportingplanning-and-performance/agency-financial-report. The APR

will be available online at

https://www.treasury.gov/about/budget-performance/Pages/cjindex.aspx.

HOW THIS REPORT IS ORGANIZED

Our AFR provides financial and performance information

for the FY beginning October 1, 2017, and ending on

September 30, 2018, with comparative prior year data,

where appropriate. The AFR demonstrates our

commitment to our mission and accountability to

Congress and the American people. This report presents

Treasury’s operations, accomplishments and challenges. 

The AFR begins with a message from the Secretary of the

Treasury, Steven T. Mnuchin. This introduction is

followed by three main sections.

Part 1: Management’s 

Discussion and Analysis

Provides a high-level overview of

our organizational structure,

strategic framework,

programmatic and financial

performance, and management

assurances related to Treasury’s

internal controls.

Part 2: Financial Section

Begins with a message from the

Assistant Secretary for 

Management and Deputy Chief

Financial Officer, followed by

the Independent Auditors’

Report, audited financial

statements and notes, and

supplementary information.

Part 3: Other Information

Contains various information

including Management and

Performance Challenges

identified by the Inspectors

General and Management’s

response, along with

information related to tax gap

and tax burden, improper

payments, and other relevant

information.
FY 2018 AGENCY FINANCIAL REPORT

FY 2018 AGENCY FINANCIAL REPORT

 

FY 2018 AGENCY FINANCIAL REPORT

TABLE OF CONTENTS

MESSAGE FROM THE SECRETARY OF THE TREASURY ........................................................................................................................ 4 

PART 1: MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) 

TREASURY AT A GLANCE .................................................................................................................................................................. 9 

ORGANIZATION ............................................................................................................................................................................... 11

TREASURY STRATEGIC MANAGEMENT ....................................................................................................................................... 14

PERFORMANCE OVERVIEW ........................................................................................................................................................... 16

ENTERPRISE RISK MANAGEMENT ............................................................................................................................................... 32 

FY 2019 OUTLOOK ....................................................................................................................................................................... 33 

FINANCIAL HIGHLIGHTS – FINANCIAL OVERVIEW ................................................................................................................... 34 

MANAGEMENT ASSURANCES ........................................................................................................................................................ 39

SYSTEMS, CONTROLS AND LEGAL COMPLIANCE ....................................................................................................................... 40 

PART 2: FINANCIAL SECTION

MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT AND DEPUTY CHIEF FINANCIAL OFFICER ............... 47 

INSPECTOR GENERAL’S TRANSMITTAL LETTER ....................................................................................................................... 48 

INDEPENDENT AUDITORS’ REPORT ............................................................................................................................................ 50

MANAGEMENT’S RESPONSE TO INDEPENDENT AUDITORS’ REPORT ..................................................................................... 56 

FINANCIAL STATEMENTS .............................................................................................................................................................. 57 

NOTES TO THE FINANCIAL STATEMENTS ................................................................................................................................... 64 

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) ............................................................................................... 135 

PART 3: OTHER INFORMATION (UNAUDITED) 

SECTION A: TAX GAP AND TAX BURDEN................................................................................................................................ 145 

SECTION B: REDUCE THE FOOTPRINT .................................................................................................................................... 154

SECTION C: MANAGEMENT CHALLENGES AND TREASURY RESPONSE .............................................................................. 155 

SECTION D: SUMMARY OF FINANCIAL STATEMENT AUDIT AND MANAGEMENT ASSURANCES .................................... 190

SECTION E: PAYMENT INTEGRITY ........................................................................................................................................... 192 

SECTION F: FRAUD REDUCTION REPORT ............................................................................................................................... 207 

SECTION G: CIVIL MONETARY PENALTIES INFLATION ADJUSTMENT ............................................................................... 210

SECTION H: GRANTS OVERSIGHT ANDNEW EFFICIENCY ACT REQUIREMENTS ............................................................. 216 

APPENDIX: GLOSSARY OF ACRONYMS ..................................................................................................................................... 217
4 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MESSAGE FROM THE SECRETARY OF THE TREASURY

MESSAGE FROM THE SECRETARY OF THE TREASURY

M ISSION S TATEMENT

Maintain a strong economy and create economic and job opportunities by promoting conditions

that enable economic growth and stability at home and abroad; strengthen national security by

combating threats and protecting the integrity of the financial system; and manage the U.S.

government’s finances and resources effectively.

Treasury’s annual Agency Financial Report provides an

opportunity to reflect on our accomplishments of the past

year. Our Department has taken a leading role in

fulfilling the Trump Administration’s promise of

prosperity and security for all Americans, and I am proud

of what we have achieved together. As we prepare to

enter 2019, the Treasury remains focused on the

successful implementation of the Tax Cuts and Jobs Act

(TCJA), the reduction of regulatory burdens, and

countering illicit financial activity at home and abroad.

TAX REFORM

Treasury has worked tirelessly to implement the TCJA to

realize its benefits for the American people. Since the

law’s passage, hundreds of companies have credited tax

reform while announcing special bonuses, higher wages,

enhanced benefits, and new jobs for their workers. 

American companies have also dramatically increased

their capital expenditures, pouring hundreds of billions of

dollars back into our economy.

While the TCJA has already delivered results for

hardworking Americans, there is still more work to be

done. Treasury’s Office of Tax Policy and the Internal

Revenue Service (IRS) are issuing important tax guidance

and updating over 140 systems to reflect changes in the

law. The IRS has already issued more than 50 guidance

documents, and providing further clarity will continue to

be a top priority for Treasury.

REGULATORY REFORM

Treasury is also focused on fostering stronger economic

growth by reducing regulatory burdens on businesses. In

response to Executive Orders by the President, the

Department continued releasing reports with

recommendations for improving the financial regulatory

environment.
DEPARTMENT OF THE TREASURY 5 

MESSAGE FROM THE SECRETARY OF THE TREASURY | FY 2018 AGENCY FINANCIAL REPORT

This year Treasury published recommendations on the

Orderly Liquidation Authority and Bankruptcy Reform, 

and Community Reinvestment Act Modernization. It also

released a comprehensive report regarding Nonbank

Financials, Fintech, and Innovation.

The Department also worked closely with Congress on the

successful passage of The Economic Growth, Regulatory

Relief and Consumer Protection Act. This law provides

relief for America’s small, mid-size, community, and

regional banks. It enhances the flow of credit to small

businesses and supports job creation and wage growth. 

ILLICIT FINANCE

Treasury’s Office of Terrorism and Financial Intelligence

plays a critical role in using our unique economic and

financial tools to advance the priorities of the

Administration’s National Security Strategy and protect

the U.S. and international financial system from abuse by

illicit actors.

Highlighting just a few initiatives in the past year,

Treasury has spearheaded the Administration’s reimposition of sanctions against Iran, the world’s largest

state sponsor of terrorism. Treasury took action to hold

Russia accountable for a host of malign activities

targeting the U.S. and our allies. We also engaged in a 

successful pressure campaign to cut off illicit money

flowing to North Korea. We have utilized authorities

related to the Global Magnitsky program and others to

target human rights abuse and corruption around the

world, including sanctioning warlords in Africa,

kleptocrats in Venezuela, and those responsible for 

chemical weapons attacks in Syria. On terrorism, we

have designated more Hizballah-related financiers than

in any single previous year, disrupted Islamic State in

Iraq and Syria’s global fundraising networks, and opened

a new Terrorist Financing Targeting Center to promote

better coordination on countering terrorist financing

across the Middle East.

CFIUS

Treasury worked closely with members of Congress on the

passage of the Foreign Investment Risk Review

Modernization Act (FIRRMA). As Chair of the Committee

on Foreign Investment in the United States (CFIUS), 

Treasury’s Office of International Affairs played a lead

role in modernizing the CFIUS review process to protect 

America’s critical technology and infrastructure, while

also keeping America open to investment. Congress

passed FIRRMA with strong bipartisan support, and the

Department continues to work with interagency

Committee members to implement the law’s various 

provisions by or before the statutory deadline of February

2020.

TRADE

Treasury is also working with our interagency partners

across the Administration to improve trade agreements

for the benefit of American workers and businesses. 

President Trump has delivered on a key promise by

replacing the North American Free Trade Agreement

with an agreement promoting free, fair and reciprocal

trade. The announcement of the United States-MexicoCanada Agreement represents an important step in the

modernization and rebalancing of our trading

relationships.
6 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MESSAGE FROM THE SECRETARY OF THE TREASURY

Of course, one of Treasury’s core functions is to be

effective stewards of taxpayer resources and to be

transparent with the American people. I am pleased to

report that Treasury received an unmodified audit

opinion on its consolidated financial statements and

validated its financial and performance data as complete

and reliable. Treasury continued to strengthen its

management controls and successfully downgraded a 

long-standing material weakness at the IRS, thereby

making significant progress toward achieving all U.S.

financial systems and control objectives. We provide this

report as a comprehensive review of the Department’s

important work and finances.

Over the last year, Americans have seen the highest GDP

growth in over a decade, and business and consumer

optimism have soared. Wages are rising, and

unemployment is historically low. 

We could not have accomplished so much without the

hard work of the professionals here at the Treasury

Department. I know that all who serve here care greatly

about the national security and economic prosperity of the

American people. I look forward to another successful

year for our Department and our nation.

Steven T. Mnuchin

Secretary of the Treasury

November 15, 2018
 

 

TREASURY AT A GLANCE ....................................................... 9

ORGANIZATION ................................................................ 11

TREASURY STRATEGIC MANAGEMENT .................................. 14 

PERFORMANCE OVERVIEW ................................................. 16

ENTERPRISE RISK MANAGEMENT......................................... 32

FY 2019 OUTLOOK........................................................... 33

FINANCIAL HIGHLIGHTS – FINANCIAL OVERVIEW .................... 34

MANAGEMENT ASSURANCES .............................................. 39

SYSTEMS, CONTROLS AND LEGAL COMPLIANCE ...................... 40
 

 
DEPARTMENT OF THE TREASURY 9 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

TREASURY AT A GLANCE

FOUNDATION

After the American Revolution, Congress realized that

funding a war without proper infrastructure and financial

discipline presented an enormous challenge to our

country’s economic stability. Out of the necessity to levy

and collect taxes and manage the U.S. government’s

finances, Congress established the Department of the

Treasury on September 2, 1789. President George

Washington appointed Alexander Hamilton as Treasury’s

first Secretary. Since then, 77 Secretaries have led the

Department.

Throughout its history, Treasury has been the foundation

for other federal agencies. For example, the U.S. Postal

Service, U.S. Customs Service, Secret Service, Federal

Law Enforcement Training Center, and U.S. Coast Guard

were all, at one time, under our jurisdiction.

The Treasury building in the late 1800s. The Treasury building

colonnade from the southeast side shows the bustle of pedestrian

traffic on 15th Street as they passed in front of the Treasury

building.

U.S. Department of the Treasury building, Washington, D.C. 

TODAY’S TREASURY AND HOW WE SERVE THE

NATION

Treasury remains as one of the premier financial

institutions, responsible for the nation’s debt

management, cash production, issuing Social Security

and other benefit payments, loans made to other federal

agencies, tax collection, and economic policy formulation. 

We are a trusted policy advisor to the President,

formulating and recommending domestic and

international financial, economic, and tax policy. Our

contributions to policy development shape America’s

economic health and security.

The Department also performs a critical and far-reaching

role in enhancing national security and reducing our

exposure to international terrorism. We do this by

employing the Department’s national security tools and

authorities—including sanctions—to identify, disrupt,

and dismantle priority national security and foreign

policy threats.
10 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Additionally, we identify and reduce vulnerabilities in the

U.S. and international system to prevent abuse by illicit

actors. We also leverage our relationships with our

federal partners and the private sector to identify cuttingedge technologies to identify, detect, and prevent threats

to our economic stability before they occur.

We work to increase opportunities for small businesses,

which are the backbone of our economy; create jobs to

improve the well-being of U.S. citizens; and safeguard and

grow our national economy. We have been a continuously

influential part of the government’s service to the

American people, adapting to meet the nation’s needs.

Globally, Treasury represents the U.S. in key economic

forums and international financial institutions, including

the Group of Seven (G-7) and the Group of Twenty (G-20),

which hold annual summits with heads of state to discuss

global foreign policy issues. We play a vital role in

promoting stability and growth in the global economy via

our leadership roles in the International Monetary Fund,

the World Bank, regional development banks, and other

multilateral organizations, such as the Financial Stability

Board and the Financial Action Task Force.

Although Treasury has evolved to meet the nation’s

needs, our core mission has remained the same since

1789. Today, with approximately 100,000 employees, we

remain steadfast in our commitment to promote

conditions that enable economic growth and stability at

home and abroad, protect the integrity of the financial

system, and effectively manage the U.S. government’s

finances and resources. We remain the principal steward

of the U.S. economy—collecting revenue, meeting

financial obligations, and, when appropriate, borrowing.
DEPARTMENT OF THE TREASURY 11 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

ORGANIZATION

Treasury is organized into the Departmental Offices, seven bureaus, and three offices of Inspector General. The

Departmental Offices are primarily responsible for headquarters operations and policy formulation, while the bureaus are

the operating units of the organization.
12 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

DEPARTMENTAL OFFICES

Domestic Finance works to preserve confidence in the U.S.

Treasury securities market, strengthen financial

institutions and markets, and promote access to credit, in

service to long-term economic strength and stability.

Terrorism and Financial Intelligence (TFI) uses unique

policy, intelligence, enforcement and regulatory tools and

authorities to disrupt and disable terrorists, criminals,

and other national security threats while also

safeguarding the financial system against abuse by illicit

actors.

International Affairs protects economic prosperity and

national security by working to foster a most favorable

external environment for sustained jobs and economic

growth.

Tax Policy develops and implements tax policies and

programs, reviews regulations and rulings to administer

the Internal Revenue Code, and provides revenue

estimates for the President’s Budget.

Economic Policy reports on economic developments and

assists in the determination of appropriate economic

policies. It also reviews and analyzes domestic economic

issues and financial market developments.

The Treasurer of the United States serves as a principal

advisor to the Secretary and leads the Office of Consumer

Policy, which provides policy leadership, research, and

analysis to foster economic growth and financial security

for American families in a robust consumer marketplace. 

The Treasurer also oversees the U.S. Mint, including

advising the Secretary on coinage matters and liaising

with the Federal Reserve.

The Office of Management and Chief Financial Officer 

manages the Department’s financial resources and

oversees Treasury-wide programs, including human

capital, organizational performance, information

technology, acquisition, and diversity issues.

The Office of Risk Management oversees the development

and implementation of an integrated risk management

framework for the Department, advising Treasury leaders

on managing credit, market, liquidity, fraud, operational,

strategic, and reputational risks.

 

Other offices within Departmental Offices include the

General Counsel, Legislative Affairs, and Public Affairs.
DEPARTMENT OF THE TREASURY 13 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

INSPECTORS GENERAL

 

Three Inspectors General – the Office of Inspector General

(OIG), the Treasury Inspector General for Tax Administration

(TIGTA), and the Special Inspector General for the Troubled

Asset Relief Program (SIGTARP) – provide independent

audits, investigations, and oversight of Treasury and our

programs.

BUREAUS

The Alcohol and Tobacco Tax and Trade Bureau (TTB)

collects federal excise taxes on alcohol, tobacco products,

firearms, and ammunition and enforces and administers

laws covering production, use, and distribution of alcohol

and tobacco products.

The Bureau of Engraving and Printing (BEP) develops and

produces U.S. currency notes, as well as secure

documents for government use.

The Financial Crimes Enforcement Network (FinCEN)

safeguards the financial system from illicit use and

combats money laundering. It also promotes national

security through the collection, analysis, and

dissemination of financial intelligence and strategic use of

financial authorities.

The Bureau of the Fiscal Service (Fiscal Service) promotes

financial integrity and operational efficiency by operating

the U.S. government’s collections and deposit systems,

and providing central payment services to the American

public on behalf of federal agencies. It also manages the

collection of delinquent debt, borrows funds needed to

operate the U.S. government through the sale of

marketable and special-purpose U.S. Treasury securities,

and accounts for the resulting debt. Additionally, it

delivers administrative shared services to federal agencies

and provides government-wide accounting and reporting. 

The Internal Revenue Service (IRS) determines, assesses,

and collects U.S. tax revenue and helps taxpayers

understand their tax responsibilities and combats taxrelated fraud.

The United States Mint (U.S. Mint) designs, mints, and

issues U.S. circulating, numismatic, and bullion coins,

strikes Congressional gold medals and other medals of

national significance, and maintains physical custody and

protection of most of the nation’s gold and all its silver

assets.

The Office of the Comptroller of the Currency (OCC)

charters, regulates, and supervises national banks and

federal savings associations as well as federal branches

and agencies of foreign banks to ensure that they operate

in a safe and sound manner, provide fair access to

financial services, treat customers fairly, and comply with

applicable laws and regulations.
14 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

TREASURY STRATEGIC MANAGEMENT

FRAMEWORK

The Government Performance and Results Act (GPRA)

and the GPRA Modernization Act of 2010 require

agencies to identify goals, report progress against targets,

and conduct data-driven reviews. These practices serve

two key purposes for stakeholders within and outside of

the organization — to assess the organization’s health

and impact, and to enhance effective decision-making and

strategy, including resource allocation. In this spirit,

Treasury developed a strategic framework using best-inclass organizational performance practices to help achieve

our strategic goals and objectives.

ORGANIZATIONAL PERFORMANCE REVIEW CYCLE

Our organizational performance reviews provide a regular

forum for open dialogue and coordination between bureau

and departmental policy office management and

leadership. We bring together different perspectives to

set and align priorities, identify and solve problems,

review agency performance, and drive results. The cycle

integrates statutory requirements to conduct quarterly

performance reviews of agency goals and a Strategic

Objective Annual Review (SOAR), which analyzes crosscutting performance and identifies a set of strategic

objectives as priority focus areas.

At designated points throughout the fiscal year, we set

annual priorities, evaluate progress, problem-solve

around risks and challenges, and assess funding options

in the context of performance outcomes. Treasury’s

process and framework for managing to our strategic

objectives and performance outcomes is described in Table

1 below. 

TABLE 1: STRATEGIC FRAMEWORK Sessions

Fall

(October – November)

Winter

(February – March)

Spring

(April – May)

Summer

(June – July)

Focus

Organizational Performance SOAR Organizational Performance Budget

Chair

Assistant Secretary for

Management/Performance

Improvement Officer

(ASM/PIO)

ASM/PIO and Deputy PIO ASM/PIO ASM/PIO and Budget

Officer

Goals/Outcomes

• Review prior year’s

performance at the

bureau/office level

• Set priorities for year

ahead

• Recognize successes

• Identify shortfalls/

accountability

• Evaluate cross-agency

progress toward strategic

objectives

• Identify strategic shifts/

validate Treasury priorities

• Outline potential topics for

annual review with the

Office of Management and

Budget (OMB)

• Assess progress on priorities

• Identify necessary

adjustments/near-term

improvements

• Surface problems or

assistance needed

• Recognize successes

• Identify shortfalls/

accountability

• Connect priorities to

future funding

• Explore performance

impacts

• Strengthen information

technology 

acquisition 

budgeting 

accountability
DEPARTMENT OF THE TREASURY 15 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT 

FY 2018 – 2022 STRATEGIC FRAMEWORK

The strategic framework comprises the Department’s FY 2018–2022 strategic goals and objectives and FY 2018–2019 Agency

Priority Goals (APGs), which align to specific objectives. All bureaus and offices align their programs and performance

within this framework. FY 2018 marks the first year of implementing our new strategic plan, which emphasizes achieving

important outcomes through a series of focused objectives and underlying strategies.

Strategic Goals Strategic Objectives/APGs

Contributing

Bureaus/Offices

Economic

Goal 1: Boost U.S.

Economic Growth

1.1: Tax Law Implementation

 Aligned APG: Reducing Refund Fraud

1.2: Strong Economic Fundamentals

1.3: Trusted Currency and Services

 Aligned APG: Improved Business Qualification Process

1.4: Free and Fair Trade 

Domestic Finance

International Affairs

Tax Policy

Treasurer

Economic Policy

IRS

BEP

U.S. Mint

TTB

OCC

Goal 2: Promote

Financial Stability

2.1: Housing Finance Reform

2.2: Foreign Exchange Practices

2.3: Foreign Technical Assistance

2.4: Financial Sector Critical Infrastructure and Cybersecurity

Domestic Finance

International Affairs

Management

OCC 

Security

Goal 3: Enhance

National Security

3.1: Strategic Threat Disruption

 Aligned APG: U.S. and Mexico Strategic Dialogue on Illicit Finance

3.2: Anti-Money Laundering and Combating Financing of Terrorism Framework

3.3: Economic Strength and National Security

TFI

FinCEN

International Affairs

Economic Policy

OCC 

Financial

Goal 4: Transform

Government-wide

Financial

Stewardship

4.1: Financial Data Access and Use

4.2: Debt Management

4.3: Federal Financial Performance

Domestic Finance

International Affairs

IRS

Fiscal Service

Management

Goal 5: Achieve

Operational

Excellence

5.1: Workforce Management

5.2: Treasury Infrastructure 

5.3: Customer Value

All Offices and

Bureaus, led by the

Office of

Management
16 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

PERFORMANCE OVERVIEW

Treasury carries great responsibility fostering prosperity and security for the American people. We play a critical role in

both U.S. and global economies, continually evolving to meet the needs of the nation. The Treasury Strategic Plan 2018–

2022 charts a course to fulfill our responsibility. The following performance overview reflects our accomplishments and

challenges toward achieving the goals of economic growth, financial stability, national security, financial stewardship, and

operational excellence for the country. 

Goal 1: Boost U.S. Economic Growth

The Administration has set forth a bold agenda to bolster

economic growth, where Treasury plays a central role to

foster prosperity for the American people. The 

Department has four strategic objectives for achieving

economic growth. Our first objective is to administer the

tax law to better enable its implementation, while

protecting the integrity of the tax system. Secondly, we

aim to spur faster economic growth by right-sizing

regulations and advancing domestic economic policies

that boost investment, employment, and innovation. 

Third, we strive to deliver trusted currency and services

that enable citizens and businesses to participate in the

economy. Lastly, our fourth objective is to advance a free

and fair-trade environment for U.S. businesses through

the successful negotiation of trade agreements and

investment policies.

TAX LAW IMPLEMENTATION

As part of the FY 2018 SOAR, Treasury along with OMB

identified tax law implementation as achieving

noteworthy progress, remaining a focus area for 

improvement through FY 2019. After taking significant

steps to shape tax reform, implementing the new law will

require extensive further coordination and potential

trade-offs for key programs.

The Tax Cuts and Jobs Act (TCJA), P.L. 115-097, signed

into law on December 22, 2017, represents the most

sweeping change to U.S. tax law since the Tax Reform Act

of 1986. The TCJA includes 119 tax provisions that affect 

individual and business taxpayers, as well as key areas of

the IRS. While we have implemented many tax law

changes over the past decades, implementing the TCJA

involves creating or changing more than 500 tax products

and 140 systems, retraining the IRS workforce, and

educating the taxpaying public about the changes. The

IRS revised all necessary forms and publications as a 

result of TCJA provisions to support taxpayers through

the 2018 filing season.

In FY 2018, Treasury issued proposed regulations

regarding TCJA provisions related to the new Section

199A deduction (which provides a 20 percent deduction

for business income from a trade or business operated

through a pass-through entity) and Section 170 (that

preserves the revenue in TCJA related to the imposition

of a cap on state and local income tax deductions). 

Treasury also worked to implement TCJA provisions

THINKSTOCK.COM

FY 2018 Filing Season 

The IRS received about 137 million individual returns

and issued more than 95 million refunds totaling $265

billion. The average refund was $2,780. Taxpayers

filed 91 percent of individual returns electronically,

and 9 out of 10 taxpayers received their refunds

within 21 days. Taxpayers visited the IRS.gov website

387 million times, with 265 million taxpayers checking

the status of their refund using the “Where’s My

Refund?” tool.
DEPARTMENT OF THE TREASURY 17 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

related to the one-time repatriation tax affecting U.S.

shareholders with ownership in certain foreign

corporations under Section 965 of the Internal Revenue

Code, and published proposed regulations under Section

951A dealing with global intangible low-taxed income,

including income by U.S. shareholders of any foreign

controlled corporation. In addition, the IRS established

an extensive web page on IRS.gov related to the TCJA to

provide tax reform information to the public as it becomes

available.

Furthermore, Treasury provided analysis in support of

tax reform implementation, including updated tax

withholding tables and inflation-adjusted tax parameters

and regulatory impact analyses. Our tax policy office has

also estimated the effects of proposed and final tax reform

provisions on tax revenue to inform policymakers and to

include in the Administration’s FY 2019 Budget.

TCJA implementation activities continue to focus on

helping taxpayers file their 2018 returns timely and

accurately in 2019. Specifically, the IRS is working to

complete the necessary information technology

programming to enable accurate processing of all revised 

and new forms in the 2019 filing season.

In addition to challenges associated with implementing

TCJA changes during the year, the IRS was also charged

with implementing other new tax law changes while

processing tax returns. Three significant pieces of

legislation affected IRS operations for the 2018 filing

season:

• The Disaster Tax Relief and Airport and Airway

Extension Act of 2017, enacted into law September

29, 2017, provides relief for victims of Hurricanes

Harvey, Irma, and Maria. It allows for casualty loss

claims using a modified computation. 

• In implementing the TCJA, discussed above, the IRS

leveraged its long-standing relationships and forums

with stakeholders to support implementation

planning for the TCJA. 

• The Bipartisan Budget Act of 2018 (P.L. 115-123),

enacted into law on February 9, 2018, retroactively

renewed dozens of tax provisions that had expired at

the end of 2016 (referred to as “extenders”), and

affected more than 100 completed tax products. The

IRS quickly revised affected forms, developed a 

communications strategy to alert partners and

taxpayers of anticipated delivery dates and potential

effects, and took quick action to program processing

systems. 

Moreover, the IRS continued efforts to assist taxpayers

prepare for the upcoming filing season by providing

information on various changes related to the Protecting

Americans from Tax Hikes Act of 2015 (PATH Act),

including changes related to the following:

• Mid-February issuance of refunds on tax returns

claiming the Earned Income Tax Credit (EITC)

and/or the Additional Child Tax Credit (ACTC); 

• Expiration of Individual Taxpayer Identification

Numbers not used for three consecutive years; 

• Refunds of the overpayment of tax in a prior year on

wrongful incarceration awards and the need to file a 

Form 1040X, Amended U.S. Individual Income Tax

Return, to claim them; and

• The provision requiring employers to file Form W-2,

Wage and Tax Statement, Form W-3, Transmittal of

Wage and Tax Statements, and Form 1099-MISC,

Miscellaneous Income, with the Social Security

Administration (SSA) by January 31.

Treasury also enhanced our defenses against identity

theft and refund fraud through the IRS making available

earlier tax form data from the Form W-2 and Form 1099-

MISC. We further conducted systemic verification of

information reported on taxpayers’ returns against thirdparty information using the Form 1099-MISC for nonemployee compensation data as a variable in the filtering

process before issuing refunds. In addition, the PATH Act

requires us to hold refunds on all returns claiming EITC

and/or ACTC until February 15. We leveraged both our

filtering process and the PATH Act refund hold policy to

automate and expand the selection of potentially

fraudulent returns. For 2018, we identified

approximately 340,000 PATH Act returns with possible

overstated income or withholding issues.
18 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

ECONOMIC GROWTH

Financial Regulatory Reform 

In FY 2018, Treasury continued work to improve the

financial regulatory system and economy consistent with

the Administration’s Core Principles for reforming the

financial regulatory system. The Core Principles, issued

under Executive Order 13772, include empowering

Americans to make independent financial decisions and

save for retirement and build wealth, and avoid taxpayerfunded bailouts. The principles also include promoting

American competitiveness—both at home and abroad—

while making regulation efficient, effective and

appropriately tailored.

Given the breadth of the financial system and a complex

regulatory environment, we divided our review of the

financial system into a series of four planned reports,

covering: (1) banks and credit unions; (2) capital markets;

(3) asset management and insurance industries; and (4) 

non-bank financial institutions, fintech, and innovation. 

Based on the direction of Executive Order 13772, we

issued our first report in June 2017, and the second and

third reports in October 2017 related to the Core

Principles.

We issued our fourth and final report under Executive

Order 13772 in July 2018, which covered nonbank

financial institutions, financial technology and

innovation. In drafting the report, we consulted

extensively with a wide range of stakeholders focused on

consumer financial data aggregation, lending, payments,

credit servicing, fintech, and innovation. Our

recommendations are designed to facilitate U.S. firm

innovation by streamlining and refining the regulatory

environment. These improvements should enable U.S.

firms to more rapidly adopt competitive technologies, and

operate with greater efficiency.

Treasury will continue to support and evaluate progress

on the implementation of these recommendations to

operate the financial system under the Core Principles.

Reducing Regulatory Burden

Through a series of executive orders, President Trump

launched an historic effort to reduce existing red tape and

limit new regulatory costs. Treasury has undertaken

extensive efforts to implement the President’s regulatory

reform agenda. In April 2018, Treasury released a report

detailing the steps that it has taken to implement

Executive Order 13777, “Enforcing the Regulatory Reform

Agenda” (February 24, 2017) and related initiatives. 

Treasury will continue to support policies that support

economic growth through regulatory reform.

DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau’s (TTB) 

Permitting Process 

Ongoing growth in the alcohol beverage industry in

recent years has resulted in an increased volume in

permit applications for new alcohol producers. This

growth in volume has contributed to delayed permit

approvals, reaching an average of 122 days in FY 2016

as shown in the graph above. 

During FY 2018, TTB released a redesigned Permits

Online to improve the submission process for new and

amended permit applications. This, combined with

process improvements and enhanced online guidance,

should facilitate complete applications and lead to

improved processing times. 

As an agency priority goal for FY 2018 – FY 2019,

TTB aims to reduce average approval times for alcohol

and tobacco business permits by at least 20 percent

(from 96 days to 75 days), and achieve the new 75-day

standard for 85 percent of applicants by September 30,

2019. 
DEPARTMENT OF THE TREASURY 19 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

Reforming Financial Literacy Programs

In FY 2018, under the leadership of the Treasurer, the

Office of Consumer Policy led a review of the

government’s financial literacy and education programs. 

Based on this review, we made recommendations to OMB

for consolidating and streamlining programs, as well as

improving program coordination to increase efficiency and

reduce fragmentation. We plan on implementing

recommendations in FYs 2019 and 2020, and anticipate

improvements to the impact and accountability of federal

financial education activities, in addition to the expansion

and use of best practices from among federal agencies and

the private sector.

NEXT GENERATION CURRENCY

Treasury endeavors to manufacture sophisticated and

technologically advanced notes that are dependable in

commerce and accessible to all members of the general

public. Working closely with our partners in the U.S.

Currency Program in FY 2018, we are on track in

developing new security features for the next family of

currency notes. We also continued to work with the

government’s Advanced Counterfeit Deterrence

committee in determining when to release the new notes

to ensure that the next generation currency notes are

secure. 

To deliver on our responsibilities around U.S. currency,

BEP requested legislative authority to purchase land for 

the construction of a new, smaller, more efficient currency

production facility in the National Capital Region. 

ADVANCING THE U.S. TRADE AGENDA

Treasury is deeply engaged in the trade agenda of the

Administration to reduce trade barriers to level the

playing field for U.S. workers and companies. Treasury

works to open markets for U.S. financial services firms

through its engagement with finance officials and

regulators globally. In 2018, Treasury led negotiations on

financial services in the United States-Mexico-Canada

Agreement discussions. Treasury also crafts rules in the

context of our trade agreements to prevent the use of

currency manipulation by our trading partners to gain a 

trade advantage.
20 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 15 FY 16 FY 17 FY 18 FY 18 

Target Result vs Target

Customer Service Representative Level of

Service (IRS)1 38.1% 53.4% 77.1% 75.9% 75.0% Exceeded

Enterprise Self-Assistance Participation Rate 

(IRS)2 88.7% 89.0% 79.0% 82.0% Indicator N/A

Timeliness of Critical Individual Filing Season

Tax Products (IRS)3 89.0% 92.5% 93.1% 59.6% 89.0% Unmet

Percentage of Permit Applications Processed

within Service Standards (TTB)4 46.8% 32.4% 48.1% 71.2% 85.0% Unmet

Currency Notes Delivered Returned Due to

Defects – Parts per Million (BEP)5 N/A N/A <0.008 0.0031 <1.000 Met

Explanation of Results 1

This measure represents the number of toll free callers that either speak to a Customer Service Representative or receive

information messages divided by the total number of attempted calls. FY 2018 Level of Service (LOS) exceeded the target,

reaching 75.9 percent. For FY 2019, the IRS will continue to create detailed forecasts of expected telephone and correspondence

demand and regularly monitor those projections with actual results. For telephones, the IRS will monitor the demand in real-time

and the resources allocated down to the half hour allowing the ability to regularly shift personnel between telephones and paper

processing to address demand and achieve the planned goals. IRS-Wage & Investment reports LOS on a regular basis (daily,

weekly, monthly, and fiscal year) at all levels of the organization throughout the year. 2

This indicator represents the percentage of taxpayer assistance requests resolved using self-assisted automated services. 

Starting in FY 2016, the IRS modified the previous Taxpayer Self-Assistance Rate measure to include additional self-service

channels. FY 2018 Enterprise Self-Assistance Participation Rate was 82.0 percent, an increase from the prior year of 4 percent. 

Total services increased 17 percent while self-assistance services increased by 21 percent from FY 2017. Beginning in FY 2018, 

the Income Driven Loan Repayment application was added. The Income Driven Loan Repayment application results combined

with the Federal Student Aid document and information request results increased by 107 percent compared to last year. The

driving factor for the increase in web services was Transcript Delivery System usage, up 211 percent (80.3 million vs. 25.8 million)

compared to last year. Other applications contributing to the increase include: Where's My Refund? up 11 percent; Interactive

Tax Assistant up 22 percent; Online Payment Agreement up 19 percent and electronic payments up 10.5 percent from the prior

year.

3

This measure represents the percentage of critical individual filing season tax products (tax forms, schedules, instructions,

publications, tax packages, and certain notices required by numerous filers to prepare a complete and accurate tax return)

available to the public in a timely fashion. FY 2018 results fell short of the 89 percent annual goal by 33 percent. Public Law (PL)

115-97, enacted December 22, 2017, affected 37 (39 percent) of the 94 total CIFS tax products. The legislation brought about

extensive tax law changes and provided Media & Publications (M&P) only a 14-day window to incorporate all modifications, issue

the affected tax products, and plan a coordinated release with the new withholding rates by the January 8 measure date. An

additional 57 tax products were unexpectedly added to the work plan. Because the new tax law introduced new withholding tax

rates, M&P was subjected to increased oversight and review which further affected our timeliness. Despite the short timeframe,

about 60 percent of CIFS tax products were timely made available to the public. 4

This measure represents the overall rate at which TTB is meeting its annual service standard (75 days for FYs 2014 – 2018) for all

original permit applications. The measure gauges the efficiency and consistency of TTB’s permitting process and supports

effective communication with industry members as to level of service. TTB made significant progress in achieving its service

standard in FY 2018 through targeted process improvements and anticipates additional gains in FY 2019 due to a recent system

release. TTB will continue to face challenges in timely service due to resource constraints combined with a high volume of

applications, however, and is undertaking broader efforts to modernize its permit requirements and develop a custom application

system to sustain these improvements going forward. 5

This measure incentivizes continuous product quality improvement and reduces defect-driven returns of currency notes by the

Federal Reserve back to BEP. BEP’s Office of Security collects and tracks the number of notes by denomination that are returned

from the Federal Reserve Banks. The target for this measure comports with manufacturing industry quality standards. No data

exists for years prior to FY 2017.

 
DEPARTMENT OF THE TREASURY 21 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

Goal 2: Promote Financial Stability

U.S. economic growth must be achieved in a stable and

sustainable way, which is why Treasury also works to

promote financial stability around the world. Of the four 

strategic objectives for achieving this goal, the first is to

support housing finance reform that resolves the

conservatorships of Fannie Mae and Freddie Mac

(collectively, the government-sponsored enterprises, or

GSEs). This first objective also seeks to prevent future

taxpayer bailouts of public and private mortgage-finance

entities, while promoting consumer choice within the

mortgage market. Our second strategic objective is to

achieve fair foreign exchange practices through

multilateral engagement with international partners. 

The third strategic objective is to provide technical

assistance to enable foreign partner countries to better

raise and manage financial resources and protect their

financial sectors. Finally, our fourth strategic objective is

to enhance security, improve resiliency, and reduce the

risk of significant cybersecurity and other incidents to the

financial sector’s critical infrastructure, both domestically

and internationally.

HOUSING FINANCE REFORM

The GSEs were placed into federal conservatorship by

their regulator, the Federal Housing Finance Agency, in

2008. They are now in their eleventh year of that

conservatorship while policymakers continue to debate

their future. Concurrent with being placed into

conservatorship, each GSE agreed to capital support

agreements with Treasury through Senior Preferred

Stock Purchase Agreements (SPSPAs). Through these

capital support agreements, which have now been

amended multiple times, Treasury continues to commit

critical funding to backstop GSE financial obligations. 

With the GSEs in their current state, taxpayers remain at

risk. The U.S. must formulate a comprehensive, longterm housing finance reform that addresses the GSEs and

supports the vital role housing plays in the financial

security of American families and the broader U.S.

economy. 

FOREIGN TECHNICAL ASSISTANCE

In support of U.S. economic and national security

priorities, Treasury initiated or expanded more than a 

dozen technical assistance engagements globally,

including in the Western Hemisphere in countries like

Argentina and Colombia, Sub-Saharan Africa, and Asia

(e.g. Mongolia and Sri Lanka). Treasury continues to face

challenges including the ability to recruit and retain

expert advisors, particularly in highly specialized

disciplines such as financial sector supervision or

oversight, and infrastructure finance.

DEPARTMENT OF THE TREASURY

Technical Assistance Footprint 

The Office of Technical Assistance (OTA) has more

than 100 projects in nearly 50 countries. While the

specific number of projects and countries fluctuates

from year to year, OTA has focused on providing

deeper assistance to a more limited selection of

countries. This focused approach recognizes the

systemic nature of public financial management and

the importance of engaging with a counterpart

government in several related disciplines—tax

administration, budget execution, debt

management/infrastructure finance, financial sector

supervision, and anti-corruption—in a coordinated

way to achieve a stronger overall system.
22 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL SECTOR CYBERSECURITY

Treasury partners closely with financial sector

companies, industry groups, and government partners to:

(1) share information about cybersecurity and physical

threats and vulnerabilities; (2) encourage the use of

baseline protections and best practices; and (3) respond to

and recover from significant cyber incidents. In FY 2018,

we engaged with industry to better understand their

concerns about prior government approaches to

cybersecurity regulation. These discussions have given

industry the opportunity to provide their perspectives on

how regulatory approaches can be further improved,

while at the same time reducing unnecessary regulatory

burden. 

We also play a unique role by partnering closely with

industry and regulators to test and refine cyber incident

response processes. Our tabletop exercise program is a 

cornerstone of our outreach to proactively improve overall

financial sector preparedness. During FY 2018, we held

many successful exercises both with multiple subsectors

and other U.S. critical infrastructures. These exercises

resulted in significantly improved policies, procedures,

coordination, and response capabilities across the sector

and government stakeholders.

KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 15 FY 16 FY 17 FY 18 FY 18 

Target Result vs Target

Engagement of Partner Countries in

Programs – 5 point scale (International

Affairs)1

3.8 3.9 4.0 3.8 3.6 Exceeded

Explanation of Results

1

Measures the degree to which foreign counterparts are engaging proactively and constructively with OTA advisors, at the

working and policy levels. Counterpart engagement is both a key outcome of OTA efforts to structure and execute effective

technical assistance projects that support host country ownership as well as the most crucial input to the successful achievement

of the intermediate goals and ultimate outcomes described in the project’s terms of reference and work plan during the fiscal

year – such as passage of law or regulation, an increase in government revenues, an improvement in a government’s credit

rating, or a reduction in economic crimes. The measure is scored on a 5-point scale and averaged across all projects to provide

one overall measure of OTA’s performance.
DEPARTMENT OF THE TREASURY 23 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

Goal 3: Enhance National Security 

Through its national security mission and statutory

authority, Treasury’s Office of Terrorism and Financial

Intelligence (TFI) has broad tools to address activity that

threatens national security and to protect the U.S. and

international financial system from abuse. There are

three strategic objectives for achieving this goal, the first

two of which are under TFI’s purview. The first strategic

objective is to identify, disrupt, and dismantle priority

threats to the U.S. and international financial systems. 

The second is to identify and reduce vulnerabilities in the

U.S. and international financial system to prevent abuse

by illicit actors. The third strategic objective, led by our

Office of International Affairs, advances American

prosperity and security through growth, investment,

trade, and expansion of the American industrial base

while protecting national security.

In FY 2018, as part of our SOAR process with OMB, we

assessed noteworthy progress for the first TFI related

objective, with challenges remaining to address in FY 

2019 as an area for improvement. Though Treasury made

significant progress in addressing other administration

priorities, we are challenged by complex coordination

required for success. We also identified the third

objective as a FY 2019 focus area for improvement,

because of the increasing volume and complexity of the

Committee on Foreign Investment in the U.S. (CFIUS)

workload.

DEPLOYING TARGETED FINANCIAL MEASURES

TFI deploys Treasury’s powerful economic tools and

authorities in a tailored, strategic way to ensure

maximum effect against rogue regimes, proliferators of

weapons of mass destruction, terrorist groups, and

transnational criminal organizations, among others. In

deploying our financial tools and authorities, TFI assesses

each threat individually to ensure that we achieve

maximum impact and further our national security

objectives.

We have supported the Administration’s goal of the final,

fully verified denuclearization of North Korea by

maintaining pressure on North Korea’s finances and

economy, thereby stemming the flow of illicit revenue to

its weapons program which continues to pose a threat to

global security. We are deploying all of our tools and

authorities to curb the North Korean threat, including

sanctions; measures for anti-money laundering and

countering the financing of terrorism (AML/CFT); 

regulatory actions under Section 311 of the United and

Strengthening America by Providing Appropriate Tools

Required to Intercept and Obstruct Terrorism Act of 2001

(USA PATRIOT Act); foreign engagement; and private

sector partnerships; among other actions. 

In November 2017, FinCEN issued its final ruling

pursuant to Section 311 of the USA PATRIOT Act against

the China-based Bank of Dandong for serving as a 

gateway for North Korea to access the international

financial system. Along with that action, FinCEN issued

an advisory to financial institutions across the globe with

specific red flags of illicit North Korean schemes being

used to evade U.S. and UN sanctions, launder funds, and

finance the regime’s weapons of mass destruction and

ballistic missile programs. Additionally, in February

2018, the Office of Foreign Assets Control (OFAC) issued

an advisory, joined by the U.S. Department of State and

the U.S. Coast Guard, to alert persons globally to

deceptive shipping practices used by North Korea to

evade sanctions. 

Overall, we have sanctioned more than 200 individuals,

entities, and vessels related to North Korea under this

Administration. This economic pressure campaign has

created the conditions to bring the U.S. and North Korea

to the negotiating table to finally achieve fully verifiable

denuclearization with the hope of bringing peace to the

Korean peninsula. 

Following the President’s announcement in May to cease

participation in the Joint Comprehensive Plan of Action

with Iran, Treasury re-imposed U.S. sanctions on the

Iranian regime. These measures, imposed in two phases,

are designed to greatly reduce Iran’s capacity to continue

its support for terrorism, human rights abuses, ballistic

missile proliferation, destabilizing activities, and support
24 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

of militant groups. In addition, as of the end of FY 2018,

we have issued 18 rounds of sanctions on 146 individuals

and entities for a range of activities related to terrorism,

proliferation, and human rights abuses, and to thwart

Iran’s exploitation of the global financial system. 

Sanctions have included designations of the thenGovernor of the Central Bank of Iran for conspiring with

the Islamic Revolutionary Guard Corps-Qods Force

(IRGC-QF) to conceal the movement of millions of dollars

to enrich and support Hizballah; individuals and entities

supporting Mahan Air, an airline previously designated

for its support to terrorism, and a currency exchange

network that was funneling millions of dollars to the

IRGC-QF. 

In addition to sanctions, we continue to deploy other tools

to achieve maximum pressure on Iran to hold Iran

accountable for its destabilizing activities. For example,

FinCEN recently issued an advisory to financial

institutions detailing Iran’s efforts to deceive legitimate

businesses, including through the use of front and shell

companies, to fund its malign activities. Likewise,

Treasury department officials have traveled the world in

recent months, meeting with officials in dozens of

countries to warn them of Iran’s illicit activities and

garner their support for our pressure campaign. 

We have undertaken a comprehensive and strategic

financial pressure campaign to counter the scale and

sophistication of Russia’s malign activities. To counter

these threats, we have strategically deployed tools to

maximize financial pressure on the regime while

minimizing unintended consequences within the

international financial system. These efforts have

included a robust sanctions program, enforcement

actions, foreign engagement, and private sector

partnerships to deter their illicit activity. Under this

Administration, we have sanctioned 215 individuals or

entities, including 136 designated under Ukraine/Russiarelated sanctions under the Countering America’s

Adversaries Through Sanctions Act. We have also

sanctioned powerful Russian oligarchs and many of the

companies they own or control including RUSAL, a top

aluminum supplier in the world. Additionally, to protect

the international banking system, FinCEN named Latviabased ABLV Bank as a primary money laundering

concern under Section 311 of the USA PATRIOT Act. 

This closed a key access point being exploited by illicit 

Russian actors to access the international banking

system.

Our financial tools are also making an impact in the fight

to combat terrorism, to include the Islamic State of Iraq

and Syria (ISIS), al-Qaida, Hizballah, Hamas, the Taliban

and others. The Terrorist Financing Targeting Center

(TFTC), introduced in FY 2017, was created to disrupt the

financing of terror through the sharing of intelligence and

coordinated actions between the U.S. and six Gulf country

partners—Saudi Arabia, Bahrain, Qatar, Kuwait, Oman,

and the United Arab Emirates—as well as through

capacity building. In FY 2018, TFTC conducted two

rounds of multilateral designations, to include the senior

leadership of Hizballah’s Shura Council and leaders,

financiers, and facilitators of the ISIS and Syrian in

Yemen and al-Qa’ida in the Arabian Peninsula. 

Additionally, we led discussions with Gulf partners on

regional terrorist financing issues, and FinCEN led a 

training session with the Financial Intelligence Units of

TFTC member countries. 

Beyond coordinated sanction actions, we continued

targeting Hizballah and its supporters, including

leadership, operatives, facilitators, financiers, investors,

and key global procurement networks. In FY 2018, we

conducted 26 Hizballah-related sanction designations,

and saw more designations in calendar year 2018 by the

Departments of State and Treasury than in any single

year. Furthermore, in September 2018, we sanctioned a 

company with ties to the Assad regime in Syria that

facilitated the trading of fuel between Assad’s government

and ISIS. The designations (or sanctioning) disrupted

this specific illicit supply chain and eliminated access to

the international financial system.

The U.S. along with other international partners, have

applied unprecedented financial pressure on the Maduro

regime in Venezuela in light of the recent actions and

policies of the Government of Venezuela, including

serious abuses of human rights and fundamental

freedoms; the deepening humanitarian crisis in

Venezuela; establishment of an illegitimate Constituent

Assembly; rampant public corruption; and ongoing
DEPARTMENT OF THE TREASURY 25 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

repression and persecution of, and violence toward, the

political opposition. In FY 2018, we implemented

sanctions against several senior government officials and

former officials, along with others in Maduro’s inner

circle, and issued a FinCEN advisory to financial

institutions to assist them in blocking suspected

Venezuelan public corruption funds moving through the

U.S. financial system. We will continue to impose

financial constraints on those responsible for Venezuela’s

severe decline and the illicit financial networks used to

mask their wealth. 

We have also applied our tools and authorities to combat

corruption and human rights abuses through the Global

Magnitsky Human Rights Accountability Act. Under this

program, we have sanctioned more than 80 individuals

and entities, including a corrupt financier of mining and

oil deals in the Democratic Republic of the Congo, and

individual officers and units of the Burmese military for 

their involvement in ethnic cleansing and extreme

violence against the Rohingya Muslim population and

other ethnic and religious minorities. 

Moreover, FinCEN issued an advisory to U.S. financial

institutions to highlight the connection between corrupt

senior foreign political figures and their enablement of

human rights abuses. In Nicaragua, Treasury again used

these tools and authorities to combat an increasingly

deteriorating corruption and human rights crisis. OFAC

designated four officials pursuant to the Global

Magnitsky authority in response to their significant

involvement in corruption schemes or human rights

abuse. OFAC aslo issued an advisory alerting financial

institutions that the growing instability in Nicaragua

may lead to the proceeds of crime and corruption from

senior political figures entering the United States. We

will continue to take action against human rights and

corruption related targets around the globe, including

implementing sanctions under Global Magnitsky and

other authorities. 

PROTECTING THE U.S. AND INTERNATIONAL

FINANCIAL SYSTEM FROM ABUSE

In July 2018, Treasury assumed the presidency of the

Financial Action Task Force (FATF), the AML/CFT

standard setting body. TFI has set three priorities during

this term:

• Clarifying how the FATF standards on regulation

and supervision apply to virtual currency service

providers to mitigate the use of virtual currencies by

illicit actors;

• Maintaining the FATF’s emphasis on combating

terrorist financing; and 

• Enhancing FATF’s work on preventing the financing

of the proliferation of weapons of mass destruction. 

During FY 2018, Treasury participated in FATF peer

review processes of seven countries: Iceland, Bahrain,

Saudi Arabia, Myanmar, Indonesia, Latvia and United

Kingdom. These comprehensive AML/CFT assessments

evaluate countries against the FATF standards for both

technical compliance and effective implementation. 

We worked with FATF to produce extensive guidance on

counter proliferation financing. This guidance aims to

help both public and private sector stakeholders

understand and implement the obligations of the United

Nations Security Council resolutions, as well as how to

prevent sanctions from being evaded. It also aims to

assist public sector stakeholders in building a more

effective national coordination mechanism and

supervisory regime to counter proliferation financing.

We co-led the team that looked at the techniques and

tools used by professional money launderers, and how to

help countries identify and dismantle them. The results

were published in the FATF Professional Money

Laundering Report in July 2018.

During FY 2018, we also worked with the FATF to foster

improved information-sharing between governments and

between financial institutions to put both governments

and financial institutions in a better position to detect,

deter, and disrupt illicit finance.
26 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Moreover, in October 2018, the FATF, under U.S.

leadership as President, clarified how the FATF 

standards apply to virtual asset service providers, which

include virtual currency exchangers and administrators

and how countries under the FATF standards must

license or register and regulate them for AML/CFT, and

monitor them for compliance with their AML/CFT

obligations.

In support of our priorities to protect the financial system

from abuse by illicit actors, Treasury launched the

FinCEN Exchange to provide financial institutions with

additional information about priority issues on a more

regular basis. This will allow these financial institutions

to focus on specific illicit finance and national security

threats. As part of this program, we convene regular

briefings with law enforcement and financial institutions

to exchange information on priority illicit finance threats,

including targeted information and broader typologies. 

This program enables financial institutions to better

identify risks and focus on high priority issues, and allows

FinCEN and law enforcement to receive critical

information to help them disrupt money laundering and

other financial crimes. 

In addition, we resolved three civil enforcement actions

against financial institutions that violate the Bank

Secrecy Act, which resulted in the assessment of civil

money penalties against two depository institutions and

one casino.

COMMITTEE ON FOREIGN INVESTMENT IN THE

U.S. (CFIUS)

In FY 2018, CFIUS continued to review a high volume of

complex cases. All the while, Treasury ensured that

CFIUS reviewed all its cases within the timeframes in the

statute. 

During FY 2018, we led the effort to provide technical

assistance to Congress on the Foreign Investment Risk

Review Modernization Act of 2018 (FIRRMA), signed into

law by the President on August 13, 2018. FIRRMA

strengthens and modernizes CFIUS to better address

national security risks. FIRRMA also provides CFIUS

new authorities to review additional types of foreign

investments, timely and effectively. FIRRMA is likely to

increase the volume and complexity of cases reviewed by

CFIUS. Lastly, Treasury is leading the interagency effort

to implement FIRRMA with the anticipation of better

coordination of federal agencies to protect U.S. interests

against foreign investment risk.
DEPARTMENT OF THE TREASURY 27 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 15 FY 16 FY 17 FY 18 FY 18 

Target

Result vs Target

Percentage of CFIUS Cases Reviewed within

Statutory Timeframes (International Affairs)1 100% 100% 100% 100% 100% Met

Number of CFIUS Transactions Reviewed

(International Affairs)2 143 172 237 N/A Indicator N/A

Number of CFIUS Transactions Requiring

Additional Investigation (International

Affairs)3

66 79 173 N/A Indicator N/A

Number of New or Modified Sanctions

Programs Established by Executive Order or

Congressional Mandate (TFI)4

7 6 5 5 Indicator N/A

Percentage of Domestic Law Enforcement

and Foreign Financial Intelligence Units

finding FinCEN’s Analytic Products Valuable

to the detection and deterrence of illicit

activity (FinCEN)5

New 95% 92% 95% 90% Exceeded

Explanation of Results

1

This measure tracks compliance with statutory deadlines for completing national security reviews of transactions notified to the

CFIUS to ensure that the CFIUS process is timely and efficient.

2

This indicator tracks the number of covered transactions reviewed by the Committee during the calendar year. Because this

indicator is reported to Congress for the calendar year (rather than fiscal year), full FY 2018 data will not be available until after

this report is published. 

3

This indicator tracks the number of covered transactions requiring additional investigation during the calendar year. Because

this indicator is reported to Congress for the calendar year (rather than fiscal year), full FY 2018 data will not be available until

after this report is published.

4

This indicator tracks the number of new or modified sanctions programs that must be implemented and enforced, but does not

capture the levels of relative complexity for each sanctions’ programs, or the complexity of individual national security objectives

that sanctions attempt to achieve. We do not set targets for new or modified sanctions programs since the existence of a 

sanctions program is not itself a measure of success. 

5

This performance measure tracks what the analytics products are intended to do, i.e. be useful to a wide range of customers and

have impact, such as identify new leads or provide previously unknown information. The measure is the percent of customers

finding FinCEN’s analytic products and advanced research positively affected investigations, operations, or understanding of

threats to the financial system. FinCEN surpassed the target goal by concentrating on expanding product dissemination,

increasing outreach to customers of its intelligence products, and improving processes to obtain feedback about product

usefulness. 
28 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Goal 4: Transform Government-wide Financial Stewardship

As the financial manager of the U.S. government,

Treasury plays a central role in managing taxpayer funds

responsibly. Of the three strategic objectives for

achieving this goal, the first is to increase the access to

and use of federal financial data to strengthen

government-wide decision-making, transparency, and

accountability. The second strategic objective is to fund

the federal government at the least cost over time. This is

followed by the third strategic objective, which is to

improve federal financial management performance using

innovative practices to support effective government.

DIGITAL ACCOUNTABILITY AND TRANSPARENCY

ACT OF 2014 (DATA ACT) 

The improved and expanded USAspending.gov website

was launched on April 2, 2018. The new website allows

taxpayers to examine nearly $4 trillion in federal

spending and observe how this money flows from

Congressional appropriations to local communities and

businesses. Treasury compiles and publishes data from

approximately 100 federal agencies on USAspending.gov. 

We continually monitor public feedback and make further

enhancements to the site. We also continue to work with

federal agencies to improve data quality on the site.

SUPPORTING FEDERAL FINANCIAL

PERFORMANCE

American citizens expect that the federal government is

an effective steward of its financial resources, the

financial information provided by the government is

accurate, and citizens’ financial interactions with the

government are modern, seamless, and secure. As part of

a common vision for the future of federal financial

management, the Fiscal Service is working to maximize

the government-wide efficiency and effectiveness of

common financial processes—disbursements, collections,

reporting, and administrative operations—through

standardization, consolidation, and automation. 

Sharing Quality Services

The Fiscal Service offers common services to agencies to

provide customer centric solutions, cost sharing

opportunities and enable agencies to focus on mission

activities. We continue to advance in the following areas:

• Provide vendors a single electronic invoicing portal

for submitting federal invoices. As of the end of FY 

2018, 17 CFO Act agencies use the Invoice Processing

Platform and 96 percent of Treasury invoices were

processed electronically. 

• Convert agencies to Treasury-disbursed payments to

achieve additional economies-of-scale in federal

disbursing. Through June 2018, 87.3 percent of

federal payments were disbursed by Treasury. 

• Increase electronic payments to replace paper checks

with all-electronic payments, including new modern

real-time payment options. In FY 2018, 95.4 percent

of all Treasury payments and 98.4 percent of benefit

payments were disbursed electronically. 

• Transform accounts receivable processing to expand

the use of the Centralized Receivables Service (CRS)

for collecting non-tax, non-loan receivables. In FY 

2018, CRS processed 186,838 cases and collected

more than $43 million. 

• Increase electronic revenue collections solutions for a 

modern, seamless customer experience. In FY 2018,

the Fiscal Service electronically settled 98 percent of

revenue collection dollars and increased the

cumulative volume of digital wallet transactions by

83 percent. 

• Expand the role of the Administrative Resource

Center (ARC) to help other agencies focus on their

mission by automating manual processes, operating

efficiently, and working at a large scale appealing to

major federal agency customers. In FY 2018,

customer migration to Fiscal Service continued to

increase, maximizing the opportunity for federal costsharing. 
DEPARTMENT OF THE TREASURY 29 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

Payment Integrity

During FY 2018, Fiscal Service fulfilled 1.2 billion

payments totaling $3.5 trillion to individuals, businesses,

and others around the world on behalf of more than 250

federal entities. A variety of controls support integrity

throughout the payment disbursement process including

integration with the Fiscal Service DoNotPay (DNP) 

program. 

The mission of DNP is to protect the integrity of the

Federal Government’s payment processes by assisting

agencies’ in mitigating and eliminating improper

payments in a cost-effective manner while safeguarding

the privacy of individuals. 

In FY 2018, the DNP Business Center expanded services

to offer agencies data analytics to assist them in their

effort to more effectively identify and prevent improper

payments. Through August 2018, there were 13,086

stopped payments worth more than $24.0 million. 

In addition, Fiscal Service ensures payment integrity by

managing payment transactions that are misdirected or

otherwise require intervention. In FY 2018, these

transactions represent approximately $15.2 billion, and

might have been erroneously spent if the transactions had

not been recovered and/or corrected through robust postpayment controls. Further, using analytics and

partnering with various stakeholders, Fiscal Service

supported the investigation and prosecution of more than

460 cases of misdirected payments caused by forgery,

altered checks, multiple mobile deposits, deceased payee

fraud, potential mail fraud and more.

KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 15 FY 16 FY 17 FY 18 FY 18 

Target Result vs Target

Dollar Amount of Improper Payments

Identified and Prevented with DNP program

(Fiscal Service)1

N/A 58.98 36.58 32.86 32 Exceeded

Amount of Delinquent Debt Collected

through All Tools (Fiscal Service)2 7.28 7.41 7.61 7.44 7.56 Unmet

Percentage of Treasury Payments Made

Electronically (Fiscal Service)3 94.8% 94.9% 95.1% 95.4% 95.2% Exceeded

Percentage of Total Federal Government

Receipts Settled Electronically (Fiscal

Service)4

98% 98.2% 98.3% 98% 98% Met

Explanation of Results

1

This measure provides the dollar amount, in millions, of payments identified as improper plus the payments that were prevented

through the DNP program. Prior to FY 2016, data was not captured in a way to allow for result reporting. DNP will not have the

final FY 2018 results until November 2018 when agencies report back. The FY 2018 value is through August 2018.

2

This measure provides the total amount of delinquent debt collected, in billions, through debt collection tools operated by Fiscal

Service. FY 2018 delinquent debt collections did not meet the projected target by approximately $130 million (1.6 percent). This

is in large part due to the Treasury Offset Program experiencing a decline in excess of $100 million across three programs (i.e. tax

refunds of state tax debts, tax refunds of child support debts, and tax refunds of unemployment compensation insurance).

3

This measure provides the portion of the total volume of payments that is made electronically. Through continued outreach

efforts to promote automated clearing house and alternatives such as Direct Express and US Debit Card, the results exceeded the

set target.

4

This measure provides the percentage of total federal government revenue collection dollars settled electronically.
30 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Goal 5: Achieve Operational Excellence 

The federal government strives to emulate successful

businesses that provide exceptional value by improving

internal operations wherever and whenever possible. 

There are three strategic objectives for achieving this goal

of operational excellence. The first strategic objective is

to foster a culture of innovation to hire, engage, develop,

and optimize a diverse workforce with the competencies

necessary to accomplish our mission. With the second

strategic objective, we target enabling mission delivery by

improving the reliability, security, and resiliency of

Treasury’s infrastructure. Lastly, we aim to improve

customer value by increasing product and service quality,

while lowering costs in the third strategic objective.

WORKFORCE MANAGEMENT THROUGH

INTEGRATED TALENT MANAGEMENT

During the FY 2018 SOAR, in consultation with OMB,

Treasury identified the workforce management objective

as a FY 2019 focus area for improvement. While we have

set a foundation for progress, much work is needed in the

coming year to build the appropriate infrastructure and

processes for effectively managing the workforce across

the enterprise.

In FY 2018, Treasury led an effort to configure the

Learning Management and Performance Management

modules of a new Integrated Talent Management (ITM)

system. The ITM learning module replaces the legacy

Treasury Learning Management System for 10 of 11

Treasury bureaus. We believe ITM will be a 

transformational tool in modernizing our technological

infrastructure and managing our workforce. By

launching two ITM modules, and with two more modules

that handle Succession Planning and Workforce Planning

slated for implementation in FY 2019, we can enhance the

interconnectivity of Treasury’s workforce data to enable

new workforce insights. 

Employee engagement, for which the 2018 Federal

Employee Viewpoint Survey (FEVS) is a key indicator,

remained stable despite operational and resource

challenges. Our focus for FY 2019 will be on improving

FEVS Leadership and Fairness scores, as well as

implementing Treasury’s Maximizing Employee

Performance policy to further recognize meaningful

differences in performance.

INFRASTRUCTURE MODERNIZATION

Treasury-Owned Buildings

Treasury maintains a long-term capital plan for the Main

Treasury buildings that is regularly updated to identify

and prioritize building requirements. Current building

needs that have been submitted for funding include the

exterior repair and renovation for both the Main Treasury

and Freedman’s Bank buildings, replacement or

modernization of major systems, security enhancements,

and life-safety projects. Both buildings are registered

historic structures; because of their historic status, more

customized approaches to repair and renovation projects

are often required. 

We strive to identify new and replacement systems that

offer significant cost reductions, and that can also be

completed with a lower environmental impact and less

disruptions to the occupants.

Technology Infrastructure

Information technology underpins most of the services

and capabilities Treasury provides. Protecting and

modernizing that infrastructure is essential to ensuring

that we safely provide those services while keeping pace

with the expectations of the markets we serve. In

FY 2018, we advanced our adoption of cloud-based

infrastructure while also continuing to consolidate

internal data centers. We are strengthening our cyber

defenses through the implementation of continuous

diagnostics mitigation and data loss prevention. We are

also moving forward with our Treasury Enterprise

Infrastructure Solutions acquisition which will provide a 

modernized enterprise-wide network,

telecommunications, and infrastructure contract for 

improved efficiency, reliability, scalability, and elasticity,

when awarded.
DEPARTMENT OF THE TREASURY 31 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

EFFICIENCY THROUGH PROCESS IMPROVEMENT

We aim to create a culture of performance improvement

within the Department. Our FEVS scores regarding

employees’ feeling of empowerment with respect to work

process has increased from 39.2 to 43.9 percent between

FY 2015 and 2018. We believe this improvement is

partially a result of our strategy to expand continuous

process improvement training to all Treasury employees. 

Through this program, we trained 400 people in FY 2018

(compared to 151 in FY 2015) – 380 at a fundamentals or

awareness level and 20 at a more intense practitioner

level. This increased access to process improvement tools

has helped employees improve processes and grown our

culture of performance improvement.

KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 15 FY 16 FY 17 FY 18 FY 18 

Target Result vs Target

Percentage of Aged Hardware (IRS)1 56.5% 52.2% 52.3% 45.5% 53.1% Exceeded

Seigniorage per Dollar Issued (U.S. Mint)2 0.49 0.52 0.45 0.37 0.43 Unmet

Manufacturing Costs – Dollar Costs per

Thousand Notes Produced (BEP)3 $42.35 $44.25 $43.58 $47.41 $48.00 Exceeded

Treasury-wide EVS Satisfaction Index

(Management)4 60% 61% 65% 63% 65% Unmet

Percent of Planned Mitigations of End-ofLife Hardware & Software Assets

(Management)5

N/A N/A N/A 75.5% 100% Unmet

Explanation of Results 1

This measure shows the quantity of IT hardware in operation past its useful life as a percentage of total hardware in use. The

nearly 7 percentage point reduction (52.3% vs. 45.5%) in FY 2018 from FY 2017 was attributable to: increased focus, discipline

and leadership engagement to improve delivery of aged hardware refresh activities; replacing the nearly 21,000 assets aging

during FY 2018 to prevent growth in IRS aged hardware inventory; and, removing certain asset categories (fax machines, low-end

printers and scanners) that are no longer being actively refreshed from the aged calculation to more accurately define the

inventory that’s reflective of risk to the Information Technology (IT) environment. IRS-IT leadership will continually monitor

progress against FY 2019 aged hardware replacement targets monthly. 2

Seigniorage per dollar issued is the seigniorage generated from each dollar of circulating coinage face-value shipped to the

Federal Reserve Banks. FY 2018 results fell below the targeted and prior year performance as a result of a 2.8 percent decrease in

circulating shipment volumes combined with a 24.5 percent increase in the cost of metal.

3

Manufacturing Costs for Currency (dollar cost per 1,000 notes produced) is an indicator of manufacturing efficiency and

effectiveness of program management. The measure is based on contracted price factors, productivity improvements, as well as

the mix of denominations ordered. Actual performance against standard costs depends on BEP’s ability to meet spoilage,

efficiency, and capacity utilization goals. 4

The Federal Employee Viewpoint Survey (FEVS) is the primary tool that agencies use to measure employee sentiment. Each

year, we track and report on the FEVS Overall Satisfaction Index which comprises three FEVS satisfaction questions. Slight

reductions in the percentage of positive employee responses for each of these questions led to a decline in Treasury’s FY 2018 

Overall Satisfaction Index score. Treasury highly values its employees and efforts are underway to understand and address these

results.

5

This measure is the percentage of planned mitigations (for hardware and software assets that have reached end-of-life) to have

been completed. Of 151 planned mitigations, Treasury has completed 114. Of the remaining 37, 95 percent are in progress, with

many slated for completion by year-end 2018. Delays can be affected by a number of factors including resource prioritization,

procurement, and hardware manufacturing schedules. Where necessary, appropriate risk mitigations are in place while the

effected software/hardware is being replaced. No data exists for years prior to FY 2018.
32 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

ENTERPRISE RISK MANAGEMENT

FRAMEWORK

OMB Circular No. A-123, Management’s Responsibility

for Enterprise Risk Management and Internal Control

provides guidance to federal managers to effectively

manage risks to achieve strategic objectives. 

Management, together with the Chief Risk Officer (CRO),

is responsible for establishing a governance structure to

effectively implement a robust process of risk

management and internal control. Successful

implementation requires us to establish and foster an

open, transparent culture that encourages people to

communicate information about potential risks and other

concerns. 

The CRO monitors regular Risk Management Committee

meetings that unite the Departmental Offices to discuss

top risks to Departmental goals and objectives, response

strategies and lessons learned. The Office of Risk

Management (ORM) has also established an Enterprise

Risk Management (ERM) Council, chaired by the CRO,

which brings together risk managers from each of our

bureaus on a regular basis to establish a Departmentwide framework and taxonomy for ERM, and share best

practices. ORM works with the offices and bureaus across

Treasury to monitor and annually update our risk profile.

Beyond its work at Treasury, ORM leads an interagency

ERM community of practice including officials from 30

agencies. This group grew from ORM’s efforts to support

federal agencies in their implementation of ERM,

including the July 2016 publication of the Playbook:

Enterprise Risk Management (ERM) for the U.S. Federal

Government. This government-wide working group

meets on a bimonthly basis to discuss common risks and

various methods of implementing the guidelines of the

Circular.

ENTERPRISE RISKS AND CHALLENGES

Through the FY 2018 SOAR and enterprise risk

management process, we identified the following crosscutting operational risks. 

Workforce Management: Difficulties hiring and

managing the Treasury workforce may create knowledge

gaps and a lack of expertise in several areas important to

our mission. The increased pressures on existing staff

can cause high attrition and low engagement. The

current human capital system impedes our ability to

shape our workforce and realign it to mission needs.

Reshaping Priorities: We have many extremely

important ongoing missions and are also at the forefront

of several new initiatives to improve and keep our

economy on a stable footing. Due to uncertain funding

amounts and timing, new or changing legislative

requirements, and reduced capacity, there is a risk that

we will not be as agile as we should be in balancing new

innovations or initiatives with existing requirements or

projects.

Evolving Cyber Climate: Treasury and the whole

financial sector face increasing attacks from cyber

criminals and state actors attempting to disrupt or steal

data from sensitive systems. The tactics, techniques, and

procedures used by perpetrators of these incidents are

constantly evolving.

Limited Analytic Capabilities: Aging infrastructure can

impede analytics capabilities, program innovation, and

improved delivery of products and services.

Critical System Failures: Reliance on aging technologies

could lead to system outages or failures that disrupt core

mission work.
DEPARTMENT OF THE TREASURY 33 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

FY 2019 OUTLOOK

Our FY 2018 SOAR outlined several focus areas for the

coming year: (1) implement the tax law; (2) identify and

disrupt priority threats to our financial system and

national security; and (3) transform how we manage our

workforce.

Looking ahead, we will make progress in these areas and

other key priorities through several targeted initiatives: 

• Make the necessary changes to effectively implement

the tax law, including modernizing taxpayer

customer service options; 

• Implement financial literacy reform; 

• Continue to design the next generation of currency

notes; 

• Promote free and fair reciprocal trade, including

trade with China; 

• Engage with stakeholders to develop

recommendations on housing finance reform; 

• Implement the Terrorist Financing Targeting Center; 

• Take the necessary steps to implement new

legislation modernizing the Committee on Foreign

Investment in the United States.

• Complete and assess pilots to identify the next

innovations in government-wide financial

management; and

• Roll out the integrated talent management system

and related change management efforts across

Treasury.
34 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL HIGHLIGHTS – FINANCIAL OVERVIEW

The financial highlights below are an analysis of the

information included in our consolidated financial

statements that appear within Part 2, “Financial Section” 

of this report. Our principal financial statements have

been prepared to report the agency’s financial position

and results of operations, pursuant to the requirements of

31 USC 3515(b). These consolidated financial statements

have been prepared from the books and our records in

accordance with U.S. Generally Accepted Accounting

Principles (GAAP) for federal entities and the formats

prescribed by OMB. The consolidated financial

statements are in addition to the financial reports used to

monitor and control budgetary resources, which are

prepared from the same books and records. The financial

statements are for a component of the U.S. government, a 

sovereign entity.

The chart below presents changes in key financial

statement line items as of and for the fiscal year ended

September 30, 2018 compared to September 30, 2017.

 

Summary Financial Information (dollars in billions) 

2018 2017 $ Change % Change

Total Assets $ 24,273.8 $ 22,686.2 $ 1,587.6 7.0 %

Total Liabilities $ 23,777.9 $ 22,188.8 $ 1,589.1 7.2 %

Total Net Position $ 495.9 $ 497.4 $ (1.5) (0.3)%

Total Net Cost of Treasury Operations $ 21.4 $ 20.1 $ 1.3 6.5 %

Net Federal Debt Interest Costs $ 485.0 $ 413.3 $ 71.7 17.3 %

GSEs Non-Entity Revenue, Net $ (30.4) $ (9.4) $ (21.0) 223.3 %

Total Net Cost of Treasury Operations and Non-Entity Costs $ 488.2 $ 438.6 $ 49.6 11.3 %

Total Budgetary Resources $ 882.3 $ 818.5 $ 63.8 7.8 %

Agency Outlays, Net $ 498.3 $ 420.5 $ 77.8 18.5 %

Net Revenue Received (Custodial) $ 3,098.1 $ 3,087.3 $ 10.8 0.3 %

Financial Overview. Our financial performance as of and

for the fiscal year ended September 30, 2018, reflects

several major trends. Most significantly, the outstanding

federal debt, including interest, rose by $1.3 trillion to

$21.7 trillion to finance the U.S. government’s operations. 

Additionally, our “Total Net Cost of Treasury Operations

and Non-Entity Costs” for FY 2018 increased by $49.6

billion, primarily stemming from $71.7 billion of higher

net federal debt interest costs, offset by $21.0 billion of

higher revenue from our GSE investments – Fannie Mae

and Freddie Mac – pursuant to our Senior Preferred

Stock Purchase Agreements (SPSPAs), as amended (refer 

to the GSEs Non-Entity Revenue, Net discussion below). 
DEPARTMENT OF THE TREASURY 35 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

Figure 1: Total Assets, Total Liabilities, and Net Position (in billions) 

Total Assets of $24.3 trillion at September 30, 2018

consist of a receivable due from the General Fund of the

U.S. government (General Fund) of $21.7 trillion, intragovernmental loans and interest receivable of $1.5

trillion, and fund balance and various other assets which

totaled $1.1 trillion (Figure 2). 

Figure 2: FY 2018 Total Assets (Composition)

The $1.6 trillion (or 7.0 percent) increase in total assets at

the end of FY 2018 over the prior year is primarily due to

a $1.3 trillion increase in our receivable “Due from the

General Fund of the U.S. Government,” corresponding to

the increase in federal debt and interest payable. The

“Due from the General Fund of the U.S. Government” 

asset account represents future funds required from the

General Fund to pay borrowings from the public and

other federal agencies. 

Intra-governmental loans and interest receivable

represent loans issued primarily by the Fiscal Service to

other federal agencies for their own use or for the

agencies to loan to private sector borrowers whose loans

are guaranteed by the federal agencies. This receivable

grew by $69.1 billion (or 4.7 percent) to $1.5 trillion at the

end of FY 2018 due to increased borrowings by various

federal agencies—such as the Departments of Education

and Transportation, as well as the Small Business

Administration—to fund their existing programs. 

Among other things, other assets include operating cash

balances (held on behalf of the U.S. government), foreign

currency investments and Special Drawing Rights, as

well as investments in, and credit program receivables

due from, certain financial institutions for which we

provide financial assistance in an effort to stabilize

financial markets. Other assets increased by $245.7

billion, largely reflecting an increase in the U.S.

government’s operating cash balances as a result of

increased borrowings from the public. 
36 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Figure 3: FY 2018 Total Liabilities (Composition)

Total Liabilities of $23.8 trillion at September 30, 2018

principally consist of the federal debt held by the public,

including interest, of $15.8 trillion (Figure 3), which was

mainly issued as Treasury Notes and Bills. Liabilities

also include intra-governmental liabilities totaling $7.9

trillion (of which $5.8 trillion represent principal and

interest of federal debt in the form of Treasury securities

held by other federal agencies), and various other

liabilities totaling $82.4 billion. The $1.6 trillion (or 7.2

percent) increase in total liabilities over the prior year is

attributable to a $1.3 trillion increase in federal debt,

including interest, held by the public and other federal

agencies that was needed to finance the U.S.

government’s budget deficit. 

The increase in total liabilities is also attributable to a 

$317.9 billion increase in our payable “Due to the General

Fund,” which corresponds primarily to the increase in the

U.S. government’s operating cash balances as a result of

increased borrowings from the public. Through the Fiscal

Service, we account for and report on the U.S.

government’s operating cash balances.

Total Net Position of $495.9 billion at September 30, 2018

represents the combined total of our cumulative results of

operations and unexpended appropriations at the end of

the fiscal year. The $1.5 billion (0.3 percent) decrease in 

the net position at the end of FY 2018 was principally

attributable to normal business operations.

Figure 4: Net Cost of Treasury Operations and Non-Entity Costs (in billions)

Total Net Cost of Treasury Operations and Non-Entity 

Costs, is presented on our Consolidated Statements of Net

Cost (Figure 4). “Net Cost of Treasury Operations” 

represents the gross costs, net of earned revenues, we

incurred related to our own entity activities comprising

both operating bureaus and Departmental Offices that

are consolidated with the Department. “Net Non-Entity

Costs” represent the gross costs, net of earned revenues,

we incurred on behalf of the U.S. government (or General

Fund), and primarily include federal debt interest costs,

net of interest revenue from loans, and GSE non-entity

revenues. “Total Net Cost of Treasury Operations and

Non-Entity Costs” totaled $488.2 billion and $438.6

billion for FY 2018 and 2017, respectively, an increase of
DEPARTMENT OF THE TREASURY 37 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

$49.6 billion (or 11.3 percent) over the prior year. Net

costs associated with our non-entity (“Net Non-Entity

Costs”) and entity (“Net Cost of Treasury Operations”)

operations contributed $48.3 and $1.3 billion,

respectively, to the year-over-year increase in this line

item.

Figure 5 : Net Cost of Treasury Operations by Strategic

Program (in billions)

Net Cost of Treasury Operations is presented on our

Consolidated Statements of Net Cost by strategic

program. There are three main categories of strategic

programs presented—financial, economic, and security—

as well as a management strategic program which is

combined with the financial program due to the

immateriality of the management program (Figure

5). Our Net Cost of Treasury Operations totaled $21.4

billion for FY 2018 compared to $20.1 billion for FY 2017,

an increase of $1.3 billion (or 6.5 percent). This increase

primarily reflects $4.0 billion in liquidity payments to the

GSEs under the terms of SPSPAs, to cover their net

worth deficit that was driven by a reduction in the U.S.

corporate income tax rate in connection with the TCJA. 

This increase was partially offset by a $1.9 billion

reduction in Housing disbursements under the Troubled

Asset Relief Program.

Net Federal Debt Interest Costs (a non-entity cost) 

primarily reflect interest expense on the federal debt, net

of interest income on loans, which increased $71.7 billion

(or 17.3 percent) in FY 2018. The higher cost was

primarily attributable to an increase in outstanding debt

held by the public, as well as increased inflation

adjustments associated with Treasury Inflation-Protected

Securities which are driven by increases in the Consumer

Price Index. 

GSEs Non-Entity Revenue, Net totaled $30.4 billion for 

FY 2018 compared to $9.4 billion for FY 2017. GSE nonentity revenue is driven by fair value changes to our GSE

investments, changes to the liquidation preference of our

GSE senior preferred stock, and cash dividends received

from the GSEs pursuant to the SPSPAs. The increase in

year-over-year net revenue was driven by a $26.4 billion

increase to the estimated value of our GSE investments at

the end of FY 2018. Our GSE investments are comprised

of the estimated value of our senior preferred stock and

our warrants to purchase GSE common stock. Our senior

preferred stock fair value increased year-over-year as a 

result of the reduction in the U.S. corporate income tax

rate as a result of the TCJA, a lower discount rate driven

by lower market volatility, and a reduction in the market

value of the GSEs’ other equity securities that comprise

their total equity value (See Note 10 Investments in

Government Sponsored Enterprises). This increase in the

value of our senior preferred stock was partially offset by

a decrease in the fair value of our warrants due to a 

decline in the market value of GSE common stock. GSE

non-entity revenue also includes $10.0 billion from the

increased value of our liquidation preference in FY 2018,

which was attributable to $4.0 billion in combined GSE

draws against Treasury’s funding commitment, as well as

the reinstatement of a $3.0 billion capital reserve for each

GSE, resulting in an aggregate increase in our liquidation

preference of $6.0 billion. Increases to GSE revenue was

partially offset by a $15.4 billion reduction in senior

preferred stock dividends received from the two GSEs in

FY 2018 compared to FY 2017, primarily as a result of

draws that occurred during FY 2018.
38 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Figure 6 : Total Budgetary Resources and Agency Outlays, Net (in billions)

Total Budgetary Resources of $882.3 billion in FY 2018

(Figure 6) increased by $63.8 billion (or 7.8 percent)

primarily due to a $64.5 billion increase in appropriations

received to pay interest on the public debt.

Agency Outlays, Net of $498.3 billion were higher in FY 

2018 (Figure 6) by $77.8 billion (or 18.5 percent) primarily

due to a $63.1 billion increase in interest payments on

public debt.

Figure 7 : Net Revenue Received (Custodial) (in billions)

Net Revenue Received (Custodial), representing the net

revenue we collected on behalf of the U.S. government,

includes various taxes, primarily income taxes, as well as

user fees, fines and penalties, and other revenue (Figure

7). Over 90 percent of these revenues are related to

income and social security taxes. Net revenue received

was $3.1 trillion for FY 2018, an increase of $10.8 billion

(or 0.3 percent) over the prior fiscal year. This increase is

attributable mainly to an overall growth in individual

income tax collections, partially offset by reduced

corporate income tax collections and deposit of earnings

from the Federal Reserve System.
DEPARTMENT OF THE TREASURY 39 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

MANAGEMENT ASSURANCES

THE SECRETARY’S ASSURANCE STATEMENT

The Department of the Treasury’s management is

responsible for managing risks and maintaining effective

internal control and financial management systems that

meet the objectives of the Federal Managers’ Financial

Integrity Act (FMFIA). We have evaluated our

management controls, internal controls over financial

reporting, and compliance with federal financial systems

standards. As part of the evaluation process, we

considered results of extensive testing and assessment

across the Department and independent audits.

We can provide reasonable assurance that the objectives

of Section 2 of the FMFIA for financial reporting and

operations have been achieved. Additionally, we are in

substantial conformance with Section 4 of the FMFIA for 

Financial Management System Requirements. In

accordance with Appendix A to the OMB Circular A-123,

Management of Reporting and Data Integrity Risk, we

can provide reasonable assurance that internal control

over financial reporting was operating effectively as of

June 30, 2018. We are not in substantial compliance with

the Federal Financial Management Improvement Act

(FFMIA) due to significant deficiencies at IRS and Fiscal

Service related to federal financial management system

requirements.

In Fiscal Year 2018, we downgraded the longstanding IRS

material weakness, related to its unpaid tax assessments,

to a significant deficiency. This weakness was classified

under FMFIA Section 2, Effectiveness of Internal Control

over Financial Reporting. We also reassessed the Fiscal

Service material weakness over its processes used to

prepare the U.S. Financial Report (FR). We, along with

OMB and GAO, determined that this material weakness

should be reported only in the FR, rather than in this

AFR, as it relates to the audit of the government-wide

financial statements and has no impact to our agency

operations or financial statements. As of September 30,

2018, Treasury had no material weaknesses. 

We continue to make progress on our lack of compliance

with FFMIA, and will remain committed to focusing

management attention and resources on appropriate

corrective actions. Overall, we continue our efforts to

maintain high standards, minimize internal control

weaknesses, and meet federal financial management

requirements. Additional information on the lack of

compliance can be found in Part 3, Section D, of this

report.

Steven T. Mnuchin

Secretary of the Treasury

November 15, 2018
40 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

SYSTEMS, CONTROLS AND LEGAL COMPLIANCE

FMFIA

Background

The FMFIA requires Executive branch agencies to

establish and maintain internal control to ensure that

federal programs operate efficiently, effectively, and in

compliance with applicable laws. The management

control objectives under FMFIA are to reasonably ensure

that:

• Obligations and costs are in compliance with

applicable laws;

• Funds, property, and other assets are safeguarded

against waste, loss, unauthorized use, or

misappropriation; and

• Revenues and expenditures applicable to agency

operations are properly recorded and accounted for to

permit the preparation of accounts and reliable

financial and statistical reports and to maintain

accountability over the assets.

FMFIA requires agencies to evaluate and report on the

effectiveness of the organization’s internal controls to

achieve the objectives of effective and efficient operations,

reliable financial reporting, and compliance with

applicable laws and regulations (FMFIA Section 2). 

Additionally, agencies are required to assess whether

financial management systems comply with federal

financial management systems requirements (FMFIA 

Section 4). 

Internal Control over Reporting

In accordance with Appendix A to OMB Circular A-123,

Management of Reporting and Data Integrity Risk, and

GAO’s Standards for Internal Control in the Federal

Government, we use an annual testing and assessment

methodology that identifies and documents internal 

controls over financial reporting and incorporates

operational effectiveness. For FY 2018, our components

completed their testing and assessment of internal

controls for material transactions as of June 30, 2018. 

Based on the results of this assessment we downgraded

our prior year material weakness and provide an

unmodified statement of assurance regarding the

effectiveness of our internal control over financial

reporting as of June 30, 2018. Additional information on

the material weaknesses can be found in Part 3, Section D 

of this report.

In conjunction with our OMB Circular A-123, Appendix A,

FY 2018 Guidance and Implementation Plan, our

components documented their compliance with applicable

laws and regulations. Based on our assessment of this

documentation, we are in compliance with applicable laws

and regulations for FY 2018 with the exception of the

FFMIA as addressed below and in Part 3, Section D, of

this report.
DEPARTMENT OF THE TREASURY 41 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

FFMIA AND FINANCIAL MANAGEMENT SYSTEMS

FFMIA

The FFMIA requires federal agencies to implement and

maintain financial management systems that

substantially comply with federal financial management

systems requirements, applicable federal accounting

standards, and the U.S. Standard General Ledger at the

transaction level. A financial management system

includes an agency’s overall financial operation, reflecting

the people, processes, and technology to capture, classify,

summarize, and report data in a meaningful manner to

support business decisions.

The FFMIA Section 803(c)(1) requires us to make an

annual determination of the agency’s substantial

compliance with Section 803(a) of the Act based on review

of relevant factors. We assess our financial management

systems annually for conformance with the requirements

of Appendix D to OMB Circular A-123, Compliance with

the FFMIA, and other federal financial system

requirements. Our assessment process includes the use

of the FFMIA Compliance Determination Framework,

which incorporates a risk model of risk levels against

common goals and compliance indicators. OMB Circular

A-123, Appendix D contains an outcome-based approach

to assessing FFMIA compliance through a series of

financial management goals that are common to all

agencies.

In addition, we assess available information from audit

reports and other relevant and appropriate sources, such

as Federal Information Security Management Act

(FISMA) compliance activities, to determine whether our

financial management systems substantially comply with

FFMIA. We also assess improvements and ongoing

efforts to strengthen financial management systems and

the impact of instances of noncompliance on overall

financial management system performance. Based on the

results of our overall assessment, we concluded that

Treasury’s financial management systems are

substantially compliant with the FFMIA requirements,

with the exception of the IRS and Fiscal Service. 

The IRS did not substantially comply with federal

financial management systems requirements. The IRS

worked diligently during FY 2018 to continue to enhance

its Information Technology (IT) security, currently

identified as a significant deficiency. The IRS

implemented a strategy and assessment process to verify

the effectiveness of internal controls for the financial

systems that affect the financial statements. This process

supports the IRS’s overall internal control framework and

provides assurance that the likelihood of a material

weakness reoccurring in the IT environment is low. 

Fiscal Service’s significant deficiency in FY 2018 related

to its cash management information systems and debt

management systems. We are committed to developing

appropriate corrective action plans and focusing our

efforts to meet federal financial management systems

requirements.

Financial Management Systems

Our financial management systems framework consists of

two foundational components: (1) financial and mixed

systems maintained by Treasury bureau components, and

(2) the Treasury-wide Financial Analysis and Reporting

System (FARS). Bureaus process and record detailed

financial transactions and submit summary-level data to

the FARS, which maintains the key financial data

necessary for Treasury-wide consolidated financial

reporting. This framework satisfies the financial

operational and reporting needs of our reporting entities,

as well as our internal and external reporting

requirements. The FARS framework plays a key role in

the Department’s efforts to obtain an unmodified audit

opinion.

The FARS includes the following financial applications: 

• Treasury Information Executive Repository (TIER) — 

a financial data repository used to consolidate and

validate bureau financial data, and supporting

external financial reporting requirements

• TIER Financial Statements (TFS) — a reporting

application used to produce monthly and annual

financial statements, notes, and other supporting

reports
42 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Our bureaus submit summary-level financial data to

TIER on a monthly basis. The TFS application uses the

bureau data to produce financial statements and report

on a Treasury-wide and component-level basis. 

Fifteen of our bureaus and offices use centralized

financial management, budget formulation and

performance management, and IT hosting provided by the

Fiscal Service’s Administrative Resource Center (ARC). 

This shared service approach enables bureaus and offices

to have access to core financial systems without having to

maintain separate technical and system architectures. 

ARC also provides administrative services in the areas of

financial management transaction processing, human

resources, procurement, and travel to our bureaus and

offices as well as to other federal entities to support core

business activities. Using shared services reduces the

need for Treasury to maintain duplicative financial

management systems, thereby promoting efficiency and

cost savings while enhancing the quality, timeliness, and

accuracy of financial management processes. 

In FY 2018, ARC continued to refine financial

management and procurement system services to its first

cabinet-level customer agency, the Department of

Housing and Urban Development. ARC took steps to

invest in an application to automate the servicing of

customer financial statements and made progress on

improving its service-oriented architecture. 

Goals and Supporting Strategies

Our financial system goals and supporting strategies

focus on improving, streamlining, and integrating the

current bureau financial management systems, as well as

the current FARS applications, in order to support new

financial management requirements and to support datadriven financial decision making by management. In FY 

2018, we continued refining TIER and TFS to meet

evolving reporting requirements, including enhancing the

validations supporting the reporting of financial and

award data in accordance with the Digital Accountability

and Transparency Act (P.L. 113–101) (DATA Act). In

addition, we are developing a plan to further the accuracy

and integrity of information presented on

USAspending.gov, per the new OMB A-123, Appendix A,

requirement for agencies to maintain DATA Act data

quality plans. We will continue to refine our reporting in

anticipation of our next DATA Act audit, expected to

begin in FY 2019 by the Treasury Inspector General. 

Along with bureau financial systems, the TIER and TFS 

applications form a unified financial governance solution

that focuses on improving financial processes and

controls. These systems and applications help to reduce

operating costs; enable us to provide assurance over

financial data quality; and allow us to ensure that we can

provide timely, transparent, and well controlled financial

information. 

We maintain an information security program for our

financial systems consistent with applicable FISMA

requirements, OMB policy and guidance, and National

Institute of Standards and Technology standards and

guidelines. Our systems undergo annual security

reviews, and security weaknesses identified through those

reviews are remediated by developing and implementing

plans of action and milestones. We monitor bureau

conformance with government-wide information

technology security targets and provide roll-up reports

quarterly to OMB. The Department's compliance with

FISMA is evaluated annually by representatives of the

OIG. 

IMPROPER PAYMENTS

Background

The Improper Payments Elimination and Recovery

Improvement Act (IPERIA) of 2012 requires agencies to

annually report on all programs and activities, identify

those that may be susceptible to significant improper

payments, estimate annual improper payments in the

susceptible programs and activities, and report the

results of their improper payment activities. An improper

payment is any payment (including overpayments and

underpayments) that should not have been made or that

was made in an incorrect amount. 

Appendix C to OMB Circular A-123, Requirements for 

Requirements for Payment Integrity Improvement,

defines “significant improper payments” as gross annual

improper payments in a program exceeding both the
DEPARTMENT OF THE TREASURY 43 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2018 AGENCY FINANCIAL REPORT

threshold of 1.5 percent of program outlays and $10

million of all program or activity payments or $100

million regardless of the improper payment percentage. 

Appendix C also requires agencies with programs

susceptible to significant improper payments to

implement corrective action plans that include improper

payment root cause identification, reduction targets, and

identification of accountable officials. 

Risk Assessments and Results

In FY 2018, we completed a full program inventory and

performed risk assessments to identify programs that

have a significant risk of improper payments. We

performed our assessment of each program, excluding the

Earned Income Tax Credit (EITC), using the seven

qualitative risk factors identified in Appendix C. We also

performed quantitative risk assessments and assessed

risks related to the amounts of payments processed

relative to the OMB specified threshold amounts which

define payment programs susceptible to improper

payments. As a result of the risk assessments, we

determined that the agency’s programs and activities,

except for EITC, were deemed not susceptible to improper

payments.

EITC Program

The EITC is deemed a high priority program by OMB,

because it is susceptible to significant improper

payments. The EITC is a refundable tax credit that

offsets income tax owed by low-income taxpayers. If the

credit exceeds the amount of taxes due, the IRS provides

a refund payment to those who qualify. The IRS

estimates that for FY 2018, 25% ($18.4 billion) of the total

EITC program payments of $73.6 billion were improper. 

The IRS has a robust enforcement program for the EITC

which consists of examinations and audits, math error

notices, and document matching. Additional information

on the IRS’s EITC program can be found in Part 3,

Section E, of this report.

Payment Recapture Audits

The Improper Payments Elimination and Recovery Act of

2010 (IPERA) requires agencies to conduct payment

recapture audits (also known as recovery audits) for each

program and activity that expends $1 million or more

annually, if conducting such audits would be costeffective. We performed the payment recapture activities

in accordance with OMB Circular A-123, Appendix C. 

Details on our improper payments and payment recapture

program activities and results can be found in Part 3,

Section E, of this report.

Do Not Pay Initiative

Our Do Not Pay Working System (hereafter referred to as

“Working System”) is the legislatively mandated and

OMB designated source of centralized data and analytic

services to help agencies verify eligibility and to identify

and prevent potential fraud, waste, and abuse associated

with improper payments. The results of the checks

against these data sources provide information that an

agency should consider in pre-award or prepayment

assessments to help prevent improper payments. Fiscal

Service, our shared service provider, compares our records

in the financial system with payee records in the Working

System. We review potential matches on an ongoing

basis to prevent improper payments, and incorporate a 

pre-award check on potential contractors against the

Working System. Additional information on the Do Not

Pay initiative can be found in Part 3, Section E, of this

report.
[Page intentionally left blank]
 

 

MESSAGE FROM THE ASSISTANT SECRETARY

FOR MANAGEMENT AND DEPUTY CHIEF

FINANCIAL OFFICER ...................................................... 47

INSPECTOR GENERAL’S TRANSMITTAL LETTER........................ 48

INDEPENDENT AUDITORS’ REPORT....................................... 50

MANAGEMENT’S RESPONSE TO INDEPENDENT

AUDITORS’ REPORT ...................................................... 56

FINANCIAL STATEMENTS .................................................... 57

NOTES TO THE FINANCIAL STATEMENTS................................ 64

REQUIRED SUPPLEMENTARY INFORMATION

(UNAUDITED) ............................................................ 135
 

 
DEPARTMENT OF THE TREASURY 47 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT AND

DEPUTY CHIEF FINANCIAL OFFICER

David F. Eisner

Assistant Secretary 

for Management

Carole Y. Banks

Deputy Chief Financial

Officer

In Fiscal Year 2018, Treasury pursued an aggressive set of initiatives to manage

the Department more efficiently and responsibly. Treasury vigorously embraced

the President’s Management Agenda, taking a leadership role in tackling some of

the government’s most persistent challenges – eliminating improper payments,

modernizing information technology, improving workforce performance,

leveraging data as a strategic asset, and delivering excellent financial

management services.

In Fiscal Year 2018, Treasury also demonstrated effective fiscal and management leadership by: 

• Refining Treasury’s cutting-edge strategic planning and performance measurement processes and tools to consistently

focus on our highest priorities, including the President’s Management Agenda;

• Continuing to strengthen our internal cybersecurity through critical reviews of our High Value Assets, and expansion of

our education and awareness programs;

• Centralizing procurement activities to streamline processes and, at the same time, reducing unneeded and conflicting

procurement policy across the Department by 55 percent (955 pages);

• Launching (in beta) an Integrated Talent Management system that consolidates numerous Treasury human resources

systems into a single platform; and

• Receiving an “A” on our small business procurement report card for the eighth consecutive year (4 percent of all

acquisitions from small business suppliers).

The Department received an unmodified audit opinion on its consolidated financial statements for the 19th consecutive year. 

Treasury was also successful this year in downgrading its material weakness, related to the Internal Revenue Service’s

unpaid tax assessments, to a significant deficiency. Despite the complexity of Treasury’s financial systems, we will continue

to make steady progress toward fully resolving this and other deficiencies associated with our systems. 

As we lead Treasury’s management programs and initiatives, we will continue to ensure that the Department can deliver its

mission efficiently and provide the best value to the American people. 

David F. Eisner 

Assistant Secretary for Management 

November 15, 2018 

Carole Y. Banks

Deputy Chief Financial Officer 

November 15, 2018 
48 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

OFFICE OF

INSPECTOR GENERAL

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

INSPECTOR GENERAL’S TRANSMITTAL LETTER

 

November 15, 2018 

INFORMATION MEMORANDUM FOR SECRETARY MNUCHIN

FROM: Eric M. Thorson /s/

Inspector General

SUBJECT: Audit of the Department of the Treasury’s Consolidated Financial Statements for 

Fiscal Years 2018 and 2017 

INTRODUCTION

The Chief Financial Officer’s Act, as amended, requires the Department of the Treasury’s (Treasury) 

Inspector General or an independent auditor, as determined by the Inspector General, to audit Treasury’s

consolidated financial statements. We contracted with the certified independent public accounting firm of 

KPMG LLP (KPMG) to audit the consolidated financial statements of Treasury as of September 30, 2018 

and 2017, and for the years then ended, to provide a report on internal control over financial reporting, to

report instances in which Treasury’s financial management systems did not substantially comply with the 

requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA), and to report any 

reportable noncompliance with laws, regulations, contracts, and grant agreements tested. The contract 

required that the audit be performed in accordance with U.S. generally accepted government auditing 

standards and Office of Management and Budget (OMB) Bulletin No. 19-01, Audit Requirements for 

Federal Financial Statements. 

RESULTS OF INDEPENDENT AUDIT 

In its audit of Treasury, KPMG reported

• the consolidated financial statements were fairly presented, in all material respects, in accordance 

with U.S. generally accepted accounting principles; 

• a significant deficiency in internal control over cash management information systems and a 

significant deficiency in internal control over Federal debt information systems at the Bureau of the 

Fiscal Service, collectively representing a significant deficiency for Treasury as a whole; 
DEPARTMENT OF THE TREASURY 49 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

• a significant deficiency in internal control over unpaid tax assessments and a significant deficiency 

in internal control over financial reporting systems at the Internal Revenue Service, collectively 

representing a significant deficiency for Treasury as a whole; 

• two Anti-deficiency Act violations where the Treasury Departmental Offices expended amounts that 

were in excess of the available fund balance in fiscal year 2015; and 

• noncompliance with requirements of FFMIA related to Federal financial management systems 

requirements. 

EVALUATION OF AUDITORS’ PERFORMANCE

In connection with the contract, we reviewed KPMG’s report and related documentation and inquired of its 

representatives. Our review, as differentiated from an audit in accordance with U.S. generally accepted 

government auditing standards, was not intended to enable us to express, and we do not express, an opinion 

on Treasury’s consolidated financial statements or conclusions about the effectiveness of internal control; 

whether Treasury’s financial management systems substantially complied with FFMIA; and compliance 

with laws, regulations, contracts, and grant agreements. KPMG is responsible for the attached auditor’s 

report dated November 15, 2018, and the conclusions expressed in the report. However, our review 

disclosed no instances where KPMG did not comply, in all material respects, with U.S. generally accepted 

government auditing standards. 

I appreciate the courtesy and cooperation extended to KPMG and my staff during the audit. Should you or 

your staff have questions, you may contact me at (202) 622-1090 or Deborah L. Harker, Assistant Inspector 

General for Audit, at (202) 927-5400. 

Attachment

cc: David F. Eisner 

Assistant Secretary for Management

 Carole Y. Banks 

Deputy Chief Financial Officer 
KPMG LLP is a Delaware limited liability partnership and the U.S. member

firm of the KPMG network of independent member firms affiliated with 

KPMG International Cooperative (“KPMG International”), a Swiss entity. 

KPMG LLP

Suite 12000

1801 K Street, NW

Washington, DC 20006

Independent Auditors’ Report

Inspector General

Department of the Treasury:

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of the Department of the Treasury

(Department), which comprise the consolidated balance sheets as of September 30, 2018 and 2017, and the

related consolidated statements of net cost, consolidated statements of changes in net position, combined

statements of budgetary resources and statements of custodial activity for the years then ended, and the

related notes to the consolidated financial statements (hereinafter referred to as “consolidated financial 

statements”).

Management’s Responsibility for the Financial Statements 

Management is responsible for the preparation and fair presentation of these consolidated financial statements

in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and

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

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

Auditors’ Responsibility 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We

did not audit the financial statements of the Internal Revenue Service (IRS), a component entity of the

Department, which statements reflect total assets of $66.7 and $60.3 billion, net cost of operations of $12.6 and

$12.1 billion before applicable eliminating entries, budgetary resources of $13.1 and $12.8 billion, and custodial

activity of $3,471 and $3,420 billion, as of and for the years ended September 30, 2018 and September 30,

2017, respectively. Those statements were audited by other auditors, whose report has been furnished to us,

and our opinion, insofar as it relates to the amounts included for IRS, is based solely on the report of the other

auditors.

We also did not audit the financial statements of the Office of Financial Stability (OFS), a component entity of

the Department, which statements reflect total assets of $17.2 and $19.5 billion, net cost of operations of $2.2

and $4.1 billion before applicable eliminating entries, and budgetary resources of $240 and $447 million, as of

and for the years ended September 30, 2018 and September 30, 2017, respectively. Those statements were

audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the

amounts included for OFS, is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States of

America, in accordance with the standards applicable to financial audits contained in Government Auditing 

Standards issued by the Comptroller General of the United States, and in accordance with Office of

Management and Budget (OMB) Bulletin No. 19-01, Audit Requirements for Federal Financial Statements.

Those standards and OMB Bulletin No. 19-01 require that we plan and perform the audit to obtain reasonable

assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the

assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud

50
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the consolidated financial statements in order to design audit procedures

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

of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the

appropriateness of accounting policies used and the reasonableness of significant accounting estimates made

by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

Opinion 

In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements

referred to above present fairly, in all material respects, the financial position of the Department of the Treasury

as of September 30, 2018 and 2017, and its net costs, changes in net position, budgetary resources, and

custodial activity for the years then ended in accordance with U.S. generally accepted accounting principles.

Emphasis of Matter 

As discussed in Note 10, the Department is a participant in transactions with certain entities as part of

significant legislation whose purpose is to assist in stabilizing the financial markets. Also as discussed in Note

1A and 1AB, the U.S. government’s interventions with regards to these entities are not expected to be

permanent. Furthermore, as discussed in Notes 1V and 10, the value of certain investments and commitments

is based on estimates. These estimates are inherently subject to substantial uncertainty arising from the

likelihood of future changes in general economic, regulatory, and market conditions. As such, there will likely be

differences between the estimated value of these investments and commitments as of September 30, 2018 and

2017, and the amounts that may ultimately be realized from these investments or may be required to settle

these commitments. Such differences may be material and will also affect the ultimate cost of these programs.

Our opinion is not modified with respect to these matters.

Other Matters 

Interactive Data

Management has elected to reference to information on websites or other forms of interactive data outside the

Agency Financial Report to provide additional information for the users of its financial statements. Such

information is not a required part of the basic consolidated financial statements or supplementary information

required by the Federal Accounting Standards Advisory Board. The information on these websites or the other

interactive data has not been subjected to any of our auditing procedures, and accordingly we do not express

an opinion or provide any assurance on it.

Required Supplementary Information

U.S. generally accepted accounting principles require that the information in the Management’s Discussion and 

Analysis and Required Supplementary Information sections be presented to supplement the basic consolidated

financial statements. Such information, although not a part of the basic consolidated financial statements, is

required by the Federal Accounting Standards Advisory Board who considers it to be an essential part of

financial reporting for placing the basic consolidated financial statements in an appropriate operational,

economic, or historical context. We, and the other auditors, have applied certain limited procedures to the

required supplementary information in accordance with auditing standards generally accepted in the United

States of America, which consisted of inquiries of management about the methods of preparing the information

and comparing the information for consistency with management’s responses to our inquiries, the basic

consolidated financial statements, and other knowledge we obtained during our audits of the basic consolidated

financial statements. We do not express an opinion or provide any assurance on the information because the

limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

51
Other Information

Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements

as a whole. The Message from the Secretary of the Treasury, the Message from the Assistant Secretary for 

Management and Deputy Chief Financial Officer, and the Other Information sections are presented for

purposes of additional analysis and are not a required part of the basic consolidated financial statements. Such

information has not been subjected to the auditing procedures applied in the audits of the basic consolidated

financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards

Internal Control over Financial Reporting 

In planning and performing our audit of the consolidated financial statements as of and for the year ended

September 30, 2018, we considered the Department’s internal control over financial reporting (internal control)

to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our

opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the

effectiveness of the Department’s internal control. Accordingly, we do not express an opinion on the

effectiveness of the Department’s internal control. This report includes our consideration of the results of the

other auditors’ testing of internal control over financial reporting that are reported on separately by those other 

auditors. However, this reporting, insofar as it relates to the results of the other auditors, is based solely on the

reports of the other auditors. We, and the other auditors, did not test all internal controls relevant to operating

objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982.

A deficiency in internal control exists when the design or operation of a control does not allow management or

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

misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in

internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial

statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a

deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet

important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section

and was not designed to identify all deficiencies in internal control that might be material weaknesses or

significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not

been identified. Given these limitations, during our audit we did not identify any deficiencies in internal control

that we consider to be material weaknesses. We did identify certain deficiencies in internal control, described

below that we consider to be significant deficiencies.

A. Significant Deficiency in Internal Control over Information Systems at the Bureau of the Fiscal

Service

Effective information system controls and security programs over financial systems are essential to protecting

information resources in accordance with OMB Circular No. A-130, Managing Information as a Strategic 

Resource. The Bureau of the Fiscal Service (Fiscal Service) relies on a number of information systems to

manage government-wide cash and the federal debt. Fiscal Service did not consistently implement adequate

controls over the government-wide cash and the federal debt information systems or controls did not operate

effectively as follows:

1. Cash Management Information Systems

Fiscal Service’s general information technology controls over its cash management systems had several newly

identified control deficiencies and did not provide reasonable assurance that: (1) security control policies and

procedures were documented and implemented; (2) the concept of least privilege is employed to prevent

significant security exposures; (3) accounts were reviewed for compliance with account management

requirements and access to systems is protected against unauthorized modification, loss, or disclosure; (4)

systems are monitored and potential vulnerabilities are investigated and resolved; (5) responsibilities are

52
properly segregated; (6) network sessions were appropriately controlled; and (7) changes to systems are

authorized, properly configured, and secured as intended. These deficiencies resulted because Fiscal Service

did not identify all risks and implement controls to address such risks, establish policies with sufficient detail to

effectively implement the controls, prioritize the importance of performing the control responsibilities, focus

sufficient resources to perform the controls, properly identify and effectively confirm that the controls were

properly designed, implemented and operating effectively. Until these control deficiencies are fully addressed,

there is an increased risk of inadequate security controls in financial systems; unauthorized access to,

modification of, or disclosure of sensitive financial data and programs; and unauthorized changes to financial

systems.

2. Federal Debt Information Systems

Although Fiscal Service made progress in addressing prior year control deficiencies, Fiscal Service had

unresolved and newly identified control deficiencies related to its federal debt information systems. Fiscal

Service’s corrective action plan for addressing the prior year deficiencies did not include sufficient detail to

facilitate a common understanding of the deficiencies or the steps and resources needed to fully resolve them

and the corrective actions taken often only addressed the previously identified conditions and did not

adequately resolve their underlying causes. As a result, Fiscal Service either had not adequately enhanced its

policies and procedures or had not developed and implemented processes to reasonably assure compliance

with such policies and procedures. Fiscal Service had instances in which known information system

vulnerabilities were not being remediated on a timely basis and instances in which implemented configuration

settings were not effectively monitored against baseline security requirements. Additionally, Fiscal Service had

instances in which mainframe security controls were not employed in accordance with the concept of least

privilege—some of which represent potentially significant security exposures. Furthermore, Fiscal Service did

not properly configure a tool, which identifies changes to key mainframe data sets, to send alerts to the

organizational unit responsible for monitoring such changes.

Recommendation

Separate reports with additional details and recommendations for corrective action will be provided separately

to Fiscal Service management. We recommend that the Assistant Secretary for Management (ASM) and

Deputy Chief Financial Officer (DCFO) ensure that Fiscal Service implement requisite corrective actions to

resolve control deficiencies over its cash management and debt information systems.

B. Significant Deficiency in Internal Control over Financial Reporting at the Internal Revenue Service

IRS continued to improve internal control over financial reporting to ensure reliable and timely financial

information is obtained, maintained, and reported in accordance with OMB Circular A-123, Management’s 

Responsibility for Enterprise Risk Management and Internal Control. However, the other auditors reported

significant deficiencies in internal control over unpaid tax assessments and internal control over financial

reporting systems that we collectively considered as a significant deficiency at the Department level. IRS

internal control deficiencies are summarized as follows:

1. Unpaid Tax Assessments

IRS’s continued use of a manual estimation process to determine amounts of unpaid assessments,

necessitated by ongoing financial system limitations and errors in taxpayer accounts, did not provide IRS with

readily available, reliable unpaid assessment information throughout the year to support informed

management decision making. In addition, IRS was not able to fully rely on its subsidiary ledger for

systematically recording and tracking reliable and complete taxpayer data as management originally intended.

Further, IRS did not clearly document several key management decisions regarding the design and use of the

estimation process, such as its revised sampling procedures for estimating taxes receivable. As a result, there

is an increased risk that IRS may perform sampling procedures inconsistent with management intent or plans,

potentially rendering its estimates statistically invalid.

53
2. Financial Reporting Systems

IRS has taken actions to address certain previously reported deficiencies in information systems controls,

however, IRS had continuing and new deficiencies in information systems controls pertaining to access

controls, configuration management, and security management. Specifically, IRS did not correct previously

reported control deficiencies concerning (1) unnecessary access rights granted to accounts, (2) inconsistent

encryption of data in financial reporting systems, (3) inconsistent monitoring of systems and accounts, (4)

change controls over tax and financial management processing on the mainframe, and (5) developing and

implementing effective policies and procedures as part of IRS’s security management program. In addition, 

during this year’s audit, the other auditors found that IRS did not (1) require multifactor authentication, (2)

restrict unnecessary access to financial databases, (3) reasonably assure that hardware and software was

supported by the vendor and consistently updated, (4) segregate incompatible duties, or (5) enforce the

authenticity of digitally signed documents.

Recommendation

The other auditors separately provided IRS management a report detailing the conditions identified and their

recommendations to address the above significant deficiency. We recommend that the ASM and DCFO ensure

that IRS implements corrective actions to resolve the control deficiencies at IRS.

Compliance and Other Matters 

As part of obtaining reasonable assurance about whether the Department’s consolidated financial statements

are free from material misstatement, we, and the other auditors, performed tests of its compliance with certain

provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct

and material effect on the determination of financial statement amounts. However, providing an opinion on

compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an

opinion. The results of our tests disclosed an instance of noncompliance or other matters that is required to be

reported under Government Auditing Standards or OMB Bulletin No. 19-01, and is described below.

C. Violation of the Anti-Deficiency Act at Treasury Departmental Offices

Section 1341 of Title 31 of the United States Code (Anti-Deficiency Act) prohibits expenditures or obligations

exceeding an amount available in an appropriation or a fund. In FY 2018, the Department reported two

violations of the Anti-Deficiency Act that occurred in FY 2015 where the Treasury Departmental Offices (DO)

expended approximately $9.9 million in one instance and $26.1 million in a second instance that was in excess

of the available fund balance. The Department reported that the violations occurred due to delays in collecting

payments from other Federal entities under reimbursable agreements. The Department reported that it has

developed and implemented automated processes and workflows, automated generation of agreements and

supporting documents, and dedicated resources to monitor collections for reimbursable agreements and the

fund balance.

Recommendation

We recommend that the ASM and DCFO ensure that DO continues to follow its standardized processes and

workflows, properly prepare reimbursable agreements and supporting documents, and dedicate resources to

regularly monitor collections for reimbursable agreements and the fund balance.

We, and the other auditors, also performed tests of its compliance with certain provisions referred to in Section

803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA). Providing an opinion on

compliance with FFMIA was not an objective of our audit, and accordingly, we do not express such an opinion.

The results of our tests and those of the other auditors disclosed instances described below, in which the

Department’s financial management systems did not substantially comply with the Federal financial

management systems requirements. The results of our tests and those of the other auditors disclosed no

instances in which the Department’s financial management systems did not substantially comply with

applicable Federal accounting standards and the United States Government Standard General Ledger at the

transaction level.

54
D. Noncompliance with Federal Financial Management Improvement Act of 1996

The Department’s financial management systems did not substantially comply with the Federal financial

management systems requirements. As discussed in finding A and B, the Department had deficiencies in Fiscal

Service’s information systems and IRS’s financial reporting systems. Specifically, the Department did not

consistently design, implement, and operate information system controls and security programs over these

systems in accordance with the federal financial management system requirements.

Recommendation

We, and the other auditors, separately provided IRS and Fiscal Service management with recommendations to

address the above noncompliance with the federal financial management system requirements. We

recommend that the ASM and DCFO ensure that IRS and Fiscal Service develop and implement remediation

plans outlining actions to be taken to resolve noncompliance with the federal financial management system

requirements and the resources and responsible organizational units for such planned actions.

Department’s Response to Findings 

The Department indicated in a separate letter immediately following this report that it concurs with the findings

and recommendations presented in our report. Further, the Department responded that it will take necessary

corrective actions to address each of the matters presented. The Department’s response was not subjected to 

the auditing procedures applied in the audit of the consolidated financial statements and, accordingly, we

express no opinion on the response.

Purpose of the Other Reporting Required by Government Auditing Standards 

The purpose of the communication described in the Other Reporting Required by Government Auditing 

Standards section is solely to describe the scope of our testing of internal control and compliance and the

results of that testing, and not to provide an opinion on the effectiveness of the Department’s internal control or

compliance. Accordingly, this communication is not suitable for any other purpose.

Washington, DC

November 15, 2018

55
56 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

MANAGEMENT’S RESPONSE TO INDEPENDENT AUDITORS’ REPORT

November 15, 2018 

KPMG LLP

1801 K Street, NW

Washington, DC 20006 

Ladies and Gentlemen:

On behalf of Secretary Mnuchin, we are responding to your audit report on the Department of the 

Treasury's fiscal year 2018 consolidated financial statements. Our bureaus and program offices are

proud of the Department's success in achieving an unmodified audit opinion on the Department's

financial statements for the 19th consecutive year.

The high level of professionalism, technical expertise, and integrity demonstrated by KPMG in

conducting this year's audit contributed greatly to Treasury's successful fiscal year 2018 results. We

also appreciate the expertise and commitment demonstrated by the other organizations involved in the 

audit process -the Office of Inspector General, Government Accountability Office (GAO), and the 

firms that audited several of our bureaus.

We acknowledge the two significant deficiencies at the Department level, and the two instances of 

noncompliance with laws and regulations described in your report. We agree with your

recommendations and will focus on necessary corrective actions to address each of the issues. 

The Anti-Deficiency Act violation was isolated to two months of fiscal year 2015 and, as a result of 

corrective actions implemented since that year, such violation has not reoccurred. 

Overall, we have made strong progress in enhancing our internal control environment. We are very

proud of our progress, especially with our successful downgrade of the IRS material weakness, related to

unpaid tax assessments, to a significant deficiency. We remain committed to ensuring high standards of 

integrity and transparency in reporting our financial performance.

 

David F. Eisner Carole Y. Banks 

Assistant Secretary for Management Deputy Chief Financial Officer
DEPARTMENT OF THE TREASURY 57 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Consolidated Balance Sheets

As of September 30, 2018 and 2017

(in millions) 2018 2017

ASSETS

Intra-governmental Assets

Fund Balance (Note 2) $ 424,868 $ 426,396

Loans and Interest Receivable (Note 3) 1,524,696 1,455,625

Advances to Trust Funds (Note 4) 5,027 9,021

Due From the General Fund (Note 4) 21,646,633 20,373,777

Other Intra-governmental Assets 770 818

Total Intra-governmental Assets 23,601,994 22,265,637

Cash, Foreign Currency, and Other Monetary Assets (Note 5) 444,571 218,830

Gold and Silver Reserves (Note 6) 11,062 11,062

Reserve Position in the International Monetary Fund (Note 7) 15,364 11,509

Taxes, Interest, and Other Receivables, Net (Note 8) 59,637 53,496

Credit Program Receivables, Net (Note 9) 5,017 5,293

Loans and Interest Receivable, Net (Note 7) 4,509 7,380

Investments in Government Sponsored Enterprises (GSEs) (Note 10) 113,150 92,640

Investments in Multilateral Development Banks (Note 11) 7,741 7,708

Other Investments and Related Interest (Note 12) 7,062 8,559

Property, Plant, and Equipment, Net (Note 13) 2,947 3,060

Other Assets 701 986

Total Assets (Note 14) $ 24,273,755 $ 22,686,160

Heritage Assets (Note 13)

The accompanying notes are an integral part of these financial statements.
58 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Consolidated Balance Sheets

As of September 30, 2018 and 2017

(in millions) 2018 2017

LIABILITIES

Intra-governmental Liabilities

Federal Debt and Interest Payable (Notes 4 and 15) $ 5,821,642 $ 5,637,950

Liability for Restoration of Federal Debt Principal and Interest (Notes 4 and 15) - 660

Other Debt and Interest Payable (Note 16) 10,414 11,543

Due To the General Fund (Note 4) 2,072,917 1,755,057

Other Intra-governmental Liabilities (Note 18) 631 613

Total Intra-governmental Liabilities 7,905,604 7,405,823

Federal Debt and Interest Payable (Notes 4 and 15) 15,789,917 14,699,687

Certificates Issued to the Federal Reserve (Note 5) 5,200 5,200

Allocation of Special Drawing Rights (Note 5) 49,274 49,912

Gold Certificates Issued to the Federal Reserve Banks (Note 6) 11,037 11,037

Refunds Payable (Notes 4 and 22) 2,994 3,074

D.C. Federal Pension and Judicial Retirement Actuarial Liability (Note 17) 8,372 8,682

Other Liabilities (Note 18) 5,544 5,420

Total Liabilities (Note 18) 23,777,942 22,188,835

Commitments and Contingencies (Note 26)

NET POSITION

Unexpended Appropriations: 

 Funds from Dedicated Collections (Note 23) 200 200

 Other Funds 425,792 427,129

 Subtotal 425,992 427,329

Cumulative Results of Operations:

 Funds from Dedicated Collections (Note 23) 46,163 46,851

 Other Funds 23,658 23,145

 Subtotal 69,821 69,996

Total Net Position - Funds from Dedicated Collections (Combined Totals) (Note 23) 46,363 47,051

Total Net Position - Other Funds (Combined Totals) 449,450 450,274

Total Net Position (Note 19) 495,813 497,325

Total Liabilities and Net Position $ 24,273,755 $ 22,686,160

The accompanying notes are an integral part of these financial statements.
DEPARTMENT OF THE TREASURY 59 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Consolidated Statements of Net Cost

For the Fiscal Years Ended September 30, 2018 and 2017

(in millions) 2018 2017

Cost of Treasury Operations: 

Financial Program

Gross Cost $ 6,984 $ 9,216

Less Earned Revenue (2,954) (2,969)

Net Program Cost 4,030 6,247

Economic Program

Gross Cost 28,402 25,344

Less Earned Revenue (11,598) (12,196)

Net Program Cost 16,804 13,148

Security Program

Gross Cost 466 436

Less Earned Revenue (7) (5)

Net Program Cost 459 431

Total Program Gross Costs 35,852 34,996

Total Program Gross Earned Revenues (14,559) (15,170)

Total Net Program Cost before Changes in Actuarial Assumptions 21,293 19,826

(Gain)/Loss on Pension, ORB, or OPEB Assumption Changes 113 264

Total Net Cost of Treasury Operations (Note 20) 21,406 20,090

Non-Entity Costs:

Federal Debt Interest 527,144 454,197

Restoration of Foregone Federal Debt Interest (Note 15) 804 1,587

Less Interest Revenue from Loans (42,948) (42,483)

Net Federal Debt Interest Costs 485,000 413,301

Accrued Restoration of Foregone Federal Debt Interest (Note 15) - 660

Other Federal Costs, Net (Note 20) 12,940 14,725

GSEs Non-Entity Revenue, Net (Note 10) (30,391) (9,439)

Other, Net (706) (689)

Total Net Non-Entity Costs 466,843 418,558

Total Net Cost of Treasury Operations and Non-Entity Costs $ 488,249 $ 438,648

The accompanying notes are an integral part of these financial statements.
60 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Consolidated Statements of Changes in Net Position

For the Fiscal Years Ended September 30, 2018 and 2017

(in millions) 2018 2017

UNEXPENDED APPROPRIATIONS (Notes 19 and 23)

Beginning Balance $ 427,329 $ 434,646

Budgetary Financing Sources

Appropriations Received (Note 19) 547,756 488,588

Appropriations Transferred In/Out 10 -

Other Adjustments (Note 19) (5,839) (14,185)

Appropriations Used (543,264) (481,720)

Total Budgetary Financing Sources (1,337) (7,317)

Total Unexpended Appropriations 425,992 427,329

CUMULATIVE RESULTS OF OPERATIONS (Notes 19 and 23)

Beginning Balance 69,996 69,268

Budgetary Financing Sources

Appropriations Used 543,264 481,720

Non-Exchange Revenue 179 444

Donations and Forfeitures of Cash/Equivalent 413 117

Transfers In/Out Without Reimbursement (86) (272)

Other 102 8

Other Financing Sources (Non-Exchange)

Donation/Forfeiture of Property 156 106

Accrued Interest and Discount on Debt 21,395 11,266

Accrued Interest on Restoration of Federal Debt Principal (Note 15) (660) 660

Imputed Financing Sources (Note 20) 779 552

Transfers to the General Fund and Other (Note 19) (77,468) (55,225)

Total Financing Sources 488,074 439,376

Net Cost of Treasury Operations and Non-Entity Costs (488,249) (438,648)

Net Change (175) 728

Cumulative Results of Operations 69,821 69,996

Net Position $ 495,813 $ 497,325

The accompanying notes are an integral part of these financial statements.
DEPARTMENT OF THE TREASURY 61 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Combined Statement of Budgetary Resources

For the Fiscal Year Ended September 30, 2018

Non-Budgetary 2018

(in millions) Budgetary Financing Total

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net 

 (discretionary and mandatory) $ 317,622 $ 12 $ 317,634

Appropriations (discretionary and mandatory) (Note 19) 555,657 - 555,657

Borrowing authority (discretionary and mandatory) (Note 21) - 265 265

Spending authority from offsetting collections 

 (discretionary and mandatory) 8,459 297 8,756

Total Budgetary Resources $ 881,738 $ 574 $ 882,312

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments (Note 21) $ 568,169 $ 482 $ 568,651

Unobligated balance, end of year:

 Apportioned, unexpired accounts 271,380 9 271,389

 Exempt from apportionment, unexpired accounts 1,631 - 1,631

 Unapportioned, unexpired accounts 40,139 83 40,222

 Unexpired unobligated balance, end of year 313,150 92 313,242

 Expired unobligated balance, end of year 419 - 419

Unobligated balance, end of year 313,569 92 313,661

Total Status of Budgetary Resources $ 881,738 $ 574 $ 882,312

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ 560,008 $ (241) $ 559,767

Distributed offsetting receipts (61,467) - (61,467)

Agency Outlays, Net (Discretionary and Mandatory) $ 498,541 $ (241) $ 498,300

The accompanying notes are an integral part of these financial statements.
62 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Combined Statement of Budgetary Resources

For the Fiscal Year Ended September 30, 2017 

Non-Budgetary 2017

(in millions) Budgetary Financing Total

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net 

 (discretionary and mandatory) $ 316,597 $ (305) $ 316,292

Appropriations (discretionary and mandatory) (Note 19) 493,425 1 493,426

Borrowing authority (discretionary and mandatory) (Note 21) - 268 268

Spending authority from offsetting collections 

 (discretionary and mandatory) 7,569 962 8,531

Total Budgetary Resources $ 817,591 $ 926 $ 818,517

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments (Note 21) $ 501,405 $ 664 $ 502,069

Unobligated balance, end of year:

 Apportioned, unexpired accounts 274,033 49 274,082

 Exempt from apportionment, unexpired accounts 1,616 - 1,616

 Unapportioned, unexpired accounts 40,003 213 40,216

 Unexpired unobligated balance, end of year 315,652 262 315,914

 Expired unobligated balance, end of year 534 - 534

Unobligated balance, end of year 316,186 262 316,448

Total Status of Budgetary Resources $ 817,591 $ 926 $ 818,517

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ 497,297 $ (1,689) $ 495,608

Distributed offsetting receipts (75,089) - (75,089)

Agency Outlays, Net (Discretionary and Mandatory) $ 422,208 $ (1,689) $ 420,519

The accompanying notes are an integral part of these financial statements.
DEPARTMENT OF THE TREASURY 63 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Statements of Custodial Activity

For the Fiscal Years Ended September 30, 2018 and 2017

 

(in millions) 2018 2017

Sources of Custodial Revenue (Note 22)

Individual Income and FICA Taxes $ 3,089,758 $ 2,976,444

Corporate Income Taxes 262,742 338,529

Estate and Gift Taxes 23,866 23,780

Excise Taxes 94,267 85,333

Railroad Retirement Taxes 6,324 5,957

Unemployment Taxes 8,807 8,284

Deposit of Earnings, Federal Reserve System 70,750 81,287

Fines, Penalties, Interest and Other Revenue 5,712 5,040

Total Revenue Received 3,562,226 3,524,654

Less Refunds and Other Payments (464,167) (437,323)

Net Revenue Received 3,098,059 3,087,331

Non-Cash Accrual Adjustment 6,213 3,061

Total Custodial Revenue 3,104,272 3,090,392

Disposition of Custodial Revenue (Note 22)

Amounts Provided to Fund Non-Federal Entities 455 370

Amounts Provided to Fund the Federal Government 3,097,604 3,086,961

Non-Cash Accrual Adjustment 6,213 3,061

Total Disposition of Custodial Revenue 3,104,272 3,090,392

Net Custodial Revenue $ - $ -

The accompanying notes are an integral part of these financial statements.
64 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

TABLE OF CONTENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.......................................................................................................................... 65 

2. FUND BALANCE ....................................................................................................................................................................................... 85 

3. LOANS AND INTEREST RECEIVABLE – INTRA-GOVERNMENTAL ..................................................................................................... 86 

4. DUE FROM THE GENERAL FUND AND DUE TO THE GENERAL FUND ............................................................................................. 88 

5. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS ........................................................................................................ 90

6. GOLD AND SILVER RESERVES, AND GOLD CERTIFICATES ISSUED TO THE FEDERAL RESERVE BANKS .................................... 92 

7. RESERVE POSITION IN THE INTERNATIONAL MONETARY FUND AND RELATED LOANS AND INTEREST RECEIVABLE .......... 93 

8. TAXES, INTEREST, AND OTHER RECEIVABLES, NET ......................................................................................................................... 94 

9. CREDIT PROGRAM RECEIVABLES,NET ............................................................................................................................................... 95 

10. INVESTMENTS IN GOVERNMENT SPONSORED ENTERPRISES........................................................................................................... 97 

11. INVESTMENTS IN MULTILATERAL DEVELOPMENT BANKS ........................................................................................................... 102 

12. OTHER INVESTMENTS AND RELATED INTEREST ............................................................................................................................ 102 

13. PROPERTY, PLANT, AND EQUIPMENT, NET ..................................................................................................................................... 103 

14. NON-ENTITY VS. ENTITY ASSETS ...................................................................................................................................................... 104 

15. FEDERAL DEBT AND INTEREST PAYABLE AND RELATED LIABILITIES ....................................................................................... 105 

16. OTHER DEBT AND INTEREST PAYABLE ............................................................................................................................................ 109 

17. D.C. FEDERAL PENSION AND JUDICIAL RETIREMENT ACTUARIAL LIABILITY ........................................................................... 110

18. LIABILITIES ........................................................................................................................................................................................... 112 

19. NET POSITION ...................................................................................................................................................................................... 113 

20. CONSOLIDATED STATEMENTS OFNET COST ANDNET COSTS OF TREASURY SUB-ORGANIZATIONS .................................... 114 

21. ADDITIONAL INFORMATION RELATED TO THE COMBINED STATEMENTS OF BUDGETARY RESOURCES ............................... 120

22. SOURCES AND DISPOSITION OF CUSTODIAL REVENUE .................................................................................................................. 123 

23. FUNDS FROM DEDICATED COLLECTIONS ......................................................................................................................................... 125 

24. RECONCILIATION OFNET COST OF TREASURY OPERATIONS ANDNON-ENTITY COSTS TO BUDGET .................................... 129 

25. SCHEDULE OF FIDUCIARY ACTIVITY ................................................................................................................................................. 130

26. COMMITMENTS AND CONTINGENCIES .............................................................................................................................................. 131 

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED – SEE ACCOMPANYING AUDITORS’ REPORT) ................................... 135 
DEPARTMENT OF THE TREASURY 65 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. REPORTING ENTITY

The accompanying financial statements include the operations of the Department of the Treasury, one of 24 Chief Financial

Officers (CFO) Act agencies of the Executive Branch of the United States (U.S.) government, and certain custodial activities

the Department manages on behalf of the entire U.S. government. Except where the content clearly indicates otherwise, the

use of the terms “Department”, “Treasury”, “we”, “us”, or “our” refers to the Department of the Treasury, including its

Departmental Offices (DO) and operating bureaus which are further discussed below. The following paragraphs describe the

activities of the reporting entity.

We were established by an Act of Congress approved on September 2, 1789. Many subsequent acts affected our development,

delegating new duties to our charge and establishing the numerous bureaus and divisions that now comprise the

Department. As a major policy advisor to the President, the Secretary of the Treasury (Secretary) has primary responsibility

for formulating and managing the domestic and international tax and financial policies of the U.S. government.

Further, the Secretary is responsible for recommending and implementing U.S. domestic and international economic and

fiscal policy; governing the fiscal operations of the U.S. government; maintaining foreign assets control; managing the

federal debt; collecting income and excise taxes; representing the U.S. on international monetary, trade, and investment

issues; overseeing our overseas operations; and directing the manufacture of coins, currency, and other products for customer

agencies and the public.

Our reporting entities include DO and seven operating bureaus. For financial reporting purposes, DO is composed of:

Community Development Financial Institutions (CDFI) Fund, Office of D.C. Pensions (ODCP), Exchange Stabilization Fund

(ESF), Federal Financing Bank (FFB), Government Sponsored Enterprises (GSEs) Program, International Assistance

Programs (IAP), Office of Financial Research (OFR), Office of Financial Stability (OFS), Office of Inspector General (OIG),

Small Business Lending Fund (SBLF), Special Inspector General for the Troubled Asset Relief Program (SIGTARP), 

Treasury Forfeiture Fund (TFF), Treasury Inspector General for Tax Administration (TIGTA), and the DO policy offices.

Our seven operating bureaus are: Bureau of Engraving and Printing (BEP), Bureau of the Fiscal Service (Fiscal Service), 

Financial Crimes Enforcement Network (FinCEN), Internal Revenue Service (IRS), U.S. Mint (Mint), Office of the

Comptroller of the Currency (OCC), and Alcohol and Tobacco Tax and Trade Bureau (TTB). Our consolidated financial

statements reflect the reporting of our entity activities, comprising both our operating bureaus and DO. This includes

appropriations received to conduct our operations and revenue generated from those operations. They also reflect the

reporting of certain non-entity (custodial) functions we perform on behalf of the U.S. government and others. Non-entity

activities include collecting certain federal revenue, servicing the federal debt, disbursing certain federal funds, and

maintaining certain assets and liabilities for the U.S. government (refer to Notes 4 and 14), as well as for other federal

entities. Our reporting entity does not include the General Fund of the U.S. Government (General Fund), which maintains

receipt, disbursement, and appropriation accounts for all federal agencies. 
66 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Effective October 1, 2017, we adopted Statement of Federal Financial Accounting Standards (SFFAS) No. 47, Reporting

Entity. SFFAS No. 47 requires that our consolidated financial statements include all consolidation entities and disclosure

entities meeting the principles for inclusion in the government-wide general purpose federal financial report, for which we

are accountable. SFFAS No. 47 also provides criteria for disclosure of related party relationships of such significance that it

would be misleading to exclude information about them. Our operating bureaus and DO represent Treasury’s consolidation

entities whose accounts are consolidated as part of the Department’s consolidated financial statements. Refer to the

accounting policy below entitled “Disclosure Entities and Related Parties” for additional information on Treasury’s

“disclosure entities” and “related parties” which are material to our consolidated financial statements, of significance to the

public, or required by SFFAS No. 47.

Following U.S. Generally Accepted Accounting Principles (GAAP) for federal entities, we do not consolidate into our financial

statements the assets, liabilities, or results of operations of any financial organization or commercial entity in which we hold

either a direct or indirect majority equity investment, unless they meet the principles of inclusion for “consolidation entities”

as described in SFFAS No. 47. Certain of our significant equity investments do not meet the inclusion principles for

“consolidation entities”. Prior to FY 2018, these entities met the criteria of “bailed out” entities under paragraph 50 of

Statement of Federal Financial Accounting Concepts (SFFAC) No. 2, Entity and Display, which directed that such “bailout”

investments not be consolidated into our reporting entity, either in part or as a whole. The FY 2018 implementation of

SFFAS No. 47 did not have a significant impact on the consolidation of these entities within our financial statements, as

compared to how these entities were consolidated under SFFAC No. 2 prior to FY 2018.

B. BASIS OF ACCOUNTING AND PRESENTATION

The financial statements have been prepared from our accounting records in conformity with GAAP, and Office of

Management and Budget (OMB) Circular No. A-136, Financial Reporting Requirements, as revised. Accounting principles

generally accepted for federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board

(FASAB). The American Institute of Certified Public Accountants recognizes FASAB as the official accounting standardssetting body for the U.S. government.

These financial statements consist of the Consolidated Balance Sheets, the Consolidated Statements of Net Cost, the

Consolidated Statements of Changes in Net Position, the Combined Statements of Budgetary Resources, and the Statements

of Custodial Activity. The statements and the related notes are prepared in a comparative form to present both fiscal year

(FY) 2018 and 2017 information.

We have eliminated transactions and balances among our entities from the Consolidated Balance Sheets, Consolidated

Statements of Net Cost, and Consolidated Statements of Changes in Net Position. We present the Statement of Budgetary

Resources on a combined basis; therefore, intra-departmental transactions and balances have not been eliminated from these

statements. 

While these financial statements have been prepared from our accounting records in accordance with the formats prescribed

by OMB, these financial statements are in addition to the financial reports used to monitor and control budgetary resources

which are prepared from the same accounting records. 

Intra-governmental assets and liabilities are those due from or to other federal entities. Intra-governmental earned

revenues are collections or accruals of revenue from other federal entities, and intra-governmental costs are payments or

accruals of expenditures to other federal entities.
DEPARTMENT OF THE TREASURY 67 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

The financial statements should be read with the realization that we are a component of the U.S. government, a sovereign

entity and, accordingly, our liabilities not covered by budgetary resources cannot be liquidated without the legislative

enactment of an appropriation, and that the payment of all liabilities other than for contracts can be abrogated by the

sovereign entity. Liabilities represent the probable and measurable future outflow or other sacrifice of resources as a result

of past transactions or events. Liabilities covered by budgetary resources are those liabilities for which Congress has

appropriated funds or funding is otherwise available to pay amounts due. Liabilities not covered by budgetary resources

represent amounts owed in excess of available, congressionally appropriated funds or other amounts, and there is no

certainty that the appropriations will be enacted. Liabilities not requiring budgetary resources are liabilities that have not

in the past required, nor will in the future, require budgetary resources, e.g., liabilities for clearing accounts, non-fiduciary

deposit funds, custodial collections, and unearned revenue. 

We have reclassified certain FY 2017 activity and balances presented on the financial statements to conform to the

presentation in the current year. In FY 2018, we realigned certain of our program gross costs and earned revenues as

reported on the Consolidated Statements of Net Cost to conform to changes in our strategic goals. Corresponding program

gross costs and earned revenues reported for the prior fiscal year were reclassified to conform to the current year’s

presentation (refer to Note 20). Furthermore, in FY 2018, changes to OMB Circular No. A-136 resulted in changes to the

presentation of the Combined Statements of Budgetary Resources. All FY 2017 activity and balances reported on the

Combined Statement of Budgetary Resources are presented to conform to the presentation in the current year. 

There are numerous acronyms used throughout the notes herein as well as other sections of this Agency Financial Report

(AFR). Refer to the “Glossary of Acronyms” located in the Appendix of this report for a complete listing of these acronyms

and their definitions.

C. FUND BALANCE

“Fund Balance” is the aggregate amount of our accounts with the U.S. government’s central accounts from which we are

authorized to make expenditures and pay liabilities. It is an asset because it represents our claim to the U.S. government’s

resources. “Fund Balance” is not equivalent to unexpended appropriations because it also includes non-appropriated

revolving and enterprise funds, suspense accounts, and custodial funds such as deposit funds, special funds, and trust funds.

D. LOANS AND INTEREST RECEIVABLE

Intra-Governmental

Intra-governmental entity loans and interest receivable from other federal agencies represent the principal and related

interest receivable on loans we issue through FFB. We do not record loan loss allowance for credit reform subsidy costs for 

loans purchased from federal agencies or for guaranteed loans made to non-federal borrowers because those agencies

guarantee the outstanding balances (interest and principal). 

Intra-governmental non-entity loans and interest receivable from other federal agencies represent the principal and related

interest receivable on loans we issue, through the Fiscal Service. We act as an intermediary issuing these loans because the

agencies receiving these loans lend these funds to third parties to carry out various programs of the U.S. government. 

Because of our intermediary role in issuing these loans, we do not record a loan loss allowance related to these non-entity

intra-governmental loans. Instead, the ultimate lender, the federal agency that issued the loans to the public, recognizes

loan loss allowances and subsidy costs. We accrue interest revenue on intra-governmental loans when earned. 
68 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Public

Public loans and interest receivable primarily represent supplemental borrowing arrangements between the U.S. and the

International Monetary Fund (IMF) (refer to Note 7). These loans are denominated in Special Drawing Rights (SDRs) and

recorded at the equivalent U.S. dollar amount (refer to the accounting policy below entitled “Special Drawing Rights”). We

periodically adjust the value of these loans, due to fluctuations in the value of the U.S. dollar with respect to the SDR, to

maintain the amount of these loans in dollar terms. We do not record a loan loss allowance for these loans as we do not

anticipate any defaults on the repayment of these loans. 

E. ADVANCES TO TRUST FUNDS 

Advances to the Unemployment Trust Fund

The General Fund issues advances to the Department of Labor’s (DOL) Unemployment Trust Fund for states to pay

unemployment benefits. The Fiscal Service accounts for the advances issued on behalf of the General Fund. As outlined in

42 United States Code (USC) 1323, Repayable Advances to Federal Unemployment Account, these advances bear an interest

rate that is computed as the average interest rate as of the end of the calendar month preceding the issuance date of the

advance for all interest-bearing obligations of the U.S. that form the public debt, to the nearest lower 1/8 of 1.0 percent. 

Interest on the advances is due on September 30 of each year. DOL repays advances when the Secretary, in consultation

with the Secretary of the DOL, determines that the balance in the Unemployment Trust Fund is adequate to allow

repayment.

Advances to the Federal Supplementary Medical Insurance Trust Fund

The General Fund issues advances to the Department of Health and Human Services’ (HHS) Federal Supplementary

Medical Insurance Trust Fund to temporarily replace the reduction in Medicare Part B participants’ premiums. The Fiscal

Service accounts for the advances issued on behalf of the General Fund. As outlined in 42 USC 1395, Prohibition Against

Any Federal Interference, these advances do not bear any interest. HHS repays advances over time from amounts collected

from certain participants’ increase in premiums until the balance due reaches zero. 

F. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS

Substantially all of our operating cash is non-entity government-wide cash held in depository institutions and Federal

Reserve Bank (FRB) accounts. Agencies deposit funds that are submitted to them directly into either a Federal Reserve

Treasury General Account (TGA) or a local TGA depositary. We transfer the balances in these TGA accounts into the

Federal Reserve Bank of New York’s (FRBNY) TGA throughout the day.

Operating cash of the U.S. government represents balances from tax collections, customs duties, other revenue, federal debt

receipts, and other various receipts, net of cash outflows for budget outlays and other payments held in the FRBs and in

foreign and domestic financial institutions. Outstanding checks net against operating cash until they clear the Federal

Reserve System (FR System). 

The FRBNY maintains the TGA, which functions as the U.S. government’s checking account for deposits and disbursements

of public funds. Cash in the TGA is restricted for government-wide operations.

We classify our foreign currency investments having original maturities of three months or less as cash equivalents. SDR

holdings comprise most of the other monetary assets (refer to the accounting policy below entitled “Special Drawing Rights”).
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FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

G. TAXES, INTEREST, AND OTHER RECEIVABLES, NET

We do not accrue federal taxes receivable, net, and the corresponding liability due to the General Fund, until related tax

returns are filed or assessments are made by the IRS and agreed to by either the taxpayer or the court. Additionally,

prepayments are netted against liabilities. We make accruals to reflect penalties and interest on taxes receivable through

the balance sheet date.

Taxes receivable consist of unpaid assessments (taxes and associated penalties and interest) due from taxpayers. The 

existence of a receivable is supported by a taxpayer agreement, such as filing of a tax return without sufficient payment, or a 

court ruling in favor of the IRS. We record an allowance for doubtful accounts to reflect an estimate of the portion of total

taxes receivable deemed to be uncollectible.

Compliance assessments are unpaid assessments which neither the taxpayer nor a court has affirmed the taxpayer owes to

the U.S. government. Examples include assessments resulting from an IRS audit or examination in which the taxpayer does

not agree with the results. Write-offs consist of unpaid assessments for which the IRS does not expect further collections due

to factors such as taxpayers’ bankruptcy, insolvency, or death. We do not report compliance assessments and write-offs on

the balance sheet. Statutory provisions require the accounts to be maintained until the statute for collection expires.

H. CREDIT PROGRAM RECEIVABLES, NET

We account for all of our credit program receivables under the provisions of credit reform accounting pursuant to the Federal

Credit Reform Act (FCRA). Credit programs include loans or equity securities associated with our state and local Housing

Finance Agency (HFA) initiative programs, SBLF program, CDFI Fund programs, and the Troubled Asset Relief Program

(TARP) (refer to Note 9). 

To account for our credit program receivables, we apply the accounting provisions of SFFAS No. 2, Accounting for Direct

Loans and Loan Guarantees, as amended. SFFAS No. 2 requires measurement of the asset or liability at the net present

value of the estimated future cash flows. The cash flow estimates for each credit program transaction reflect the actual

structure of the instruments. For each of these instruments, we estimate cash inflows and outflows related to the program

over the estimated term of the instrument. Further, each cash-flow estimate reflects the specific terms and conditions of the

program, technical assumptions regarding the underlying assets, risk of default or other losses, and other factors as

appropriate. The measurement of assets within these programs is primarily derived from inputs which generally represent

market data and, when such data is not available, management’s best estimate of how a market participant would assess the

asset’s inherent risk.

The primary purpose of the FCRA is to measure the cost of federal credit programs, and to place the cost of such credit

programs on a basis equivalent with other federal spending. FCRA requires that the ultimate costs of a credit program be

calculated and the budgetary resources be obtained before incurring the direct loan obligations. To accomplish this, we first

predict or estimate the future performance of direct and guaranteed loans when preparing our annual budget. We reestimate the data used for these budgetary estimates at the fiscal year-end to reflect changes in actual loan performance and

actual interest rates in effect when the loans were issued. The re-estimated data reflect adjustments for market risks, asset

performance, and other key variables and economic factors. We then use the re-estimated data to report the cost of the loans

disbursed under the direct or guaranteed loan program as a “Program Cost” in our Consolidated Statements of Net Cost.
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FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Cash flows associated with our credit programs generally include disbursements, repayments, repurchases, fees, recoveries,

interest, dividends, proceeds from sales of instruments, borrowings from Treasury, negative subsidy, and the subsidy cost

received from the program accounts. We draw security-level data and assumptions used as the basis for cash flow model

forecasts and program performance from widely available market sources, as well as information published by investees. 

Key inputs and assumptions to the cash flow forecasts include, but are not limited to:

• Security characteristics such as unpaid principal balance, coupon rate, weighted-average loan age, issued bond balance,

credit rating, maturity date, sinking fund schedules, principal and interest payment schedules, and performance of

underlying collateral; 

• Discount rate and Market Adjusted Discount Rate (MADR); 

• Department actions, as well as changes in legislation; 

• Forecast dividend payments, late payments, prepayment rates and default rates; 

• Expected escrow conversion and return rates; 

• Default and recovery reports published by Moody’s and Standard and Poor’s; 

• Other third-party market sources. 

The recorded subsidy cost associated with each of our credit programs represents the difference between our projected costs

of the program and the future cash flows we anticipate receiving. The subsidy allowance specifically takes into consideration

projected repayments and defaults, and the projected cost of borrowings. We amortize the allowance to reflect the difference

between projected and actual financing costs. 

Our actions, as well as changes in legislation, may impact estimated future cash flows and related subsidy costs. We

recognize the cost or cost savings of a modification in subsidy costs when the terms of a program are modified. Workouts are

actions taken to maximize repayments of existing credit programs, and the expected effects on cash flows are included in the

original estimate and re-estimates of the subsidy cost. Subsidy costs are also impacted by re-estimates which may occur as a 

result of updates to the original program subsidy cost estimates to reflect actual cash flows experience, as well as changes in

forecasts of estimated future cash flows associated with the credit program.

I. INVESTMENTS

Investments in GSEs

We hold senior preferred stock and warrants for the purchase of common stock of two GSEs: the Federal National Mortgage

Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). We present these non-federal

investment holdings at their fair value. We record changes in the valuation of these investments as non-entity exchange

transactions on the Consolidated Statements of Net Cost. We also record dividends related to these investments as nonentity exchange transactions, and accrue when declared.

The GSE Senior Preferred Stock Purchase Agreements (SPSPAs), which we entered into with each GSE when the GSEs

were placed under conservatorship, require that we increase our investment in the GSEs’ senior preferred stock if, at the end

of any quarter, the Federal Housing Finance Agency (FHFA), acting as the conservator, determines that the liabilities of

either GSE exceed its respective assets. Since funding to the GSEs to pay their excess liabilities is appropriated directly to

us, we report such payments, as needed, as entity expenses within the “Economic Program” on the Consolidated Statements

of Net Cost, and in the line item, “Cumulative Results of Operations,” on the Consolidated Balance Sheets. These payments
DEPARTMENT OF THE TREASURY 71 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

also result in an increase to the non-entity investment in the GSEs’ senior preferred stock, with a corresponding increase to

“Due To the General Fund”, as we hold the investment on behalf of the General Fund.

Investments in Multilateral Development Banks

On behalf of the U.S., we invest in Multilateral Development Banks (MDBs) to support poverty reduction, private sector

development, transitions to market economies, and sustainable economic growth and development, thereby advancing U.S.

economic, political, and commercial interests abroad. As a participating member country, we provide a portion of the capital

base of the MDBs, through subscriptions to capital, which allows the MDBs to issue loans at market-based rates to middleincome developing countries. These paid-in capital investments are non-marketable equity investments valued at cost on

our Consolidated Balance Sheets.

In addition, on behalf of the U.S., we contribute funding to MDBs to finance grants and extend credit to poor countries at

below market-based interest rates. We report these U.S. contributions, also referred to as “concessional window”

contributions, as an expense within the “Financial Program” on our Consolidated Statements of Net Cost.

Other Investments and Related Interest

The ESF holds most of our foreign currency investments. We classify the ESF’s other foreign currency denominated assets

and investment securities as either available-for-sale or trading securities recorded at fair value. These holdings are

normally invested in interest-bearing securities issued or held through foreign governments or monetary authorities. We

recognize interest on investments, amortization of premiums, and accretion of discounts on an accrual basis, and amortize or

accrete premiums and discounts over the life of the related investment security as an adjustment to yield using the effective

interest method. 

J. PROPERTY, PLANT, AND EQUIPMENT, NET

General

Property, plant, and equipment (PP&E) is composed of capital assets used in providing goods or services. It also includes

assets acquired through capital leases, which are initially recorded at the amount recognized as a liability for the capital

lease at its inception. PP&E is stated at full cost, including costs related to acquisition, delivery, and installation, less

accumulated depreciation. Major alterations and renovations, including leasehold and land improvements, are capitalized,

while maintenance and repair costs are charged to expense as incurred. Costs for construction projects are recorded as

construction-in-progress until completed, and are valued at actual (direct) cost plus applied overhead and other indirect

costs.

Internal-use software encompasses software design, development, and testing of projects adding significant new

functionality and long-term benefits. We accumulate costs for developing internal-use software in work-in-development until

we place a project into service and testing and final acceptances are successfully completed. Once completed, we transfer the

costs to depreciable property.

We lease land and buildings from the General Services Administration (GSA) to conduct most of our operations. We have no

material leases that meet capital lease requirements for financial reporting purposes. GSA charges a standard level user fee

which approximates commercial rental rates for similar properties. 
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FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Our bureaus are diverse both in size and in operating environment. Accordingly, our capitalization policy provides minimum

capitalization thresholds, which generally range from $25,000 to $50,000 for all property categories except for internal-use

software. Minimum capitalization thresholds for internal-use software generally range from $50,000 to $250,000 (except for 

the IRS, for which minimum capitalization thresholds generally ranges from $10 million to $50 million). We also use a 

capitalization threshold for bulk purchases, which generally ranges from $50,000 to $500,000 for non-manufacturing

bureaus, and $25,000 to $50,000 for manufacturing bureaus. Bureaus determine the individual items that comprise bulk

purchases based on our guidance. 

Depreciation is expensed on a straight-line basis over the estimated useful life of the asset with the exception of leasehold

improvements and capital leases. We depreciate leasehold improvements over the term of the lease or the useful life of the

improvement, whichever is shorter. We depreciate capital leases over the estimated life of the asset or term of the lease,

whichever is shorter. Service life ranges (2 to 50 years) are wide due to the diversity of our PP&E. We do not depreciate

land and land improvements, construction-in-progress, and internal-use software in development. We record impairment

costs related to a significant and permanent decline in the service utility of general PP&E and construction-in-progress in

the period incurred. 

Heritage Assets

Heritage assets are of historical significance. Multi-use heritage assets are those heritage assets for which the predominant

use is general government operations. We capitalize all acquisition, reconstruction, and betterment costs for our multi-use

heritage asset buildings as general PP&E, and depreciate these costs over their service life.

K. FEDERAL DEBT AND INTEREST PAYABLE

We issue federal debt in the form of Treasury securities. This debt relates to monies borrowed from the public and certain

other federal agencies to fund the operations of the U.S. government. We issue certain federal debt at a discount or

premium. We amortize these discounts and premiums over the term of the security using an interest method for all longterm securities and the straight-line method for short-term securities. Interest costs accrue as an expense as incurred and

are reported on the Consolidated Statements of Net Cost as non-entity costs. 

L. COMMITMENTS AND CONTINGENCIES

Through FFB, we make loan commitments with federal agencies, or private sector borrowers with loans guaranteed by

federal agencies, to extend credit for their own use (refer to the accounting policy above entitled “Loans and Interest

Receivable, Intra-Governmental”). We establish loan commitments when FFB and other parties fully execute promissory

notes or bonds in which we become obligated to issue such loans immediately or at some future date. We reduce loan

commitments when we issue the loans or when the commitments expire. Most of our obligations give a borrower the

contractual right to a loan or loans immediately or at some point in the future within an agreed upon timeframe.

On behalf of the U.S., we subscribe to shares of certain MDBs, of which some shares represent capital commitments that are

callable under certain limited circumstances to meet the obligations of the respective MDB. The callable capital

commitments become binding on the U.S. when we issue instruments of commitment subscribing to the U.S. portion of

callable capital. 
DEPARTMENT OF THE TREASURY 73 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Additionally, on behalf of the U.S., we have established financial commitments through our participation in the IMF through

a quota subscription and certain borrowing arrangements that supplement IMF resources. U.S. financial commitments to

the IMF become binding when the U.S. consents to an increase in its participation as an IMF member country, and all other

conditions to the increase have been met. The outstanding financial commitment in the U.S. quota decreases or increases

when the IMF draws upon or repays funding obtained pursuant to a letter of credit established by the U.S. to make domestic

currency available to the IMF as needed. The outstanding financial commitment in the supplemental borrowing

arrangements decrease or increase when the IMF borrows and repays loans under this supplemental funding arrangement

(refer to Note 7). 

In accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government, we recognize material contingent

liabilities meeting the following criteria:

• A past event or exchange transaction has occurred; 

• A future cash outflow is probable; and

• A future cash outflow is measurable. 

The estimated liability we record is either a specific amount or within 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, we recognize the minimum amount in the range, and we disclose the range and a 

description of the nature of the contingency. We follow this policy in recording a contingent liability, if any, related to the

GSE SPSPA program (refer to Note 10), and loss contingencies that may arise from claims, assessments, litigations, fines,

penalties, and other sources (refer to Note 26).

If one or more, but not all, of the above criteria for recognition are met, and there is a reasonable possibility of loss, we will

disclose, if material, the nature of the contingent liability, along with a range of possible loss, if estimable, and a description

of the nature of the contingency. 

M. SPECIAL DRAWING RIGHTS

The SDR is an international reserve asset created by the IMF to supplement its member countries’ official reserves. Under

its Articles of Agreement, the IMF may allocate SDRs to member countries in proportion to their IMF quotas. Pursuant to

the Special Drawing Rights Act of 1968, as amended, the ESF holds all SDRs allocated to or otherwise acquired by the U.S.

Allocations and Holdings

We record the SDR holdings as part of “Cash, Foreign Currency, and Other Monetary Assets,” and we record the SDR

allocations as a liability entitled “Allocation of Special Drawing Rights” when the IMF allocates SDRs to the U.S. We carry

this liability since the SDRs may be withdrawn as needed by the IMF unless the following occurs: a withdrawal by the U.S.

from the IMF membership, cancellation of the SDRs, or liquidation of the IMF or SDR Department of the IMF.

SDR holdings increase primarily as a result of IMF SDR allocations. We record SDR transactions as incurred, and include

acquisitions and sales of SDRs, interest received on SDR holdings, interest charges on SDRs allocations, and valuation

adjustments. The U.S. government also receives remuneration in SDRs from the IMF based on claims on the IMF as

represented by the U.S. Reserve Position in the IMF and loans receivable from supplemental borrowing arrangements. We

credit remuneration to the ESF, which transfers to the TGA account an equivalent amount of dollars plus nominal interest. 
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FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

The allocations and holdings are revalued monthly based on the SDR valuation rate as calculated by the IMF, resulting in

the recognition of unrealized gains or losses on revaluation that are reported on the Consolidated Statements of Net Cost.

Certificates Issued to the Federal Reserve

The Special Drawing Rights Act of 1968 authorizes the Secretary to issue certificates, not to exceed the value of SDR

holdings, to the FRB in return for dollar amounts equal to the face value of certificates issued. We issue certificates to

finance the acquisition of SDRs from other countries or to provide U.S. dollar resources to finance other ESF operations. 

Certificates issued are redeemed by us at such times and in such amounts as the Secretary may determine, and do not bear

interest. We report certificates issued to the FRB at their face value which approximates their carrying value since, under

the terms of the agreement, there is no set repayment date and no interest accrued while certificates remain outstanding.

N. REFUNDS PAYABLE

Refunds payable arise in the normal course of tax administration when it is determined that taxpayers have paid more than

the actual taxes they owe. We record amounts concluded to be valid refunds owed to taxpayers as a liability entitled

“Refunds Payable” on the Consolidated Balance Sheets, with a corresponding receivable from the General Fund included in

the line entitled “Due From the General Fund.”

O. FEDERAL EMPLOYEE BENEFITS PAYABLE – FECA ACTUARIAL LIABILITY

The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection to covered federal civilian

employees injured on the job, and employees who have incurred a work-related injury or occupational disease. The FECA

program is administered by the DOL which pays valid claims and subsequently seeks reimbursements from us for these paid

claims. Generally, we reimburse the DOL within two to three years once funds are appropriated. The FECA liability

consists of two components. The first component is based on actual claims paid by the DOL but not yet reimbursed by us. 

The second component is the estimated liability for future workers compensation as a result of past events. We report both

components in “Other Liabilities” on the Consolidated Balance Sheets. These future workers’ compensation estimates are

generated by applying actuarial procedures developed to estimate the liability for FECA benefits. The actuarial liability

estimates for FECA benefits include the expected liability for death, disability, medical, and miscellaneous costs for approved

compensation cases.

P. ANNUAL, SICK, AND OTHER LEAVE

We report annual and compensatory leave earned by our employees, but not yet used, as an accrued liability. We adjust the

accrued balance annually to reflect current pay rates. Any portion of the accrued leave for which funding is not available is

recorded as an unfunded liability as reported in “Other Liabilities” on the Consolidated Balance Sheets. We expense sick

and other leave as taken and do not record a liability for such amounts, because employees do not vest in sick and other

leave benefits. 
DEPARTMENT OF THE TREASURY 75 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Q. PENSION COSTS, OTHER RETIREMENT BENEFITS, AND OTHER POST-EMPLOYMENT BENEFITS

Federal Pension Costs, Other Retirement Benefits, and Other Post-Employment Benefits

We recognize the full cost of our employees’ pension benefits, including recognizing imputed cost for the difference between

the estimated service cost and the sum of participants’ pension benefit withholdings and agency contributions. However, the

Office of Personnel Management (OPM) rather than the Department recognizes the assets and liabilities associated with

these benefits. 

Most of our employees hired prior to January 1, 1984 participate in the Civil Service Retirement System (CSRS), and

employees hired between January 1, 1984 and December 31, 1986 are covered under the CSRS Offset System, to which we

contribute 7.0 percent and 7.5 percent of pay for regular and law enforcement employees, respectively. On January 1, 1987,

the Federal Employees’ Retirement System (FERS) went into effect pursuant to the Federal Employees’ Retirement System

Act of 1986, Public Law (P.L.) 99-335. FERS is a three-tiered retirement system consisting of a Basic Benefit Plan, Thrift 

Savings Plan (TSP), and Social Security Benefits. For the FERS Basic Benefit Plan, we contribute between 11.9 percent and

13.7 percent for regular employees, and between 28.4 percent and 30.1 percent for law enforcement officers. The TSP under

FERS is a 401(k)-type savings plan in which we automatically contribute one percent of base pay and match any employee

contributions up to an additional four percent of base pay. For most employees hired after December 31, 1983, we also

contribute the employer’s matching share for Social Security. 

Similar to federal retirement plans, OPM, rather than the Department, reports the assets and liability for future payments

to retired employees who participate in the Federal Employees Health Benefits Program (FEHBP) and Federal Employees

Group Life Insurance (FEGLI) Program. We report the full cost of providing other retirement benefits (ORB). We also

recognize an expense and a liability for other post-employment benefits (OPEB), which includes all types of benefits,

provided to former or inactive (but not retired) employees, their beneficiaries, and covered dependents. Additionally, one of

our bureaus, OCC, separately sponsors a postretirement life insurance benefit plan for current and future retired employees,

and is the administrator for a private defined benefit retirement plan, the Pentegra Defined Benefit Plan, that provides

retirement, disability, and death benefits for certain retired employees who meet eligibility requirements. In addition to the

TSP, the OCC separately sponsors a 401(k) plan.

District of Columbia Federal Pension and Judicial Retirement Plans

Pursuant to Title XI of the Balanced Budget Act of 1997, as amended, we became responsible for benefit payments to certain

District of Columbia (D.C.) police officers, firefighters, teachers and judges under D.C. retirement plans (refer to Note 17). 

The actuarial cost method used to determine costs and actuarial liability for the retirement plans is the Individual Entry Age

Normal Funding Method, which approximates the methodology specified by the Aggregate Entry Age Normal Actuarial Cost

Method. The methodology bases actuarial liability on long-term economic assumptions. The pension benefit costs incurred

by the plans are included on the Consolidated Statements of Net Cost.

The economic assumptions used for the valuation of the D.C. Federal Pension and Judicial retirement plans differ from those

used by the OPM for the following reasons: (i) the annual rate of salary increase assumptions are based on different plan

member experience; (ii) the annual rate of inflation and cost-of-living adjustment assumptions are based on different 

statutory requirements (applicable Consumer Price Index [CPI] and period of calculation); and (iii) for the annual rate of

investment return assumption, OPM and the D.C. Federal Pension and Judicial retirement plans use the same underlying

yield curve but, unlike the D.C. Federal Pension plan, OPM converts to a single equivalent rate.
76 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

R. REVENUE AND FINANCING SOURCES

Our activities are financed either through exchange revenue we receive from others or through non-exchange revenue and

financing sources (such as appropriations provided by the Congress and penalties, fines, and certain user fees collected). 

User fees primarily include collections from the public for the IRS costs to process installment agreements, letter ruling and

determinations, and income verification. We recognize exchange revenue when earned, i.e., goods are delivered or services

are rendered. We recognize revenue from reimbursable agreements when providing services. We record non-exchange

revenues when received or when accrued due to a legal claim. We recognize appropriations used as financing sources when

related expenses are incurred or assets are purchased. 

We also incur certain costs paid in total or in part by other federal entities, such as pension costs, the FEHBP, and any unreimbursed payments made from the Treasury Judgment Fund on our behalf. We recognize these subsidized costs on the

Consolidated Statements of Net Cost, and we recognize the imputed financing for these costs on the Consolidated

Statements of Changes in Net Position. As a result, there is no effect on net position. We also recognize other non-exchange

financing sources, such as donations and transfers of assets without reimbursements, for the period in which they occurred

on the Consolidated Statements of Changes in Net Position.

We recognize revenue we receive from disposition of forfeited property as non-exchange revenue on the Consolidated

Statements of Changes in Net Position. We report costs related to the Forfeiture Fund program on the Consolidated

Statements of Net Cost. The TFF is the special fund account for depositing non-tax forfeiture proceeds received pursuant to

laws enforced or administered by law enforcement bureaus that participate in the TFF. We report forfeited property

balances in “Other Assets” on the Consolidated Balance Sheets.

S. CUSTODIAL REVENUES

Non-entity revenue reported on our Statements of Custodial Activity includes cash we collected, primarily from taxes. It

does not include revenue collected by other federal agencies, such as user fees and other receipts, which are remitted for 

general operating purposes of the U.S. government or are dedicated for certain trust funds. We present the Statements of

Custodial Activity on the “modified accrual basis.” We recognize revenues as cash is collected, and record a “non-cash

accrual adjustment” representing the net increase or decrease during the reporting period in net revenue-related assets and

liabilities, mainly taxes receivable. 

T. APPROPRIATIONS AND OTHER BUDGETARY ACTIVITY

Combined Statement of Budgetary Resources Activity

We record appropriations when authorized by legislation. Incurred obligations of appropriations are recorded when we place

an order or sign a contract for goods and services, award a grant, or take other actions that require us to make payments to

the public or another federal entity. Outlays are recorded when disbursements are made. 
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Permanent and Indefinite Appropriations

We use permanent and indefinite appropriations to disburse tax refunds, income tax credits, and child tax credits. We

recognize refund payment funding as appropriations are used. Permanent indefinite authority for refund activity is

available for an unlimited period of time in the amount necessary to cover the refund and/or credit. We report tax refunds

and credits as a custodial activity of the Department, since they are, in substance, a custodial revenue-related activity

resulting from taxpayer overpayments of their tax liabilities.

We have two permanent and indefinite appropriations related to debt activity. One permanent and indefinite appropriation

is used to pay interest on the public debt securities, and the other is used to redeem securities that are matured, called, or

eligible for early redemption. These accounts are not annual appropriations and do not have refunds. We report debt

redemption appropriations related to our liability on our Consolidated Balance Sheets. We record interest appropriations at

the beginning of the fiscal year and again at mid-year, if necessary, and we return any unused authority to the General Fund

at the end of the fiscal year. Permanent indefinite authority for debt redemptions and related interest is available for an

unlimited period of time.

We also have permanent and indefinite appropriations to fund increases in the projected subsidy costs of credit programs as

determined by the re-estimation process required by the FCRA, and to also cover our renewable energy project.

Additionally, we have other permanent and indefinite appropriations to make certain payments on behalf of the U.S.

government. We receive these appropriations to make payments to the FRB for fiscal services provided, and to the financial

institutions for services provided as financial agents of the U.S. government. They also include appropriations provided to

make other disbursements on behalf of the U.S. government, including payments made to various parties as a result of

certain claims and judgments rendered against the U.S. 

U. INCOME TAXES

As an agency of the U.S. government, we are exempt from all income taxes imposed by any governing body, whether it is a 

federal, state, commonwealth, local, or foreign government.

V. USE OF ESTIMATES

We have made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues, expenses, and the

disclosure of contingent liabilities to prepare our financial statements. Actual results may differ from these estimates. 

Adverse changes in the outlook for the key assumptions underlying management’s estimates may materially affect the

results of our operations, cash flows and/or our financial position in future periods. Transactions subject to estimates

principally include loan and credit program receivables, credit reform subsidy costs, investments in GSEs and other nonfederal securities and related impairment, tax receivables, loan guarantees, depreciation, actuarial liabilities, cost and

earned revenue allocations, as well as contingencies and any related recognized liabilities. The following is a discussion of

certain significant transactions subject to estimation.

We account for all of our credit program receivables in accordance with credit reform accounting (refer to the accounting

policy above entitled “Credit Program Receivables, Net” and Note 9). These receivables are derived using credit reform

modeling, which is subject to the use of estimates and forecasts that have inherent uncertainty. We recognize the sensitivity

of credit reform modeling to slight changes in certain model assumptions such as general economic conditions, specific stock

price volatility of the entities in which we have an equity interest, estimates of expected default, and prepayment rates. 
78 DEPARTMENT OF THE TREASURY

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We use regular review of model factors, statistical modeling, and annual re-estimates to reflect the most accurate cost of the

credit programs to the U.S. government. The purpose of re-estimates is to update original program subsidy cost estimates to

reflect actual cash flow experience as well as changes in forecasts of future cash flows. We update forecasts of future cash

flows based on actual program performance to date, additional information about the portfolio, additional publicly available

relevant historical market data on securities performance, revised expectations for future economic conditions, and

enhancements to cash flow projection methods. 

We perform annual calculations, as of September 30, to assess our need for recording an estimated liability in accordance

with SFFAS No. 5 related to our funding commitment to the GSEs under the SPSPAs. Liability recognition is predicated on

the probable future occurrence of an excess of liabilities and minimum capital reserve amounts, as defined, over the assets of

either GSE at the end of any reporting quarter. The occurrence of future GSE deficits, which ultimately determines our

liability to the GSEs, is most sensitive to future changes in the housing price index and, to a lesser extent, future changes in

guarantee fees received by the GSEs on single family mortgages and interest rates. 

The annual valuation as of September 30 of the preferred stock and warrants comprising the “Investments in Government

Sponsored Enterprises” line item on the Consolidated Balance Sheets incorporates various forecasts, projections and cash

flow analyses to develop an estimate of the assets’ fair value. The value of the senior preferred stock is estimated by first

estimating the fair value of the total equity of each GSE (which, in addition to the senior preferred stock, is comprised of

other equity instruments including common stock, common stock warrants, and junior preferred stock). The fair value of the

total equity is based on a discounted cash flow valuation methodology, whereby the primary input is the present value of the

projected quarterly dividend payments. The fair value of the GSEs’ other equity instruments is then deducted from its total

equity, with the remainder representing the fair value of the senior preferred stock. The primary input into the warrants

valuation is the market value of the shares of common stock of the GSEs which, along with the junior preferred stock, are

traded on the over-the-counter (OTC) Bulletin Board. We evaluate the need for adjusting our OTC market-based valuation

of the warrants for the effects, if any, of significant events occurring after the close of the market but before the end of the

measurement date. We record any changes in valuation, including impairment, and disclose changes in accordance with

SFFAS No. 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial

Accounting, as amended. Since the valuation is an annual process, we deem changes in valuation of the preferred stock and

warrants as usual and recurring. Note 10 includes a detailed discussion of the results of the asset valuation and estimated

liability assessment.

Estimation of such complex and long-duration receivables, investments, and contingencies is subject to uncertainty. It is

possible that new developments will adversely impact the value of receivables, investments, and contingencies, as well as

ultimate amounts we are required to fund. Except as expressly noted herein, we have not revalued or included in our

estimates as of September 30, 2018 the effects of any new developments that may have occurred subsequent to September

30, 2018. Refer to the accounting policy entitled “Pension Costs, Other Retirement Benefits, and Other Post-Employment

Benefits” above and Note 8 for additional discussion related to the estimation of actuarial liabilities and tax receivables,

respectively.
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W. OTHER-THAN-TEMPORARY IMPAIRMENTS

A decline in the market value (either due to credit, price or currency) of any investment below cost that is deemed to be

other-than-temporary is accounted for as an impairment, and the carrying value is reduced to fair value for financial

reporting purposes. To determine whether an impairment is other-than-temporary, we consider whether we have the ability

and intent to hold the investment until a market price recovery, and consider whether evidence indicating the cost of the

investment is recoverable outweighs evidence to the contrary.

X. CREDIT, MARKET AND FOREIGN CURRENCY RISK

Credit risk is the potential, no matter how remote, for financial loss from a failure of a borrower or counterparty to perform

in accordance with underlying contractual obligations. We take on possible credit risk when we make direct loans or

guarantees to non-federal entities, provide credits to foreign entities, or become exposed to institutions which engage in

financial transactions with foreign countries (refer to Note 12). Our following programs entail credit risk: monetary assets

held; committed but undisbursed direct loans; funding commitment to the GSEs; GSE obligations obtained under the HFA

initiative (the New Issue Bond Program); investments, loans, and other credit programs including the CDFI Fund programs, 

SBLF, and TARP. 

Our activities generally focus on the underlying problems in the credit markets. We developed these programs to provide

credit where borrowers are not able to get access to credit with reasonable terms and conditions. Because these programs

attempt to correct for a market imperfection, it can expose us to potential costs and losses. Additional risk of costs and losses

could result from terrorist attacks under the Terrorism Risk Insurance Program. The extent of the risk we assumed is

described in more detail in the notes to the financial statements and, where applicable, is factored into credit reform models

and reflected in fair value measurements (refer to Notes 9, 10, and 26). 

For Emergency Economic Stabilization Act (EESA) programs, the statute requires calculation of budgetary costs of the

troubled assets and guarantees of troubled assets by adjusting the discount rate for market risks. We adjust our cost

estimates for the TARP programs based on a MADR to reflect the additional return required by the market to compensate

for variability around the expected losses reflected in the cash flows. Consistent with SFFAS No. 2, market risk relative to

asset type is factored in the cash flow estimates. The inclusion of the MADR is the mechanism for deriving a fair value of the

assets. 

We face certain risks and uncertainties as a result of holding securities denominated in foreign currency. The price of

holdings of such securities may widely fluctuate as a result of volatility in foreign currency markets and changes in real and

perceived credit risk of our counterparties. 

Y. FUNDS FROM DEDICATED COLLECTIONS

We account for revenues and other financing sources for funds from dedicated collections (FDC) separately from other funds. 

Such funds are financed by specifically identified revenues provided to the U.S. government by non-federal sources, often

supplemented by federal and other financing sources, which remain available over time. Statute requires use of these

specifically identified revenues and other financing sources for designated activities, benefits, or purposes. We apply the

following criteria for purposes of designating funds as dedicated collections: (i) a statute committing the U.S. government to

use specifically identified revenues and/or other financing sources that are originally provided to the U.S. government by a 

non-federal source only for designated activities, benefits, or purposes; (ii) explicit authority for the fund to retain revenues

and/or other financing sources not used in the current period for future use to finance the designated activities, benefits, or
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FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

purposes; (iii) a requirement to account for and report on the receipt, use, and retention of the revenues and/or other

financing sources that distinguishes the fund from the U.S. government’s general revenues; and (iv) for funds comprised of

both federal and non-federal sources, such funding is predominantly non-federal, or the non-federal funding is material to

our financial statements.

Z. ALLOCATION TRANSFERS

We are a party to allocation transfers with other federal agencies as both a transferring (parent) entity and/or a receiving

(child) entity. Allocation transfers are legal delegations by one department of its authority to obligate budget authority and

outlay funds to another department. A separate fund account (allocation account) is created in Treasury as a subset of the

parent fund account for tracking and reporting purposes. All allocation transfers of balances are credited to this account,

and subsequent obligations and outlays incurred by the child entity are charged to this allocation account as they execute the

delegated activity on behalf of the parent. Parent federal agencies report both the proprietary and budgetary activity and

the child agency does not report any financial activity related to budget authority allocated from the parent federal agency to

the child federal agency. However, OMB guidance requires the child to report the activity when we receive allocation

transfers, as the child, from the Executive Office of the President (See Circular No. A-136, II.3.2, question 5 for two

exceptions). 

We allocate funds, as the parent, to the Department of Energy and HHS. Also, we receive allocation transfers, as the child,

from the Agency for International Development, HHS, Department of Transportation, Executive Office of the President, and

GSA.

AA. FIDUCIARY ACTIVITIES

Fiduciary activities are the collection or receipt, and the management, protection, accounting, investment, and disposition by

the U.S. government of cash or other assets in which non-federal individuals or entities have an ownership interest that the

U.S. government must uphold. Fiduciary cash and other assets are not assets of the U.S. government. We do not report

these activities in our consolidated financial statements, but instead are reported in Note 25. 

AB. DISCLOSURE ENTITIES AND RELATED PARTIES

SFFAS No. 47, Reporting Entity, requires that our consolidated financial statements reflect the balances and activities of the

bureaus and other reporting entities meeting the following “principles for inclusion” as a whole: (1) the entity is included in

the Budget of the United States (also known as the President’s Budget); (2) the U.S. government holds “majority ownership

interest”; (3) the U.S. government has “control with risk of loss or expectation of benefit”; or (4) if it would be misleading to

exclude such entity. SFFAS No. 47 also provides guidance for assessing whether an organization meeting the inclusion

principles is reported as a consolidation entity, disclosure entity, or related party. 

A disclosure entity exists when we determine that an entity meets any of the following SFFAS No. 47 “inclusion principles”

with respect to the U.S. government but does not meet the characteristics of “consolidation entities”. Also, under SFFAS No.

47 criteria, the Federal Reserve System is considered to be a disclosure entity. Additionally, entities owned and/or controlled

by the U.S. government as a result of regulatory actions—such as organizations in receivership or conservatorship—or other

U.S. government intervention actions are generally classified as disclosure entities if the relationship with such entities is

not expected to be permanent. 
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A related party exists when one party to an established relationship has the ability to exercise significant influence over

another party in making policy decisions. Related parties do not meet the SFFAS No.47 inclusion principles; however, the

relationship is of such significance that it would be misleading to exclude information about that entity. Disclosure entities

and related parties are not considered components of the consolidated Treasury reporting entity and, thus, are only disclosed

in the notes to our consolidated financial statements. Using the principles prescribed in SFFAS No. 47, we identified the

following disclosure entities and related parties as of September 30, 2018. 

Disclosure Entities

Federal Reserve System

Congress, under the Federal Reserve Act of 1913 (Federal Reserve Act), created the FR System. The FR System includes the

Federal Reserve Board of Governors (Board of Governors), Federal Reserve Banks (FRB), and the Federal Open Market

Committee (FOMC). Collectively, the FR System serves as the nation’s central bank and is responsible for formulating and

conducting monetary policy, issuing and distributing currency (Federal Reserve Notes), supervising and regulating financial

institutions, providing nationwide payments systems (including large-dollar transfers of funds, automated clearinghouse

[ACH] operations, and check collection), providing certain financial services to federal agencies and fiscal principals, and

serving as the U.S. government’s bank. Monetary policy includes actions undertaken by the FR System that influence the

availability and cost of money and credit as a means of helping to promote national economic goals. The FR System also

conducts operations in foreign markets in order to counter disorderly conditions in exchange markets or to meet other needs

specified by the FOMC to carry out its central bank responsibilities. 

While we consult with the FR System on matters affecting the economy and certain financial stabilization activities it is

considered an independent central bank, and the executive branch of the U.S. government does not ratify its decisions. In

accordance with SFFAS No. 47 criteria, the FR Systems’ assets, liabilities, and operations are not consolidated into our

consolidated financial statements; however, we account for and disclose our financial activities with the FR System within

our consolidated financial statements. This treatment is consistent with how we reported these entities prior to FY 2018.

Federal Reserve System Structure 

Board of Governors of the Federal Reserve System 

The Board of Governors is an independent regulatory organization governed by seven members appointed by the President

and confirmed by the Senate. The full term of a Board of Governors member is 14 years, and the appointments are

staggered so that one term expires on January 31 of each even-numbered year. The Board of Governors has a number of

supervisory and regulatory responsibilities for institutions including, among others, state-chartered banks that are members

of the FR System, bank holding companies, and savings and loan holding companies. In addition, the Board of Governors

has general supervisory responsibilities for the 12 FRBs, and issues currency (Federal Reserve Notes) to the FRBs for

distribution. No government appropriation is required to support the operation of the Board of Governors. The Board of

Governor’s budget transactions are not included in the President’s Budget, nor are they subject to the President’s review

because of its unique role in conducting monetary policy. 

 
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FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Federal Reserve Banks 

The 12 FRBs are chartered under the Federal Reserve Act, which requires each member bank to own the capital stock of its

FRB. Each FRB has a board of directors that exercises supervision and control of each FRB, with three members appointed

by the Board of Governors, and six board members elected by their member banks. The FRBs participate in formulating and

conducting monetary policy, distributing currency and coin, and serving as our fiscal agent, as well as the fiscal agent for 

other federal agencies and fiscal principals. Additionally, the FRBs provide short-term loans to depository institutions and

loans to participants in programs or facilities with broad-based eligibility in unusual and crucial circumstances when

approved by the Board of Governors and Secretary of the Treasury. 

We utilize the services of the FRBs to execute a variety of transactions on behalf of the Fiscal Service and the ESF. The 

following are examples of our interaction with the FRBs:

• The FRBs serve as our fiscal agent and depositary, executing banking and other financial transactions on our behalf

(refer to Note 5). We reimburse the FRBs for these services, the cost of which is included on the Consolidated

Statements of Net Costs. 

• The FRBs hold Treasury and other federal securities in the FRBs’ System Open Market Account (SOMA) for the purpose

of conducting monetary policy. 

• The FRBs hold gold certificates issued by the Department in which the certificates are collateralized by gold (refer to

Note 6). 

• The FRBs hold SDR certificates issued by the Department which are collateralized by SDRs (refer to Notes 5 and 7). 

• The FRBs are required by Board of Governors policy to transfer their excess earnings to us on behalf of the U.S.

government (refer to Notes 8 and 22). 

Federal Open Market Committee 

The FOMC is comprised of the seven Board of Governors members and five of the 12 FRB presidents. FOMC formulates and

conducts monetary policy primarily through open market operations (the purchase and sale of certain securities in the open

market), the principal tool of national monetary policy. These operations affect the amount of reserve balances available to

depository institutions, thereby influencing overall monetary and credit conditions. 

Federal Reserve System Assets and Liabilities

The FRBs hold Treasury and other securities in the SOMA for the purpose of conducting monetary policy. These assets are

generally subject to the same market (principally interest-rate) and credit risks as other financial instruments. In the open

market, the FR System purchases and sells Treasury securities as a mechanism for controlling the money supply. 

The FRBs have deposit liabilities with Treasury and depository institutions. The FRBs issue Federal Reserve Notes, the

circulating currency of the U.S., which are collateralized by the Treasury securities and other assets held by the FRBs. 

Financial and other information concerning the FR System may be obtained from the FR System website.
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FRB Residual Earnings Transferred to the Department 

FRBs generate income from interest earned on securities, reimbursable services provided to federal agencies, and the

provision of priced services to depository institutions as specified by the Monetary Control Act of 1980. Although the FRBs

generate earnings from carrying out open market operations, via the earnings on securities held in the SOMA account, their

execution of these operations is for the purpose of accomplishing monetary policy rather than generating earnings. Each

FRB is required by Board of Governors policy to transfer to us its residual (or excess) earnings after providing for the cost of

operations, payment of dividends, and surplus funds not to exceed an FRB’s allocated portion of an aggregate of $7.5 billion

for all FRBs, in accordance with the provisions of Bipartisan Budget Act of 2018 (Budget Act) (P.L. 115-123). 

FRBs’ residual earnings may vary due to, among other things, changes in the SOMA balance levels that may occur in

conducting monetary policy. Under P.L. 114-94, if an FRB’s earnings for the year are not sufficient to provide for the cost of

operations, payment of dividends, or allocated portion of the $7.5 billion aggregate surplus funds limitation, an FRB will

suspend its payments to us until such earnings become sufficient. The FRB residual earnings of $70.8 billion and $81.3

billion for fiscal years ended September 30, 2018 and 2017, respectively, are reported as custodial revenues on our

Statements of Custodial Activity. They constituted 2.0 percent and 2.3 percent of our total custodial revenues collected in FY 

2018 and 2017, respectively. “Taxes, Interest and Other Receivables, Net” includes a receivable for FRB’s residual earnings

which represents the earnings due to us as of September 30, but not collected by us until after the end of the month (refer to

Note 8).

Government Sponsored Enterprises – Fannie Mae and Freddie Mac

During the FY 2008 financial crisis, the U.S. government placed Fannie Mae and Freddie Mac under conservatorship to help

ensure their financial stability. These entities meet the SFFAS No. 47 criteria for disclosure entities as organizations owned

or controlled by the U.S. government as the result of regulatory actions (“such as conservatorship”). Additionally, the U.S.

government’s intervention actions with regards to these GSEs are not expected to be permanent. Accordingly, these entities

are not consolidated as part of our consolidated financial statements; however, the value of our investments in these entities

is presented as equity investments on our Consolidated Balance Sheets. This treatment is consistent with how we reported

these entities prior to FY 2018 under Statement of Federal Financial Accounting Concepts No. 2, Entity and Display (refer 

to Note 10).

Related Parties

In accordance with SFFAS No. 47 determination principles, we currently maintain related party relationships with the IMF

and the MDBs. The IMF is an international organization of 189 member countries that works to foster global monetary

cooperation, secure financial stability, sustain economic growth, and reduce poverty around the world. The U.S. government

holds the largest quota subscription of any member. The U.S. quota subscription serves as the key determinant for our 16.5

percent share of voting rights in various IMF decisions for which the U.S. government has a substantial voice. The Secretary

serves as the U.S. Governor to the IMF. The U.S. Governor appoints the U.S. Executive Director of the IMF, who is one of 24

directors responsible for exercising voting rights over the strategic direction of the institution.

The U.S. holdings in the IMF are in the form of highly liquid and interest-bearing instruments. Historically, the U.S. has

not experienced a loss of its contributions in the IMF (refer to accounting policies above entitled “Loans and Interest

Receivable,” “Commitments and Contingencies,” “Special Drawing Rights,” and Notes 5, 7 and 26 for a further description of

our relationship, financial risk, and activities with the IMF). 
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Additionally, on behalf of the U.S., we invest in and provide funding to the MDBs to support poverty reduction and promote

sustainable economic growth in developing countries. The MDBs provide financial and technical support by means of

strengthening institutions, providing assistance that addresses the root causes of instability in fragile and conflict-affected 

states, responding to global crises, and fostering economic growth and entrepreneurship. U.S. participation in the MDBs is

in the form of financial contributions used to ensure the effectiveness and impact of the MDBs’ global development agenda. 

The U.S. has voting power in each of the MDBs to which we contribute, ranging from approximately 6 percent to 50 percent

(refer to accounting policies above entitled “Investments,” “Commitments and Contingencies,” and Notes 11 and 26 for a 

further description of our relationship, financial risk, and activities with the MDBs). 
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2. FUND BALANCE

STATUS OF FUND BALANCE 

As of September 30, 2018 and 2017, the status of the fund balance consisted of the following: 

(in millions) 2018 2017

Unobligated Balance - Available $ 273,020 $ 275,698

Unobligated Balance - Not Available 40,641 40,750

Obligated Balance Not Yet Disbursed 64,694 71,570

Subtotal 378,355 388,018

Adjustment for ESF (94,050) (94,659)

Adjustment for Intra-Treasury Investments (8,618) (9,354)

Adjustment for Borrowing Authority (6,523) (6,600)

Adjustment for IMF 138,131 134,785

Adjustment for Authority Unavailable for Obligations 16,119 12,099

Other Adjustments 1,454 2,107

Total Status of Fund Balance $ 424,868 $ 426,396

Portions of the Unobligated Balance Not Available, as shown on the Combined Statement of Budgetary Resources, include

amounts appropriated in prior fiscal years that are not available to fund new obligations. However, we may use such

amounts for upward and downward adjustments for existing obligations in future years. The Obligated Balance Not Yet

Disbursed represent amounts designated for payment of goods and services ordered but not received, or goods and services

received but for which payment has not yet been made.

Since the following line items are either a component of Fund Balance or post to budgetary status accounts, the following

adjustments are required to reconcile the budgetary status to the non-budgetary Fund Balance as reported on the

Consolidated Balance Sheets:

• Adjustments for ESF – ESF investments in Treasury securities (which are eliminated on the Consolidated Balance

Sheets), foreign investments, SDR holdings, and related balances that meet the criteria for reporting as part of

budgetary resources are reported on the Combined Statements of Budgetary Resources; however, they are not a 

component of the Fund Balance as they represent invested funds; 

• Adjustments for Intra-Treasury Investments – Budgetary resources include Treasury security investments; however, we

have moved the money from the Fund Balance to Investments, which we eliminate on the Consolidated Balance Sheets; 

• Adjustments for Borrowing Authority – Borrowing authority is in budgetary status reported on the Combined

Statements of Budgetary Resources but not in the Fund Balance because we have not received the amounts; 

• Adjustments for IMF – The funding received through appropriation warrants for IMF is reported as a component of

Fund Balance; however, the IMF transactions are not reported as budgetary resources and uses on the Combined

Statements of Budgetary Resources (refer to Note 7); and

• Adjustment for Authority Unavailable for Obligations – Resources unavailable for obligations reduced the budgetary

resources reported on the Combined Statements of Budgetary Resources; however, they do not impact the Fund Balance. 

As of September 30, 2018 and 2017, we had no budgetary authority in the Fund Balance that was specifically withheld from

apportionment by the OMB. We hold balances in non-entity funds, such as certain deposit funds (e.g., seized cash), for the

public or for another federal entity, such as the General Fund. Such funds have an offsetting liability equal to the Fund

Balance. Refer to Note 7 regarding restrictions related to the letter of credit held for a portion of the U.S. quota in the IMF. 
86 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

3. LOANS AND INTEREST RECEIVABLE – INTRA-GOVERNMENTAL

ENTITY INTRA-GOVERNMENTAL

Through FFB, we issue loans to federal agencies for the agencies’ own use or for the agencies to loan to private sector

borrowers whose loans are guaranteed by the federal agencies. FFB is a wholly-owned Government corporation that

operates under the general supervision of the Secretary, and has its own broad statutory authority to finance any obligations

that are issued, sold, or guaranteed by federal agencies. For agencies that have the statutory authority to borrow in the

market, but not from Treasury through the Fiscal Service (refer to the Non-Entity Intra-Governmental section below), FFB 

uses its statutory authority to make these loans directly to federal agencies.

FFB also uses its statutory authority to finance direct or indirect federally-guaranteed obligations which, as a matter of longstanding federal credit policy, is the least expensive and most efficient method of financing these credit-risk obligations when

compared to private sector lender financing. When a federal agency has to honor its guarantee because a private-sector

borrower defaults, the federal agency that guaranteed the loan must obtain an appropriation or use other resources to repay

FFB. 

All principal and interest on FFB loans to federal agencies and private-sector borrowers are, or have a commitment to be,

backed by the full faith and credit of the U.S. government. Accordingly, we have not recognized any credit-related losses on

its loans, nor have we recorded an allowance for uncollectible intra-governmental loans. 

As of September 30, 2018 and 2017, entity intra-governmental loans (issued by FFB) and interest receivable consisted of the

following: 

Loans Interest 2018 Loans Interest 2017

(in millions) Receivable Receivable Total Receivable Receivable Total

Department of Agriculture $ 46,288 $ 359 $ 46,647 $ 45,080 $ 353 $ 45,433

Department of Energy 13,593 68 13,661 14,448 70 14,518

United States Postal Service(1) 13,200 41 13,241 15,000 53 15,053

Department of Housing & Urban

 Development 1,665 6 1,671 1,193 3 1,196

Department of Education 1,452 13 1,465 1,563 13 1,576

Other Agencies 4 - 4 4 - 4

Total Entity Intra-governmental $ 76,202 $ 487 $ 76,689 $ 77,288 $ 492 $ 77,780

(1) The United States Postal Service (USPS) experienced an operating deficit in both FY 2018 and FY 2017.

We, along with Congress and other stakeholders are aware of the current and long-term financial issues 

of the USPS. Congress is considering legislative solutions for returning the USPS to financial stability. 
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NON-ENTITY INTRA-GOVERNMENTAL

Through the Fiscal Service, we account for and report on the principal borrowings from and repayments to the General Fund

for various funds managed by other federal agencies, as well as the related interest due to the General Fund. These federal

agencies are statutorily authorized to borrow from the General Fund, through the Fiscal Service, to make loans for a broad

range of purposes, such as education, housing, farming, and small business support.

As of September 30, 2018 and 2017, non-entity intra-governmental loans (issued by the Fiscal Service) and interest

receivable that were due to the General Fund consisted of the following:

Loans Interest 2018 Loans Interest 2017

(in millions) Receivable Receivable Total Receivable Receivable Total

Department of Education $ 1,258,499 $ - $ 1,258,499 $ 1,178,495 $ - $ 1,178,495

Department of Agriculture 70,164 1 70,165 69,987 - 69,987

Department of Housing and Urban

 Development 24,843 - 24,843 28,082 - 28,082

Department of Homeland Security 20,541 - 20,541 30,440 - 30,440

Export Import Bank of the U.S. 20,213 - 20,213 24,645 - 24,645

Department of Transportation 16,710 - 16,710 14,298 - 14,298

Small Business Administration 11,213 - 11,213 7,693 - 7,693

Department of Energy 6,142 32 6,174 5,538 30 5,568

Department of Labor 5,991 - 5,991 5,744 - 5,744

Railroad Retirement Board 3,725 45 3,770 3,712 41 3,753

Overseas Private Investment

 Corporation 3,475 - 3,475 3,015 - 3,015

Executive Office of the President/

 Defense Security Cooperation 

 Agency 3,112 - 3,112 2,505 - 2,505

Department of Defense 1,686 - 1,686 1,631 - 1,631

Other Agencies 1,615 - 1,615 1,989 - 1,989

Total Non-Entity Intra-

 governmental $ 1,447,929 $ 78 $ 1,448,007 $ 1,377,774 $ 71 $ 1,377,845

Total Intra-governmental Loans

 and Interest Receivable (Entity 

 and Non-Entity) $ 1,524,131 $ 565 $ 1,524,696 $ 1,455,062 $ 563 $ 1,455,625
88 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

4. DUE FROM THE GENERAL FUND AND DUE TO THE GENERAL FUND

The General Fund consists of assets and liabilities used to finance the daily and long-term operations of the U.S government,

as a whole. It also includes accounts used in the management of the Budget of the U.S. Government. 

We hold and manage General Fund assets, such as loans and interest receivable, cash, and investments in the GSEs on

behalf of the U.S. government. General Fund assets constitute resources available to meet the operating needs of the U.S.

government. We report these managed assets separately on the Consolidated Balance Sheets, with a corresponding amount

reported as Due To the General Fund that represents a liability to reflect assets we owed to the General Fund. 

General Fund liabilities, primarily federal debt and interest payable and liability for restoration of federal debt principal and

interest, are obligations of the U.S. government. We report these Department-managed liabilities separately on the

Consolidated Balance Sheets, with a corresponding amount reported as Due From the General Fund that represents a 

receivable, or future funds required of the General Fund to repay borrowings from the public and other federal agencies.

As of September 30, 2018 and 2017, the General Fund liabilities we owed exceeded the assets held on behalf of the General

Fund by $19.6 trillion and $18.6 trillion, respectively. This represents the amount needed by the U.S. government, through

a combination of future tax collections and/or continued borrowing from the public and federal agencies to meet its

obligations.

As of September 30, 2018 and 2017, Due From the General Fund included the following non-entity liabilities:

Liabilities Requiring Funding from the General Fund (in millions) 2018 2017

Federal Debt and Interest Payable - Held by the Public (Note 15) $ 15,789,917 $ 14,699,687

Federal Debt and Interest Payable - Intra-governmental (Note 15) 5,821,642 5,637,950

Liability for Restoration of Federal Debt Principal and Interest - Intra-

 governmental (Note 15) - 660

Refunds Payable (Note 22) 2,994 3,074

Adjustment for Eliminated Liabilities 32,080 32,406

Total Due From the General Fund $ 21,646,633 $ 20,373,777

The Adjustment for Eliminated Liabilities principally represents investments in U.S. government securities held by our

reporting entities that were eliminated against Federal Debt and Interest Payable Intra-governmental.

 
DEPARTMENT OF THE TREASURY 89 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

As of September 30, 2018 and 2017, Due To the General Fund included the following non-entity assets:

Assets to be Distributed to the General Fund (in millions) 2018 2017

Fund Balance $ 1,097 $ 793

Loans and Interest Receivable - Intra-governmental (Note 3) 1,448,007 1,377,845

Advances to Trust Funds 5,027 9,021

Cash Due To the General Fund (Held by the Department) (Note 5) 378,617 153,475

Accounts Receivable - Intra-governmental 728 790

Foreign Currency 100 152

Custodial Gold without Certificates and Silver Held by the Mint 25 25

Taxes and Other Non-Entity Receivables Due To the General Fund 59,475 53,341

Credit Reform Downward Subsidy Re-estimates 45 120

Loans and Interest Receivable 8 8

Investments in Government Sponsored Enterprises (Note 10) 113,150 92,640

Adjustment for Eliminated Assets 66,638 66,847

Total Due To the General Fund $ 2,072,917 $ 1,755,057

The assets to be distributed to the General Fund do not represent all of the non-entity assets we manage. Refer to Note 14 for all

of our non-entity assets held.

The Fund Balance reported above represents the non-entity funds we hold on behalf of the General Fund. It is used to

administer programs such as the Presidential Election Campaign and payments for Legal Services Corporation and thus not

available for our general use.

The Advances to Trust Funds consists of Advances to the Unemployment Trust Fund and Advances to the Federal

Supplementary Medical Insurance Trust Fund. The General Fund issues advances to the DOL’s Unemployment Trust Fund

to disburse to states for unemployment benefits. We transfer DOL’s repayment of these advances to the General Fund. The 

Bipartisan Budget Act of 2015 (P.L. 114-74) authorized a transfer from the General Fund to HHS’ Federal Supplementary

Medical Insurance Trust Fund to temporarily replace the reduction in Medicare Part B participants’ premiums. We transfer

HHS’s repayment of these advances to the General Fund. 

Taxes and Other Non-Entity Receivables Due To the General Fund primarily represents IRS-related federal taxes receivable

(refer to Note 8).

The Adjustment for Eliminated Assets principally represents loans and interest payable owed by our Treasury reporting

entities, which were eliminated against Loans and Interest Receivable Intra-governmental held by the Fiscal Service.
90 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

5. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS

Cash, Foreign Currency, and Other Monetary Assets held as of September 30, 2018 and 2017 were as follows: 

(in millions) 2018 2017

Entity:

Cash $ 52 $ 27

Foreign Currency and Foreign Currency Denominated Assets 13,834 12,651

Other Monetary Assets:

 Special Drawing Right Holdings 51,000 51,491

 U.S. Dollars Held in Cash by the IMF 305 308

Total Entity 65,191 64,477

Non-Entity:

Operating Cash of the U.S. government 378,468 153,323

Foreign Currency 100 152

Miscellaneous Cash Held by All Treasury Reporting Entities 812 878

Total Non-Entity 379,380 154,353

Total Cash, Foreign Currency, and Other Monetary Assets $ 444,571 $ 218,830

We hold non-entity operating and other miscellaneous cash due to the General Fund which consisted of the following as of

September 30, 2018 and 2017: 

(in millions) 2018 2017

Operating Cash - FRB Account $ 384,712 $ 159,322

Outstanding Checks (6,244) (5,999)

Total Operating Cash of the U.S. government 378,468 153,323

Miscellaneous Cash 152 154

Subtotal 378,620 153,477

Amounts Due to the Public (3) (2)

Total Cash Due to the General Fund (Note 4) $ 378,617 $ 153,475

ENTITY

Entity cash, foreign currency, and other monetary assets principally include foreign currency, foreign currency denominated

assets (FCDAs), and SDRs. These assets are valued as of September 30, 2018 and 2017 using current exchange rates plus

accrued interest. 

Foreign Currency and Foreign Currency Denominated Assets

Foreign currency and FCDAs represent foreign deposit accounts and securities with original maturities of three months or

less which were valued at $13.8 billion and $12.7 billion as of September 30, 2018 and 2017, respectively.

Special Drawing Rights

The SDR is an international reserve asset created by the IMF to supplement existing reserve assets. The IMF has allocated

new SDRs on several occasions to members participating in the IMF’s SDR department. The SDR derives its value as a 

reserve asset essentially from the commitments of participants to hold and accept SDRs and to honor various obligations

connected with their proper functioning as a reserve asset. Pursuant to the Special Drawing Rights Act of 1968, as

amended, we issued certificates to the Federal Reserve, valued at $5.2 billion which were reported as a liability on the
DEPARTMENT OF THE TREASURY 91 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Consolidated Balance Sheets as of September 30, 2018 and 2017. The certificates were issued to finance the ESF’s

acquisition of SDRs from other countries or to provide U.S. dollar resources for financing other ESF operations.

On a daily basis, the IMF calculates the value of the SDR using the currency exchange rate in terms of the U.S. dollar from

weighted amounts of each of five freely usable currencies, as defined by the IMF. These currencies are the U.S. dollar, the

European euro, the Japanese yen, the British pound sterling, and the Chinese renminbi. We revalue the U.S. SDR holdings

and allocations from the IMF monthly based on the SDR valuation rate calculated by the IMF.

Pursuant to the IMF Articles of Agreement, SDR holdings and allocations acquired by the U.S. are permanent resources or

liabilities unless:

• cancelled by the Board of Governors pursuant to an 85.0 percent majority decision of the total voting power of IMF

members;

• the SDR department of the IMF is liquidated;

• the IMF is liquidated; or

• the U.S. chooses to withdraw from the IMF or terminate its participation in the SDR department

Except for the payment of interest and charges on SDR allocations to the U.S., the payment of the U.S. commitment related

to SDR allocations is conditional on events listed above, in which the U.S. has a substantial or controlling voice. The U.S.

has received no SDR allocations since 2009.

As of September 30, 2018 and 2017, the total amount of SDR holdings of the U.S. (including interest receivable) was the

equivalent of $51.0 billion and $51.5 billion, respectively. As of September 30, 2018 and 2017, the total value of SDR

allocations to the U.S. was the equivalent of $49.3 billion and $49.9 billion, respectively.

NON-ENTITY

We manage the non-entity cash, foreign currency, and other monetary assets which principally included Operating Cash of

the U.S. government. Also included is foreign currency maintained by various U.S. disbursing offices, miscellaneous cash

such as seized monetary instruments, undistributed cash, and offers in compromises which are maintained as a result of our

tax collecting responsibilities. The Operating Cash of the U.S. government represents balances from tax collections, other

revenues, federal debt receipts, and other receipts, net of checks outstanding, which are held in the FRBNY. 
92 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

6. GOLD AND SILVER RESERVES, AND GOLD CERTIFICATES ISSUED TO

THE FEDERAL RESERVE BANKS

Through the Mint, we are responsible for safeguarding most of the U.S. government’s gold and all of the silver reserves in

accordance with 31 USC 5117; a smaller portion of the gold is in the custody of the FRBs.

The gold reserves we hold are partially offset by a liability for gold certificates issued by the Secretary to the FRBs at the

statutory rate, as provided in 31 USC 5117. Since 1934, Gold Certificates have been issued in non-definitive or book-entry

form to the FRBs. Our liability incurred by issuing the Gold Certificates, as reported on the Consolidated Balance Sheets, is

limited to the gold we hold at the statutory value. Upon issuance of Gold Certificates to the FRBs, we deposit the proceeds

from the certificates into the operating cash of the U.S. government. All of our certificates issued are payable to the FRBs. 

The Mint also holds 100,000 fine troy ounces (FTO) ($4 million at the statutory carrying value) of gold reserves without

certificates.

The gold and silver bullion reserve (deep storage and working stock) are reported on the consolidated financial statements at

the values stated in 31 USC 5116 – 5117 (statutory rates) which are $ 42.2222 per FTO of gold and no less than

$1.292929292 per FTO of silver. Accordingly, the silver is valued at $1.292929292 per FTO. The market values of the gold

and silver reserves disclosed below are based on the London Gold Fixing. As of September 30, 2018 and 2017, the values of

gold and silver reserves consisted of the following:

FTOs

 

Statutory 

rate

 

2018 

Statutory 

Carrying 

Value 

(in millions)

 Market 

Rate Per

FTO

 2018 

Market 

Value 

(in millions)

Gold 248,046,116 $ 42.2222 $ 10,473 $ 1,187.25 $ 294,493 

Gold Held by Federal Reserve Banks 13,452,811 $ 42.2222 568 $ 1,187.25 15,971 

Total Gold 261,498,927 11,041 310,464 

Silver 16,000,000 $ 1.2929 21 $ 14.31 229 

Total Gold and Silver Reserves $ 11,062 $ 310,693 

FTOs

 

Statutory 

rate

 

2018 

Statutory 

Carrying 

Value 

(in millions)

 Market 

Rate Per

FTO

 2018 

Market 

Value 

(in millions)

Gold 248,046,116 $ 42.2222 $ 10,473 $ 1,283.10 $ 318,268 

Gold Held by Federal Reserve Banks 13,452,811 $ 42.2222 568 $ 1,283.10 17,261 

Total Gold 261,498,927 11,041 335,529 

Silver 16,000,000 $ 1.2929 21 $ 16.86 270 

Total Gold and Silver Reserves $ 11,062 $ 335,799 
DEPARTMENT OF THE TREASURY 93 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

7. RESERVE POSITION IN THE INTERNATIONAL MONETARY FUND AND

RELATED LOANS AND INTEREST RECEIVABLE

The U.S. participates in the IMF through a quota subscription and certain borrowing arrangements that supplement IMF

resources. 

As a result of the Consolidated Appropriations Act, 2016 (P.L. 114-113) we obtained appropriation warrants to cover the full

amount of the commitment made to the IMF and received current indefinite authority to maintain the U.S. dollar equivalent

of the SDR funding commitment levels. The IMF transactions—other than related interest earnings and cost estimates for 

U.S. quota and New Arrangements to Borrow (NAB) adjustments—are not reported as budgetary resources and uses on our

Combined Statement of Budgetary Resources. 

RESERVE POSITION IN THE INTERNATIONAL MONETARY FUND

We pay quota subscriptions partly through the transfer of reserve assets, such as foreign currencies or SDRs, which are

international reserve assets created by the IMF, and partly by making domestic currency available as needed through a noninterest-bearing letter of credit. This letter of credit, issued by us and maintained by the FRBNY, represents our available

commitment to the IMF which may be drawn upon by the IMF. 

Transfers to the IMF under the U.S. quota do not result in net budgetary outlays as they constitute an exchange of monetary

assets in which the U.S. receives an equal offsetting claim on the IMF in the form of an increase in the U.S. reserve position

in the IMF. Similarly, when the IMF repays dollars to the U.S., no net budgetary receipt results because the U.S. reserve

position declines concurrently in an equal amount. The U.S. reserve position is an interest-bearing asset like other

international reserve assets held by the U.S., and is available at any time to meet U.S. funding needs.

The U.S. quota is denominated in SDRs. As of September 30, 2018 and 2017, the U.S. quota in the IMF was SDR 83.0

billion. The equivalent U.S. dollar value of the U.S. quota consisted of the following:

(in millions) 2018 2017

Letter of Credit (1) $ 100,275 $ 105,627

Reserve Position (2) 15,364 11,509

Total U.S. Quota in the IMF $ 115,639 $ 117,136

(1) Letter of Credit amounts are included as part of the “Fund Balance” as reported on the Consolidated Balance Sheets and “Appropriated 

Funds” as disclosed in Note 2. Amounts also include approximately 0.25 percent of the U.S. quota held in cash in an IMF account at 

the FRBNY. 

(2) The Reserve Position amounts are reported as “Reserve Position in the IMF” on the Consolidated Balance Sheets. 

Fluctuations in the value of the U.S. dollar with respect to the SDR result in valuation changes in dollar terms for the U.S.

quota. We periodically adjust this balance to maintain the SDR value of the U.S. quota as required by the IMF Articles of

Agreement. As of September 30, 2018 and 2017, the U.S. quota reflects a net downward adjustment in value of $1.5 billion

and a net upward adjustment of $1.5 billion, respectively, due to the appreciation and depreciation of the U.S. dollar against

the SDR, respectively. 

LOANS AND INTEREST RECEIVABLE

In addition to quota subscriptions, the IMF maintains borrowing arrangements to supplement its resources in order to

forestall or cope with an impairment of the international monetary system when IMF liquidity is low. The U.S. has the
94 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

authority to participate in two such arrangements – the NAB and the General Arrangements to Borrow (GAB). When the

U.S. transfers funds to the IMF under these supplemental borrowing arrangements, the U.S. receives in exchange a liquid

and interest-bearing claim on the IMF. As of September 30, 2018 and 2017, the IMF had not utilized the GAB.

In accordance with P.L. 114-113, the NAB participation as of September 30, 2018 and 2017 was SDR 28.2 billion, which was

equivalent to $39.3 billion and $39.9 billion respectively. As of September 30, 2018 and 2017, under the U.S. NAB

arrangement with the IMF, there was $4.5 billion and $7.4 billion, respectively, of U.S. loans outstanding which were

reported as “Loans and Interest Receivable” on the Consolidated Balance Sheets. 

8. TAXES, INTEREST, AND OTHER RECEIVABLES, NET

As of September 30, 2018 and 2017, Taxes, Interest, and Other Receivables, Net consisted of the following:

(in millions) 2018 2017

Non-Entity

Federal Taxes Receivable, Gross $ 218,205 $ 197,188

Less Allowance on Taxes Receivable (160,192) (145,176)

Interest Receivable on FRB Deposits of Earnings 414 347

Other Receivables 1,182 1,117

Less Allowance on Other Receivables (121) (121)

Total Non-Entity (Note 14) 59,488 53,355

Entity

Miscellaneous Entity Receivables and Related Interest 149 141

Total Taxes, Interest, and Other Receivables, Net $ 59,637 $ 53,496

Federal taxes receivable constitutes the largest portion of these receivables, with IRS-related taxes receivable representing

the majority of the balance. IRS federal taxes receivable consists of tax assessments, penalties, and interest which were not

paid or abated, and which were agreed to by either the taxpayer and IRS, or the courts. Federal taxes receivable is reduced

by an allowance for doubtful accounts which we established to represent an estimate for uncollectible amounts. The portion

of taxes receivable estimated to be collectible and the allowance for doubtful accounts are based on projections of

collectability from a statistical sample of taxes receivable (refer to the section entitled Required Supplementary Information

(unaudited) for additional discussion on IRS Federal Taxes Receivable, Net). 

Federal taxes receivable also includes amounts related to criminal restitution owed to the U.S. government. As of September

30, 2018, gross receivables related to criminal restitution orders we monitored were $3.6 billion, of which we determined $0.5

billion were collectible.

In addition to amounts attributed to taxes, these receivables also include accrued interest income due on funds deposited in

FRBs. We do not establish an allowance for the receivable on deposits of FRB earnings because weekly deposits are required

by the Federal Reserve Act, as amended, and there has been no history of uncollectible accounts.
DEPARTMENT OF THE TREASURY 95 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

9. CREDIT PROGRAM RECEIVABLES, NET

We administer a number of programs designed to stabilize the nation’s financial system and restore the flow of credit to

consumers, businesses, and homeowners. As of September 30, 2018 and 2017, Credit Program Receivables, Net consisted of

the following:

(in millions) 2018 2017

State and Local Housing Finance Agency Program (GSE sponsored) $ 3,994 $ 4,363

Other (1) 1,023 930

Total $ 5,017 $ 5,293

(1) Includes CDFI, SBLF, and TARP credit program receivables valued at $783 million, $186 million and $54 million, respectively, as of

September 30, 2018, and $568 million, $269 million, and $93 million, respectively, as of September 30, 2017. 

STATE AND LOCAL HOUSING FINANCE AGENCY PROGRAM (GSE SPONSORED) 

Under the Housing and Economic Recovery Act of 2008 (HERA), (P.L. 110-289), we, together with the FHFA, Fannie Mae,

and Freddie Mac, created a program in October 2009 to provide support to HFAs. The HFA Program is comprised of the

New Issue Bond Program (NIBP) that is designed to support low mortgage rates and expand resources for low- and middleincome borrowers to purchase or rent homes, making them more affordable over the long term. Under the terms of the

NIBP, we purchased securities of Fannie Mae and Freddie Mac backed by new mortgage revenue bonds issued by HFAs. As

of September 30, 2018 and 2017, the HFA net credit program receivable of $4.0 billion and $4.4 billion, respectively, included

a positive subsidy allowance of $630 million and $669 million, respectively, which reflects our projection that the HFA

program will result in a net cost to us after accounting for repayments, interest, and fees. 

We performed a financial statement re-estimate of the NIBP program’s cost as of September 30, 2018 and 2017. These reestimates resulted in a downward re-estimate, or a decrease in the cost of the program, of $7 million and $98 million as of

September 30, 2018 and 2017, respectively. The downward re-estimates in FY 2018 and 2017 were primarily driven by

higher than estimated principal collections, and a higher prepayment curve used in the projection of future years’ cash flows

as a result of improved economic conditions. 

SUMMARY TABLES

The following tables provide the net composition, subsidy cost, re-estimates, a reconciliation of subsidy cost allowances, and

the components of the subsidy for each of our credit programs for the fiscal years ended September 30, 2018 and 2017. The

tables also include budget subsidy rates pertaining only to the cohorts for the fiscal year presented. These rates cannot be

applied to the direct loans disbursed during the current reporting year to yield the subsidy expense. The subsidy expense for 

new loans reported in 2018 and 2017 could result from disbursements of loans from both current year cohorts and prior

year(s) cohorts, and also includes re-estimates. Amounts reported in the line item “Net Credit Program Receivables” are not

necessarily the same as the proceeds that we would expect to receive from selling these assets. 
96 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

(in millions) HFA Other(2) 2018 

TOTAL

Credit Program Receivables, Net:

 Credit Program Receivables, Gross $ 4,624 $ 1,041 $ 5,665

 Subsidy Cost Allowance (630) (18) (648)

Net Credit Program Receivables $ 3,994 $ 1,023 $ 5,017

New Credit Program Loans Disbursed $ - $ 231 $ 231

Obligations for Loans Not Yet Disbursed $ - $ 788 $ 788

Reconciliation of Subsidy Cost Allowance:

 Balance, Beginning $ 669 $ 43 $ 712

 Subsidy Cost for Disbursements - (5) (5)

 Fees, Interest and Dividend Revenue Received 128 34 162

 Net Proceeds from Sales and Repurchases of Assets

 in Excess of Cost - 23 23

 Loans Written Off - (24) (24)

 Subsidy Allowance Amortized (1) (160) (29) (189)

Balance, Ending, Before Re-estimates 637 42 679

 Subsidy Re-estimates (7) (24) (31)

Balance, Ending $ 630 $ 18 $ 648

Re-estimates

 Interest on Re-estimate $ (2) $ 7 $ 5

 Technical/Default Re-estimate (5) (31) (36)

Total Re-estimates – Increase (Decrease) in

 Subsidy Cost $ (7) $ (24) $ (31)

Reconciliation of Subsidy Costs:

 Subsidy Cost for Disbursements $ - $ (5) $ (5)

 Subsidy Re-estimates (7) (24) (31)

Total Credit Program Receivables Subsidy Costs $ (7) $ (29) $ (36)

Administrative Expense $ 2 $ 5 $ 7

(in millions) HFA Other(3)

2017c 

TOTAL

Credit Program Receivables, Net:

 Credit Program Receivables, Gross $ 5,032 $ 973 $ 6,005

 Subsidy Cost Allowance (669) (43) (712)

Net Credit Program Receivables $ 4,363 $ 930 $ 5,293

New Credit Program Loans Disbursed $ - $ 176 $ 176

Obligations for Loans Not Yet Disbursed $ - $ 866 $ 866

Reconciliation of Subsidy Cost Allowance:

 Balance, Beginning $ 791 $ 103 $ 894

 Subsidy Cost for Disbursements - (3) (3)

 Fees, Interest, and Dividend Revenue Received 160 38 198

 Net Proceeds from Sales and Repurchases of Assets

 Less than Cost - (82) (82)

 Loans Written Off - (13) (13)

 Subsidy Allowance Amortized (1) (184) (34) (218)

Balance, Ending, Before Re-estimates 767 9 776

 Subsidy Re-estimates (98) 34 (64)

Balance, Ending $ 669 $ 43 $ 712

Re-estimates

 Interest on Re-estimate $ (25) $ 1 $ (24)

 Technical/Default Re-estimate (73) 33 (40)

Total Re-estimates – Increase (Decrease) in

 Subsidy Cost $ (98) $ 34 $ (64)

Reconciliation of Subsidy Costs:

 Subsidy Cost for Disbursements $ - $ (3) $ (3)

 Subsidy Re-estimates (98) 34 (64)

Total Credit Program Receivables Subsidy Costs $ (98) $ 31 $ (67)

Administrative Expense $ 1 $ 8 $ 9

(1) Amount includes net interest income (expense) on borrowings from the Fiscal Service and financing account balance.

(2) CDFI Financial Assistance Direct Loan Program budget subsidy rates for Interest Differential and for Defaults were 1.29% and 9.43%, respectively.

(3) CDFI Financial Assistance Direct Loan Program budget subsidy rates for Interest Differential and for Defaults were 1.56%, and 9.97%, respectively. 
DEPARTMENT OF THE TREASURY 97 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

10. INVESTMENTS IN GOVERNMENT SPONSORED ENTERPRISES

Congress established Fannie Mae and Freddie Mac as GSEs to support mortgage lending. A key function of the GSEs is to

purchase mortgages, package those mortgages into securities, which are subsequently sold to investors, and guarantee the

timely payment of principal and interest on these securities.

Leading up to the financial crisis, increasingly difficult conditions in the housing market challenged the soundness and

profitability of the GSEs, thereby threatening to undermine the entire housing market. In response, Congress passed HERA

(P.L. 110-289) in July 2008. This act created FHFA, with enhanced regulatory authority over the GSEs, and provided the

Secretary with certain authorities intended to ensure the financial stability of the GSEs, if necessary. In September 2008,

FHFA placed the GSEs under conservatorship, and we invested in the GSEs by entering into a SPSPA with each GSE. We

took these actions to preserve the GSEs’ assets, ensure a sound and solvent financial condition, and mitigate systemic risks

that contributed to market instability. The purpose of such actions is to maintain the solvency of the GSEs so they can

continue to fulfill their vital roles in the home mortgage market while the Administration and Congress determine what

structural changes should be made to the housing finance system. Draws under the SPSPAs result in an increased

investment in the GSEs as further discussed below.

Under the SPSPAs, we initially received from each GSE: (i) 1,000,000 shares of non-voting variable liquidation preference

senior preferred stock with a liquidation preference value of $1,000 per share, and (ii) a non-transferable warrant for the

purchase, at a nominal cost, of 79.9 percent of common stock on a fully-diluted basis. The warrants expire on September 7,

2028. Under the amended SPSPAs, the quarterly dividend payment changed from a 10.0 percent per annum fixed rate

dividend on the total liquidation preference (as discussed below) to an amount equivalent to the GSEs’ positive net worth

above a capital reserve amount. The capital reserve amount, which was initially set at $3.0 billion for calendar year 2013, 

declined by $600 million at the beginning of each calendar year thereafter, and was scheduled to reach zero by calendar year

2018. On December 21, 2017, the Department and the FHFA agreed to modify the SPSPAs between Treasury and the GSEs

to increase the capital reserve amount for each GSE back to $3 billion, effective with the December 2017 dividend payment. 

In exchange for the increase in the capital reserve, Treasury’s liquidation preference in each GSE increased by $3 billion on

December 31, 2017. The GSEs will not pay a quarterly dividend if their positive net worth is below their required capital

reserve threshold. We received cash dividends of $9.9 billion and $25.3 billion during fiscal years ended September 30, 2018

and 2017, respectively. 

The SPSPAs, which have no expiration date, require us to disburse funds to the GSEs if, at the end of any quarter, the

FHFA determines that the liabilities of either GSE exceed its assets. Draws from the Department under the SPSPAs are

designed to ensure that the GSEs maintain positive net worth, with a fixed maximum amount available to each GSE under

this agreement, established as of December 31, 2012 (refer to the “Contingent Liability to GSEs” section below). Draws

against the funding commitment of the SPSPAs do not result in the issuance of additional shares of senior preferred stock;

instead, they increase the liquidation preference of the initial 1,000,000 shares by the amount of the draw. The combined

cumulative liquidation preference totaled $199 billion and $189 billion as of September 30, 2018 and 2017, respectively. 

Actual payments of $4.0 billion were made to the GSEs for the fiscal year ended September 30, 2018. There were no

payments to the GSEs for the fiscal year ended September 30, 2017. 
98 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

ACCOUNTING TREATMENT

Entity Transactions― If we estimate a probable contingent liability to the GSEs, we will accrue and report this liability on

our Consolidated Balance Sheets, and fund the liability through our direct appropriations. We will report the liability

accrual, if any, at its gross amount as an “entity” cost on our Consolidated Statements of Net Cost, and within the line item,

“Cumulative Results of Operations” on our Consolidated Balance Sheets, without considering the increase in senior preferred

stock liquidation preference/fair value adjustments, and future dividend receipts from the GSEs.

Non-Entity Transactions― If we make actual payments to the GSEs, they will result in increases to the U.S. government’s

liquidation preference in the GSEs’ senior preferred stock, and thus represent General Fund exchange revenue reported on

our Consolidated Statements of Net Cost as “GSEs Non-Entity Revenue, Net.” Changes in the fair valuation of the GSE

preferred stock and common stock warrants, and related dividends received, are General Fund-related costs and revenues

which we report as “GSEs Non-Entity Revenue, Net.”

INVESTMENTS IN GSES 

As of September 30, 2018 and 2017, our investments in the GSEs consisted of the following: 

Gross Cumulative

Investments Valuation 9/30/2018

GSEs Investments (in millions) As of 9/30/18 Gain/(Loss) Fair Value

Fannie Mae Senior Preferred Stock $ 123,676 $ (64,476) $ 59,200

Freddie Mac Senior Preferred Stock 75,472 (31,272) 44,200

Fannie Mae Warrants Common Stock 3,104 3,186 6,290

Freddie Mac Warrants Common Stock 2,264 1,196 3,460

Total GSEs Investments $ 204,516 $ (91,366) $ 113,150

Gross Cumulative

Investments Valuation 9/30/2017

GSEs Investments (in millions) As of 9/30/17 Gain/(Loss) Fair Value

Fannie Mae Senior Preferred Stock $ 116,989 $ (74,489) $ 42,500

Freddie Mac Senior Preferred Stock 72,160 (41,060) 31,100

Fannie Mae Warrants Common Stock 3,104 9,256 12,360

Freddie Mac Warrants Common Stock 2,264 4,416 6,680

Total GSEs Investments $ 194,517 $ (101,877) $ 92,640

SENIOR PREFERRED STOCK AND WARRANTS FOR COMMON STOCK

In determining the fair value of the senior preferred stock and warrants for common stock, we relied on the GSEs’ public

filings and press releases concerning their financial statements, as well as non-public, long-term financial forecasts, monthly

summaries, quarterly credit supplements, independent research regarding preferred stock trading, independent research

regarding the GSEs’ common stock trading on the OTC Bulletin Board, discussions with each of the GSEs and FHFA, and

other information pertinent to the valuations. Because the instruments are not publicly traded, there is no comparable

trading information available. The fair valuations rely on significant unobservable inputs that reflect assumptions about the

expectations that market participants would use in pricing. 
DEPARTMENT OF THE TREASURY 99 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

The fair value of the senior preferred stock considers the amount of forecasted dividend payments. The fair valuations

assume that a hypothetical buyer would acquire the discounted dividend stream as of the transaction date. The fair value of

the senior preferred stock increased as of September 30, 2018 when compared to September 30, 2017, reflecting higher

forecasted GSE net income, mainly driven by the reduction in the U.S. corporate income tax rate resulting from the

December 22, 2017 enactment of the Tax Cuts and Jobs Act (P.L. 115-97), a lower discount rate driven by lower volatility

among comparable companies, as well as a reduction in the market value of the GSEs’ other equity securities that comprise

their total equity value (refer to Note 1V).

Factors impacting the fair value of the warrants include the nominal exercise price and the large number of potential

exercise shares, the market trading of the common stock that underlies the warrants as of September 30, the principal

market, and the market participants. Other factors impacting the fair value include, among other things, the holding period

risk related directly to the assumption of the amount of time that it will take to sell the exercised shares without depressing

the market. The fair value of the warrants decreased at the end of FY 2018, when compared to 2017, primarily due to

decreases in the market price of the underlying common stock of each GSE.

CONTINGENT LIABILITY TO GSES

As part of the annual process undertaken by the Department, we prepare a series of long-term financial forecasts to assess, 

as of September 30, the likelihood and magnitude of future draws to be required by the GSEs under the SPSPAs within the

forecast time horizon. We used 25-year financial forecasts prepared through years 2043 and 2042 in assessing if a 

contingent liability was required as of September 30, 2018 and 2017, respectively. If future payments under the SPSPAs are

deemed to be probable within the forecast horizon, and we can reasonably estimate such payment, we will accrue a 

contingent liability to the GSEs to reflect the forecasted equity deficits of the GSEs. We do not discount this accrued

contingent liability, nor do we take into account any of the offsetting dividends that we could receive, as the dividends, if any,

would be owed directly to the General Fund. We will adjust such recorded accruals in subsequent years as new information

develops or circumstances change. 

Based on our annual assessment, we estimated there was no probable future funding draws as of September 30, 2018 and

2017, and thereby accrued no contingent liability. However, as of September 30, 2018, it is reasonably possible that market

volatility or non-recurring events—for instance, changes to accounting policies that impact credit loss provisions—could

potentially cause the GSEs to generate quarterly losses and, therefore, result in future funding draws against our funding

commitment. Due to challenges quantifying future market volatility or the timing, magnitude, and likelihood of nonrecurring events, we could not estimate the total amount of this reasonably possible future funding liability as of September

30, 2018. P.L. 115-97 caused each GSE to reduce the value of their deferred tax assets in the quarter in which the legislation

was enacted. The reduction of the GSEs deferred tax assets resulted in us making $4.0 billion in actual payments to the

GSEs to ensure they maintained positive net worth. At September 30, 2018 and 2017, the maximum remaining contractual

commitment to the GSEs for the remaining life of the SPSPAs was $254.1 billion and $258.1 billion, respectively. 
100 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

In assessing the need for an estimated contingent liability, we rely on the GSEs’ public filings and press releases concerning

their financial statements, monthly summaries, and quarterly credit supplements, as well as non-public, long-term financial

forecasts, the FHFA House Price Index, discussions with each of the GSEs and FHFA, and other information pertinent to the

liability estimates. The forecasts prepared in assessing the need for an estimated contingent liability as of September 30,

2018 include three potential wind-down scenarios, with varying assumptions regarding the timing as to when the GSEs

would cease new business activities, including purchasing mortgage loans and issuing new guaranteed mortgage-backed

securities. The forecasts also assume a continued gradual wind-down of the retained portfolios (and corresponding net

interest income) through 2018, as directed under the amended SPSPAs for each GSE to reduce the maximum balance of its

retained mortgage portfolio by 15.0 percent per annum beginning December 31, 2013. The maximum balance of the GSEs’

retained mortgage portfolio was initially set at $650 billion as of December 31, 2012, and the amended SPSPAs requires that

we reduce this maximum balance to $250 billion by December 31, 2018.

ESTIMATION FACTORS

Our forecasts concerning the GSEs may differ from actual experience. Estimated senior preferred values and future draw

amounts will depend on numerous factors that are difficult to predict including, but not limited to, changes in government

policy with respect to the GSEs, the business cycle, inflation, home prices, unemployment rates, interest rates, changes in

housing preferences, home financing alternatives, availability of debt financing, market rates of guarantee fees, outcomes of

loan refinancings and modifications, new housing programs, and other applicable factors. 

FINANCIAL PERFORMANCE OF THE GSES

The summarized unaudited aggregated financial condition of the GSEs as of September 30, 2018 and 2017, along with their

summarized unaudited aggregated financial operating results for the nine months ended September 30, 2018 and 2017 were

as follows: 

(in millions) 2018 2017

Combined Assets

 Investment Securities $ 123,368 $ 129,997

 Mortgage Loans 5,135,562 4,997,651

 Other 205,632 233,767

Total Combined Assets 5,464,562 5,361,415

Combined Liabilities

 Long-Term Debt 5,319,340 5,214,940

 Other 132,688 137,577

Total Combined Liabilities 5,452,028 5,352,517

Combined Net Equity $ 12,534 $ 8,898

For the Nine Months Ended September 30 

Combined Net Interest Income $ 25,256 $ 26,285

Combined Benefit for Loan Losses 2,606 1,303

Combined Net Interest Income After Benefit for Loan Losses $ 27,862 $ 27,588

Combined Net Income $ 20,864 $ 17,542

We obtained this financial information from the GSEs’ quarterly financial reports filed with the Securities and Exchange

Commission. The financial information above excludes certain financial guarantees not directly reflected on the

GSEs’ balance sheets.
DEPARTMENT OF THE TREASURY 101 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

GSES NON-ENTITY REVENUE

For the fiscal years ended September 30, 2018 and 2017, GSEs Non-Entity Revenue, Net consisted of the following:

Summary of GSEs Non-Entity Revenue (in millions) 2018 2017

General Fund Revenue from Increase in Liquidation Preference of GSEs 

 Preferred Stock $ (9,999) $ -

Fair Value Loss/(Gain) on GSEs Warrants/Preferred Stock (10,511) 15,910

GSEs Preferred Stock Dividends (9,881) (25,349)

Total GSEs Non-Entity Revenue, Net $ (30,391) $ (9,439)

REGULATORY ENVIRONMENT

To date, Congress has not approved a plan to address the future of the GSEs, thus the GSEs continue to operate under the

direction of their conservator, the FHFA, whose stated strategic goals for the GSEs are to: (i) maintain, in a safe and sound

manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid, efficient, 

competitive, and resilient national housing finance markets; (ii) reduce taxpayer risk through increasing the role of private

capital in the mortgage market; and (iii) build a new single-family securitization infrastructure for use by the GSEs and

adaptable for the use by other participants in the secondary market in the future.

The Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78) was funded by an increase of ten basis points in the

GSEs’ guarantee fees (referred to as “the incremental fees”) which began in April 2012, and is effective through October 1,

2021. The incremental fees are remitted to us and not retained by the GSEs and, thus, do not affect the profitability of the

GSEs. For FY 2018 and 2017, the GSEs remitted to us the incremental fees totaling $3.6 billion and $3.2 billion,

respectively, which are reported within the line item entitled “Fines, Penalties, Interest and Other Revenue” on our

Statements of Custodial Activity. 

 
102 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

11. INVESTMENTS IN MULTILATERAL DEVELOPMENT BANKS

As of September 30, 2018 and 2017, Investments in Multilateral Development Banks consisted of the following:

(in millions) 2018 2017

International Bank for Reconstruction and Development $ 2,850 $ 2,850

Inter-American Development Bank (1) 2,023 2,023

Asian Development Bank 991 991

European Bank for Reconstruction and Development 636 636

International Finance Corporation 569 569

African Development Bank 402 369

North American Development Bank 225 225

Multilateral Investment Guarantee Agency 45 45

Total $ 7,741 $ 7,708

Refer to Note 26 for a description of the additional commitments related to these institutions. (1) Includes Inter-American Investment Corporation 

12. OTHER INVESTMENTS AND RELATED INTEREST

Other investments and related interest include foreign currency holdings that we typically invest in interest-bearing

securities issued or held through foreign governments or monetary authorities (refer to Note 5). The ESF holds most of our

foreign currency investments. Of the total $7.0 billion fair value of foreign investments (excluding interest receivable) held

at September 30, 2018, $1.0 billion will mature within one year, $3.9 billion will mature after one year but before five years,

and $2.1 billion will mature after five years but before ten years.

As of September 30, 2018 and 2017, Other Investments and Related Interest consisted of the following:

Cost/ Unamortized 9/30/18

Acquisition (Premium)/ Interest Net Unrealized 9/30/18

Type of Investment (in millions) Value Discount Receivable Investment Gain/(Loss) Fair Value

Foreign Investments:

 Euro Bonds & Notes $ 4,990 $ 468 $ 61 $ 5,519 $ 257 $ 5,776

 Japanese Government Bonds 1,207 1 1 1,209 60 1,269

Other Investments 29 (1) - 28 (11) 17

Total Non-Federal $ 6,226 $ 468 $ 62 $ 6,756 $ 306 $ 7,062

Cost/ Unamortized 9/30/17

Acquisition (Premium)/ Interest Net Unrealized 9/30/17

Type of Investment (in millions) Value Discount Receivable Investment Gain/(Loss) Fair Value

Foreign Investments:

 Euro Bonds & Notes $ 5,879 $ 481 $ 69 $ 6,429 $ 299 $ 6,728

 Japanese Government Bonds 1,754 2 1 1,757 56 1,813

Other Investments 29 (1) - 28 (10) 18

Total Non-Federal $ 7,662 $ 482 $ 70 $ 8,214 $ 345 $ 8,559
DEPARTMENT OF THE TREASURY 103 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

13. PROPERTY, PLANT, AND EQUIPMENT, NET

As of September 30, 2018 and 2017, Property, Plant, and Equipment, Net consisted of the following:

2018

Net

Depreciation Service Accumulated Book

(in millions) Method Life Cost Depreciation Value

Buildings, Structures and Facilities S/L 3 - 50 years $ 781 $ (485) $ 296

Furniture, Fixtures and Equipment S/L 2 - 20 years 2,865 (2,107) 758

Construction-in-Progress N/A N/A 171 - 171

Land and Land Improvements N/A N/A 18 (3) 15

Internal-Use Software in Use S/L 2 - 15 years 3,584 (2,263) 1,321

Internal-Use Software in Development N/A N/A 210 - 210

Assets Under Capital Lease S/L 2 - 25 years 29 (12) 17

Leasehold Improvements S/L 2 - 25 years 417 (258) 159

Total $ 8,075 $ (5,128)$ 2,947

2017

Net

Depreciation Service Accumulated Book

(in millions) Method Life Cost Depreciation Value

Buildings, Structures and Facilities S/L 3 - 50 years $ 766 $ (459) $ 307

Furniture, Fixtures and Equipment S/L 2 - 20 years 2,831 (2,051) 780

Construction-in-Progress N/A N/A 103 - 103

Land and Land Improvements N/A N/A 18 (2) 16

Internal-Use Software in Use S/L 2 - 15 years 3,574 (2,076) 1,498

Internal-Use Software in Development N/A N/A 181 - 181

Assets Under Capital Lease S/L 2 - 25 years 21 (12) 9

Leasehold Improvements S/L 2 - 25 years 415 (249) 166

Total $ 7,909 $ (4,849) $ 3,060

The service life ranges vary significantly due to the diverse nature of PP&E we hold.

HERITAGE ASSETS

We have 15 heritage assets, of which five are considered multi-use, for FY 2018 and 2017. The Treasury Complex (Main 

Treasury Building and Annex), declared a national historical landmark in 1972, is treated as a multi-use heritage asset and

is expected to be preserved indefinitely. The buildings that house the Mint in Denver, San Francisco, Fort Knox, and West

Point are also multi-use heritage assets and included on the National Register of Historic Places. Additionally, the Mint

maintains heritage assets consisting of four coin collections and six collections of historical artifacts. 
104 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

14. NON-ENTITY VS. ENTITY ASSETS 

Non-entity assets are those that we hold and manage on behalf of the General Fund but are not available for our use. The

table below shows our total assets, segregated between non-entity and entity, as of September 30, 2018 and 2017: 

2018

(in millions) Non-Entity Entity Total

Intra-governmental Assets:

Fund Balance (a) $ 1,884 $ 422,984 $ 424,868

Loans and Interest Receivable (Note 3) 1,448,007 76,689 1,524,696

Advances to Trust Funds (Note 4) 5,027 - 5,027

Due From the General Fund (Note 4) 21,646,633 - 21,646,633

Other Intra-governmental Assets 729 41 770

Total Intra-governmental Assets 23,102,280 499,714 23,601,994

Cash, Foreign Currency, and Other Monetary Assets (Note 5) (b) 379,380 65,191 444,571

Gold and Silver Reserves (Note 6) (c) 11,062 - 11,062

Taxes, Interest, and Other Receivables, Net (Note 8) 59,488 149 59,637

Investments in GSEs (Note 10) 113,150 - 113,150

Other Assets (d) 8 43,333 43,341

Total Assets $ 23,665,368 $ 608,387 $ 24,273,755

(a) $1,097 million of the non-entity balance represents assets held on behalf of the General Fund (refer to Note 4).

(b) $378.7 billion of the non-entity balance represents assets held on behalf of the General Fund (refer to Note 4).

(c) $25 million of the non-entity balance represents assets held on behalf of the General Fund (refer to Note 4).

(d) Other Assets (Entity) include loans and interest receivable, other investments and related interest, reserve position in the IMF, and other

various assets on the Consolidated Balance Sheets not separately presented in this table. 

2017

(in millions) Non-Entity Entity Total

Intra-governmental Assets:

Fund Balance (e) $ 1,668 $ 424,728 $ 426,396

Loans and Interest Receivable (Note 3) 1,377,845 77,780 1,455,625

Advances to Trust Funds (Note 4) 9,021 - 9,021

Due From the General Fund (Note 4) 20,373,777 - 20,373,777

Other Intra-governmental Assets 789 29 818

Total Intra-governmental Assets 21,763,100 502,537 22,265,637

Cash, Foreign Currency, and Other Monetary Assets (Note 5) (f) 154,353 64,477 218,830

Gold and Silver Reserves (Note 6) (g) 11,062 - 11,062

Taxes, Interest, and Other Receivables, Net (Note 8) 53,355 141 53,496

Investments in GSEs (Note 10) 92,640 - 92,640

Other Assets (h) 8 44,487 44,495

Total Assets $ 22,074,518 $ 611,642 $ 22,686,160

(e) $793 million of the non-entity balance represents assets held on behalf of the General Fund (refer to Note 4).

(f) $153.6 billion of the non-entity balance represents assets held on behalf of the General Fund (refer to Note 4).

(g) $25 million of the non-entity balance represents assets held on behalf of the General Fund (refer to Note 4).

(h) Other Assets (Entity) include loans and interest receivable, other investments and related interest, reserve position in the IMF, and other

various assets on the Consolidated Balance Sheets not separately presented in this table.
DEPARTMENT OF THE TREASURY 105 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

15. FEDERAL DEBT AND INTEREST PAYABLE AND RELATED LIABILITIES

Treasury is responsible for administering the federal debt on behalf of the U.S. government. The federal debt includes

borrowings from the public as well as borrowings from federal agencies. The federal debt does not include debt issued by

other governmental agencies, such as the Tennessee Valley Authority or Department of Housing and Urban Development.

Debt held by the public primarily represents the amount the U.S. government has borrowed to finance cumulative cash

deficits. In contrast, debt held by other federal agencies, primarily trust funds, represents balances of Treasury securities

held by individual federal agencies with either the authority or the requirement to invest excess receipts in Treasury

securities, with the principal and interest guaranteed by the full faith and credit of the U.S. government.

Federal Debt and Interest Payable as of September 30, 2018 and 2017 was as follows:

Held by Other Federal Agencies (Intra-governmental) (in millions) 2018 2017

Beginning Balance $ 5,527,721 $ 5,354,167

New Borrowings/(Repayments) - Net 184,816 173,554

Subtotal at Par Value 5,712,537 5,527,721

Premium/(Discount) 69,843 72,073

Debt Principal Not Covered by Budgetary Resources (Note 18) 5,782,380 5,599,794

Interest Payable Covered by Budgetary Resources 39,262 38,156

Total $ 5,821,642 $ 5,637,950

Held by the Public (in millions) 2018 2017

Beginning Balance $ 14,673,429 $ 14,173,424

New Borrowings - Net of Repayments 1,087,726 500,005

Subtotal at Par Value 15,761,155 14,673,429

Premium/(Discount) (44,766) (39,204)

Debt Principal Not Covered by Budgetary Resources (Note 18) 15,716,389 14,634,225

Interest Payable Covered by Budgetary Resources 73,528 65,462

Total $ 15,789,917 $ 14,699,687

FEDERAL DEBT HELD BY OTHER FEDERAL AGENCIES

Certain federal agencies are allowed to invest excess funds in debt securities we issue on behalf of the U.S. government. The

terms and the conditions of debt securities issued allow the U.S. government to meet its cash needs. The vast majority of

debt securities are non-marketable securities issued at par value, but others are issued at market prices and interest rates

that reflect market terms. The average intra-governmental interest rate for debt held by the federal entities, excluding

Treasury Inflation-Protected Securities (TIPS) and Floating Rate Notes (FRNs), for both FY 2018 and 2017 was 2.8 percent. 

The average intra-governmental interest rate on TIPS for both FY 2018 and 2017 was 1.3 percent. The average interest rate

represents the original issue weighted effective yield on securities outstanding at the end of the fiscal year.

The federal debt also includes intra-governmental marketable debt securities that certain agencies are permitted to buy and

sell on the open market. The debt held by federal agencies at par value (not including premium/discount or interest payable)

as of September 30, 2018 and 2017 was as follows: 
106 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

(in millions) 2018 2017

Social Security Administration $ 2,894,654 $ 2,889,869

Office of Personnel Management 1,033,785 1,014,837

Department of Defense Agencies 995,540 898,480

Department of Health and Human Services 304,789 273,197

All Other Federal Entities — Consolidated 483,769 451,338

Total Federal Debt Held by Other Federal Agencies $ 5,712,537 $ 5,527,721

These amounts do not include Intra-departmental debt and related interest that are eliminated from our financial statements.

FEDERAL DEBT HELD BY THE PUBLIC

Federal Debt Held by the Public at par value (not including premium/discount or interest payable) as of September 30, 2018

and 2017 consisted of the following: 

Average

Interest

(at par value in millions) Term Rates 2018

Marketable:

Treasury Bills 1 Year or Less 2.1% $ 2,239,473

Treasury Notes Over 1 Year - 10 Years 2.0% 9,150,301

Treasury Bonds Over 10 Years 4.1% 2,114,982

Treasury Inflation-Protected Securities (TIPS) 5 Years or More 0.8% 1,376,180

Treasury Floating Rate Notes (FRN) 2 Years 2.2% 369,142

Total Marketable 15,250,078

Non-Marketable On Demand to Over 40 Years 2.8% 511,077

Total Federal Debt Held by the Public $ 15,761,155

Average

Interest

(at par value in millions) Term Rates 2017

Marketable:

Treasury Bills 1 Year or Less 1.1% $ 1,799,570

Treasury Notes Over 1 Year - 10 Years 1.8% 8,798,940

Treasury Bonds Over 10 Years 4.2% 1,948,414

Treasury Inflation-Protected Securities (TIPS) 5 Years or More 0.8% 1,286,123

Treasury Floating Rate Notes (FRN) 2 Years 1.2% 342,630

Total Marketable 14,175,677

Non-Marketable On Demand to Over 40 Years 2.3% 497,752

Total Federal Debt Held by the Public $ 14,673,429

We generally issue Treasury bills, notes, bonds, and TIPS to meet the borrowing needs of the U.S. government. We issue

marketable bills at a discount or at par, and pay the par amount of the security upon maturity. The average interest rate on

Treasury bills represents the original issue effective yield on securities outstanding at year end. 
DEPARTMENT OF THE TREASURY 107 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

We issue marketable notes and bonds as long-term securities that pay semi-annual interest based on the securities’ stated

interest rates. We issue these securities at either par value or at an amount that reflects a discount or premium. The

average interest rate on marketable notes and bonds represents the stated interest rate adjusted by any discount or

premium on securities outstanding at year-end. We also issue TIPS that have interest and redemption payments tied to the

CPI for all Urban Consumers, a widely used measurement of inflation. We adjust the principal for TIPS daily over the life of

the security based on the CPI for all Urban Consumers. At maturity, TIPS are redeemed at the inflation-adjusted principal

amount, or the original par value, whichever is greater. TIPS pay a semi-annual fixed rate of interest applied to the

inflation-adjusted principal. The average interest rate on TIPS represents the stated interest rate on principal plus

inflation, adjusted by any discount or premium on securities outstanding as of the end of the fiscal year. The inflationadjusted TIPS principal balance of federal debt held by the public included inflation of $134.1 billion and $103.7 billion as of

September 30, 2018 and 2017, respectively.

We also issue marketable FRNs which pay interest quarterly based on the interest rate at the time of payment. The interest

rate of FRNs can change over time and is indexed to the highest acceptable discount rate of the most recent 13-week

marketable bill auction. Similar to marketable notes and bonds, we issue these securities at either par value or at an

amount that reflects a discount or premium. The average interest rate on marketable FRNs represents the highest accepted

discount rate of the most recent 13-week marketable auction as of September 30, adjusted by any discount or premium on

securities outstanding as of that date. 

Federal Debt Held by the Public includes federal debt held outside of the U.S. government by individuals, corporations,

FRBs, state and local governments, foreign governments, and central banks. As of September 30, 2018, the FRBs had total

holdings of $1.8 trillion which: (i) excluded $531.8 billion in Treasury securities used in overnight reverse repurchase

transactions, and (ii) included a net of $1.0 billion in Treasury securities held by the FRB as collateral for securities lending

activities. As of September 30, 2017, the FRBs had total holdings of $2.0 trillion which: (i) excluded $502.0 billion in

Treasury securities used in overnight reverse repurchase transactions, and (ii) included a net of $1.3 billion in Treasury

securities held by the FRB as collateral for securities lending activities. For the years ended September 30, 2018 and 2017,

we incurred interest expense of $64.1 billion and $63.8 billion, respectively, related to Treasury securities held by the FRBs.

STATUTORY DEBT LIMIT 

Congress has provided us with statutory authority to take certain extraordinary measures in the event that the public debt

nears the statutory debt limit and a delay in raising the statutory debt limit occurs. These measures authorize us to deviate

from our normal debt management operations – which include the investment (or non-investment) of trust fund balances in

Treasury securities – to avoid exceeding the statutory debt limit.

During the period of the delay in raising the statutory debt limit, we may undertake the following extraordinary measures:

(i) suspend new issuances of Treasury securities to the Government Securities Investment Fund (G Fund) of the FERS TSP, 

the Civil Service Retirement and Disability Fund (Civil Service Fund), the Postal Service Retiree Health Benefits Fund

(Postal Benefits Fund), and the ESF; (ii) redeem early a certain amount of Treasury securities held by the Civil Service Fund

and Postal Benefit Fund; (iii) suspend new issuances of State and Local Government Series (SLGS) securities; (iv) utilize

FFB to exchange outstanding Treasury securities held by the Civil Service Fund for non-Treasury securities (refer to Note

16); and (v) issue cash management bills to manage short-term financing needs.
108 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

When the period of delay in raising the statutory debt limit ends, we discontinue our use of extraordinary measures and

resume our normal debt management operations. Furthermore, we are required by the relevant statutes, to issue to the G 

Fund, along with the OPM-administered Civil Service Fund and Postal Benefits Fund (the OPM funds), Treasury securities

that bears such interest rates and maturity dates necessary to replicate the investments the funds would have held had the

delay not occurred (the unissued securities). In addition, relevant statutes require us to pay these funds the related lost

interest (foregone interest) on the unissued securities. While we may restore the ESF, relevant statutes do not permit us to

pay the ESF interest lost during a period of delay. 

A delay in raising the statutory debt limit occurred from March 16, 2017 until September 7, 2017. On September 8, 2017,

Congress enacted the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief

Requirements Act, 2017 (P.L. 115-56) which temporarily suspended the debt limit through December 8, 2017. Another delay

in raising the statutory debt limit occurred from December 9, 2017 until February 9, 2018. On February 9, 2018, Congress

enacted the Bipartisan Budget Act of 2018 (P.L. 115-123) which temporarily suspended the debt limit through March 1,

2019.

During the period March 16, 2017 through September 7, 2017, we departed from our normal debt management operations

and undertook extraordinary measures to avoid exceeding the statutory debt limit. On September 8, 2017, when Congress

temporarily suspended the debt limit, we discontinued the use of extraordinary measures and resumed normal debt

management operations. On this date, we restored unissued securities totaling $294.9 billion, of which $192.6 billion was

restored to the G Fund and $102.3 billion was restored to the two OPM funds. We also restored foregone interest of $1.6

billion to the G Fund on the interest payment date of September 11, 2017. In addition, we restored foregone interest totaling

$732 million (of which $660 million was accrued through September 30, 2017) to the two OPM funds on the semi-annual

interest payable date of December 29, 2017.

The liability for the interest related to the restored securities for the OPM funds as of September 30, 2017 totaling $660

million was reported on our Consolidated Balance Sheets in the line item “Liability for Restoration of Federal Debt Principal

and Interest.” A corresponding amount was reported in the “Due From the General Fund” on the Consolidated Balance

Sheets (refer to Note 4). Additionally, the accrued foregone interest expense totaling $660 million was reported in FY 2017

as a non-entity expense within the line item, “Accrued Restoration of Foregone Federal Debt Interest,” on Consolidated

Statements of Net Cost, with an offsetting amount reported within the line item, “Accrued Interest on Restoration of Federal

Debt Principal,” as part of other financing sources on the Consolidated Statements of Changes in Net Position.

During the period from December 11, 2017 through February 8, 2018, we again departed from our normal debt management

operations and undertook extraordinary measures to avoid exceeding the statutory debt limit. On February 9, 2018, when

Congress temporarily suspended the debt limit, we discontinued the use of extraordinary measures and resumed normal

debt management operations. On this date, we restored unissued securities totaling $175.6 billion, of which $156.7 billion

was restored to the G Fund and $18.9 billion was restored to the two OPM Funds. We also restored foregone interest of $485

million to the G Fund on the interest payment date of February 12, 2018. We restored foregone interest related to the

unissued securities for the two OPM funds during the period of December 11, 2017 through February 8, 2018, which totaled

$247 million, on the semi-annual interest payable date of June 29, 2018.
DEPARTMENT OF THE TREASURY 109 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Of the $1.5 billion of foregone interest paid in FY 2018, $804 million was reported in FY 2018 as a current year, non-entity

expense within the line item, “Restoration of Foregone Federal Debt Interest.” In FY 2018, we reversed the $660 million of

the FY 2017 accrued foregone interest as part of other financing sources on the Consolidated Statement of Changes in Net

Position in connection with the actual payment of interest. 

16. OTHER DEBT AND INTEREST PAYABLE

Through FFB, we have outstanding borrowings and related accrued interest owed to the Civil Service Fund. At September

30, 2018 and 2017, FFB had outstanding borrowings of $10.4 billion and $11.5 billion, inclusive of $75 million and $86

million of accrued interest payable, respectively. During FY 2018 and 2017, FFB paid $1.1 billion and $1.6 billion in

principal, respectively. The outstanding borrowings at September 30, 2018 had stated interest rates that ranged from 2.25

percent to 4.63 percent per annum, and an effective interest rate of 2.86 percent. The outstanding borrowings at September

30, 2017 had stated interest rates that ranged from 2.25 percent to 4.63 percent per annum, and an effective interest rate of

2.97 percent. Maturity dates ranged from June 30, 2019 to June 30, 2029 for outstanding borrowings at September 30, 2018,

and from June 30, 2018 to June 30, 2029 for outstanding borrowings at September 30, 2017.

 
110 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

17. D.C. FEDERAL PENSION AND JUDICIAL RETIREMENT ACTUARIAL

LIABILITY

Title XI of the Balanced Budget Act of 1997, as amended intended to relieve the D.C. government of the burden of unfunded

pension liabilities transferred to the District by the U.S. government in 1979. To fulfill our responsibility, we manage two

funds ― the D.C. Teachers’, Police Officers’, and Firefighters’ Federal Pension Fund (the D.C. Federal Pension Fund) and the

District of Columbia Judicial Retirement and Survivors’ Annuity Fund (the Judicial Retirement Fund). We are required to

make annual amortized payments from the General Fund to the D.C. Federal Pension Fund and the Judicial Retirement

Fund. The D.C. Federal Pension Fund benefit payments relate to creditable service performed on or before June 30, 1997,

while the Judicial Retirement Fund benefit payments relate to all creditable service. 

A reconciliation of the combined actuarial pension liability for the D.C. Federal Pension Fund and the Judicial Retirement

Fund as of September 30, 2018 and 2017 is as follows: 

(in millions) 2018 2017

Beginning Liability Balance $ 8,682 $ 8,836

Pension Expense:

Normal Cost 6 6

Interest on Pension Liability During the Year 66 102

Actuarial (Gains) Losses During the Year:

From Experience 55 26

From Discount Rate Assumption Change 377 428

From Other Assumption Changes (177) (54)

From Non-Economic Changes (84) (110)

Total Pension Expense 243 398

Less Amounts Paid (553) (552)

Ending Liability Balance $ 8,372 $ 8,682
DEPARTMENT OF THE TREASURY 111 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

D.C. Federal Judicial 2018

Additional Information ($ in millions): Pension Fund Retirement Fund Total

Amount Received from the General Fund $ 467 $ 16 $ 483

Annual Rate of Investment Return Assumption 0.59% - 3.89% 0.59% - 3.89%

Future Annual Rate of Inflation and Cost-Of-

 Living Adjustment:

 Police Officers 1.62% N/A

 Firefighters 1.62% N/A

 Teachers 1.64% N/A

 Judicial N/A 1.66%

Future Annual Rate of Salary Increases:

 Police Officers 1.80% N/A

 Firefighters 2.20% N/A

 Teachers 2.36% N/A

 Judicial N/A 0.97%

D.C. Federal Judicial 2017

Additional Information ($ in millions): Pension Fund Retirement Fund Total

Amount Received from the General Fund $ 452 $ 16 $ 468

Annual Rate of Investment Return Assumption 0.71% - 4.03% 0.71% - 4.03%

Future Annual Rate of Inflation and Cost-Of-

 Living Adjustment:

 Police Officers 1.82% N/A

 Firefighters 1.82% N/A

 Teachers 1.86% N/A

 Judicial N/A 1.69%

Future Annual Rate of Salary Increases:

 Police Officers 1.80% N/A

 Firefighters 2.20% N/A

 Teachers 3.00% N/A

 Judicial N/A 1.08%
112 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

18. LIABILITIES

LIABILITIES NOT COVERED BY BUDGETARY RESOURCES 

As of September 30, 2018 and 2017, liabilities not covered by budgetary resources consisted of the following: 

(in millions) 2018 2017

Intra-governmental Liabilities Not Covered by Budgetary Resources

Federal Debt Principal, Premium/Discount (Note 15) $ 5,782,380 $ 5,599,794

Liability for Restoration of Federal Debt Principal and Interest (Note 15) - 660

Other Intra-governmental Liabilities 125 130

Total Intra-governmental Liabilities Not Covered by Budgetary Resources 5,782,505 5,600,584

Federal Debt Principal, Premium/Discount (Note 15) 15,716,389 14,634,225

Other Liabilities 1,025 1,041

Total Liabilities Not Covered by Budgetary Resources 21,499,919 20,235,850

Total Liabilities Covered by or Not Requiring Budgetary Resources 2,278,023 1,952,985

Total Liabilities $ 23,777,942 $ 22,188,835

OTHER LIABILITIES

Total “Other Liabilities” displayed on the Consolidated Balance Sheets consists of liabilities that are covered by, not covered

by, and not requiring budgetary resources. “Other Liabilities” at September 30, 2018 and 2017, consisted of the following: 

Non- 2018 Non- 2017

(in millions) Current Current Total Current Current Total

Intra-governmental

Accounts Payable $ 86 - 86 77 - 77

Unfunded Federal Workers Compensation 

 Program Liability (FECA) 41 51 92 43 52 95

Other Accrued Liabilities 452 1 453 440 1 441

Total Intra-governmental $ 579 52 631 560 53 613

With the Public

Liability for Deposit Funds (Held by the

 U.S. government for Others)

 and Suspense Accounts $ 1,398 - 1,398 1,156 - 1,156

Actuarial Federal Workers Compensation 

 Program Liability (FECA) - 584 584 - 592 592

Accrued Funded Payroll and Benefits 428 - 428 420 - 420

Accounts Payable and Other Accrued

 Liabilities 3,047 87 3,134 3,170 82 3,252

Total With the Public $ 4,873 671 5,544 4,746 674 5,420
DEPARTMENT OF THE TREASURY 113 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

19. NET POSITION

Unexpended Appropriations represents the amount of spending authorized as of year-end that is unliquidated or unobligated

and has not lapsed, been rescinded, or withdrawn. No-year appropriations remain available for obligation until expended. 

Annual appropriations remain available for upward or downward adjustment of obligations until canceled. We report

adjustments related to unexpended appropriations, such as cancellations of expired funds or rescissions, as “Other

Adjustments” on the Consolidated Statements of Changes in Net Position.

Cumulative Results of Operations represents the net results of operations since inception, and includes cumulative amounts

related to investments in capitalized assets and donations and transfers of assets in and out without reimbursement. Also

included as a reduction in Cumulative Results of Operations are accruals for which the related expenses require funding

from future appropriations and assessments. These future funding requirements include, among others: (a) accumulated 

annual leave earned but not taken; (b) accrued FECA; (c) credit reform cost re-estimates; (d) unfunded D.C. Federal pension;

and (e) expenses for contingent liabilities.

APPROPRIATIONS RECEIVED

Congress appropriates the amount reported as “Appropriations Received” from the General Fund receipts, such as income

taxes, that are not dedicated by law for a specific purpose. This amount will not necessarily agree with the “Appropriations

(discretionary and mandatory)” amount reported on the Combined Statements of Budgetary Resources because of differences

between proprietary and budgetary accounting concepts and reporting requirements. For example, certain dedicated

receipts are recorded as “Appropriations (discretionary and mandatory)” on the Combined Statements of Budgetary

Resources, but are recognized as exchange or non-exchange revenue (i.e., typically in revolving, special, and non-revolving

trust funds) and reported on the Consolidated Statements of Changes in Net Position in accordance with SFFAS No. 7.

TRANSFERS TO THE GENERAL FUND AND OTHER

The amount reported as “Transfers to the General Fund and Other” on the Consolidated Statements of Changes in Net

Position under “Other Financing Sources” includes the following for the years ended September 30, 2018 and 2017: 

(in millions) 2018 2017

Categories of Transfers to the General Fund and Other

Interest Revenue $ 44,835 $ 44,304

Increase in Liquidation Preference of GSEs Preferred Stock, 

 GSEs Preferred Stock Dividends and Valuation Changes (Note 10) 30,391 9,439

Other 2,242 1,482

Total $ 77,468 $ 55,225

Included in “Transfers to the General Fund and Other” is the annual valuation adjustment on the GSE Senior Preferred

Stock investments and related dividends. These transfers also include distribution of interest revenue to the General Fund. 

We accrue interest revenue on inter-agency loans held on behalf of the U.S. government. We report a corresponding amount

on the Consolidated Statements of Net Cost under “Non-Entity Costs: Less Interest Revenue from Loans.” Eliminations

between our bureaus reduce the amount reported on the Consolidated Statements of Net Cost.
114 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

The “Other” line generally includes collections from other federal agencies for reimbursement of costs we incurred for our

administration of trust funds established within the Social Security Act. We execute these administrative services as

directed by statute. Seigniorage and numismatic profits also are included in the “Other” line. Seigniorage is the face value

of newly minted circulating coins less the cost of production. Numismatic profit is any profit on the sale of proof coins,

uncirculated coins, commemorative coins, and related products and accessories. The Mint is required to distribute

seigniorage and numismatic profits in excess of operating expenses to the General Fund (refer to Note 21). In any given

year, the amount recognized as seigniorage may differ from the amount distributed to the General Fund by an insignificant

amount due to timing differences. The “Other” line also includes the credit reform downward re-estimate subsidies

transferred to the General Fund resulting from a change in forecasts of future cash flows. 

20. CONSOLIDATED STATEMENTS OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS

Our Consolidated Statements of Net Cost display information on a consolidated basis. We consist of DO and seven operating

bureaus that we provide supporting schedules for Net Cost in the notes to the financial statements (refer to Note 1). These

supporting schedules provide consolidating information, which fully displays the costs, revenues, and net cost of DO and

each operating bureau.

The classification of sub-organizations has been determined in accordance with SFFAS No. 4, Managerial Cost Accounting

Standards and Concepts which states that the predominant factor is the reporting entity’s organization structure and

existing responsibility components, such as bureaus, administrations, offices, and divisions within a department.

Each sub-organization is responsible for accumulating costs. The assignment of the costs to Department-wide programs is

the result of using the following cost assignment methods: (1) direct costs, (2) cause and effect, and (3) cost allocation.

INTRA-DEPARTMENTAL COSTS/REVENUES

We report intra-departmental costs/revenues resulting from the provision of goods and/or services on a reimbursable basis

among our sub-organizations as costs by providing sub-organizations and as revenues by receiving sub-organizations. We

recognized intra-departmental imputed costs on the Consolidated Statements of Net Cost of $931 million and $695 million

during FY 2018 and 2017, respectively. Accordingly, we eliminated such costs or revenues in the consolidation process.

INTRA-GOVERNMENTAL COSTS

Intra-governmental costs relate to the source of goods and services we purchased and not to the classification of the related

intra-governmental revenue.

In certain cases, other federal agencies incur costs that are directly identifiable to our operations. In accordance with SFFAS 

No. 30, Inter-Entity Cost Implementation Amending SFFAS No. 4, Managerial Cost Accounting Standards and Concepts, we

recognize identified costs paid on our behalf by other agencies. The imputed inter-departmental financing sources we 

currently recognize include the actual cost of future benefits for the federal pension plans that other federal entities pay, the

Federal Employees Health Benefits Program, and any un-reimbursed contract dispute payments made from the Treasury

Judgment Fund on our behalf. We reflect the funding for these costs as costs on the Consolidated Statements of Net Cost,
DEPARTMENT OF THE TREASURY 115 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

and as imputed financing sources on the Consolidated Statements of Changes in Net Position. Costs paid by other agencies

on our behalf were $779 million and $552 million for the fiscal years ended September 30, 2018 and 2017, respectively.

CONSOLIDATED STATEMENTS OF NET COST PRESENTATION

OMB Circular No. A-136, as revised, requires that the Consolidated Statements of Net Cost present the net cost of

operations by major programs, which may describe an agency’s mission, strategic goals, functions, or other meaningful

grouping. We have presented the FY 2018 gross costs and earned revenues by major program categories aligned with our

strategic goals identified in Treasury’s FY 2018 – 2022 Strategic Plan. The majority of our bureaus’ and reporting entities’

gross costs and earned revenues falls within a single program category in the Consolidated Statements of Net Cost. DO

allocates gross costs and earned revenues to multiple programs using a net cost percentage calculation. All of our

management offices coordinate, on a Treasury-wide basis, their efforts to achieve the Management program-related strategic

goals. For financial statement presentation purposes, we combine the gross costs and earned revenues associated with our

Management program-related goals with those costs and revenues associated with our Financial program-related strategic

goals.

For comparative purposes, we reclassified the FY 2017 gross costs and earned revenues for certain bureaus and reporting

entities to conform to the current year’s presentation of such costs and revenues which are aligned in accordance with our

new FY 2018 – 2022 Strategic Plan goals. Reclassifications made to the FY 2017 Consolidated Statement of Net Cost

primarily included $12.2 billion of IRS program net costs (gross costs net of revenues, before eliminations) which were

reclassified from the Financial to the Economic program category. We also reclassified $4.1 billion and $1.7 billion of OFS

and IAP program net costs (included in DO) from the Economic to the Financial program, as well as other reclassifications

totaling $0.7 billion. On an aggregated basis, for FY 2017, total consolidated net costs of the Financial program decreased by

$5.7 billion, and total consolidated net costs of the Economic program increased by $5.7 billion as a result of this

reclassification.

Our Consolidated Statements of Net Cost also present interest expense on the federal debt and other federal costs incurred

on behalf of the U.S. government. We do not reflect these costs as program costs related to our strategic plan missions. We

eliminate these costs in the consolidation process to the extent that they involve transactions with our sub-organizations. 

Non-entity other federal costs shown on the Consolidated Statements of Net Cost for the fiscal years ended September 30,

2018 and 2017 consisted of the following: 

(in millions) 2018 2017

Credit Reform Interest on Uninvested Funds (Intra-governmental) $ 7,879 $ 8,322

Resolution Funding Corporation 2,628 2,628

Judgment Claims and Contract Disputes 1,418 2,705

Corporation for Public Broadcasting 465 495

All Other Payments 550 575

Total $ 12,940 $ 14,725
116 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

20. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS (IN MILLIONS) 

For Fiscal Year Ended September 30, 2018 

Program Costs

Bureau of

Engraving &

Printing

Bureau of the

Fiscal

Service

Departmental

Office(a)

Financial 

Crimes 

Enforcement 

Network

Internal 

Revenue 

Service U.S. Mint

FINANCIAL PROGRAM

Gross Cost $ - $ 2,216 $ 6,909 $ - $ - $ -

Less Earned Revenue - (363) (3,290) - - -

Net Program Cost - 1,853 3,619 - - -

ECONOMIC PROGRAM

Gross Cost 774 - 12,693 - 13,214 1,711

Less Earned Revenue (772) - (7,860) - (566) (1,652)

Net Program Cost 2 - 4,833 - 12,648 59

SECURITY PROGRAM

Gross Cost - - 408 124 - -

Less Earned Revenue - - (32) (3) - -

Net Program Cost - - 376 121 - -

Total Net Program Cost (Revenue)

 Before Changes in Actuarial

 Assumptions 2 1,853 8,828 121 12,648 59

(Gain)/Loss on Pension, ORB, or OPEB

 Assumption Changes - - 116 - - -

Total Net Cost of (Revenue From)

 Treasury Operations $ 2 $ 1,853 $ 8,944 $ 121 $ 12,648 $ 59

(a) Of the total $4.8 billion of net cost reported by DO for the Economic Program, GSEs contributed $4.0 billion. Other net costs were spread throughout other 

DO programs or offices. 
DEPARTMENT OF THE TREASURY 117 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

20. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T): 

For Fiscal Year Ended September 30, 2018 

Program Costs

Office of the 

Comptroller of the 

Currency

Alcohol

and

Tobacco

Tax and

Trade

Bureau

Combined 

Total Eliminations

2018 

Consolidated

FINANCIAL PROGRAM

Gross Cost $ - $ - $ 9,125 $ 2,141 $ 6,984

Less Earned Revenue - - (3,653) (699) (2,954)

Net Program Cost - - 5,472 1,442 4,030

ECONOMIC PROGRAM

Gross Cost 1,282 123 29,797 1,395 28,402

Less Earned Revenue (1,247) (6) (12,103) (505) (11,598)

Net Program Cost 35 117 17,694 890 16,804

SECURITY PROGRAM

Gross Cost - - 532 66 466

Less Earned Revenue - - (35) (28) (7)

Net Program Cost - - 497 38 459

Total Net Program Cost (Revenue)

 Before Changes in Actuarial

 Assumptions 35 117 23,663 2,370 21,293

(Gain)/Loss on Pension, ORB, or OPEB

 Assumption Changes (3) - 113 - 113

Total Net Cost of (Revenue From)

 Treasury Operations $ 32 $ 117 $ 23,776 $ 2,370 $ 21,406
118 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

20. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T): 

For Fiscal Year Ended September 30, 2017 

Program Costs

Bureau of

Engraving &

Printing

Bureau of the

Fiscal

Service

Departmental

Office(a)

Financial 

Crimes 

Enforcement 

Network

Internal 

Revenue 

Service U.S. Mint

FINANCIAL PROGRAM

Gross Cost $ - $ 2,178 $ 9,066 $ - $ - $ -

Less Earned Revenue - (361) (3,283) - - -

Net Program Cost - 1,817 5,783 - - -

ECONOMIC PROGRAM

Gross Cost 705 - 9,591 - 12,719 2,262

Less Earned Revenue (707) - (7,787) - (567) (2,236)

Net Program Cost (2) - 1,804 - 12,152 26

SECURITY PROGRAM

Gross Cost - - 386 118 - -

Less Earned Revenue - - (28) (2) - -

Net Program Cost - - 358 116 - -

Total Net Program Cost (Revenue)

 Before Changes in Actuarial

 Assumptions (2) 1,817 7,945 116 12,152 26

(Gain)/Loss on Pension, ORB, or OPEB

 Assumption Changes - - 264 - - -

Total Net Cost of (Revenue From)

 Treasury Operations $ (2) $ 1,817 $ 8,209 $ 116 $ 12,152 $ 26

(a) Of the total $5.8 billion of net cost reported by DO for the Financial Program, IAP and OFS contributed $1.7 billion and $4.1 billion, respectively. 
DEPARTMENT OF THE TREASURY 119 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

20. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T): 

For Fiscal Year Ended September 30, 2017 

Program Costs

Office of the 

Comptroller of the 

Currency

Alcohol

and

Tobacco

Tax and

Trade

Bureau

Combined 

Total Eliminations

2017 

Consolidated

FINANCIAL PROGRAM

Gross Cost $ - $ - $ 11,244 $ 2,028 $ 9,216

Less Earned Revenue - - (3,644) (675) (2,969)

Net Program Cost - - 7,600 1,353 6,247

ECONOMIC PROGRAM

Gross Cost 1,136 117 26,530 1,186 25,344

Less Earned Revenue (1,205) (6) (12,508) (312) (12,196)

Net Program Cost (69) 111 14,022 874 13,148

SECURITY PROGRAM

Gross Cost - - 504 68 436

Less Earned Revenue - - (30) (25) (5)

Net Program Cost - - 474 43 431

Total Net Program Cost (Revenue)

 Before Changes in Actuarial

 Assumptions (69) 111 22,096 2,270 19,826

(Gain)/Loss on Pension, ORB, or OPEB

 Assumption Changes - - 264 - 264

Total Net Cost of (Revenue From)

 Treasury Operations $ (69) $ 111 $ 22,360 $ 2,270 $ 20,090
120 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

21. ADDITIONAL INFORMATION RELATED TO THE COMBINED 

STATEMENTS OF BUDGETARY RESOURCES

UNDELIVERED ORDERS

Undelivered orders represent goods and services ordered and obligated which have not been received. This includes any

orders for which we have paid in advance, but for which delivery or performance has not yet occurred. Undelivered orders as

of September 30, 2018 and 2017 consisted of the following: 

 2018 2017 

(in millions) Federal NonFederal Total 

Paid $ 4 $ 10 $ 14 $ 11 

Unpaid 436 8,443 8,879 14,334 

Undelivered Orders at the End of the Year $ 440 $ 8,453 $ 8,893 $ 14,345 

CONTRIBUTED CAPITAL

Contributed capital represents the current year authority and prior year balances of amounts actually transferred through

non-expenditure transfers to miscellaneous receipt accounts of the General Fund to repay a portion of a capital investment

or transfer seigniorage and numismatic profits (refer to Note 19). Contributed capital for the fiscal years ended September

30, 2018 and 2017 was $48 million and $117 million, respectively. 

APPORTIONMENT CATEGORIES OF NEW OBLIGATIONS AND UPWARD ADJUSTMENTS

Apportionment categories are determined in accordance with the guidance provided in OMB Circular No. A-11, Preparation,

Submission and Execution of the Budget. Apportionment Category A represents resources apportioned for calendar

quarters. Apportionment Category B represents resources apportioned for other time periods for activities, projects or

objectives, or for any combination thereof. New obligations and upward adjustments for direct and reimbursable obligations

by apportionment category for the fiscal years ended September 30, 2018 and 2017 consisted of the following: 

(in millions) 2018 2017

Direct - Category A $ 3,999 $ 35

Direct - Category B 26,661 27,925

Direct - Exempt from Apportionment 530,793 467,038

Total Direct 561,453 494,998

Reimbursable - Category B 5,694 5,728

Reimbursable - Exempt from Apportionment 1,504 1,343

Total Reimbursable 7,198 7,071

Total Direct and Reimbursable $ 568,651 $ 502,069

TERMS OF BORROWING AUTHORITY USED

Several of our programs have authority to borrow under the FCRA, as amended. The FCRA provides indefinite borrowing

authority to financing accounts to fund the unsubsidized portion of direct loans and to satisfy obligations in the event the

financing account’s resources are insufficient. OMB Circular No. A-11 defines repayment requirements. Interest expense

due is calculated based on the beginning balance of borrowings outstanding and the borrowings/repayments activity that

occurred during the fiscal year. Undisbursed Departmental borrowings earn interest at the same rate as the financing
DEPARTMENT OF THE TREASURY 121 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

account pays on its debt owed to the Fiscal Service. In the event that principal and interest collections exceed the interest

expense due, we receive the excess payment. If principal and interest do not exceed interest expense due, we will borrow the

difference. We make periodic principal repayments based on the analysis of cash balances and future disbursement needs. 

All interest on borrowings is due on September 30. Interest rates on FCRA borrowings range from 1.92 percent to 6.36

percent.

AVAILABLE BORROWING

The available borrowing authority and related changes in available borrowing authority as of and for the fiscal years ended

September 30, 2018 and 2017 are shown below: 

(in millions) 2018 2017

Beginning Balance $ 6,600 $ 6,520

Current Authority 265 268

Borrowing Authority Converted to Cash (342) (188)

Ending Balance $ 6,523 $ 6,600

RECONCILIATION OF THE PRESIDENT’S BUDGET

The Budget of the United States (also known as the President’s Budget), with actual numbers for FY 2018, was not

published at the time that these financial statements were issued. The FY 2020 President’s Budget is expected to be

published in February 2019, will be located on the OMB website, and will be available from the U.S. Government Publishing

Office. The following chart displays the differences between the Combined Statement of Budgetary Resources (SBR) in the

FY 2017 AFR and the actual FY 2017 balances included in the FY 2019 President’s Budget.
122 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Reconciliation of FY 2017 Combined Statement of Budgetary Resources

to the FY 2019 President’s Budget

Obligations Outlays (net Distributed

Budgetary and Upward of offsetting Offsetting Net

(in millions) Resources Adjustments collections) Receipts Outlays

Combined Statement of Budgetary Resources (SBR) Amounts $ 818,517 $ 502,069 $ 495,608 $ (75,089) $ 420,519

IRS non-entity tax credit payments and other outlays not in SBR (1) 134,515 134,515 128,030 - 128,030

Tax and Trade Bureau (TTB) non-entity collections for Puerto Rico not in SBR 365 365 365 - 365

Expired funds in SBR (626) - - - -

Non-Treasury offsetting receipts - - - (800) (800)

Other (74) (76) (2) 34 32

President's Budget Amounts $ 952,697 $ 636,873 $ 624,001 $ (75,855) $ 548,146 (1) These are primarily refundable Earned Income Tax Credit, Refundable Premium Tax Credit and Child Tax Credit, reported with refunds as

custodial activities in our financial statements and thus are not reported as budgetary resources.

LEGAL ARRANGEMENTS AFFECTING USE OF UNOBLIGATED BALANCES

The use of unobligated balances is restricted based on annual legislation requirements or enabling authorities. Funds are

presumed to be available for only one fiscal year unless otherwise noted in the annual appropriation language. Unobligated

balances in unexpired Treasury account fund symbols are available in the next fiscal year for new obligations unless some

restrictions have been placed on those funds by law. In those situations, the restricted funding will be temporarily

unavailable until such time as the reasons for the restriction have been satisfied or legislation has been enacted to remove

the restriction.

Amounts in expired Treasury account fund symbols are not available for new obligations, but may be used to make

adjustments to reflect, and make disbursements to liquidate, obligations that were created before the budgetary authority

expired.

 
DEPARTMENT OF THE TREASURY 123 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

22. SOURCES AND DISPOSITION OF CUSTODIAL REVENUE 

We collect the majority of federal revenue from income and excise taxes. The table below shows collection activity, by

revenue type and tax year, for the fiscal years ended September 30, 2018 and 2017: 

Tax Year

Pre- 2018

(in millions) 2018 2017 2016 2016 Collections

Individual Income and FICA Taxes $ 1,932,522 $ 1,096,726 $ 33,528 $ 26,982 $ 3,089,758

Corporate Income Taxes 150,279 99,699 1,725 11,039 262,742

Estate and Gift Taxes 82 20,874 1,146 1,764 23,866

Excise Taxes 69,071 24,917 64 215 94,267

Railroad Retirement Taxes 4,929 1,390 1 4 6,324

Unemployment Taxes 4,554 4,103 40 110 8,807

Fines, Penalties, Interest & Other Revenue -

 Tax Related 255 1 - - 256

Tax Related Revenue Received 2,161,692 1,247,710 36,504 40,114 3,486,020

Deposit of Earnings, Federal Reserve System 52,639 18,111 - - 70,750

Fines, Penalties, Interest & Other Revenue -

 Non-Tax Related 4,555 901 - - 5,456

Non-Tax Related Revenue Received 57,194 19,012 - - 76,206

Total Revenue Received $ 2,218,886 $ 1,266,722 $ 36,504 $ 40,114 $ 3,562,226

Less Amounts Collected for Non-Federal Entities 455

Total $ 3,561,771

Tax Year

 Pre- 2017 

(in millions) 2017 2016 2015 2015 Collections

Individual Income and FICA Taxes $ 1,929,988 $ 988,750 $ 32,331 $ 25,375 $ 2,976,444

Corporate Income Taxes 218,569 108,883 1,773 9,304 338,529

Estate and Gift Taxes 162 20,873 1,050 1,695 23,780

Excise Taxes 62,684 22,455 40 154 85,333

Railroad Retirement Taxes 4,592 1,363 - 2 5,957

Unemployment Taxes 4,433 3,706 32 113 8,284

Fines, Penalties, Interest & Other Revenue -

 Tax Related 218 1 - 1 220

Tax Related Revenue Received 2,220,646 1,146,031 35,226 36,644 3,438,547

Deposit of Earnings, Federal Reserve System 61,837 19,450 - - 81,287

Fines, Penalties, Interest & Other Revenue -

 Non-Tax Related 3,952 868 - - 4,820

Non-Tax Related Revenue Received 65,789 20,318 - - 86,107

Total Revenue Received $ 2,286,435 $ 1,166,349 $ 35,226 $ 36,644 $ 3,524,654

Less Amounts Collected for Non-Federal Entities 370

Total $ 3,524,284
124 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

AMOUNTS PROVIDED TO FUND THE U.S. GOVERNMENT 

For the fiscal years ended September 30, 2018 and 2017, collections of custodial revenue transferred to other federal entities

were as follows: 

(in millions) 2018 2017

Department of the Interior $ 625 $ 760

General Fund 3,096,979 3,086,201

Total $ 3,097,604 $ 3,086,961

FEDERAL TAX REFUNDS AND OTHER PAYMENTS 

Federal tax refunds and other payments include amounts paid to taxpayers who have paid more than the actual taxes they

owe, as well as payments for various refundable tax credits. Refunds and other payments, by revenue type and tax year,

were as follows for the years ended September 30, 2018 and 2017: 

Tax Year

2018

Pre- Refunds/

(in millions) 2018 2017 2016 2016 Payments

Individual Income and FICA Taxes $ 54,368 $ 307,878 $ 29,831 $ 9,314 $ 401,391

Corporate Income Taxes 4,827 25,870 9,197 20,195 60,089

Estate and Gift Taxes - 279 353 290 922

Excise Taxes 410 642 140 443 1,635

Railroad Retirement Taxes - 4 (1) 1 4

Unemployment Taxes - 84 17 24 125

Fines, Penalties, Interest & Other Revenue - - - 1 1

Total $ 59,605 $ 334,757 $ 39,537 $ 30,268 $ 464,167

Tax Year

2017

Pre- Refunds

(in millions) 2017 2016 2015 2015 Payments

Individual Income and FICA Taxes $ 46,278 $ 306,351 $ 27,804 $ 8,734 $ 389,167

Corporate Income Taxes 5,167 14,447 7,758 17,523 44,895

Estate and Gift Taxes - 188 381 478 1,047

Excise Taxes 411 956 224 462 2,053

Railroad Retirement Taxes - 3 - (1) 2

Unemployment Taxes 1 114 15 29 159

Total $ 51,857 $ 322,059 $ 36,182 $ 27,225 $ 437,323

FEDERAL TAX REFUNDS AND OTHER AMOUNTS PAYABLE

As of September 30, 2018 and 2017, refunds and other amounts payable consisted of the following:

(in millions) 2018 2017

Internal Revenue Service $ 2,975 $ 3,062

Alcohol and Tobacco Tax and Trade Bureau 19 12

Total $ 2,994 $ 3,074
DEPARTMENT OF THE TREASURY 125 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

23. FUNDS FROM DEDICATED COLLECTIONS

The ESF represents the majority of our FDC activities. In addition, such funds managed by BEP, Mint, and OCC (our nonappropriated bureaus) and certain funds managed by the IRS are public enterprise (or revolving) funds and receive no

appropriations from the Congress. Fiscal Service, DO, IRS, OFR, TFF, and the CDFI Fund manage other miscellaneous

FDCs.

The following is a list of FDCs and a brief description of the purpose, accounting, and uses of these funds.

Bureau Fund Code Fund Title/Description

Exchange Stabilization Fund (ESF)

ESF 020X4444 Exchange Stabilization Fund

Public Enterprise/Revolving Funds

BEP 020X4502 Bureau of Engraving and Printing Fund

Mint 020X4159 Public Enterprise Fund

OCC 020X8413 Assessment Funds

IRS 020X4413 Federal Tax Lien Revolving Fund

Other FDC Funds

Fiscal Service 020X5080 Gifts to Reduce Public Debt

Fiscal Service 020X5081 Presidential Election Campaign

Fiscal Service 020X8625 Gulf Coast Restoration Trust Fund

Fiscal Service 020X8902 Esther Cattell Schmitt Gift Fund

Fiscal Service 5805585 Travel Promotion Fund, Corp for Travel Promotion

Fiscal Service 580X5585 Travel Promotion Fund, Corp for Travel Promotion

Fiscal Service 020X5581 HOPE Reserve Fund

Fiscal Service 0205445002 Debt Collection Special Fund

Fiscal Service 0205445003 Debt Collection Special Fund

Fiscal Service 0202/35445 Debt Collection Special Fund

Fiscal Service 0203/45445 Debt Collection Special Fund 

Fiscal Service 0204/55445 Debt Collection Special Fund

Fiscal Service 0205/65445 Debt Collection Special Fund

Fiscal Service 0206/75445 Debt Collection Special Fund

Fiscal Service 0207/85445 Debt Collection Special Fund

Fiscal Service 0208/95445 Debt Collection Special Fund

DO 020X8790 Gifts and Bequests Trust Fund

IRS 020X5510 Private Collection Agency Program

IRS 020X5433 Informant Reimbursement

IRS 020X5622 Special Compliance Personnel Program Account

OFR 020X5590 Financial Research Fund

TFF 020X5697 Treasury Forfeiture Fund

CDFI 020X8524 Capital Magnet Fund
126 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Pursuant to the legal authority found in Section 10 of the Gold Reserve Act of 1934, as amended, the Secretary, through the

ESF, may purchase or sell foreign currencies, hold foreign exchange investments and SDR assets, and may provide financing

to foreign governments and foreign entities. The ESF accounts for and reports its holdings to the Fiscal Service on the

Standard Form 224, “Statement of Transactions,” and provides other reports to Congress. Interest on SDRs in the IMF,

investments in Treasury securities, and investments in foreign currency assets are the ESF’s primary sources of revenue. 

The ESF’s earnings and realized gains on foreign currency assets represent inflows of resources to the government, and the

interest revenues earned from Treasury securities are the result of intra-departmental flows.

The BEP, Mint, OCC, and IRS operate “public enterprise/revolving funds” to account for all or some of their respective

revenues and expenses. 31 USC 5142 established the Bureau of Engraving and Printing Fund for BEP to account for

revenue and expenses related to the currency printing activities. P.L. 104-52 (31 USC 5136) established the Public

Enterprise Fund for the Mint to account for all revenue and expenses related to the production and sale of numismatic

products and circulating coinage. Revenues and other financing sources at the Mint are mainly from the sale of numismatic

and bullion products and the sale of circulating coins to the FRB system. These revenues represent inflows of resources to

the government. 12 USC 481 established the Assessment Funds for OCC. Revenue and financing sources are from the bank

assessments for the oversight of the national banks, federal savings associations, and federal branches and agencies of

foreign banks. These non-appropriated funds contribute to the inflows of resources to the government to specifically fund

these entities’ operations. 26 USC 7810 established the Federal Tax Lien Revolving Fund to account for revenue and

expenses from the sale of property foreclosed upon by a holder of a lien. Such revenue represents inflows of resources to the

U.S. government. There are minimal transactions with other government agencies.

There are other FDCs at several of our bureaus, such as donations to the Presidential Election Campaign Fund, gifts to

reduce the public debt, and other enforcement related activities. Public laws and the U.S. Code established and authorized

the use of these funds. Sources of revenues and other financing sources include contributions, cash and property forfeited in

enforcement activities, public donations, and other allocations, all which represent inflows to the government.

INTRA-GOVERNMENTAL INVESTMENTS IN TREASURY SECURITIES

The U.S. government does not set aside assets to pay future benefits or other expenditures associated with FDCs. Our

bureaus and other federal agencies invest some of the funds that they collect from the public, if they have the statutory

authority to do so, in Treasury securities. The Fiscal Service collects cash and makes deposits in the General Fund, which is

then available for general government purposes.

When our bureaus or other federal agencies redeem these securities to make expenditures, the government finances those

redemptions out of accumulated cash balances, by collecting taxes or other receipts, by borrowing from the public, or by

curtailing expenditures. This is the same way that the government finances all other expenditures.

The securities are an asset to our bureaus and other federal agencies and a liability of the General Fund. Because our

bureaus and other federal agencies are parts of the U.S. government, these assets and liabilities offset each other from the

standpoint of the government as a whole. For this reason, they do not represent an asset or a liability in the U.S.

government-wide financial statements.

Our financial statements do not display the balances related to the investments made by our bureaus because the bureaus

are subcomponents of the Department. However, the General Fund remains liable to the Fiscal Service for the invested

balances and the Fiscal Service remains liable to the investing bureaus (refer to Note 4).
DEPARTMENT OF THE TREASURY 127 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Summary Information for Funds from Dedicated Collections

as of and for the Fiscal Year Ended September 30, 2018

Public

Exchange Enterprise/

Stabilization Revolving Other FDC Combined

(in millions) Fund Funds Funds FDC Funds

ASSETS

Fund Balance $ - $ 1,328 $ 1,175 $ 2,503

Investments and Related Interest - Intra-governmental 22,314 1,834 2,899 27,047

Cash, Foreign Currency and Other Monetary Assets 64,834 - 39 64,873

Investments and Related Interest 7,045 - - 7,045

Other Assets - 1,351 194 1,545

Total Assets $ 94,193 $ 4,513 $ 4,307 $ 103,013

LIABILITIES

Intra-governmental Liabilities $ - $ 30 $ 1,205 $ 1,235

Certificates Issued to the Federal Reserve 5,200 - - 5,200

Allocation of Special Drawing Rights 49,274 - - 49,274

Other Liabilities 80 727 134 941

Total Liabilities 54,554 757 1,339 56,650

Net Position

Unexpended Appropriations 200 - - 200

Cumulative Results of Operations 39,439 3,756 2,968 46,163

Total Liabilities and Net Position $ 94,193 $ 4,513 $ 4,307 $ 103,013

Statement of Net Cost

Gross Cost $ 7,596 $ 3,767 $ 772 $ 12,135

Less: Earned Revenue (7,619) (3,671) (325) (11,615)

Gains/Losses on Pension, ORB, or OPEB Assumption Changes - (3) - (3)

Total Net Cost of (Revenue From) Operations $ (23)$ 93 $ 447 $ 517

Statement of Changes in Net Position

Cumulative Results of Operations:

Beginning Balance $ 39,416 $ 3,717 $ 3,718 $ 46,851

Budgetary Financing Sources - - (594) (594)

Other Financing Sources - 132 291 423

Total Financing Sources - 132 (303) (171)

Revenue From (Net Cost of) Operations 23 (93) (447) (517)

Change in Net Position 23 39 (750) (688)

Ending Balance $ 39,439 $ 3,756 $ 2,968 $ 46,163
128 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Summary Information for Funds from Dedicated Collections

as of and for the Fiscal Year Ended September 30, 2017

Public

Exchange Enterprise/

Stabilization Revolving Other FDC Combined

(in millions) Fund Funds Funds FDC Funds

ASSETS

Fund Balance $ - $ 1,048 $ 1,060 $ 2,108

Investments and Related Interest - Intra-governmental 22,091 1,793 3,606 27,490

Cash, Foreign Currency and Other Monetary Assets 64,142 - 12 64,154

Investments and Related Interest 8,541 - - 8,541

Other Assets - 1,591 228 1,819

Total Assets $ 94,774 $ 4,432 $ 4,906 $ 104,112

LIABILITIES

Intra-governmental Liabilities $ - $ 29 $ 1,075 $ 1,104

Certificates Issued to the Federal Reserve 5,200 - - 5,200

Allocation of Special Drawing Rights 49,912 - - 49,912

Other Liabilities 46 686 113 845

Total Liabilities 55,158 715 1,188 57,061

Net Position

Unexpended Appropriations 200 - - 200

Cumulative Results of Operations 39,416 3,717 3,718 46,851

Total Liabilities and Net Position $ 94,774 $ 4,432 $ 4,906 $ 104,112

Statement of Net Cost

Gross Cost $ 7,655 $ 4,103 $ 698 $ 12,456

Less: Earned Revenue (7,434) (4,148) (322) (11,904)

Total Net Cost of (Revenue From) Operations $ 221 $ (45)$ 376 $ 552

Statement of Changes in Net Position

Cumulative Results of Operations:

Beginning Balance $ 39,637 $ 3,492 $ 3,981 $ 47,110

Budgetary Financing Sources - (19) (168) (187)

Other Financing Sources - 199 281 480

Total Financing Sources - 180 113 293

Revenue From (Net Cost of) Operations (221) 45 (376) (552)

Change in Net Position (221) 225 (263) (259)

Ending Balance $ 39,416 $ 3,717 $ 3,718 $ 46,851
DEPARTMENT OF THE TREASURY 129 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

24. RECONCILIATION OF NET COST OF TREASURY OPERATIONS AND

NON-ENTITY COSTS TO BUDGET

The Reconciliation of Net Cost of Operations to Budget explains the difference between the budgetary net obligations and the

proprietary net cost of Treasury operations and non-entity costs. For the fiscal years ended September 30, 2018 and 2017,

the Reconciliation of Net Cost of Operations to Budget consisted of the following:

(in millions) 2018 2017

RESOURCES USED TO FINANCE ACTIVITIES

Budgetary Resources Obligated:

New Obligations and Upward Adjustments (Note 21) $ 568,651 $ 502,069

Less: Actual Offsetting Collections and Recoveries of Prior Year Unpaid

 Obligations, Net of Change in Uncollected Payments (15,760) (10,508)

New Obligations and Upward Adjustments Net of Offsetting Collections and Recoveries 552,891 491,561

Less: Distributed Offsetting Receipts (61,467) (75,089)

Net Obligations 491,424 416,472

Other Resources:

Donations and Forfeiture of Property 156 106

Financing Sources for Accrued Interest and Discount on Debt 21,395 11,266

Financing Sources for Accrued Interest on Restoration of Federal Debt Principal (Note 15) (660) 660

Imputed Financing Sources from Cost Absorbed by Others 779 552

Transfers to the General Fund and Other (Note 19) (77,468) (55,225)

Net Other Resources Used to Finance Activities (55,798) (42,641)

Total Resources Used to Finance Activities 435,626 373,831

RESOURCES USED TO FINANCE ITEMS NOT PART OF THE NET COST OF

 TREASURY OPERATIONS AND NON-ENTITY COSTS

Change in Budgetary Resources Obligated for Goods, Services, and Benefits Ordered but not

 yet Provided (6,812) (3,934)

Resources that Fund Expenses Recognized in Prior Periods 697 (77)

Budgetary Offsetting Collections & Receipts that do not affect Net Cost of Treasury

 Operations and Non-Entity Costs (59,334) (73,724)

Adjustment to Accrued Interest and Discount on Debt 15,303 13,839

Resources that Finance the Acquisition of Assets or Liquidation of Liabilities 490 (551)

Other Resources or Adjustments to Net Obligated Resources that do not Affect Net Cost of

 Treasury Operations and Non-Entity Costs (1,767) 436

Total Resources Used to Finance Items Not Part of the Net Cost of Treasury Operations and

 Non-Entity Costs (51,423) (64,011)

Total Resources Used to Finance the Net Cost of Treasury Operations and Non-

 Entity Costs 487,049 437,842

Total Components of Net Cost of Treasury Operations and Non-Entity Costs That Will

 Require or Generate Resources in Future Periods (411) (26)

Total Components of Net Cost of Treasury Operations and Non-Entity Costs That Will Not

 Require or Generate Resources(a) 1,611 832

Total Components of Net Cost of Treasury Operations and Non-Entity Costs

 That Will Not Require or Generate Resources in the Current Period 1,200 806

Net Cost of Treasury Operations and Non-Entity Costs $ 488,249 $ 438,648

(a) The Components not requiring or generating resources primarily include depreciation and amortization and revaluation of assets or

liabilities. 
130 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

25. SCHEDULE OF FIDUCIARY ACTIVITY

We have identified the following funds as meeting the criteria for fiduciary activity. Details of the funds are provided below.

Bureau Fund Code Authority Fund Title/Description

Fiscal Service 020X6133 31 USC 1322 Payment of Unclaimed Monies

BEP 020X6513.013 31 USC 5119 Mutilated Currency Claims Funds

Fiscal Service 020X6045 31 USC 3328 Proceeds, Payments of Unpaid Checks

Fiscal Service 020X6048 31 USC 3329, 3330 Proceeds of Withheld Foreign Checks

Fiscal Service 020015X6078 50 APP. USC 2012 War Claims Fund, Foreign Claims Settlement Commission

Fiscal Service 020X6092 31 USC 1321 Debt Management Operations

Fiscal Service 020X6104 22 USC 1627 Albanian Claims Fund, Treasury

Fiscal Service 020X6210 22 USC 1623 Iraq Claims Settlement Fund

Fiscal Service 020X6309 22 USC 1627(a) Libyan Claims Settlement Fund

Fiscal Service 020X6310 22 USC 1627(a) Libyan Claims Settlement Fund

Fiscal Service 020X6312 22 USC 1627 Iranian Claims Settlement Fund

Fiscal Service 020X6314 22 USC 1644g German Democrat Settlement Fund

Fiscal Service 020X6315 22 USC 1645h Vietnam Claims Settlement Fund

Fiscal Service 020X6501.018 31 USC 3513 Small Escrow Amounts

Fiscal Service 020X6720 31 USC 3513 Small Difference Account for Deposit and Check Adjustments

Fiscal Service 020X6830 104 Stat. 1061 Net Interest Payments to/from State

Fiscal Service 020X6999 31 USC 3513 Accounts Payable, Check Issue Underdrafts

Fiscal Service 020X6317.001 22 USC 2431 Belize Escrow, Debt Reduction

IRS 020X6737 90 Stat. 269-270 Internal Revenue Collections for Northern Mariana Island

IRS 020X6738 31 USC 3513 Coverover Withholdings-U.S. Virgin Islands

IRS 020X6740 31 USC 3515 Coverover Withholdings-Guam

IRS 020X6741 31 USC 3513 Coverover Withholdings-American Samoa

“Payment of Unclaimed Monies” is a fund authorized by 31 USC 1322, permitting the Fiscal Service to collect unclaimed

monies on behalf of the public. Our other fiduciary activities as listed above are included in All Other Fiduciary Funds.

Schedule of Fiduciary Activity

2018 2017

Payment of All Payment of All

Unclaimed Other Total Unclaimed Other Total

Monies Fiduciary Fiduciary Monies Fiduciary Fiduciary

(in millions) Fund Funds Funds Fund Funds Funds

Fiduciary Net Assets, Beginning of

 the Year $ 696 $ 98 $ 794 $ 647 $ 132 $ 779

Increases:

 Contributions to Fiduciary Net Assets 54 448 502 51 382 433

 Investment earnings - 1 1 - - -

Total Increases 54 449 503 51 382 433

Decreases:

 Disbursements to and on behalf

 of beneficiaries (1) (492) (493) (2) (416) (418)

Total Decreases (1) (492) (493) (2) (416) (418)

Net Increase (Decrease) in

 Fiduciary Assets 53 (43) 10 49 (34) 15

Fiduciary Net Assets, End of Year $ 749 $ 55 $ 804 $ 696 $ 98 $ 794
DEPARTMENT OF THE TREASURY 131 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Schedule of Fiduciary Net Assets

2018 2017

Payment of All Payment of All

Unclaimed Other Total Unclaimed Other Total

Monies Fiduciary Fiduciary Monies Fiduciary Fiduciary

(in millions) Fund Funds Funds Fund Funds Funds

Fiduciary Net Assets

Cash and Cash Equivalents $ 749 $ 46 $ 795 $ 696 $ 42 $ 738

Investments - 14 14 - 61 61

Total Fiduciary Assets 749 60 809 696 103 799

Less: Fiduciary Liabilities - (5) (5) - (5) (5)

Total Fiduciary Net Assets $ 749 $ 55 $ 804 $ 696 $ 98 $ 794

26. COMMITMENTS AND CONTINGENCIES

LEGAL CONTINGENCIES

We are a party in various administrative proceedings, legal actions, and claims, which may ultimately result in settlements

or decisions adverse to the U.S. government. These contingent liabilities arise in the normal course of operations and their

ultimate disposition is unknown. We disclose contingent liabilities where the conditions for liability recognition have not

been met and the likelihood of unfavorable outcome is more than remote. We do not accrue for possible losses related to

cases where we cannot estimate the potential loss or the likelihood of an unfavorable outcome is less than probable.

In some cases, a portion of any loss that may occur may be paid by our Judgment Fund, which is separate from our operating

resources. For cases related to the Contract Disputes Act of 1978 (P.L. 95-563) and awards under federal anti-discrimination

and whistle-blower protection acts, we must reimburse the Judgment Fund from future appropriations.

In the opinion of our management and legal counsel, based on information available as of the date of this report, the

expected outcome of other legal actions, individually or in the aggregate, will not have a materially adverse effect on our

consolidated financial statements, except for the pending legal actions described below which may have a materially adverse

impact on our consolidated financial statements depending on the outcomes of the cases.

Pending Legal Actions

• Tribal Trust Fund Cases: Native American tribes have filed numerous cases in the U.S. District Courts seeking a 

declaration that the U.S. has not provided the tribes with a full and complete accounting of their trust funds, and also

seeking an order requiring the U.S. government to provide such an accounting. In addition, there are a number of other

related cases seeking damages in the U.S. Court of Federal Claims, which do not name us as a defendant. The U.S.

government is currently in discussion with counsel representing most of the remaining plaintiff tribes with tribal trust

fund cases pending against the U. S. about the feasibility of an out-of-court settlement. Plaintiff tribes in several of the

pending cases have chosen to pursue active litigation, rather than settlement discussion, and the U.S. government is

litigating those cases vigorously. We are unable to determine the likelihood of an unfavorable outcome or an estimate of

potential loss at this time.

• GSE Related Cases: A number of cases were filed in the U.S. Court of Federal Claims and U.S. District Courts in which

the plaintiffs allege, among other things, that the U.S. government took their property, breached contractual rights of

preferred and common stockholders, and breached fiduciary duties when the third amendments to the SPSPAs between
132 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

us and each GSE were executed in August 2012 (refer to Note 10). One case also alleges that the U.S. government took

plaintiffs’ property and contractual rights when the GSEs were placed into conservatorship and entered into the SPSPAs

with us in September 2008. In the U.S. Court of Federal Claims, the plaintiffs seek just compensation and other

damages from the U.S. government. In the U.S. District Courts, the plaintiffs seek to set aside the third amendments to

the SPSPAs as well as damages, and in some cases a declaration that the FHFA’s structure violates the separation of

powers. Cases in the U.S. District Court for the Northern District of Illinois and the U.S. District Court for the Eastern

District of Kentucky have been dismissed by the District Courts and the Sixth and Seventh Circuit Courts of Appeals

affirmed dismissal. A case in the U.S. District Court for the Southern District of Texas has been dismissed by the

District Court and the Fifth Circuit Court of Appeals affirmed dismissal of all claims against the Department; rehearing

petitions are pending. Cases in the U.S. District Court for the Northern District of Iowa, the U.S. District Court for the

District of Delaware, and the U.S. District Court for the District of Minnesota have been dismissed by the District Court

and appeals are pending. A case in the Western District of Michigan remains in litigation and motions to dismiss are

pending. We are unable to determine the likelihood of an unfavorable outcome or an estimate of potential loss in these

cases at this time.

• Unredeemed Savings Bonds Related Cases: A number of plaintiffs filed claims in the U.S. Court of Federal Claims

requesting that we redeem matured savings bonds not possessed by the applicable states, but which have registered

owners with last known addresses in those states. We informed the applicable states we would not redeem these

savings bonds since those states were not the registered owners of the bonds. On August 20, 2015, the U.S. Court of

Federal Claims partially dismissed one claim and denied the U.S. government’s motion to dismiss with respect to other

claims. On August 8, 2017, the court ruled in favor of two states, and the U.S. government has appealed. We are unable

to determine the likelihood of an unfavorable outcome or an estimate of potential loss at this time.

• Adam Steele, Brittany Montrois, and Joseph Henchman v. United States: The plaintiffs filed a class claim in the U.S.

District Court for the District of Columbia seeking refunds of all user fees paid, plus interest, to obtain a preparer tax

identification number (PTIN). Additionally, the plaintiffs seek to force us to cease charging a user fee to obtain a PTIN

and asking for more information than is necessary to issue a PTIN. On June 1, 2017, the U.S. District Court for the

District of Columbia found for the plaintiffs in the previously mentioned matters and the U.S. government has appealed. 

We are unable to determine the likelihood of an unfavorable outcome or an estimate of potential loss at this time.

• Anonymous Whistleblower Cases: A number of whistleblower cases were filed in the U.S. Tax Court under seal,

appealing the denial of an award by the IRS Whistleblower Office. The anonymous claimants allegedly provided

confidential information about tax fraud committed by multiple taxpayers to the IRS. The U.S. Tax Court is currently

holding these cases in abeyance until it determines the scope and standard of review it will follow. We are unable to

determine the likelihood of an unfavorable outcome or an estimate of potential loss at this time. 

• American Recovery and Reinvestment Tax Act of 2009 (ARRA) Related Cases: A number of cases were filed in the U.S.

Court of Federal Claims alleging that the U.S. government violated statutory and regulatory mandates to make proper

payments to plaintiffs under ARRA, Section 1603, for having placed certain energy properties into service. We have

determined there is a reasonably possible likelihood of an unfavorable outcome in some of the cases. On October 28,

2016, the U.S. Court of Federal Claims entered judgment against the U. S. in the amount of $207 million in one of the

cases. The U.S. government appealed the judgment, and on July 27, 2018, the Federal Circuit reversed the trial court’s

decision, vacated judgment, and remanded the case to the U.S. Court of Federal Claims for reassignment to a new judge. 

The case remains in litigation. Additional related cases with alleged damages of approximately $49 million have been

filed. The U.S. Court of Federal Claims dismissed an unrelated case with alleged damages of $47 million. The plaintiff

has appealed the dismissal and the case remains in litigation. Additional unrelated cases with alleged damages of $59

million and $127 million remain in litigation.
DEPARTMENT OF THE TREASURY 133 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

• Other Legal Actions: We are also involved in employment related legal actions (e.g., matters alleging discrimination and

other claims before federal courts, the Equal Employment Opportunity Commission, and the Merit Systems Protection

Board) for which an unfavorable outcome is reasonably possible, but for which an estimate of potential loss cannot be

determined at this time. We do not expect that these cases will have a material adverse effect on our consolidated

financial position or results. 

OTHER COMMITMENTS AND CONTINGENCIES

Loan Commitments

Through the FFB, we make loan commitments with federal agencies, or private sector borrowers with loans guaranteed by

federal agencies, to extend them credit for their own use (refer to Notes 1L and 3). As of September 30, 2018 and 2017, we

had loan commitments totaling $14.4 billion and $11.9 billion, respectively.

Multilateral Development Banks

On behalf of the U.S., we have subscribed to shares of certain MDBs, of which some shares represent capital commitments

that are callable under certain limited circumstances to meet the obligations of the respective MDB. There has never been,

nor is there anticipated, a call on the U.S. commitment for these subscriptions. As of September 30, 2018 and 2017, U.S.

callable capital in MDBs was as follows:

(in millions) 2018 2017

Inter-American Development Bank $ 49,181 $ 49,181

International Bank for Reconstruction and Development 43,521 43,521

Asian Development Bank 18,702 18,702

African Development Bank 5,100 4,592

European Bank for Reconstruction and Development 3,055 3,055

North American Development Bank 1,275 1,275

Multilateral Investment Guarantee Agency(1) 315 315

Total $ 121,149 $ 120,641

(1) Both FY 2018 and 2017 include commitments of $22 million for the undisbursed portion of the subscription to paid-in capital

investments. 

Terrorism Risk Insurance Program

Congress originally enacted the Terrorism Risk Insurance Act in November 2002, to address market disruptions resulting

from terrorist attacks on September 11, 2001. Most recently, the Terrorism Risk Insurance Program Reauthorization Act of

2015 (P.L. 114-1) extended the Terrorism Risk Insurance Program (TRIP) until December 31, 2020. The TRIP helps to

ensure available and affordable commercial property and casualty insurance for terrorism risk, and simultaneously allows

private markets to stabilize. The authority to pay claims under the TRIP is activated when the Secretary (in consultation

with the Secretary of the Department of Homeland Security and the Attorney General of the United States) certifies an “act

of terrorism.” In the event of certification of an “act of terrorism,” insurers may be eligible to receive reimbursement from

the U.S. government for associated insured losses – assuming an aggregate insured loss threshold (“program trigger”) has

been reached – once a particular insurer has satisfied its designated deductible amount. For calendar years 2018 and 2017,

the program trigger amount was $160 million and $140 million, respectively. This amount will increase by $20 million

annually through calendar year 2020. Insured losses above insurer deductibles will be shared between insurance companies

and the U.S. government. The TRIP includes both mandatory and discretionary authority for Treasury to recoup federal

payments made under the TRIP through policyholder surcharges under certain circumstances, and contains provisions
134 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

designed to manage litigation arising from or relating to a certified act of terrorism. There were no claims under the TRIP as

of September 30, 2018 or 2017.

Exchange Stabilization Agreement

The North American Framework Agreement (NAFA), which we signed in 1994, is implemented by Treasury through the

Exchange Stabilization Agreement (ESA) with Mexico. Treasury, through the ESF, offers Mexico a swap line with drawings

contingent on certain conditions being met. The swap line has been in an amount of up to $3.0 billion, as of September 30

2018 and 2017. On October 17, 2018, Treasury and Mexico announced that they had decided to amend the ESA to increase

the potential size of the swap line from the $3.0 billion to $9.0 billion. The amounts and terms (including the assured source

of repayment) of any swap arrangement under the NAFA and/or the ESA will have to be negotiated and agreed to before any

actual drawing can occur. There were no drawings outstanding on the ESF swap line as of September 30, 2018 and 2017. 

IMF Commitments

The U.S. participates in the IMF through a quota subscription and the NAB which is a borrowing arrangement that

supplements IMF resources. As of September 30, 2018 and 2017, the U. S. financial commitment under the U.S. quota was

SDR 83.0 billion, which was equivalent to $115.6 billion and $117.1 billion, respectively. Its financial commitment under the

NAB arrangement was SDR 28.2 billion as of September 30, 2018 and 2017, which was equivalent to $39.3 billion and $39.9

billion, respectively. Refer to Note 7 for further information.

Housing Programs Under TARP

We design housing programs under TARP to provide stability for both the housing market and homeowners. These

programs assist homeowners who are experiencing financial hardships to remain in their homes until their financial position

improves or they relocate to a more sustainable living situation, and to obtain other assistance designed to prevent

foreclosures. As of September 30, 2018 and 2017, we had committed up to $33.4 billion and $37.4 billion, respectively, for 

these programs. Outstanding commitments totaled $4.7 billion and $10.8 billion as of September 30, 2018 and 2017,

respectively. For FY 2018 and 2017, payments made on behalf of the housing programs under TARP totaled $2.2 billion and

$4.1 billion, respectively, reported within the Financial Program on our Consolidated Statements of Net Cost. 

Commitment to GSEs

The SPSPAs between us and each GSE, which have no expiration date, provide for us to disburse funds to the GSEs if, at the

end of any quarter, the FHFA determines that the liabilities exceed the GSE’s assets. At September 30, 2018 and 2017, our

maximum remaining potential commitment to the GSEs was $254.1 billion and $258.1 billion, respectively. Refer to Note 10

for further information.
DEPARTMENT OF THE TREASURY 135 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED – SEE ACCOMPANYING

AUDITORS’ REPORT) 

INTRODUCTION

This section provides the Required Supplementary Information as prescribed by accounting standards.

OTHER CLAIMS FOR REFUNDS

We estimated that $12.9 billion and $10.4 billion as of September 30, 2018 and 2017, respectively, may be payable as other

claims for tax refunds. This estimate represents amounts (principal and interest) that we may pay for claims pending

judicial review by the federal courts or internally, by Appeals. In FY 2018, the total estimated payout (including principal

and interest) for claims pending judicial review by the federal courts and appeals courts is $11.1 billion and $1.8 billion,

respectively. In FY 2017, the total estimated payout (including principal and interest) for claims pending judicial review by

the federal courts and appeals courts was $8.2 billion and $2.2 billion, respectively. To the extent judgments against the

government in these cases prompt other similarly situated taxpayers to file similar refund claims, these amounts could

become significantly greater.

IRS FEDERAL TAXES RECEIVABLE, NET

In accordance with SFFAS No. 7, some unpaid tax assessments do not meet the criteria for financial statement recognition. 

Internal Revenue Code 6201 authorizes and requires us to make inquiries, determinations, and assessments of all taxes

which taxpayers have not duly paid (including interest, additions to the tax, and assessable penalties) under the law. 

Unpaid assessments result from taxpayers filing returns without sufficient payment, as well as from tax compliance

programs such as examination, under-reporter, substitute for return, and combined annual wage reporting. We also have

authority to abate the paid or unpaid portion of an assessed tax, interest, and penalty. Abatements occur for a number of

reasons and are a normal part of the tax administration process. Abatements may result in claims for refunds or a reduction

of the unpaid assessed amount.

Under federal accounting standards, we consider unpaid assessments which require taxpayer or court agreement federal

taxes receivable. We consider assessments not agreed to by taxpayers or the courts compliance assessments and not federal

taxes receivable. Due to the lack of agreement, these compliance assessments are less likely to have future collection

potential than those unpaid assessments that we consider federal taxes receivable.

We call assessments with little or no future collection potential write-offs. Write-offs principally consist of amounts owed by

deceased, bankrupt, or defunct taxpayers, including many failed financial institutions liquidated by the Federal Deposit

Insurance Corporation and the former Resolution Trust Corporation. Write-offs have little or no future collection potential,

but statutory provisions require that we maintain these assessments until the statute for collection expires.

Although we do not consider compliance assessments and write-offs receivables under federal accounting standards, they

represent legally enforceable claims of the U.S. government. 

The components of the total unpaid assessments at September 30, 2018 and 2017, were as follows: 
136 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

(in millions) 2018 2017

Total Unpaid Assessments $ 398,000 $ 382,000

Less Compliance Assessments (65,000) (74,000)

Write Offs (115,000) (111,000)

Gross Federal Taxes Receivable 218,000 197,000

Less Allowance for Doubtful Accounts (160,000) (145,000)

Federal Taxes Receivables, Net $ 58,000 $ 52,000

To eliminate double counting, the compliance assessments reported above exclude trust fund recovery penalties assessed

against officers and directors of businesses involved in the non-remittance of federal taxes withheld from their employees. 

The penalties totaled $1 billion as of September 30, 2018 and 2017, respectively. We report the related unpaid assessments

of those businesses as taxes receivable or write-offs, but we may also recover portions of those businesses’ unpaid

assessments from any and all individual officers and directors against whom we assess a trust fund recovery penalty.

ALCOHOL AND TOBACCO TAX AND TRADE BUREAU

As an agent of the U.S. government and as authorized by 26 USC, the TTB collects excise taxes from alcohol, tobacco,

firearms, and ammunition industries. In addition, the TTB collects special occupational taxes from certain tobacco

businesses. During FY 2018 and 2017, TTB collected approximately $20.6 billion and $21.8 billion in taxes, interest, and

other revenues, respectively. TTB also collects Federal excise taxes on certain articles produced in Puerto Rico and the

Virgin Islands, and imported into the U.S. In accordance with 26 USC 7652, such taxes collected on rum imported into the

U.S. are “covered over” or paid into the treasuries of Puerto Rico and the Virgin Islands.

TTB remits substantially all of the taxes collected, net of related refund disbursements, to the General Fund. We further

distribute this revenue to Federal agencies in accordance with various laws and regulations. The firearms and ammunition

excise taxes are an exception. TTB remits those revenues to the Fish and Wildlife Restoration Fund under provisions of the

Pittman-Robertson Act of 1937.

DEFERRED MAINTENANCE AND REPAIRS

In FY 2018 and 2017, we had no material amounts of deferred maintenance and repair costs to report on vehicles, buildings,

and structures we owned.

Deferred maintenance and repairs applies to owned PP&E. Deferred maintenance and repairs are maintenance and repair

activity that we had not performed when it should have been, or scheduled to be, and put off or delayed for a future period. 

We define maintenance and repairs as the act of keeping capitalized assets in an “acceptable condition” to serve their

required mission. It includes preventive maintenance, normal repairs, replacement of parts and structural components, and

other activities needed to preserve the asset so that it continues to provide acceptable services and achieves its expected

useful life. Deferred maintenance and repairs excludes activities aimed at expanding the capacity or significantly upgrading

the assets to a different form than it was originally intended (i.e., activities related to capitalized improvements,

modernization, and/or restoration).

Logistic personnel use condition assessment surveys and/or the total life-cycle cost methods to determine if there are any

deferred maintenance and repairs needed to keep an asset in acceptable operating condition. We use periodic condition

assessments, physical inspections, and review of manufacturing and engineering specifications, work orders, and building

and other structure logistics reports under these methodologies. 
DEPARTMENT OF THE TREASURY 137 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

STATEMENT OF BUDGETARY RESOURCES DISAGGREGATED BY TREASURY REPORTING ENTITY

The following tables provide the Statement of Budgetary Resources for the fiscal years ended September 30, 2018 and 2017

disaggregated by Treasury reporting entity rather than by Treasury major budget account, since we manage our budget at

the reporting entity level. 
138 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Fiscal Year 2018 Combining Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

Bureau of Bureau of Fin. Crimes Internal

Engraving & the Fiscal Departmental Enforcement Revenue

(in millions): Printing Service Offices (a) Network Service

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net 

(discretionary and mandatory) $ 83 $ 1,473 $ 312,806 $ 51 $ 1,061

Appropriations (discretionary and mandatory) - 538,475 5,101 115 11,854

Borrowing authority (discretionary and mandatory) - - 265 - -

Spending authority from offsetting collections 

 (discretionary and mandatory) 1,474 256 3,859 2 196

Total Budgetary Resources $ 1,557 $ 540,204 $ 322,031 $ 168 $ 13,111

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 1,039 $ 538,694 $ 13,845 $ 123 $ 11,981

Unobligated balance, end of year:

 Apportioned, unexpired accounts 518 1,396 267,982 39 726

 Exempt from apportionment, unexpired accounts - 9 73 - 7

 Unapportioned, unexpired accounts - 89 39,966 - 167

 Unexpired unobligated balance, end of year 518 1,494 308,021 39 900

 Expired unobligated balance, end of year - 16 165 6 230

Unobligated balance, end of year 518 1,510 308,186 45 1,130

Total Status of Budgetary Resources $ 1,557 $ 540,204 $ 322,031 $ 168 $ 13,111

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ 24 $ 538,442 $ 10,038 $ 116 $ 11,381

Distributed offsetting receipts - (45,983) (14,584) - (878)

Agency Outlays, Net (Discretionary and Mandatory) $ 24 $ 492,459 $ (4,546)$ 116 $ 10,503

(a) Of the $322 billion of Total Budgetary Resources for DO, GSE, ESF, and OAS had $258 billion, $41 billion, and

$14 billion, respectively. The remainder is spread throughout other offices.
DEPARTMENT OF THE TREASURY 139 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Fiscal Year 2018 Combining Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

Alcohol

and

Office of the Tobacco

Comptroller Tax and

of the Trade Non-

(in millions): U. S. Mint Currency Bureau Budgetary Budgetary

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net 

(discretionary and mandatory) $ 631 $ 1,522 $ 7 $ 317,622 $ 12

Appropriations (discretionary and mandatory) - - 112 555,657 -

Borrowing authority (discretionary and mandatory) - - - - 265

Spending authority from offsetting collections 

 (discretionary and mandatory) 1,706 1,256 7 8,459 297

Total Budgetary Resources $ 2,337 $ 2,778 $ 126 $ 881,738 $ 574

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 1,614 $ 1,236 $ 119 $ 568,169 $ 482

Unobligated balance, end of year:

 Apportioned, unexpired accounts 723 - 5 271,380 9

 Exempt from apportionment, unexpired accounts - 1,542 - 1,631 -

 Unapportioned, unexpired accounts - - - 40,139 83

 Unexpired unobligated balance, end of year 723 1,542 5 313,150 92

 Expired unobligated balance, end of year - - 2 419 -

Unobligated balance, end of year 723 1,542 7 313,569 92

Total Status of Budgetary Resources $ 2,337 $ 2,778 $ 126 $ 881,738 $ 574

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ (302)$ (43)$ 111 $ 560,008 $ (241)

Distributed offsetting receipts - (22) - (61,467) -

Agency Outlays, Net (Discretionary and Mandatory) $ (302)$ (65)$ 111 $ 498,541 $ (241)
140 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Fiscal Year 2017 Combining Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

Bureau of Bureau of Fin. Crimes Internal

Engraving & the Fiscal Departmental Enforcement Revenue

(in millions): Printing Service Offices (a) Network Service

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net 

(discretionary and mandatory) $ 146 $ 1,409 $ 311,842 $ 52 $ 1,005

Appropriations (discretionary and mandatory) - 476,362 5,207 115 11,631

Borrowing authority (discretionary and mandatory) - - 268 - -

Spending authority from offsetting collections 

 (discretionary and mandatory) 706 243 3,804 3 165

Total Budgetary Resources $ 852 $ 478,014 $ 321,121 $ 170 $ 12,801

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 779 $ 476,598 $ 9,399 $ 120 $ 11,745

Unobligated balance, end of year:

 Apportioned, unexpired accounts 74 1,291 271,524 44 528

 Exempt from apportionment, unexpired accounts - 9 90 - 7

 Unapportioned, unexpired accounts - 88 39,892 - 236

 Unexpired unobligated balance, end of year 74 1,388 311,506 44 771

 Expired unobligated balance, end of year (1) 28 216 6 285

Unobligated balance, end of year 73 1,416 311,722 50 1,056

Total Status of Budgetary Resources $ 852 $ 478,014 $ 321,121 $ 170 $ 12,801

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ (18)$ 476,456 $ 7,675 $ 115 $ 11,507

Distributed offsetting receipts - (45,128) (29,550) - (411)

Agency Outlays, Net (Discretionary and Mandatory) $ (18)$ 431,328 $ (21,875)$ 115 $ 11,096

(a) Of the $321 billion of Total Budgetary Resources for DO, GSE, ESF, and OAS had $259 billion, $40 billion, 

and $14 billion, respectively. The remainder is spread throughout other offices. 
DEPARTMENT OF THE TREASURY 141 

FINANCIAL SECTION | FY 2018 AGENCY FINANCIAL REPORT

Fiscal Year 2017 Combining Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

Alcohol

and

Office of the Tobacco

Comptroller Tax and

of the Trade Non-

(in millions): U. S. Mint Currency Bureau Budgetary Budgetary

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net 

(discretionary and mandatory) $ 433 $ 1,403 $ 2 $ 316,597 $ (305)

Appropriations (discretionary and mandatory) - - 111 493,425 1

Borrowing authority (discretionary and mandatory) - - - - 268

Spending authority from offsetting collections 

 (discretionary and mandatory) 2,387 1,217 6 7,569 962

Total Budgetary Resources $ 2,820 $ 2,620 $ 119 $ 817,591 $ 926

Memorandum (non-add entries):

New obligations and upward adjustments $ 2,205 $ 1,110 $ 113 $ 501,405 $ 664

Unobligated balance, end of year:

 Apportioned, unexpired accounts 616 - 5 274,033 49

 Exempt from apportionment, unexpired accounts - 1,510 - 1,616 -

 Unapportioned, unexpired accounts - - - 40,003 213

 Unexpired unobligated balance, end of year 616 1,510 5 315,652 262

 Expired unobligated balance, end of year (1) - 1 534 -

Unobligated balance, end of year 615 1,510 6 316,186 262

Total Status of Budgetary Resources $ 2,820 $ 2,620 $ 119 $ 817,591 $ 926

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ (110)$ (126)$ 109 $ 497,297 $ (1,689)

Distributed offsetting receipts - - - (75,089) -

Agency Outlays, Net (Discretionary and Mandatory) $ (110)$ (126)$ 109 $ 422,208 $ (1,689)
 

 

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SECTION A: TAX GAP AND TAX BURDEN.............................145

SECTION B: REDUCE THE FOOTPRINT ................................. 154

SECTION C: MANAGEMENT CHALLENGES AND

TREASURY RESPONSE..................................................155

SECTION D: SUMMARY OF FINANCIAL STATEMENT

AUDIT AND MANAGEMENT ASSURANCES .......................190

SECTION E: PAYMENT INTEGRITY.......................................192

SECTION F: FRAUD REDUCTION REPORT.............................207

SECTION G: CIVIL MONETARY PENALTIES

INFLATION ADJUSTMENT..............................................210

SECTION H: GRANTS OVERSIGHT AND NEW EFFICIENCY

ACT REQUIREMENTS ...................................................216

APPENDIX: GLOSSARY OF ACRONYMS.................................217
 

 
DEPARTMENT OF THE TREASURY 145 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

SECTION A: TAX GAP AND TAX BURDEN

TAX GAP

The tax gap is the difference between the amount of tax imposed by law and what taxpayers actually pay on time. The tax

gap provides an estimate of the level of overall noncompliance and voluntary compliance during the relevant tax periods and

under the Internal Revenue Code (IRC) provisions in effect at the time. Tax gap estimates provide the Internal Revenue

Service (IRS) with periodic appraisals about the nature and extent of noncompliance for use in formulating tax

administration strategies. 

Individual refundable income tax credits feature eligibility rules that are often complex because they must address

complicated family relationships and residency arrangements. Compliance with these rules is difficult for the IRS to verify

due to the lack of available third-party data. The relatively high overclaim rates for these credits are, in part, a result of this

complexity. 

Measuring and reporting on taxpayer compliance related to various tax provisions is inherently complex and challenging. To 

measure overall compliance with the current tax system, the IRS develops estimates of the tax gap. The IRS also

undertakes analyses of compliance behavior with respect to specific tax provisions, such as refundable and non-refundable

tax credits. The IRS enforcement strategies and legislative proposals are influenced by its National Research Program

(NRP) that involves conducting detailed audits of a statistically representative sample of taxpayers to estimate compliance

with individual income tax provisions, and provides data on misreporting on voluntarily filed returns. Misreporting can be

in favor of the taxpayer or the government, although estimates indicate that taxpayers overall underreport tax. This can

manifest as either underpayments of the liability due at the time the return is filed, claiming and receiving an excessive

refund, or a combination of the scenarios.

Tax Gap Estimates

The gross tax gap is the amount of tax liability that is not paid voluntarily and on time. The estimated annual average gross

tax gap for the Tax Year (TY) 2008 – 2010 timeframe is $458 billion. The net tax gap is the gross tax gap less tax that will

be subsequently collected, through voluntary payments or as the result of IRS administrative and enforcement activities. It

is the portion of the gross tax gap that will not be paid. It is estimated that $52 billion of the gross tax gap will eventually be

collected, resulting in a net tax gap of $406 billion.

The IRS estimates the tax gap on a periodic basis. The most recent estimates covering the TY 2008 – 2010 timeframe were

released in Fiscal Year (FY) 2016. A summary of those estimates was included in the FY 2016 Agency Financial Report

(AFR). The IRS expects to release tax gap estimates covering the TY 2011 – 2013 timeframe in FY 2019. 

More details on the tax gap can be found on the IRS website at www.IRS.gov:

• Description of the Tax Gap (https://www.irs.gov/uac/the-tax-gap); and

• Federal Tax Compliance Research: Tax Gap Estimates for Tax Years 2008 – 2010 (https://www.irs.gov/pub/irssoi/p1415.pdf).
146 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

The tax gap structure separates noncompliance into components by the type of tax and source of noncompliance. The three

primary sources of noncompliance that result in payment of less than the tax owed are: (1) the non-filing tax gap (the tax not

paid on time by those who do not file required returns on time); (2) the underreporting tax gap (the net understatement of

tax on timely filed returns); and (3) the underpayment tax gap (the amount of tax reported on timely filed returns that is not

paid on time). The estimated gross tax gap for each of these components are $32 billion, $387 billion, and $39 billion,

respectively. The gross tax gap estimates can also be grouped by type of tax. The estimated gross tax gap for individual

income tax is $319 billion, for corporation income tax is $44 billion, for employment tax is $91 billion, and for estate and

excise tax combined is $4 billion.

Total tax credits account for 15 percent of the individual income tax underreporting tax gap. Earned Income Tax Credit

(EITC) accounts for 10 percent of the individual income tax underreporting tax gap, followed by the refundable and nonrefundable Child Tax Credit (CTC) (three percent), and the refundable and non-refundable education credits (two percent). 

With limited resources, the IRS must make prudent resource-allocation decisions to address noncompliance. 

INDIVIDUAL INCOME TAX UNDERREPORTING TAX GAP ESTIMATES FOR CREDITS: TY 2008 – 2010 

($ IN BILLIONS) (1)

Share of Individual

Income Tax

Underreporting Tax Share of Gross Tax

Tax Return Line Items Tax Gap Gap Gap

Gross Tax Gap $ 458 N/A 100%

Individual Income Tax Underreporting Tax Gap $ 264 100% 58%

 Total Credits $ 40 15% 9%

 Child Tax Credit and Additional Child Tax Credit $ 7 3% 2%

 EITC $ 27 10% 6%

 Education Credits $ 4 2% 1%

 All Other Credits $ 2 1% (2)

(1) The estimates are the annual averages for the TY 2008 – 2010 timeframe.

(2) Less than 0.5 percent.

Note: Components might not sum to totals because of rounding.

Tax Gap Estimation Methodology

Estimating the tax gap is inherently challenging and requires assessing alternative methods, assumptions, and data sources. 

There is no single approach for estimating all the components of the tax gap. Each approach to estimating the tax gap is

subject to non-sampling error. The uncertainty of the estimates is not readily captured by standard errors that typically

accompany estimates based on sample data. For that reason, standard errors, confidence intervals, and statistical

comparisons across years are not reported.

Unlike prior tax gap estimates that pertain to a single tax year, these estimates reflect an estimated average compliance rate

and associated average annual tax gap for the TY 2008 – 2010 timeframe. The tax gap is estimated using pooled individual

income tax compliance data from several tax years because the aggregated data provides more information upon which to

base estimates of individual income tax underreporting, categorized by sources of noncompliance. The individual income tax

NRP reporting compliance studies are the foundation for the individual income tax underreporting tax gap estimates. The 

methodology incorporates additional data and analytical techniques designed to account for income that is not detected by

the NRP audits. 
DEPARTMENT OF THE TREASURY 147 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

COMPLIANCE WITH INDIVIDUAL INCOME TAX CREDITS

Compliance Estimates

The IRS is responsible for administering 21 refundable and non-refundable individual income tax credits. These credits

generally have many different eligibility rules, often relating to personal family and living arrangements, which determine

eligibility. Complexity in the form of many differing rules is a contributor to tax credit errors. Additionally, these credits are

difficult for the IRS to verify due to the lack of available relevant third-party data. 

The IRS conducted an in-depth analysis of compliance with the American Opportunity Tax Credit (AOTC) and other

education credits during FY 2018, highlights of which are summarized below. The IRS completed similar analyses of

compliance with the EITC in FY 2014 and the CTC in FY 2017. 

Compliance Estimates for Education Tax Credits 

The IRS recently completed an analysis of taxpayer compliance behavior regarding education tax credits. The analysis

included the AOTC, the Lifetime Learning Credit (LLC), and the precursor to the AOTC, the Hope Scholarship Credit. The 

AOTC is a partially refundable credit. The other credits are non-refundable.

The analysis is based on data from the NRP individual income tax reporting study for TYs 2006 – 2012. The combined

seven-year sample includes 6,489 returns on which an education credit is claimed or established during the NRP exam. 

Many estimates are combined over three-year periods to improve statistical precision. Estimates for TY 2012 are presented

separately in order to demonstrate the potential effects that revisions to Form 8863 in TY 2012 had on compliance. 

Revisions to Form 8863 in TY 2012 include a new format, which requires a separate Part III of Form 8863 to be completed

for each individual claiming either AOTC or LLC.

The aggregate dollar amount of education credit claims (refundable plus non-refundable) was about $7 billion in TY 2006

and $19 billion in TY 2012. The increase in claims occurred primarily in TY 2009 and TY 2010, coinciding with the

enactment of the AOTC. 

COMPLIANCE ESTIMATES FOR EDUCATION TAX CREDITS TY 2006 – TY 2012

TY 2006 - TY 2008 

Average

TY 2009 - TY 2011 

Average TY 2012 Average

Hope Scholarship Credit and 

American Opportunity Tax Credit Total Claims $3.4 Billion $19.8 Billion $17.0 Billion

Total Overclaims $1.1 Billion $6.7 Billion $4.5 Billion

Percent Overclaims 31% 34% 26% 

Lifetime Learning Credit Total Claims $4.0 Billion $2.4 Billion $2.2 Billion

Total Overclaims $0.8 Billion $0.4 Billion $0.4 Billion

Percent Overclaims 19% 18% 18% 

Errors associated with reporting of qualifying tuition and expenses or credit eligibility account for the largest share of

overclaims, as opposed to other errors such as income misreporting or claiming an incorrect filing status. Limitations of

NRP data prevent a comprehensive analysis of errors made with respect to qualifying tuition and expenses and student

eligibility because data on each eligibility criterion were not collected. Nonetheless, certain observable characteristics are

suggestive of overclaim errors related to qualifying tuition and expenses and student eligibility. Of returns with an AOTC

overclaim in TY 2012:
148 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

• 39 percent have no Form 1098T;

• 15 percent appear to have a discrepancy between the tuition/expenses amount on Form 1098T and the reported amount

on Form 8863;

• Seven percent appear to have claimed the AOTC in at least four prior years; and

• Three percent appear not to be enrolled at least half-time.

However, given the limited data collected about errors, the likely source of error made by the taxpayer was not observable in

the data for 41 percent of returns with an overclaim. 

As this analysis covers TYs 2006-2012, the findings do not reflect legislative efforts made in subsequent years to strengthen

compliance with the education credits. The Trade Preferences Extension Act of 2015 and the Protecting Americans from Tax 

Hikes Act of 2015 (PATH Act) included provisions aimed at reducing taxpayer errors in claiming the education credits.

Compliance Estimates for the Child Tax Credit

The IRS completed an analysis of taxpayer compliance behavior regarding the refundable and non-refundable components of

the CTC in FY 2017. The refundable portion of the credit is referred to as the Additional Child Tax Credit (ACTC). The nonrefundable portion of the credit is often referred to as the CTC. For purposes of this analysis, CTC refers to the combined

amount of the refundable and non-refundable parts of the credit.

The analysis is based on data from the NRP individual income tax reporting study. The total number of tax returns claiming

the CTC was 31 million in TY 2006 and 35 million in TY 2011. The aggregate dollar amount of CTC claims was $46 billion

in TY 2006 and $55 billion in TY 2011. The increase in claims for the CTC occurred primarily in TY 2008 and TY 2009, due

to the expansion of eligibility for the ACTC associated with lowering the earned income threshold in those two years. Total

dollars of overclaims averaged $6.2 billion annually in TY 2006 – 2008 and $10.5 billion annually in TY 2009 – 2011. The 

dollar overclaim percentage for the CTC averaged 13 percent in TY 2006 – 2008 and 20 percent in TY 2009 – 2011. 

Qualifying child errors were the most frequent type of known error leading to a CTC overclaim. The percent of children

claimed for the CTC who were disallowed for the credit was 13 percent in TY 2006 – 2008 and 19 percent in TY 2009 – 2011. 

During both time periods, qualifying child errors accounted for approximately 80 percent of overclaimed dollars, where the

reason for the error was known.

Relationship of Tax Compliance Estimation to Improper Payments

The Improper Payments Elimination and Recovery Act of 2010 (IPERA) requires certain reporting for payment programs

determined to be susceptible to significant improper payments. The focus of IPERA, and its subsequent amendments, and

guidance documents, is on implementing internal controls to prevent and detect improper payments. IPERA does not take

into consideration all aspects of administering tax provisions in a system that relies heavily on voluntary reporting. In

keeping with IPERA requirements, the IRS has historically reported risk assessments for refundable credits, as well as

improper payment estimates for the EITC in Part 3, Section E of this report.

The IRS has followed this practice largely because refundable credits may result in a payment to the taxpayer in excess of

tax liability. However, the distinction between the portion of a credit that offsets tax liability and the portion that is

refundable is governed by multiple variables, including other return elements and information provided by the taxpayer,

some of which are unrelated to the refundable credit in question. 
DEPARTMENT OF THE TREASURY 149 

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The same features of the tax system and taxpayer behaviors that create the compliance problems with refundable credits

also create the risk of noncompliance with other tax provisions. Treasury and IRS analyses, as well as audits by the

Government Accountability Office (GAO) and Treasury Inspector General for Tax Administration (TIGTA), have consistently

found that payment errors for EITC and other tax credit programs are largely attributable to the statutory design and

complexity of the credits within the tax system, and not rooted in internal control weaknesses, financial management or

financial reporting deficiencies. Several credits passed into law by Congress to assist certain individuals and businesses to

promote social and economic objectives have eligibility rules that are often complex and lead to high overclaim rates.

Tax refunds, which constitute a transfer of cash from the federal government to a taxpayer, are an integral part of the tax

system as a whole. The IRS tax gap estimation measures compliance with the current tax system and always includes

noncompliance with refundable and non-refundable credits. Whether a tax credit results in a refund instead of a reduction

in tax liability depends on all of the taxpayers' characteristics, such as income, deductions, and other credits claimed, and is

not simply driven by the credit itself.

Refundable Credits and the Challenges of Compliance 

Eligibility rules for refundable tax credits contribute to the compliance burden for taxpayers and administrative costs for the

IRS. These rules differ by credit and are often complex because they must address complicated family relationships and

residency arrangements to determine eligibility. The relatively high overclaim error rates for these credits are a result, in

part, of this complexity. Additionally, the lack of third-party data to verify eligibility requirements for these refundable

credits also complicates the ability of the IRS to administer these credits. Such data may not exist, may be unreliable or

inaccurate, or may be reported to the IRS too late to be useful during tax return processing. The IRS also has limited

authority to correct mismatches at filing and must use more burdensome audits to correct errors. The IRS continually looks

for complete and accurate data sources to verify eligibility for claimed refundable credits without placing an undue burden

on taxpayers.

The PATH Act accelerated the due date for employers to submit Forms W-2 and Forms 1099 for non-employee compensation. 

The PATH Act also included a provision that required the IRS to hold refunds for filers claiming the EITC and the

refundable portion of the CTC until February 15. The IRS integrated the Form W-2 information into its databases,

leveraged pre-refund filtering processes for identity theft prevention, and employed refund fraud systems to screen all

returns. This provided the IRS additional time to perform income verification for the EITC and ACTC returns. 

Faced with the complexities of claiming certain refundable credits, many potential credit recipients seek help filing their tax

returns from paid preparers. Over 50 percent of taxpayers claiming refundable credits use paid preparers. Although these

preparers provide a service that relieves taxpayers of costs associated with their own time, resources, and anxiety about the

accuracy of their returns, these services carry their own burden for taxpayers. For example, taxpayers must absorb the cost

of preparer fees and must still face the risk of errors on their returns. Unenrolled paid preparers, who prepare most EITC

returns, are not subject to the IRS’s regulation and have higher error rates for EITC returns than taxpayers who prepare

their own returns or who hire enrolled paid preparers. 

The nature of refundable credits also attracts identity theft fraud. The fraudsters create a burden to taxpayers who must

navigate identity theft procedures to successfully file their own returns. This includes use of an identity theft personal

identification number and filing of affidavits with the IRS to prove identity theft.
150 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

The IRS has a responsibility to detect and address errors and misreporting on tax returns, including those claiming the

refundable credits. Filters and other detection tools are constantly being enhanced to improve accuracy and reduce taxpayer 

burden, but in some instances, enforcement activities must take place. The IRS rejects millions of electronically filed returns

claiming refundable credits for a variety of reasons, such as missing forms, incorrect Social Security Numbers (SSNs), or if

another taxpayer has claimed the same child. Most taxpayers can correct their electronic returns and successfully re-file

with little burden. In some cases, a taxpayer must print and send in their paper return, resulting in refund delays and

possible audits with the associated costs. Despite the compliance burden and costs associated with these refundable tax

credits, the burden to taxpayers may be lower than with other payment or benefit programs. For example, tax credit

recipients can self-certify; they do not need to meet with caseworkers, nor submit upfront documentation as is required with

some direct service anti-poverty programs, such as Supplemental Security Income or Temporary Assistance for Needy

Families. 

The IRS may initiate a correspondence audit if it identifies, through its scoring and selection process, potential

noncompliance with eligibility requirements. Most refundable credit audits are conducted pre-refund, meaning the IRS

holds the credit refund until the taxpayer proves eligibility. The IRS sends a letter to the taxpayer requesting

documentation showing that the taxpayer meets credit eligibility requirements. In addition to the refund delay, taxpayers

face the burden of gathering and sending in the requested information. In FY 2018, the IRS conducted 330,461 EITC exams,

the majority through correspondence audits. 

Sustained annual budget reductions at the IRS have heightened the importance of determining how best to allocate finite,

declining resources to ensure the IRS can still meet agency-wide strategic goals of increasing taxpayer compliance, using

resources more efficiently, and minimizing taxpayer burden.

TAX BURDEN

The IRC creates the basis for a progressive tax system that applies higher rates of taxation to progressively higher levels of

income. For TY 2018, individual income tax rates ranged from 10.0 percent for the lowest income filers to 37.0 percent for 

the highest income brackets. The amount of taxable income can be adjusted through the application of exemptions and

deductions, which will influence the amount of taxes owed. In addition, many taxpayers qualify for one or more refundable

tax credits, which collectively have a significant impact on tax administration and federal tax revenues and refund

payments.

The IRS measures tax liability by income level for individuals and by revenue and assets for corporations. Using these data,

it is possible to illustrate how tax liability rises with increases in Adjusted Gross Income (AGI) for individuals (Figures 1.1

and 1.2 and Table 1). Similar data for corporations shows the tax burden based on the percentage of taxable income (Figure

2 and Table 2). This information is the most recent data available for individuals (TY 2016) and corporations (TY 2015). 
DEPARTMENT OF THE TREASURY 151 

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INDIVIDUAL INCOME TAX LIABILITY

FIGURE 1.1: AVERAGE AGI REPORTED AND AVERAGE INDIVIDUAL INCOME TAX LIABILITY FOR TY 2016

FIGURE 1.2: INDIVIDUAL INCOME TAX LIABILITY AS A PERCENTAGE OF AGI FOR TY 2016

$1,594 $22,098 $39,151 $71,312

$135,353 $284,497

$1,486,696

$55 $627 $2,174 $6,321 $17,052 $55,212

$400,395

Under $15,000 $15,000 to

under $30,000

$30,000 to

under $50,000

$50,000 to

under $100,000

$100,000 to

under $200,000

$200,000 to

under $500,000

$500,000

or more

Average AGI per return Average income tax per return

3.4% 2.8%

5.6%

8.9%

12.6%

19.4%

26.9%

Under $15,000 $15,000 to

under $30,000

$30,000 to

under $50,000

$50,000 to

under $100,000

$100,000 to

under $200,000

$200,000 to

under $500,000

$500,000

or more
152 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

TABLE 1: INDIVIDUAL INCOME TAX DATA BY AGI FOR TY 2016

Average

Average AGI Income tax Income tax

Adjusted Gross Number of Total per return per return as a

Income taxable returns AGI income tax (in whole (in whole) percentage

(AGI) (in thousands) (in millions) (in millions) dollars) dollars) of AGI

Under $15,000 34,916 $ 55,654 $ 1,903 $ 1,594 $ 55 3.4%

$15,000 under 

$30,000 29,646 655,110 18,587 22,098 627 2.8%

$30,000 under 

$50,000 26,753 1,047,405 58,168 39,151 2,174 5.6%

$50,000 under 

$100,000 33,199 2,367,475 209,856 71,312 6,321 8.9%

$100,000 under 

$200,000 18,858 2,552,481 321,564 135,353 17,052 12.6%

$200,000 under 

$500,000 5,583 1,588,349 308,249 284,497 55,212 19.4%

$500,000 or more 1,318 1,959,465 527,721 1,486,696 400,395 26.9%

Total 150,273 $ 10,225,939 $ 1,446,048
DEPARTMENT OF THE TREASURY 153 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

CORPORATION TAX LIABILITY

FIGURE 2: CORPORATION TAX LIABILITY AS A PERCENTAGE OF TAXABLE INCOME FOR TY 2015

TABLE 2: CORPORATION TAX DATA BY TOTAL ASSETS FOR TY 2015

Total Assets Income subject to tax Total income tax after credits Percentage of income tax 

(in thousands) (in millions) (in millions) after credits to taxable income

Zero Assets $ 21,291 $ 6,627 31.1%

$1 under $500 8,606 1,619 18.8%

$500 under $1,000 3,942 974 24.7%

$1,000 under $5,000 13,667 4,273 31.3%

$5,000 under $10,000 8,581 2,793 32.5%

$10,000 under $25,000 13,120 4,306 32.8%

$25,000 under $50,000 12,890 4,210 32.7%

$50,000 under $100,000 15,296 4,948 32.3%

$100,000 under $250,000 25,377 8,017 31.6%

$250,000 under $500,000 27,404 8,477 30.9%

$500,000 under $2,500,000 110,454 32,281 29.2%

$2,500,000 or more 1,114,453 251,097 22.5%

Total $ 1,375,081 $ 329,622

31.1%

18.8%

24.7%

31.3%

32.5% 32.8% 32.7% 32.3% 31.6% 30.9%

29.2%

22.5%

Zero

Assets

$1

to under

$500

$500

to under

$1,000

$1,000

to under

$5,000

$5,000

to under

$10,000

$10,000

to under

$25,000

$25,000

to under

$50,000

$50,000

to under

$100,000

$100,000

to under

$250,000

$250,000

to under

$500,000

$500,000

to under

$2,500,000

$2,500,000

or more
154 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

SECTION B: REDUCE THE FOOTPRINT

One of our key goals is the efficient and effective acquisition, utilization, management, and disposal of our real property

assets. The Assistant Secretary for Management (ASM) is responsible for ensuring that we develop and maintain

appropriate procedures, reviews, and reporting requirements in accordance with Treasury directives, and applicable OMB

(Office of Management and Budget) and General Services Administration (GSA) regulations that pertain to the acquisition,

utilization and disposal of real property.

The ASM is responsible for tracking our real property square footage footprint and developing the annual agency evaluation

of compliance for the implementation of the Reduce the Footprint Policy. To ensure the optimal utilization of our existing

space inventory, and to achieve real property cost saving and footprint reductions, we direct our components to pursue

consolidation or co-location opportunities into existing inventory before pursuing any new space acquisitions.

Additionally, we are taking other actions to reduce overall square footage and reduce the related costs associated with real

property, including:

• Better utilizing real property by undertaking space realignment; 

• Increasing teleworking, hoteling, and workspace sharing; and

• Maximizing utilization through improved work station standards.

Our total square footage and related operation and maintenance costs associated with real property assets subject to the

Reduce the Footprint Policy (from the latest available reporting year of FY 2017 compared to the FY 2015 Reduce the

Footprint baseline, as assigned by GSA) are shown in the table below. We did not have excess domestic office or warehouse

assets, as reflected in the below table:

 

2015

(in millions) (Baseline) 2017 Change

Square Footage 26.9 25.7 (1.2)

Operation and Maintenance Costs $ 93.0 $ 99.1 $ 6.1 
DEPARTMENT OF THE TREASURY 155 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

SECTION C: MANAGEMENT CHALLENGES AND TREASURY RESPONSE

In accordance with the Reports Consolidation Act of 2000, the Inspectors General are required to identify specific

management and performance challenges facing the Department. At the end of each fiscal year, the Treasury Office of

Inspector General (OIG) and Treasury Inspector General for Tax Administration send an update of these management

challenges to the Secretary of the Treasury (hereafter referred to as “Secretary”) and cite any new challenges for the

upcoming fiscal year. The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) did not identify any

management or performance challenges for the Office of Financial Stability (OFS). This section contains the OIG and

TIGTA identified management and performance challenges and management’s response.
156 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

OFFICE OF

INSPECTOR GENERAL

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

TREASURY INSPECTOR GENERAL MANAGEMENT CHALLENGES

October 15, 2018 

INFORMATION MEMORANDUM FOR SECRETARY MNUCHIN

FROM: Eric M. Thorson /s/

Inspector General

SUBJECT: Management and Performance Challenges Facing the 

Department of the Treasury (OIG-CA-19-004) 

In accordance with the Reports Consolidation Act of 2000, we are providing you with our perspective on 

the most serious management and performance challenges facing the Department of the Treasury

(hereinafter Treasury or the Department). In this year’s memorandum, my office continues to report the 

following four challenges, which are repeated and updated from last year.

• Operating in an Uncertain Environment 

• Cyber Threats

• Anti-Money Laundering/ Terrorist Financing and Bank Secrecy Act Enforcement

• Efforts to Promote Spending Transparency and to Prevent and Detect Improper Payments

While we continue to report these challenges, we acknowledge the Department’s accomplishments and

efforts over the past year to address these most critical matters as noted within each challenge discussed. In

addition to the above challenges, we are reporting our elevated concerns about two matters: (1) currency 

and coin production at the United States Mint (Mint) and the Bureau of Engraving and Printing (BEP) and

(2) excise tax reform’s impact on the Alcohol and Tobacco Tax and Trade Bureau (TTB).

2019 Management and Performance Challenges 

 

Challenge 1: Operating in an Uncertain Environment 

 

As reported in prior year’s memorandum, we are mindful of external factors and future uncertainties that

affect the Department’s programs and operations. Among the most notable were the proposed budget cuts

and new requirements imposed by Executive Order (E. O.) 13781, Comprehensive Plan for Reorganizing 

the Executive Branch (March 13, 2017). In its implementation of E. O. 13781, the Office of Management

and Budget (OMB) required agencies to submit Agency Reform Plans, which included long-term workforce

plans that are in alignment with their strategic plans. 1 These plans were to include proposals in four 

categories: eliminate activities; restructure or merge; improve organizational efficiency and effectiveness;

and workforce management. Treasury submitted its plan to OMB in September 2017, which included cross-

 

1 OMB, M-17-22, Comprehensive Plan for Reforming the Federal Government and Reducing the Federal 

Civilian Workforce (April 12, 2017).
DEPARTMENT OF THE TREASURY 157 

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agency initiatives and Treasury-specific reforms. In June 2018, after consideration of all Agency Reform

Plans, OMB developed its comprehensive “Government–wide Reform Plan and Reorganization

Recommendations” (Government–wide Reform Plan) to reorganize the Executive Branch. 2

After considering Agency Reform Plans, OMB made agency-specific recommendations in its Government–

wide Reform Plan that would merge functions with similar missions across agencies. As proposed by

Treasury in its Agency Reform Plan, the Government-wide Reform Plan includes a recommendation to

transfer alcohol and tobacco responsibilities from the Bureau of Alcohol, Tobacco, Firearms and Explosives 

within the Department of Justice to TTB in order to leverage the expertise and resources of TTB. The plan

also considers Treasury as the agency for carrying out the Office of Personnel Management’s

responsibilities for retirement processing and servicing. Other potential impacts on Treasury include OMB

recommendations to increase coordination and avoid duplication of agency’s roles in the areas of small

business programs, the housing finance market, and financial literacy and education. Furthermore, the plan

also includes a proposal to privatize the United States Postal Service, which is estimated to be insolvent, yet

continues to hold a $15 billion unfunded liability to the Treasury’s Federal Financing Bank. 

Until OMB and agencies begin discussions with Congress to prioritize and refine the proposals in the 

Government–wide Reform Plan, there is looming uncertainty as to the plan’s impact. Nonetheless, the 

Department must plan for the potential long-term restructuring of certain functions or offices/bureaus and

expected budget cuts.

Although not specified in OMB’s Government–wide Reform Plan, Treasury proposed to merge specific

functions performed by both BEP and the Mint as part of its Agency Reform Plan and fiscal year 2019 

Congressional Budget Justification. The merger would simplify particular tasks by migrating BEP’s online 

numismatic sales and marketing presence to the Mint’s recently modernized E-commerce infrastructure and

services platform, and centrally coordinating non-IT procurements to create economies of scale and reduce

expenses. As both bureaus are manufacturing organizations, Treasury expects to gain efficiencies through 

leveraging acquisition commonalities and procurement expertise, consolidating procurement authority, and

generating annual cost savings. Although OMB has approved the merger plan, funding the consolidation is

contingent on Congressional approval. In anticipation of this, the Office of Procurement Executive is

working with managements of BEP the Mint to develop an implementation plan to complete the 

consolidation of functions by December 2019. Challenges exist with this consolidation because of known 

systemic issues with BEP’s contract administration practices. In addition, other challenges can be expected

when consolidating these functions such as, personnel relocation, facility plans, future information systems

operations, combined funding arrangements, acquisition regulation requirements, and continued legal

support. Outstanding procurement issues at BEP should be considered in planning for the consolidation.

Tackling these and other critical matters at hand could be more challenging as Presidentially-appointed, 

Senate-confirmed leadership positions and other key senior level positions within the Department remain

vacant. There were noted improvements over the past year in filling certain vacancies within the Office of 

Terrorism and Financial Intelligence (TFI). Specifically, TFI filled several long standing vacancies

including the Assistant Secretary for the Office of Intelligence and Analysis and the Director of the 

Financial Crimes Enforcement Network (FinCEN). That said, human capital management overall has

become higher-risk as the lengthy security clearance process causes significant delays onboarding highlyskilled individuals to fill critical positions across Treasury.

 

2 OMB, Delivering Government Solutions in the 21st Century, Reform Plan and Reorganization Recommendations 

(June 2018)
158 DEPARTMENT OF THE TREASURY

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The backlog of background investigations in the clearance process has been a growing concern governmentwide. In its March 2018 testimony, the Government Accountability Office (GAO) reported its January 2018 

designation of the security clearance process as a high-risk area because it is the highest management risk in

government.3 This has been contributing to difficulty in recruiting cybersecurity personnel as our previous 

audits of select Treasury bureaus found that causes for many of our findings related to information systems’

security measures involved a lack of resources and/or management oversight, which echoed GAO’s and

OMB’s observations of agencies’ impairments. Although progress has been made filling some positions, it

is essential that the vacancies Treasury-wide be filled as quickly as possible to avoid potential skill gaps,

which could lead to further challenges in meeting key program missions and performing succession

planning. The lengthy hiring and backfill timelines are negatively impacting existing personnel’s ability to

carry out bureau programs.

Along with the uncertainty of OMB’s Government–wide Reform Plan, Treasury continues to be challenged

with new responsibilities. Most recently, Treasury was tasked to administer a new program authorized by

the Social Impact Partnerships to Pay for Results Act4 (SIPPRA). This program was created to direct

Federal funds to State and local government partnership programs that is intended to result in measurable

social benefits. Treasury, in consultation with the newly created Federal Interagency Council on Social

Impact Partnerships, is responsible for administering the program including, but not limited to, publishing 

the first requests for SIPPRA proposals by February 2019. 

The impact of these challenges and the uncertainties of OMB’s Government–wide Reform Plan may require

the Department to take immediate actions to achieve near-term cost savings while focusing its limited

resources on programs that are in the highest need to citizens and/or where there is a unique Federal role. It

is essential that new programs and reforms be managed and communicated effectively such that

performance and accountability can be improved and missions can still be met throughout the Department.

Treasury must operate in the repeated cycle of budget and debt ceiling stopgaps. As I have reported in my

last memorandum to you, Congress has yet to resolve unfinished business when it comes to the Nation’s 

debt, and the long-term sustainability of the large programs. Although legislation was passed to suspend the 

statutory debt limit through March 1, 2019, no long-term solution has been found. 

Challenge 2: Cyber Threats 

 

Over the past year, Treasury has maintained steady progress in addressing the continual and on-going

challenges that the Federal Government and private sector face, including the threat of ransomware and

difficulty obtaining cybersecurity personnel. While a good patch management program assists with

defending against attacks such as ransomware, Treasury must continue to ensure its layered defenses (such

as network segmentation) are in place and functioning properly to reduce the spread and potential damage

malware can do when there is no patch available, or for when that first line of defense fails. Additionally, in

our prior audits of select Treasury bureaus, we found that causes for many of our findings related to

information systems’ security measures involved a lack of resources and/or management oversight, which

echoed GAO’s and OMB’s observations of agencies’ impairments as noted in challenge 1. In response to

our prior year challenges memorandum, Treasury reported progress in reducing the cybersecurity vacancy

rate from fiscal year 2016 to fiscal year 2017, which is a positive step in addressing the lack of resources

 

3 GAO, Personnel Security Clearances, Additional Actions Needed to Implement Key Reforms and Improve Timely 

Processing of Investigations (GAO-18-431T: March 2018) 4 Public Law 115-123, Bipartisan Budget Act of 2018, Title VIII (February 9, 2018)
DEPARTMENT OF THE TREASURY 159 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

although the government-wide challenges for retaining this workforce still remain as reported in 2016 by

GAO5 and by OMB in the Cybersecurity Sprint. 6

Cybersecurity continues to be a long-standing and serious challenge facing the Nation. A reliable critical

infrastructure, including information systems and networks, is vital to our national security and economic

stability. Cyber threats are a persistent concern as Treasury’s information systems are critical to the core

functions of government and the Nation’s financial infrastructure. As cyber threats continue to evolve and

become more sophisticated and subtle, they pose ongoing challenges for Treasury to fortify and safeguard

its internal systems and operations along with the financial sector it oversees. Effective public-private 

coordination continues to be required to address the cyber threat against the Nation’s critical infrastructure.

In this regard, Treasury is looked upon to provide effective leadership to financial institutions in particular,

and the financial sector in general, to strengthen awareness and preparedness against cyber threats.

Attackers frequently exploit vulnerable networks in a string of trusted connections to gain access to

government systems. Attempted cyber-attacks against Federal agencies, including Treasury, and financial

institutions continue to increase in frequency and severity, in addition to continuously evolving. As the tools 

used to perpetrate these attacks become easier to use and more widespread, the less technological

knowledge and fewer resources are needed to launch successful attacks of increasing sophistication. Such

attacks include distributed denial of service attacks, phishing or whaling attacks, fraudulent wire payments,

malicious spam (malspam), and ransomware. Organized hacking groups leverage published and

unpublished vulnerabilities and vary their methods to make attacks hard to detect and even harder to

prevent. Criminal groups and nation-states are constantly seeking to steal information; commit fraud; and

disrupt, degrade, or deny access to information systems.

In addition to Treasury’s own networks and systems, management must be cognizant of, and mitigate, the 

risks posed by attacks made against other agencies and Treasury contractors and subcontractors. Treasury

frequently enters into interconnection agreements with other Federal, State, and local agencies, and service

providers, to conduct its business. Treasury management must exercise due care when authorizing such

internetwork connections and verify that third parties comply with Federal policies and standards. 

Management is also challenged with ensuring that critical data and information maintained by third-party

cloud service providers are properly protected. Issues related to management of cloud systems have been

reported in last three consecutive Federal Information Security Modernization Act of 20147 audits (fiscal

years 2015, 2016, and 2017). Issues included a cloud system with a system security plan that did not address

all required security controls, nor did the contract with the third-party cloud service provider address all

Federal Risk and Authorization Management Program (FedRAMP) 8

 requirements. For another cloud 

system, required periodic user access reviews were not performed. In another case, risk acceptance for 

performing security scans less frequently than the standard required was not documented. 

 

5 GAO, Actions Needed to Address Challenges (GAO-16-885T; issued September 19, 2016) 6 OMB, M-16-15, Federal Cybersecurity Workforce Strategy (July 12, 2016). The goal of the Cybersecurity Sprint 

was to rapidly improve cybersecurity across the workforce, and also included a review of cybersecurity polices, plans, and procedures. 7 Public Law 113-283 (December 18, 2014) 8 FedRamp is a government-wide program that standardizes the approach used for security assessments, authorizations, and 

 continuous monitoring for cloud services.
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As of this writing, Treasury is in the process of implementing the Federal government-wide Continuous 

Diagnostics and Mitigation program spearheaded by the Department of Homeland Security (DHS). This

program is aimed at providing agencies with the capabilities and tools needed to identify cybersecurity risks

on an ongoing basis, prioritize these risks based on potential impacts, and enable cybersecurity personnel to

mitigate the most significant problems first. The program is organized into four phases that build upon each

other, and has required a great deal of coordination within Treasury and also between Treasury and DHS in

order to obtain and install the software and tools necessary to support the program. On the horizon, Treasury

will be challenged in supporting OMB’s plans to implement the activities set forth in the IT Modernization 

Report to the President,

9 such as consolidation and standardization of email services within and across

Federal agencies. In order to address these upcoming requirements, Treasury will need to continue to

balance cybersecurity demands, the need to modernize and maintain its information technology (IT)

systems, and the need to maintain compliance with existing and additional requirements during a time of 

uncertain budgetary funding. In the case of the Bureau of the Fiscal Service (Fiscal Service), management

noted that the modernization of its IT systems is still a work in progress and Fiscal Service management is

working with the Assistant Secretary for Management and the Chief Information Officer to ensure 

modernization of its IT systems align with Treasury’s key initiatives. 

Challenge 3: Anti-Money Laundering/ Terrorist Financing and Bank Secrecy Act Enforcement 

Over the past year, TFI has remained dedicated to countering the ability of the financial networks that 

support terrorists, organized transnational crime, weapons of mass destruction proliferators, and other

threats to international security through intelligence analysis, sanctions, and international private-sector

cooperation. Members of the TFI staff chair the U.S. delegation to the Financial Action Task Force (FATF),

which is an international policy-making and standard-setting body dedicated to combating money 

laundering and terrorist financing. FATF found the U.S. Anti-Money Laundering and Combating the

Financing of Terrorism framework, which Treasury is responsible for administering, to be well developed 

and robust. 10 

In 2017, TFI components, along with U.S. foreign partners also established the Terrorist Financing

Targeting Center. This center, co-chaired by the United States and Saudi Arabia, is a new initiative that

brings together every country under the Gulf Cooperation Council, deepening their existing multilateral

cooperation by coordinating disruptive action, enhancing information sharing, and institutionalizing

capacity-building to target terrorist financing networks that pose national security threats to the United

States and the Gulf nations. 

As previously reported, identifying, disrupting, and dismantling the financial networks that support rogue 

regimes, terrorist organizations, transnational criminal organizations, and other threats to the national 

security of the United States and our allies continues to be challenging as TFI’s role to counter these

financial networks and threats has grown because its economic authorities are key tools to carry out U.S.

policy. Additionally, criminals and other bad actors evolve and continue to develop more sophisticated

money laundering methods. To address this growing demand, TFI requested approximately 100 new

positions for fiscal year 2019. 

 

9 American Technology Council, IT Modernization Report to the President, issued December 13, 2017. 10 FATF, Anti-money laundering and counter-terrorist financing measures United States Mutual Evaluation Report, 

(December 2016)
DEPARTMENT OF THE TREASURY 161 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

TFI’s authorities are key tools in implementing U.S. policy to pressure foreign countries and regimes, such

as North Korea, Russia, and Iran, and terrorist groups, such as the Islamic State of Iraq and Syria (ISIS)

through the use of designations and economic sanctions. The recent passage of the Countering America’s

Adversaries Through Sanctions Act11 provides TFI with another avenue to pursue sanctions against these

regimes. TFI has significantly increased sanctions against North Korea for missiles testing and it serves a 

critical role in the United State’s maximum economic pressure campaign. TFI also increased sanctions 

against Russia given recent allegations of interference with the 2016 U.S. election, malign activities in

Ukraine, and support of the Government of Syria. As a result of the U.S. decision to withdraw from the 

Joint Comprehensive Plan of Action (JCPOA),12 TFI re-imposed nuclear related primary and secondary

sanctions, subject to certain 90 and 180 day wind-down periods for activities involving Iran. TFI continues 

to designate Iranian individuals and entities related to its ballistic missile program, terrorist activities,

human rights violations, and Syria-related targets. 

TFI’s counter-terrorism designations disrupt the financial networks that support terrorist organizations. 

Disrupting terrorist financing depends on a whole-of-government approach and requires collaboration and

coordination within Treasury and with other Federal agencies. Collaboration and coordination are key to

successfully identifying and disrupting all of these financial networks and meeting TFI’s mission. This

effort requires effective and efficient working relationships among components within TFI and the 

Intelligence Community. In an effort to effectively implement U.S. policy and disrupt these financial

networks, TFI is moving towards a more collaborative approach to achieve its mission. However, we noted 

in the past that TFI can make improvements in the area of coordination. 

Effective coordination and collaboration and TFI’s ability to effectively gather and analyze intelligence

information requires a stable cadre of experienced staff. In an effort to improve coordination and stabilize

its workforce, TFI filled long standing vacancies such as the Assistant Secretary of Intelligence and

Analysis, which is a key leadership position that had been vacant for approximately 2 years. As noted

above, TFI requested approximately 100 new positions for fiscal year 2019, which will be difficult to fill if

approved because of the expertise essential to these positions and length of time to process required security

clearances. The security clearance process has significantly impacted Treasury’s human capital management

as noted in our first challenge and is a systemic issue government-wide.

Stability, experienced leadership, and coordination within TFI is imperative to enhance information

gathering and intelligence analysis and increase efficiency. Given the criticality of Treasury’s mission, its

role to carry out U.S. policy, and resource constraints, we continue to consider anti-money laundering and

combating terrorist financing programs and operations as inherently high-risk.

 

11 Public Law 115-44 (August 2, 2017) 12 In July 2015, an international coalition, comprised of China, France, Germany, Russia, the United Kingdom, and 

the United States and Iran reached the JCPOA to ensure that Iran’s nuclear program would be exclusively peaceful. The JCPOA provides a long-term,

multiphase commitment that deters Iran’s path to build a nuclear weapon and imposes rigorous inspections and transparency measures to verify that Iran cannot

pursue a nuclear weapon. In May 2018, it was announced that the United States would cease participation in the JCPOA.
162 DEPARTMENT OF THE TREASURY

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Challenge 4: Efforts to Promote Spending Transparency and to Prevent and Detect Improper

Payments 

Spending Transparency

Given the broad implications and critical roles assigned to Treasury by the Digital Accountability and

Transparency Act of 2014 (DATA Act), we consider this an ongoing high risk implementation project and

management challenge. The DATA Act, in part, requires the Federal Government to provide consistent, 

reliable, and useful online data about how it spends taxpayer dollars. To fulfill its purposes, the DATA Act

imposed several mandates on the Director of OMB, the Secretary of the Treasury, 13 and the Comptroller

General of the United States, as well as Federal agencies and their respective Inspectors General. Several of 

these mandates have been successfully met to include, most notably, the standardization of 

57 Government-wide financial data elements for Federal funds made available to or expended by Federal

agencies and entities receiving Federal funds. While there have been successes to date, there is still much to

do. 

On April 28, 2017, Treasury’s Deputy Chief Financial Officer successfully submitted and certified the 

Department’s fiscal year 2017, second quarter financial and award data in the DATA Act broker (broker) 

for publication on USAspending.gov. However, in our November 2017 audit report, we identified issues

with the submission. Specifically, we identified incorrect reporting of Fiscal Service’s Administrative

Resource Center’s14 customer agency information.15 Treasury’s DATA Act program management office

(PMO) and OMB have been working to address this issue and have proposed a solution to ensure that

Federal Shared Service Providers’ customer agencies’ data submissions are properly categorized in the 

submission and ultimately on USAspending.gov for the first quarter of fiscal year 2019. Further, we

identified inaccuracies in the Department’s data submission that were a result of how the broker extracts

data from external award reporting systems Government-wide. While these inaccuracies are attributable to

root causes beyond the Department’s control, removal of these Government-wide issues did not 

significantly change the overall accuracy rate for the financial and award data the Department submitted to

the broker for publication on USASpending.gov. We note that Treasury’s PMO reported that these known 

Government-wide issues have been resolved. We plan to follow up on these matters in future audit work. 

On May 9, 2017, Treasury’s PMO, in consultation with OMB, met its second Government-wide mandate to

ensure that financial data was posted, in accordance with the financial data standards established by

Treasury and OMB, and displayed on USAspending.gov within three years after enactment of the DATA

Act. 

 

13 Treasury’s Government-wide implementation efforts under the DATA Act are led by its Data Transparency Office at the Bureau of the Fiscal Service, also

referred to as the program management office (PMO) and OMB’s Office of Federal Financial Management. This Government-wide effort is separate and

distinct from the Department’s DATA Act reporting requirements. 14 ARC is a Federal Shared Service Provider operating under agreements with other departments, agencies, and bureaus known as customer agencies to provide

information technology, human resources, financial, or other services. 15 OIG, Treasury Continues to Make Progress in Meeting DATA Act Reporting Requirements, But Data Quality Concerns Remain (OIG-18-010R November 8,

2017)
DEPARTMENT OF THE TREASURY 163 

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Since last year’s memorandum, the Department continued to align its systems and execute a comprehensive 

governance framework to meet the submission and certification requirements of the DATA Act.

Additionally, Treasury's PMO continued to refine its processes to address Government-wide

implementation challenges through corrective actions to improve data quality for Federal spending 

transparency. It should be noted that we have initiated a series of audits of Treasury’s efforts to meet its

responsibilities under the DATA Act. As of this writing, we are performing two DATA Act audits focusing 

on implementation efforts both Government-wide and Department-wide. 

Detect Improper Payments

In light of the continuing government-wide problem with improper payments (estimated at $141 billion, or 

4.5 percent of all program outlays, for fiscal year 2017), the Federal Government intensified efforts to

reduce improper payments in major Federal programs. The Do Not Pay (DNP) Initiative and the Fiscal

Service’s DNP Business Center are chief components of efforts designed to prevent and detect improper 

payments to individuals and entities. 

The DNP Business Center provides two services to agencies: the DNP Portal and the DNP Data Analytics

Service. The DNP Portal is intended to provide users with a single entry point to search data sources such as

the Social Security Administration’s (SSA) publicly available Death Master File, the Department of Health

and Human Service Office of Inspector General’s List of Excluded Individuals/Entities, the General

Services Administration’s System for Award Management, and Treasury’s Debt Check Database. However,

as we reported in November 2014, the effectiveness of the DNP Business Center as a tool to prevent and

detect improper payments is hindered because the center does not have access to, among other things,

SSA’s full death data.16 In May 2016, we reported that challenges still existed in obtaining better death

information.17 In October 2016, GAO reported that restrictions on the center’s access to SSA’s full death

data remained in place.18 

In response to the Federal Improper Payments Coordination Act of 2015,19 the Fiscal Service entered in to

agreements with the Department of Defense and the Department of State to incorporate death data collected 

by these agencies into the DNP Business Center Working System, which began receiving this data in

September 2017. Additionally, legislative proposals were submitted in January 2017 and February 2017 to

obtain authorization to use both the SSA's full death file as well as the National Directory of New Hires. 20

In November 2017, OMB designated six additional databases for inclusion in the to the DNP Business 

Center Working System to help agencies address a broader range of improper payments beyond what can be 

detected through DNP Business Center's current data sources.

21 

 

16 OIG, Fiscal Service Successfully Established the Do Not Pay Business Center But Challenges Remain (OIG-15-006; November 6, 2014) 17 OIG, Fiscal Service Faces Challenges in Obtaining Better Death Information for the Do Not Pay Business 

Center, but Alternatives Exist (OIG-16-042; May 18, 2016) 18 GAO, Improper Payments, Strategy and Additional Actions Needed to Help Ensure Agencies Use the Do Not 

Pay Working System as Intended (GAO-17-15; issued October 14, 2016) 19 Public Law 114-109 (December 18, 2015) 20 The National Directory of New Hires (NDNH) is a national database of wage and employment information operated by the 

 Federal Office of Child Support Enforcement (OCSE). OCSE uses the NDNH primarily to assist states administering 

 programs that improve States’ abilities to locate parents, establish paternity, and collect child support. The information in 

 this database is only available to authorized persons or entities for authorized purposes. 21 The following databases were added: (1) Treasury’s Office of Foreign Assets Control’s Specially Designated 

Nationals List (OFAC List), (2) the General Services Administration’s System for Award Management (SAM), (3) the Internal Revenue Service’s (IRS)

Automatic Revocation of Exemption List, (4) the IRS’s Exempt Organizations Select Check, (5) the IRS’s e-Postcard database, and (6) the commercial

database American InfoSource (AIS) Deceased Data.
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The DNP Data Analytics Service supports agencies’ efforts to identify and prevent improper payments by

identifying trends and patterns in agency payment and other information that may be indicative of improper 

payments. The results of these analyses are provided to agencies at no cost for further study so they can

prevent future improper payments. We have an audit in progress to assess the services provided to agencies

by the DNP Data Analytics Service. 

With its potential to reduce improper payments, the DNP Business Center is a major and important 

undertaking by Fiscal Service and Treasury. As part of our ongoing audit work in this area, we will continue 

to monitor the steps taken by Fiscal Service to improve the effectiveness of the DNP Business Center. 

Other Matters of Concern

Although we are not reporting these as management and performance challenges, we are highlighting two

areas of concern: (1) currency and coin production and (2) excise tax reform. 

Currency and Coin 

Challenges continue for BEP with an outdated facility for which it needs legislative authority to purchase 

land for a new facility in the Washington D.C. area. The current facility has limited capabilities when

producing $100 notes and this capacity is necessary to ensure continuity of operations at the bureau. In the 

case of the Mint, the costs of producing penny and nickel coins were double their face value because of 

rising metal prices resulting in higher production costs. The Mint’s latest biennial report issued in 2016 

stated that certain metals are being evaluated to change the composition of the nickel to reduce costs. The

Mint continues to study this. The Mint must also ensure strong internal controls are in place to safeguard the 

integrity and protect U.S. coinage. On January 19, 2018, the Mint recommenced its mutilated coin

redemption program, which was suspended in 2016, with procedures to enhance the validation of the 

sources of these coins and to monitor for proper physical security at all Mint facilities. We are currently

performing an audit to determine if these procedures are effective.

We found in our recent audit of BEP that it had increased its capabilities in project management which

improved governance processes and oversight over note development and note production quality. 

However, BEP is still challenged with producing the next family of redesigned notes that will incorporate 

new security and technical features to thwart counterfeiters and identify and implement counterfeit

deterrence features in a timely manner to safeguard U.S. currency. According to BEP, this will require

expansion of its Western Currency Facility in Fort Worth, Texas. The same is true for BEP’s outdated 

Washington, D.C. facility.
DEPARTMENT OF THE TREASURY 165 

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Excise Tax Reform

The Craft Beverage Modernization and Tax Reform of 201722 reduced the excise tax rates and increased tax

credits on beer, wine, and distilled spirits for a two year period beginning January 1, 2018 through 

December 31, 2019. Among other things, these changes allow all TTB-regulated breweries, wineries, and

distilled spirits plants to benefit from a lower effective tax rate for limited quantities of beer, wine, and

distilled spirits produced and removed.23 Eligibility for the reduced rates and tax credits is capped for

controlled groups of entities as well as for entities that are treated as a single taxpayer. TTB has been tasked

to develop and implement policies and procedures to enforce the quantity limitations for independent 

entities, controlled groups, and single taxpayers. TTB needs to ensure that it has implemented internal

control with the new policies and procedures to ensure that industry members are appropriately claiming the 

new tax rates and tax credits offered under the new legislation. 

We would be pleased to discuss our views on the management and performance challenges and the other 

matters expressed in this memorandum in more detail.

cc: David Eisner 

Assistant Secretary for Management

 

22 Public Law 115-97, Section 13801 (December 22, 2017) 23 Under prior law, a reduced excise tax rate on beer and tax credits for wine were only available to certain small 

domestic brewers and small domestic wine producers, and there were no reduced excise tax rates for distilled spirits.
166 DEPARTMENT OF THE TREASURY

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TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION MANAGEMENT CHALLENGES

MEMORANDUM FOR SECRETARY MNUCHIN

FROM: J. Russell George

Inspector General

SUBJECT: Management and Performance Challenges Facing the Internal Revenue

Service for Fiscal Year 2019

The Reports Consolidation Act of 20001 requires that the Treasury Inspector General for Tax

Administration (TIGTA) summarize, for inclusion in the annual Department of the Treasury Agency

Financial Report, its perspective on the most serious management and performance challenges

confronting the Internal Revenue Service (IRS).

Each year, TIGTA evaluates IRS programs, operations, and management functions 

to identify the areas of highest vulnerability to the Nation’s tax system. For Fiscal 

Year (FY) 2019, the IRS’s top management and performance challenges, in order of priority, are:

1. Security Over Taxpayer Data and Protection of IRS Resources;

2. Implementing the Tax Cuts and Jobs Act and Other Tax Law Changes;

3. Identity Theft and Impersonation Fraud;

4. Providing Quality Taxpayer Service;

5. Upgrading Tax Systems and Expanding Online Services; 

6. Improving Tax Reporting and Payment Compliance;

7. Reducing Fraudulent Claims and Improper Payments;

8. Impact of Global Economy on Tax Administration;

9. Protecting Taxpayer Rights; and

10.Achieving Program Efficiencies and Cost Savings.

 

1 31 U.S.C. § 3516(d) (2006).

INSPECTOR GENERAL

FOR TAX 

ADMINISTRATION

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20005

October 15, 2018
DEPARTMENT OF THE TREASURY 167 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

TIGTA’s assessment of the major IRS management challenges for FY 2019 has changed from the

prior fiscal year. We reprioritized several challenges to reflect the impact of the Tax Cuts and

Jobs Act2 on the IRS. This legislation is the largest tax overhaul in more than 30 years with

extensive changes affecting both business and individual taxpayers. As such, it will be a 

significant challenge for the IRS to implement the extensive provisions of this legislation while

continuing to deliver its other priority program areas, including customer service and enforcement

activities. 

The following information detailing these management and performance challenges is being

provided to promote economy, efficiency, and effectiveness in the IRS’s administration of the

Nation’s tax laws.

SECURITY OVER TAXPAYER DATA AND PROTECTION OF IRS RESOURCES

Taxpayers have the right to expect that information they provide to the IRS will not be disclosed 

unless authorized by them or the law. The risk of unauthorized access to tax accounts and

unauthorized disclosure of taxpayer data will increase as the IRS expands the availability of online

services and self-help tools as part of its Strategic Plan.3

 Therefore, it is critical that the methods

used by the IRS to authenticate individuals’ identities provide a high level of assurance that tax

information and services are provided only to individuals who are entitled to receive them.

In June 2016, the IRS deployed a more rigorous electronic authentication process that provides

two-factor authentication for the highest risk online applications via a security code sent to textenabled mobile phones. The IRS also recently completed or updated electronic authentication

risk assessments for 28 of its online applications to determine appropriate levels of authentication

assurance, and enhanced its network monitoring and audit log analysis capabilities. While the

IRS has made progress in improving its electronic authentication controls, TIGTA reported4 that

network monitoring tools the IRS purchased to improve the prevention and detection of automated

attacks were not fully implemented due to issues related to resources, incompatibility, and higher

priorities. In addition, controls to prevent a fraudulent user from improperly creating profiles were

not fully implemented. Further, the IRS was not fulfilling requirements for monitoring audit logs for

suspicious activity.

 

2 Pub. L. No. 115-97, which is officially known as “An act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the

budget for Fiscal Year 2018.” 3 Internal Revenue Service Strategic Plan FY 2018 – 2022, IRS Pub. 3744 (Rev. Apr. 2018). 4 TIGTA, Ref. No. 2018-20-007, Electronic Authentication Process Controls Have Been Improved, but Have Not Yet Been Fully Implemented (Feb.

2018).
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In addition to protecting taxpayer data against outside attacks, the IRS must ensure that

contractors or other third parties adequately protect taxpayer data to prevent its unauthorized

disclosure. Because taxpayer accounts shared with the Private Collection Agencies (PCA)5

contain tax return information and Personally Identifiable Information6 it is critical that these data

remain secure when they leave the IRS and are being processed by the PCAs. TIGTA reported7

that although the IRS assessed the network and physical security of the PCAs and performed

follow-up reviews, additional attention is needed to address system vulnerability scans, the

physical security of misdirected taxpayer payments,8 and the electronic transfer of taxpayer data. 

Specifically, the IRS was unaware that one PCA could not provide monthly vulnerability scans of

systems containing taxpayer data, and three of the four PCAs were not timely remediating critical

and high-risk vulnerabilities within the required 30 calendar days. The IRS also did not enforce

the requirements in its own Publication 4812, Contractor Security and Privacy Controls, for cell

phone use policy specific to IRS data nor ensure that data files were encrypted before transferring

them to the PCAs. Finally, three of the four PCA mailrooms where taxpayer correspondence and

payments are received were not included in the IRS’s annual security assessments. One of the

PCAs lacked a secure mail processing area for payments and did not secure misdirected

payments prior to sending them to the IRS.

In another review, TIGTA reported that the IRS controls for verifying and validating users

requesting tax transcripts through the Transcript Delivery System did not comply with Federal

Government information security standards and did not sufficiently protect taxpayers against

unauthorized release of their tax information.9 The system allows external third-party customers 

to view and obtain tax information of both individuals and businesses. TIGTA’s review of the

Transcript Delivery System audit logs of tax transcript requests made between January 1, 2014,

and December 31, 2016, identified anomalies that could be an indication of either misuse of the

system or potentially suspicious activity. TIGTA recommended that the IRS implement multifactor

authentication for e-Services, which includes the Transcript Delivery System application, to

comply with Federal Government information security standards and implement procedures to

ensure that legitimate taxpayers authorized the release of their tax transcripts. 

 

5 The 2015 Fixing America’s Surface Transportation Act, Pub. L. No. 114-94, required the IRS to begin using PCAs to collect inactive tax

receivables. The PCAs may contact taxpayers to collect delinquent taxes. 6 Information which can be used to distinguish or trace an individual’s identity, such as their name, Social Security Number, or biometric records,

alone or when combined with other personal or identifying information which is linked or linkable to a specific individual, such as date and place of

birth, or mother’s maiden name. 7 TIGTA, Ref. No. 2018-20-039, Private Collection Agency Security Over Taxpayer Data Needs Improvement (July 2018). 8 Tax payments that should not have been mailed to the PCA. 9 TIGTA, Ref. No. 2018-40-014, Transcript Delivery System Authentication and Authorization Processes Do Not Adequately Protect Against

Unauthorized Release of Tax Information (Mar. 2018).
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In addition to external threats, the IRS must ensure that its systems and data are protected

against internal threats. These threats may appear in the form of malicious insiders or disgruntled

employees who seek to misuse their access to taxpayer data or sensitive IRS business practices 

for personal gain. In July 2017, TIGTA reported10 that the IRS has not effectively updated or

implemented hiring policies to fully consider past IRS conduct and performance issues prior to

making a tentative decision to hire former employees, including those who were terminated or

separated during an investigation of a substantiated conduct or performance issue. TIGTA found

that more than 200 (approximately 10 percent) of the more than 2,000 former employees who

were rehired between January 2015 and March 2016 were previously terminated from the IRS or

separated while under investigation for a substantiated conduct or performance issue. This

included positions with access to sensitive taxpayer information and individuals who separated

while under investigation for unauthorized accesses to taxpayer information or who had been

terminated or resigned for willful failure to properly file their Federal tax returns. Hiring employees

of high integrity is essential to maintaining public trust in tax administration and safeguarding

taxpayer information. In August 2018, a former IRS employee pled guilty to aggravated identity

theft for her role in a stolen identity refund fraud scheme. It was alleged that while employed by

the IRS, the defendant accessed taxpayer information and used the information to prepare and

electronically file fraudulent income tax returns.11

The IRS must also protect its employees located in approximately 550 offices. In the last several

years, threats directed at the IRS have remained the second largest component of TIGTA’s Office

of Investigations’ work. Recent incidents involving taxpayers who threatened or assaulted IRS

employees underscore the dangers that these employees face each day.

In May 2018, TIGTA special agents arrested a tax service provider for assaulting an IRS revenue

officer with a deadly weapon. The revenue officer went to the service provider’s place of business

to collect a Federal tax payment and the provider threatened him with a shotgun and inflicted

bodily injury upon the revenue officer.12

IMPLEMENTING THE TAX CUTS AND JOBS ACT AND OTHER TAX LAW CHANGES

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act of 2017, which

made significant changes to the tax code that affects individuals, businesses, and tax-exempt

organizations. The IRS estimates that implementation of the legislation will require creating or

revising about 450 forms, publications, and instructions; modifying about 140 information

technology systems for tax return processing and compliance activities; and responding to 4 

million additional telephone calls and taxpayer correspondence.

 

10 TIGTA, Ref. No. 2017-10-035, The Internal Revenue Service Continues to Rehire Former Employees With Conduct and Performance Issues

(July 2017). 11 N.D. Ga. Indict. filed Apr. 25, 2017; N.D. Ga. Plea Agr. filed Aug. 9, 2018. 12 S.D. Fla. Crim. Compl. filed May 23, 2018; S.D. Fla. Min. Order filed May 24, 2018; S.D. Fla. Indict. filed June 5, 2018; S.D. Fla. Docket as of

June 7, 2018. 
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The Tax Cuts and Jobs Act contains 119 provisions that are administered by the IRS and affects

both domestic and international taxes. The Act made significant changes to income tax rates,

income tax deductions and credits, and Federal income tax withholding. These provisions are

effective for Tax Year 2018 and required the IRS to revise income tax withholding tables for

wages paid after January 1, 2018.

Due to the magnitude of the changes, TIGTA quickly assessed the IRS’s efforts to implement this

new legislation. TIGTA reported13 that once enacted, the IRS used several well-established

processes and immediately began the difficult and large-scale task of implementing the various

provisions. The IRS worked with various consumer and business groups, including the payroll

community, to share information about the tax law. In addition, the IRS took steps to develop the

new tax withholding tables and updated the online withholding calculator on the IRS website to

reflect the changes.

Despite these initial efforts, TIGTA reported that the high volume of changes needed to implement

the new legislation increases the risk that the 2019 Filing Season may be delayed.14 As of July 5,

2018, the IRS’s Information Technology organization had not received all final work request

notifications and business requirements from the business units to update information technology

systems necessary to implement some provisions of the Tax Cut and Jobs Act. Delays in

receiving this information will result in less time for modifying and testing systems and increases

the risk that the 2019 Filing Season may be delayed. TIGTA also reported that there are

concerns surrounding the IRS’s ability to quickly fill critical information technology positions. 

Hiring employees and contractors is a lengthy process resulting in a risk to the timeliness of the

information technology updates. Besides updating its computer systems, the IRS must ensure

that taxpayers are educated about the changes and comply with the legislation.

 

13 TIGTA, Ref. No. 2018-44-027, Tax Cuts and Jobs Act: Assessment of Implementation Planning Efforts (Apr. 2018).

14 TIGTA, Ref. No. 2018-24-064, A Shortened Delivery Cycle, High Volume of Changes, and Missed Deadlines Increase the Risk of a Delayed

Start of the 2019 Filing Season (Sept. 2018).
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In addition to the Tax Cuts and Jobs Act, the IRS must administer other tax law provisions such as

those in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).15 The PATH Act

includes provisions intended to reduce fraudulent refundable tax credit claims and requires the

IRS to make a number of modifications to its Individual Taxpayer Identification Number (ITIN)

program.16 During a recent audit,17 TIGTA found that the IRS had not made a programming

change needed to identify potentially fraudulent ITIN applications. As a result, the IRS is unable

to identify applications that are questionable based on potentially false or fraudulent supporting

documentation via its systemic validation and verification processes. Because of limitations in

system consistency and validity checks, the IRS may have issued 151,384 potentially erroneous

or fraudulent ITINs. TIGTA also estimates that the IRS erroneously issued 8,116 ITINs because

tax examiners did not always ensure that required supporting documentation was provided with

applications. Additionally, processes do not ensure that revoked ITINs are prevented from being

used on a tax return. TIGTA found that 8,110 ITINs which had been revoked were still valid for

use in filing a tax return. In addition, another 687 ITINs were assigned to deceased individuals,

but the deceased individual’s account was not locked to prevent the individual’s identity from

being used to file a tax return.

The PATH Act contains provisions requiring the IRS to deactivate unused ITINs and those issued 

before a specified date. TIGTA reported that computer programming errors and inaccurate use 

identification resulted in the IRS not deactivating 89,105 ITINs that individuals used to file 1,298

tax returns as of April 20, 2017.18 These individuals received $637,181 in refundable tax credits

and did not pay an estimated $359,127 in tax as a result of erroneous personal tax exemptions. 

TIGTA also identified 133,054 ITINs that were erroneously deactivated by the IRS and reported

that IRS processes did not prevent 11,350 deactivated ITINs from being used by individuals on

9,818 tax returns as of May 4, 2017. These individuals erroneously received more than $2.6

million in refundable tax credits and did not pay more than $2.4 million in tax as a result of

erroneous personal tax exemptions.

 

15 Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, 129 Stat. 2242 (2015). 16 An ITIN is issued by the IRS to individuals who are required to have a Taxpayer Identification Number for tax purposes but do not have and are

not eligible to obtain a Social Security Number. 17 TIGTA, Ref. No. 2018-40-010, Processes Need to Be Improved to Identify Incomplete and Fraudulent Applications for Individual Taxpayer

Identification Numbers (Jan. 2018). 18 TIGTA, Ref. No. 2018-40-011, Some Legal Requirements to Deactivate Individual Taxpayer Identification Numbers Have Not Been Met (Jan.

2018).
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The PATH Act also contains a number of integrity provisions intended to reduce improper Earned

Income Tax Credit (EITC), Child Tax Credit, Additional Child Tax Credit (ACTC), and American

Opportunity Tax Credit (AOTC) claims. TIGTA identified 1.4 million tax returns with a discrepancy

in wages reported on the tax return and wages reported on third-party Forms W-2, Wage and Tax

Statement, that were not reviewed by the IRS prior to refunds being released on February 15,

2017.19 These taxpayers received approximately $8.2 billion in refunds that included $4.3 billion

in the EITC and $1.7 billion in the ACTC. For 660,141 of these returns, the IRS received no thirdparty Forms W-2 prior to the release of the refunds. These returns had refunds totaling almost

$3.7 billion. In addition, the IRS did not disallow almost $9.8 million in refundable credits

associated with 4,509 tax returns with a retroactive refundable credit claim. The credits were

incorrectly allowed because the Taxpayer Identification Number (TIN) assignment date was not

available when some of these tax returns were processed and due to tax examiner error when

reviewing retroactive claims.

IDENTITY THEFT AND IMPERSONATION FRAUD

TIGTA has issued a number of reports over the years assessing the IRS’s efforts to detect and

prevent the filing of fraudulent individual and business tax returns by identity thieves. Identity theft

tax fraud occurs when an individual uses another person’s or business’ name and TIN to file a 

fraudulent tax return for the purpose of obtaining a tax refund. This type of fraudulent activity is

constantly evolving and continues to have a significant impact on tax administration. As such, the

IRS must continually adapt its detection and prevention processes to reject fraudulent

electronically filed tax returns and prevent fraudulent paper tax returns from posting. For instance,

during the 2018 Filing Season,20 the IRS used 200 identity theft filters to identify potentially

fraudulent individual tax returns at the time tax returns were processed and prior to the issuance 

of fraudulent tax refunds. As of February 28, 2018, the IRS reported that it had identified 1.4

million tax returns with refunds totaling more than $6.9 billion for additional review as a result of

the identity theft filters and prevented the issuance of $5.6 million in fraudulent tax refunds.

 

19 TIGTA, Ref. No. 2018-40-015, Employer Noncompliance With Wage Reporting Requirements Significantly Reduces the Ability to Verify

Refundable Tax Credit Claims Before Refunds Are Paid (Feb. 2018). 20 TIGTA, Ref. No. 2018-40-028, Interim Results of the 2018 Filing Season (Apr. 2018). 
DEPARTMENT OF THE TREASURY 173 

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Since TIGTA’s first business identity theft report in September 2015, the IRS has created

business identity theft filters and selection lists to identify potential business identity theft returns. 

For Processing Year 2017, these filters identified 20,764 business returns with characteristics of

identity theft and associated refunds totaling $2.2 billion. However, TIGTA found21 that certain

types of business tax returns are not being evaluated for potential identity theft. In Processing

Year 2017, TIGTA identified 15,127 business tax returns with refunds totaling more than $200

million that would have been identified as potentially fraudulent if current business identity theft

filters included an evaluation of these types of tax returns. TIGTA also found that actions need to

be taken to protect refunds associated with confirmed business identity theft from being

erroneously released. TIGTA identified 872 business tax returns identified by the IRS as identity

theft returns in Processing Year 2016 for which refunds totaling more than $61 million appear to

have been released in error.

In addition to identity theft, telephone calls from criminals impersonating IRS agents also land

near the top of the IRS’s “Dirty Dozen”22 tax scams and remain an ongoing threat to taxpayers as

con artists threaten taxpayers with arrest, deportation, and license revocation if the victim does

not pay a bogus tax bill. The number of complaints TIGTA has received about this scam has

cemented its status as the largest, most pervasive impersonation scam in the history of the

agency.

Since the fall of 2013, a significant amount of our Office of Investigations’ workload has consisted 

of investigating a telephone impersonation scam in which more than 2.4 million intended victims

have received unsolicited telephone calls from individuals falsely claiming to be IRS or 

Department of the Treasury employees. The callers demand money under the pretense that they

owe unpaid taxes. To date, more than 14,500 victims reported that they have paid approximately

$72 million to these criminals.

 

21 TIGTA, Ref. No. 2018-40-061, Additional Actions Can Be Taken to Further Reduce Refund Losses Associated With Business Identity Theft (Aug.

2018).

22 Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter.
174 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

TIGTA is committed to bring to justice scammers who defraud taxpayers by impersonating

employees of the IRS. As a result of TIGTA’s commitment to protecting taxpayers, to date, a total

of 130 individuals and 10 call centers have been charged in Federal court for their involvement in

IRS impersonation scams. This includes the most recent indictment of 15 individuals and five call

centers on September 4, 2018.23 Of the 130 individuals charged Federally, 59 have been

sentenced and have received a cumulative total of more than 302 years’ imprisonment. In July

2018, 21 members of a massive India-based fraud and money laundering conspiracy that

defrauded thousands of U.S. residents of hundreds of millions of dollars were sentenced to terms

of imprisonment up to 20 years and more than $8.9 million in restitution. Additionally, the court

entered individual preliminary orders of forfeiture against the 21 defendants for assets that were

seized in the case and money judgments totaling more than $72 million.24 Although the

investigations and prosecutions have reduced the number of scam calls being placed by more

than 90 percent, we are still receiving reports that between 4,000 and 10,000 individuals are

receiving calls each week.

PROVIDING QUALITY TAXPAYER SERVICE

The President’s Management Agenda outlines a goal of improving customer experience with

Federal services. Improving the experience citizens and businesses have with Federal services 

whether online, in-person, or via telephone will increase trust in the Federal Government. 

Providing taxpayers with quality customer service is a key component in the IRS’s mission. 

Resolving questions before tax returns are filed helps taxpayers avoid unintentional errors and

noncompliance, and also reduces the burden on both taxpayers and the IRS that results from the

issuance of notices and correspondence. Successfully addressing and resolving taxpayer

inquiries through a quality customer service process allows the IRS to direct its limited resources

more efficiently.

Taxpayers have multiple options to choose from when they need assistance from the IRS. These

include toll-free telephone lines, face-to-face assistance at Taxpayer Assistance Centers or

Volunteer Program sites, and self-assistance using IRS.gov and other social media channels

(e.g., Twitter, Facebook, YouTube). To address declining budgets, the IRS continues to increase 

its dependence on technology-based services and external partners in an effort to direct

taxpayers to the most cost-effective method to provide the needed service. The IRS notes that

this approach allows it to focus limited telephone and walk-in resources on customer issues that

can be best resolved with person-to-person interaction.

The IRS’s Strategic Plan will play a significant part in the IRS’s effort to modernize the taxpayer

experience and allow its limited staff to better serve taxpayers who require one-on-one

assistance. The IRS’s goal is to eventually provide taxpayers with dynamic online tax account

access that will allow them to view recent payments, make minor changes and adjustments to

their tax accounts, and correspond digitally with the IRS.

 

23 N.D. Ga. Indict. Filed Sep. 4, 2018. 24 S.D. Tex. 4:16-cr-00385.
DEPARTMENT OF THE TREASURY 175 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Taxpayers and tax practitioners frequently look to the IRS for assistance following major disasters

and emergencies. In Calendar Year 2017, more than 49 million individuals and 19 million

businesses were eligible for disaster tax relief25 to enable them to meet their tax obligations for

filing returns or paying taxes. These types of events require the IRS to identify affected individual

and business accounts to timely place disaster relief codes on the accounts and postpone

examination and collection activities. In a recent review, TIGTA found that the IRS took the

appropriate actions and provided quality customer service to taxpayers affected by major

disasters.26 The IRS timely and correctly placed disaster relief codes on approximately 68 million

(99 percent) of the eligible taxpayers’ accounts. These codes allow the IRS to provide special

processing related to any filing payment or interest relief granted for a geographic area. TIGTA

also identified that the IRS postponed examination activities on more than 99 percent of impacted

individuals and businesses under examination and postponed collection activities for almost all of

the impacted individuals and businesses that were in collection status as of the disaster dates.

The IRS must also provide quality service to taxpayers affected by identity theft. Individuals can 

learn that they are victims of employment-related identity theft when they receive a notification

from the IRS of an income discrepancy between the amounts reported on their tax returns and the

amounts employers reported to the IRS. This can occur when someone else uses an innocent

taxpayer’s stolen identity to gain employment. Employment-related identity theft can cause a 

significant burden to the taxpayer due to the incorrect computation of taxes and Social Security

benefits based on income that does not belong to the taxpayer.

In February 2018, TIGTA reported27 that most identified victims remain unaware that their

identities are being used by other individuals for employment. A computer programming error

limited the IRS notifications to only those victims who were not identified as a victim in previous

years. As a result, the IRS did not notify 458,658 repeat victims of employment identity theft that it

identified in both Processing Year 2017 and on a tax return processed prior to Processing Year

2017. TIGTA also identified that 15,168 (13.5 percent) of the 112,445 employment identity theft

notices were erroneously sent to taxpayers who were not employment identity theft victims. In

most instances, these taxpayers were the spouses of taxpayers who filed legitimate tax returns

reporting the spouses’ wages and Social Security Numbers. The IRS erroneously placed an

employment identity theft marker on the spouses’ tax accounts, which then generated the notices. 

After being made aware of these issues, the IRS agreed to send a notice to the 458,658 repeat

victims of employment identity theft informing them that their Social Security Number was used by

another person to obtain employment. It also agreed to reverse the employment identity theft

marker placed on the 15,168 taxpayers’ accounts and notify them that the prior notice was sent

erroneously.

 

25 Tax relief includes postponing the date to file tax returns and make tax payments that have an original or extended due date that falls within the

postponement period. Further, penalties and interest will not accrue on tax returns or payments with an original or extended due date that falls

within the postponement period. 26 TIGTA Ref. No. 2018-40-049, Actions Were Taken to Timely Provide Disaster Relief Tax Assistance to Victims of Hurricanes Harvey, Irma, and

Maria (July 2018). 27 TIGTA, Ref. No. 2018-40-016, Most Employment Identity Theft Victims Have Not Been Notified That Their Identities Are Being Used by Others

for Employment (Feb. 2018).
176 DEPARTMENT OF THE TREASURY

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UPGRADING TAX SYSTEMS AND EXPANDING ONLINE SERVICES

Successful modernization of systems and the development and implementation of new

information technology applications are critical to meeting the IRS’s evolving business needs and

enhancing services provided to taxpayers. The IRS’s reliance on legacy (i.e., older) systems, 

aged hardware and software, and its use of outdated programming languages pose significant

risks to the IRS’s ability to deliver its mission. Modernizing the IRS’s computer systems has been

a persistent challenge for many years and will likely remain a challenge for the foreseeable future.

The IRS established the Enterprise Case Management (ECM) program in January 2015 in an

effort to either partially or fully replace the functionality of identified legacy case management

systems. The ECM program goal was to streamline case management processes across the

business units and consolidate the case management systems into one common solution. At the

time, IRS tax administration was supported by more than 90 different case management systems

that varied widely in complexity, size, and customization and were implemented over many years

to support the individual needs of multiple business units. In July 2018, TIGTA reported28 that the

IRS spent $85.4 million on approximately two and a half years of work on the ECM program that

was unsuccessful. After establishing the ECM program, the IRS did not search for a software

product that would enable the ECM program to meet its enterprise-wide requirements. Instead,

the IRS used a software product that had not proven it could be scalable to the IRS’s needs and

did not have continuous integration capabilities. After deciding that the software product was not

viable for developing the ECM solution, the IRS suspended development activities in April 2017. 

While these issues delayed implementation, the IRS is scheduled to select a commercial off-theshelf product in February 2019 that will be used for the ECM solution. Once a commercial off-theshelf product is selected, the IRS will need to focus on migrating systems and processes to the

new ECM solution.

TIGTA also previously reported that the IRS has a large and increasing amount of aged hardware,

some of which is three to four times older than industry standards.29 At the end of FY 2017, more

than 59 percent of IRS hardware was past its useful life and 26 percent of software was two or

more releases behind the most current commercially available version. In its FY 2019 Budget

Request, the IRS noted that it must continue efforts to replace obsolete hardware and software

and provide a stable foundation for delivering technology services required for day-to-day

operations, transforming the tax experience, and modernizing operations. Aged information

technology hardware and software, when combined with the fact that components of the

infrastructure and systems are interrelated and interdependent, increase the likelihood of outages

and failures and may also introduce security risks to critical taxpayer data that IRS systems must 

protect.

 

28 TIGTA, Ref. No. 2018-20-043, Initial Efforts to Develop an Enterprise Case Management Solution Were Unsuccessful; Other Options Are Now

Being Evaluated (July 2018). 29 TIGTA, Ref. No. 2017-20-051, Sixty-Four Percent of the Internal Revenue Service’s Information Technology Hardware Infrastructure Is Beyond

Its Useful Life (Sept. 2017).
DEPARTMENT OF THE TREASURY 177 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

The IRS continues to demonstrate its commitment to broaden access to secure digital services by

providing one-stop, web-based services for the general public, Federal agencies, and tax

professionals. The IRS offers external web services for the public and employees through the

Integrated Enterprise Portal. The Integrated Enterprise Portal was designed to be an innovative

and cost-effective system that would provide a fully scalable, managed private cloud capability to

the IRS, enabling one-stop, web-based services. TIGTA’s analyses of two different types of

vulnerability and configuration scan reports found that critical and high-risk vulnerabilities were

generally remediated on hardware, virtual machines, and software in the Integrated Enterprise

Portal-Registered User Portal environment.30 However, we identified two areas of improvement

needed to ensure that the system is protected against the exploitation of unpatched vulnerabilities

and misconfigurations that could expose taxpayer data to unauthorized access and disclosure.

IMPROVING TAX REPORTING AND PAYMENT COMPLIANCE 

One of the IRS’s key responsibilities is to ensure that taxpayers comply with the tax law. As such, 

the IRS should ensure that taxpayers understand their filing requirements so that the rate of

voluntary compliance does not decline. This is critical, because the IRS notes a 1 percent drop in

the voluntary compliance rate is estimated to cost the Government tax revenue of $30 billion each

year.31

To enhance its enforcement actions, the IRS implemented the Private Debt Collection (PDC)

program, as required by the Fixing America’s Surface Transportation Act, to collect inactive tax

receivables that the IRS previously could not collect. In two prior attempts, programs did not

generate sufficient revenue to cover costs and the IRS terminated the programs early with net

losses to the Government. The Joint Committee on Taxation estimated that the current PDC

program would yield approximately $2.4 billion in additional revenue through FY 2025. TIGTA

reported32 as of May 31, 2018, that the PDC program generated $56.6 million in revenue

compared to $55.3 million in costs for an approximate net profit of $1.3 million. The PCAs

collected just 1 percent of the $4.1 billion assigned. Possible causes of the nominal collection

yield could be the average age of the cases assigned (4 years), assignment of 

low-income taxpayers (54 percent of PDC inventory), lack of consequences for subsequent

noncompliance, or taxpayers who willfully failed to pay. Other PDC program concerns include the

lack of a referral unit, the reliance on PCAs to self-report complaints, authentication procedures

that expose taxpayers to risk, and PDC communication strategies that differ from IRS

communications regarding tax scams. 

 

30 TIGTA, Ref. No. 2018-20-036, The Remediation of Configuration Weaknesses and Vulnerabilities in the Registered User Portal Should Be

Improved (July 2018). 31 IRS Congressional Budget Justification and Annual Performance Report and Plan - FY 2019. 32 TIGTA, Ref. No. 2018-30-052, Private Debt Collection Was Implemented Despite Resource Challenges; However, Internal Support and

Taxpayer Protections Are Limited (Sept. 2018).
178 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

During another review, TIGTA found33 that the IRS can more effectively address filing

noncompliance and underreporting by better using the State Audit Report Program. TIGTA

analyzed FYs 2013 through 2016 State Audit Report Program nonfiler inventories and found that

the IRS had dropped 39,142 records for taxpayers who were either repeat nonfilers, high-income

nonfilers, or both, with estimated tax liabilities not collected totaling approximately $285 million. 

Only 12 States participate in the State Audit Report Program as we found that there is a lack of

coordination and knowledge regarding the agreements with State agencies.

Issuing levies is another effective enforcement tool that the IRS can use to collect overdue taxes. 

In many cases, a levy causes the taxpayer to make contact with the IRS, which provides the IRS

an opportunity to help bring the taxpayer into compliance. TIGTA found34 that IRS management

has been deliberately reducing notices of levy in recent years because it believed there were

insufficient resources to handle the resulting taxpayer telephone calls. The total number of

Automated Collection System (ACS) levies issued (paper and systemic) decreased by nearly 90

percent during the 18-month period after management’s decision. Levy proceeds decreased by

70 percent, or almost $966 million. Further, the analysis showed that in addition to these

quantifiable decreases, the decision to suspend ACS systemic levies also negatively affected

other collection actions, such as an increase in the number of accounts written off as uncollectible

due to the expiration of the statute of limitations.

As previously mentioned, ensuring that taxpayers understand and meet their tax responsibilities is

crucial for the IRS in its effort to encourage voluntary compliance with the tax laws. Paid tax

return preparers play an important role in the U.S. tax system as they prepare approximately 60

percent of all tax returns filed, and their actions have an enormous impact on the IRS’s ability to

administer tax laws effectively. Because of the critical role tax preparers have in helping

taxpayers comply with the tax laws, identifying incompetent and unscrupulous preparers is an

essential component of the IRS’s oversight responsibilities. While the IRS’s effort to regulate

preparers was invalidated as a result of litigation,35 the IRS has tools, including civil penalties, civil

injunctions, and criminal investigations to identify and discourage preparer misconduct. 

 

33 TIGTA, Ref. No. 2018-30-060, The Internal Revenue Service Can More Effectively Address Noncompliance by Better Using and Controlling the

Fed/State Program (Aug. 2018). 34 TIGTA, Ref. No. 2018-30-068, Fiscal Year 2018 Statutory Review of Compliance With Legal Guidelines When Issuing Levies (Sept. 2018). 35 Loving v. IRS, 917 F. Supp. 2d 67 (D.D.C. 2013), aff’d, 742 F 3d 1013 (D.C. Cir. 2014).
DEPARTMENT OF THE TREASURY 179 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

TIGTA found no evidence of a coordinated strategy in the IRS to address preparer misconduct.36 

Only a relatively small number of civil examinations are pursued against preparers each year

relative to complaints about tax preparers. During FY 2016, the IRS investigated just 140 (15

percent) of 951 misconduct referrals and, of the cases that resulted in preparer penalties, the IRS

collected only 15 percent of assessed penalties. Further, the IRS checks tax compliance for tax

professionals but not for most unregulated preparers. TIGTA reported that more than 26,000 tax

professionals who were Preparer Tax Identification Number recipients acknowledged being tax

noncompliant. In addition, while preparing tax returns without a Preparer Tax Identification

Number is subject to a penalty, the penalties are assessed on a limited ad hoc basis. In

Processing Year 2016, the IRS failed to assess $121,175,195 in Preparer Tax Identification

Number penalties.

To establish certainty regarding a taxpayer’s tax obligations for U.S. Corporation Income Tax

Returns, the IRS created Schedule UTP, Uncertain Tax Position Statement, beginning in Tax

Year 2010. The IRS expected the schedule would maintain consistent treatment of taxpayers,

increase IRS resource efficiency by focusing on issues and taxpayers that posed the greatest risk

of noncompliance, and strategically leverage resources during inventory identification and

delivery. Despite IRS efforts to collect meaningful data to assist the examination process, TIGTA

reported that the Schedule UTP does not gather sufficient information to achieve its intended

goals.37 The weaknesses in the form provide for limited use by examiners and group managers in

the field and by Large Business and International Division management and executives to

strategically use the form during inventory identification and delivery. The IRS plans to coordinate

with the Department of the Treasury, Office of Tax Policy, to consider the feasibility of modifying

the schedule to include information needed to be more useful for its intended purpose.

REDUCING FRAUDULENT CLAIMS AND IMPROPER PAYMENTS

The Office of Management and Budget describes an improper payment as any payment that

should not have been made, was made in an incorrect amount, or was made to an ineligible

recipient. Improper payment legislation38 required Federal agencies, including the IRS, to

estimate the amount of their improper payments and report to Congress annually on the causes of

and the steps taken to reduce such improper payments. The EITC has been identified as a highrisk program, and, as such, the IRS must include the rate and amount of improper payments in

the Department of the Treasury’s annual Agency Financial Report. The IRS estimates that $16.2

billion (23.9 percent) in EITC payments were issued improperly in FY 2017.

 

36 TIGTA, Ref. No. 2018-30-042, The Internal Revenue Service Lacks a Coordinated Strategy to Address Unregulated Return Preparer Misconduct

(July 2018). 37 TIGTA, Ref. No. 2018-30-023, The Uncertain Tax Position Statement Does Not Contain Sufficient Information to Be Useful in Compliance Efforts

(Mar. 2018). 38 Improper Payment Information Act of 2002 (Pub. L. No. 107-300, 116 Stat. 2350), Improper Payment Elimination and Recovery Act of 2010

(Pub. L. No. 111-204, 124 Stat. 2224), and Improper Payments Elimination and Recovery Improvement Act of 2012 (Pub. L. No. 112-248, 126 Stat.

2390).
180 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

While refundable credits such as the EITC, ACTC, and AOTC provide benefits to individuals, the

unintended consequence of these credits is that they can be the targets of unscrupulous

individuals who file erroneous claims. Refundable credits can result in tax refunds when no

income tax is paid or withheld because these credits are allowed even if they exceed the amount

of the individual’s tax liability. Consequently, they pose a significant risk as an avenue for those

seeking to defraud the Government. Congress passed the PATH Act with a number of integrity

provisions intended to reduce improper refundable credit claims. These provisions are projected

to save approximately $7 billion over 10 years by reducing fraud, abuse, and improper payments

in refundable tax credit programs.

TIGTA believes that the IRS is significantly understating its estimate of improper payments

associated with refundable tax credits in its reports to the Office of Management and Budget and

Congress. TIGTA reported39 that the IRS continues to incorrectly rate the improper payment risk

associated with the ACTC and AOTC as medium risk when, in fact, the risk is high. The medium

risk rating is contrary to the IRS’s own National Research Program and compliance data which,

when analyzed, show a high risk of improper payments. The incorrect rating allows the IRS to

continue to circumvent the reporting of required information for these programs to the Department

of the Treasury for inclusion in the Agency Financial Report. We estimated that $7.4 billion (23.2

percent) of ACTC payments and $1.3 billion (28.3 percent) of AOTC payments made during FY

2017 were improper.

IMPACT OF GLOBAL ECONOMY ON TAX ADMINISTRATION

The IRS continues to focus significant efforts on global tax cooperation and tax administration

practices that can prevent and resolve disputes among countries to increase certainty for

taxpayers. Complexity and change in the international tax environment require that the IRS

collaborate with tax administrations of foreign countries to enforce compliance. As of February

2018, the IRS has 43 active or pending reporting agreements with other countries to cooperate

through a reciprocal approach to sharing information and enforcing international tax law.

40

Significant efforts to improve U.S. taxpayer compliance with reporting foreign assets and offshore

accounts resulted in the enactment of the Foreign Account Tax Compliance Act (FATCA).41 

Beginning in Tax Year 2011, the FATCA requires taxpayers with specified foreign financial assets 

that meet certain dollar thresholds to report the information to the IRS. The FATCA also requires

foreign financial institutions to register and agree to report to the IRS information about financial

accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold substantial

ownership interest.

 

39 TIGTA, Ref No. 2018-40-032, The Internal Revenue Service Is Not in Compliance With Improper Payment Requirements (Apr. 2018). 40 Internal Revenue Service Strategic Plan – FY 2018 – 2022, IRS Pub. 3744 (Rev. Apr. 2018). 41 Pub. L. No. 111-147, Subtitle A, 124 Stat 97 (2010) (codified in scattered sections of 26 U.S.C.). 
DEPARTMENT OF THE TREASURY 181 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

TIGTA reported42 that despite spending nearly $380 million, the IRS took limited or no action on a 

majority of planned activities in the FATCA Compliance Roadmap.43 Foreign financial institution

reports did not include (or included invalid) TINs, which affected the IRS’s ability to identify and

enforce individual taxpayer FATCA requirements. After TIGTA provided feedback, the IRS

initiated action to enforce withholding agent compliance. TIGTA observed that a significant

percentage of the Forms 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, 

the IRS receives that pertain to the FATCA do not have valid TINs. However, most Form 1099

series information returns pertaining to the FATCA do have valid TINs and can be used by the

IRS in its FATCA compliance strategies. There were 62,398 Tax Year 2015 Forms 1042-S with

invalid TINs reporting more than $717 million, of which just over $47 million was withheld.

Additionally, improvements are needed in the IRS Large Business and International Division to

address treaty-based income exemptions for some nonresident aliens. Nonresident aliens who

are temporarily present in the United States to study, obtain training, teach, conduct research,

and/or perform services as an employee are generally subject to income tax. Under certain tax

treaties, some nonresident aliens who perform services as an employee may be eligible to exempt

some or all of their income from tax. According to IRS records from Processing Years 2016 and

2017, 119,544 nonresident aliens claimed $2 billion in treaty-based exempt income.

TIGTA found44 that IRS forms, instructions, and publications are inadequate and assume that

nonresident aliens have both a Form 1042-S, reflecting income exempt by treaty, and a Form W2, reflecting taxable wages. Nonresident aliens will have both forms only if they file a Form 8233,

Exemption From Withholding on Compensation for Independent (and Certain Dependent)

Personal Services of a Nonresident Alien Individual, with their withholding agent (generally their

employer) in order to receive a full or partial exemption from withholding. The IRS needs to

consider updating the appropriate forms, instructions, and publications to clarify how nonresident

aliens who do not receive treaty-based exemption forms are still able to claim exemptions. 

Outreach and education is also needed to inform withholding agents (generally employers) of

reporting rules which will improve accuracy of information reporting and reduce the number of

erroneous tax returns.

PROTECTING TAXPAYER RIGHTS

The IRS must balance tax compliance activities against the rights of taxpayers to receive fair and

equitable treatment. The IRS continues to dedicate significant resources and attention to

complying with the taxpayer rights provisions of the IRS Restructuring and Reform Act of 1998.45 

The IRS provides taxpayers with the Taxpayer Bill of Rights46 in many notices and in-person

interviews to inform taxpayers about their rights with respect to examinations, appeals, collections,

and refunds.

 

42 TIGTA, Ref. No. 2018-30-040, Despite Spending Nearly $380 Million, the Internal Revenue Service Is Still Not Prepared to Enforce Compliance

With the Foreign Account Tax Compliance Act (July 2018). 43 The purpose of the Roadmap is to document compliance planning involving FATCA data and to provide a baseline for future compliance

planning and implementation activities across the IRS. 44 TIGTA, Ref. No. 2018-30-074, Forms, Instructions, Publications, and Procedures Need to Be Improved for Some Nonresident Aliens Eligible for

Treaty-Based Income Exemptions (Sept. 2018). 45 Pub. L. No. 105-206, 112 Stat. 685. 46 IRS Publication 1, Your Rights as a Taxpayer (Rev. 9-2017).
182 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Over the years, TIGTA has audited certain taxpayer rights provisions and reported that, in

general, the IRS has improved its compliance with these statutory provisions and is documenting

its protection of taxpayer rights. However, during the review of the IRS’s compliance with Notice

of Federal Tax Lien due process procedures, TIGTA found47 that the IRS did not always send lien

notices to the taxpayer’s last known address. In addition, the IRS did not always send copies of

the lien notices to all taxpayers’ authorized representatives.

TIGTA also evaluated the IRS’s compliance with legal seizure provisions.48 TIGTA reviewed a 

judgmental sample of 51 of the 359 seizures conducted from July 1, 2016, through June 30, 2017,

to determine whether the IRS complied with legal and internal guidelines related to each seizure. 

TIGTA identified three seizures in which IRS Collection employees did not exhibit due diligence to

ensure that the seizure was appropriate. TIGTA also found that the pilot program the IRS was

using for the sale of seized property through the Internet resulted in higher sale-related expenses. 

Sale-related expenses are paid from sale proceeds and reduce the amount that is applied to the

taxpayer’s outstanding tax liability.

TIGTA also assessed whether the IRS complied with requirements to notify taxpayers prior to

issuing levies.49 Our tests of taxpayers with ACS paper levies identified five cases in which ACS

employees levied the taxpayer before waiting 30 days after providing the notice of Collection Due

Process rights to the taxpayer. Further, analysis of taxpayers with ACS paper levies in which

additional tax was assessed prior to the levies identified 783 (1 percent) taxpayers who did not

receive a new notice of intent to levy after an additional assessment was made on a tax period

listed on the levy.

ACHIEVING PROGRAM EFFICIENCIES AND COST SAVINGS

Continuing to identify and achieve greater program efficiencies and cost savings is imperative for

the IRS as it strives to successfully accomplish its mission with declining resources. Implementing

cost saving strategies is particularly critical as the IRS is tasked with additional legislative

responsibilities, often with limited budgetary funding. Recent audits concerning rent costs and

IRS employee awards have identified opportunities for cost savings and improving the integrity of

the system of tax administration.

 

47 TIGTA, Ref. No. 2018-30-080, Fiscal Year 2018 Statutory Review of Compliance With Notice of Federal Tax Lien Filing Due Process Procedures

(Sept. 2018). 48 TIGTA, Ref. No. 2018-30-067, Fiscal Year 2018 Review of Compliance With Legal Guidelines When Conducting Seizures of Taxpayers’ Property

(Sept. 2018). 49 TIGTA, Ref. No. 2018-30-068, Fiscal Year 2018 Statutory Review of Compliance With Legal Guidelines When Issuing Levies (Sept. 2018).
DEPARTMENT OF THE TREASURY 183 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

After payroll, rent is the IRS’s largest operating expense, with the IRS expecting to spend more

than $600 million on real estate costs in FY 2018. Since March 2012, the IRS has taken steps to

reduce its total office space by nearly 8 percent by either closing or consolidating office spaces. 

Although progress has been made, the rate of employee attrition has outpaced office space

reduction efforts. The IRS’s workstation utilization rate was only 66 percent as of December

2017. TIGTA reported50 that changing the method by which the IRS develops and implements its

space reduction projects, to incorporate more effective workstation and office sharing, could

reduce the need for as many as 10,473 workspaces. By releasing these underutilized

workspaces and the square footage of leased space associated with them, the IRS could achieve

more than $80 million in rental cost savings over the next five years.

TIGTA found that the IRS had not capitalized on underutilized workspace reduction cost savings

that could be achieved from better utilization of employee “hoteling” (managers and employees

sharing workspaces), such as reduced rental, workspace buildout, furnishing, and equipment

costs. The IRS could not provide any documentation demonstrating measurable progress in

releasing underutilized workspaces as a result of highly mobile employees and employees who

participate in frequent or recurring telework.

Besides ensuring proper stewardship of Government funds, the IRS must maintain the integrity of

the agency. TIGTA reported51 that the IRS did not ensure that all employees with conduct and tax

compliance issues were screened prior to receiving a performance award, as required by

Department of the Treasury policy and Federal law. Increased screening procedures for awards

resulted in the IRS denying almost 80 percent of awards to screened employees with identified

conduct and tax issues. However, TIGTA found that in FY 2016 and FY 2017, the IRS still issued 

more than $1.7 million in awards to 1,962 employees who had a disciplinary or adverse action

during the 12 months prior to receiving their award. Some of these employees had serious

misconduct such as unauthorized access to tax return information, substance abuse, and sexual

misconduct. In addition, TIGTA found that IRS screening processes do not look for or identify

employees with tax compliance issues unless those issues have resulted in disciplinary action.

CONCLUSION

This memorandum is provided as our annual summary of the most serious major management

and performance challenges confronting the IRS in FY 2019. TIGTA’s Fiscal Year 2019 Annual

Audit Plan contains our proposed reviews, which are organized in accordance with these

challenges. If you have any questions or wish to discuss our views on the challenges in greater

detail, please contact me at (202) 622-6500.

cc: Assistant Secretary for Management 

Deputy Chief Financial Officer

Commissioner of Internal Revenue

 

 

50 TIGTA, Ref. No. 2018-10-020, More Effective Workstation and Office Utilization Could Result in Rental Cost Savings (Apr. 2018). 51 TIGTA, Ref. No. 2018-10-005, The Internal Revenue Service Has Implemented Some Screening Procedures, but Employees With Recent Tax

and Conduct Issues Continue to Receive Awards (Feb. 2018).
184 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

RESPONSES TO INSPECTORS GENERAL IDENTIFIED CHALLENGES

Treasury Management Response to OIG Identified Challenges

OIG Challenge 1: Operating in an Uncertain Environment

OMB’s government-wide Reform Plan may significantly affect the administration of the Department’s programs and

operations. Additional uncertainties facing the Department are the recurring cycle of budget and debt ceiling stopgaps.

We agree with the OIG that there is risk to Treasury’s programs and operations associated with future reform of the

Executive Branch of the federal government, and with the recurring cycle of budget and debt ceiling stopgaps. Treasury

strongly supports OMB’s government-wide Reform Plan. We remain committed to our priority initiatives for fulfilling our

mission and achieving our reform goals as set forth by OMB.

OIG Challenge 2: Cyber Threats

As cyber threats continue to evolve and become more sophisticated and subtle, they pose ongoing challenges for Treasury to

fortify and safeguard its internal systems and operations along with the financial sector it oversees. Additionally, ensuring

the government has a sufficient number of cybersecurity professionals is also an ongoing challenge. 

Treasury employs a risk-based approach to cybersecurity, which includes: (a) assessing the likelihood of exploitation; (b) 

examining the number of dependencies required to exploit a given vulnerability; and (c) calculating the impact to the public

if a system or data is compromised. In FY 2018, in accordance with Federal-wide guidance, the Department focused efforts 

on impact calculation, identifying High Value Assets that would be of likely interest to an adversary seeking to maximize

impact to the public, and examining dependencies by completing Security Architecture Reviews and Risk and Vulnerability

Assessments with the Department of Homeland Security (DHS). 

Six of Treasury’s Highest Value Assets (HVAs) reside in the Bureau of the Fiscal Service, resulting in an inherently

concentrated risk of cyber-attacks for Treasury. Over the last two years, Treasury (and particularly the Fiscal Service) has

more than doubled cybersecurity assessments on the HVAs, and is further evaluating and prioritizing remediation activities

associated with findings and risks identified through the assessment process within funding constraints. 

Additionally, Treasury finalized the initiation of Phase 1 of the Continuous Diagnostics and Mitigation Program in FY 2018

to enable automated monitoring of information technology vulnerabilities and leveraged new investments in Cybersecurity

Enhancement capabilities to improve outward-facing protections of Treasury data. We deployed Data Loss Prevention (DLP) 

hardware and initiated testing. DLP tools reduce the likelihood of data breaches by detecting and blocking attempts (by 

agency users or malicious actors) to send sensitive data outside of the organization’s boundary. We also made targeted

investments at the Government Security Operations Center to enhance monitoring of web traffic and inspection of web and

email content. 
DEPARTMENT OF THE TREASURY 185 

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In coordination with DHS, the Department made additional investments to improve security for information technology (IT) 

users. The Department has begun to implement the default use of Hyper Text Transfer Protocol (HTTP) Secure with HTTP 

Strict Transport Security to improve security of websites and web services. We enabled Domain-based Message

Authentication, Reporting & Conformance (DMARC) on 80 percent of our external network domains to provide the strongest

protection against spoofed email, and are working to address the remaining domains early in FY 2019. Lastly, Treasury

enables only the use of National Institute of Science and Technology (NIST)-approved encryption solutions on Internet-facing

email servers to best protect sensitive data. By implementing these email and web security standards, Treasury increased

the integrity and confidentiality of Internet-delivered data, reduced the volume of spam, and better protected IT users who

might otherwise fall victim to phishing emails that appeared to originate from Federal Government systems. 

OIG Challenge 3: Anti-Money Laundering/Terrorist Financing and Bank Secrecy Act Enforcement

Identifying, disrupting, and dismantling the financial networks that support terrorists, organized transnational crime,

weapons of mass destruction proliferators, and other threats to international security, continue to be challenging. 

The Office of Terrorism and Financial Intelligence (TFI) remains dedicated to countering the ability of these networks,

organizations, and countries to fund such activities through intelligence analysis, the strategic application of our various

economic tools and authorities, and international private-sector cooperation. The global dominance of the U.S. dollar, along

with the unique inclusiveness and reach of U.S. financial institutions, creates inherent exposure to risk of money laundering

and attempts at exploitation for terrorist finance. We therefore agree with the OIG’s assessment that combatting money

laundering and countering the financing of terrorism is challenging, especially as illicit actors continue evolving their

methods in an attempt to avoid detection. Despite these risks and the increasingly complicated environment in which TFI 

operates, the Financial Action Task Force 2016 Mutual Evaluation of the U.S. found the U.S. Anti-Money Laundering and

Combating the Financing of Terrorism framework to be robust and effective. As a result of the work of TFI and its myriad of

law enforcement, national security, and private sector partners, the U.S. continues to be one of the world’s most secure

financial systems, able to effectively root out illicit activity and protect U.S. national security interests. 

Treasury appreciates the OIG’s acknowledgement of TFI’s work across a number of programs as well as the increased

demand for the use of TFI’s economic tools and authorities in responding to national security threats. The OIG stated that

this increased workload resulting in TFI requesting approximately 100 new positions for FY 2019. As clarification, 63 of

these positions were funded in the Department’s 2018 budget as part of the supplemental to the FY 2018 President’s Budget. 

Hiring actions have already been initiated for all of these positions, with a vast majority having already been onboarded or

selected pending final security clearances. We have also worked closely with partners the Office of Personnel Management

to achieve a much reduced processing time for clearances given the critical nature of these positions. Given the progress

made to date, TFI is confident in the ability to continue recruiting and hiring exceptionally talented staff to fill the additional

newly funded positions in the FY 2019 President’s Budget. TFI concurs that the 2 year vacancy for the Assistant Secretary

of Intelligence and Analysis, a critical intelligence position, was unacceptable and hopes that Congress will proceed with

greater speed and efficiency in reviewing nominees as new vacancies arise.
186 DEPARTMENT OF THE TREASURY

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Treasury concurs with the OIG’s statement that disrupting terrorist financing, as well as other mission objectives, depends

upon a whole-of-government approach, requiring coordination and collaboration within Treasury and with other Federal

agencies. Over the last year, TFI implemented several key initiatives to emphasize and better enable coordination and

collaboration at a number of levels. For instance, TFI now has six Strategic Impact Units working on a number of highly

complex, priority programs to further enhance collaboration in applying our economic tools and authorities in a strategic,

calibrated way to ensure maximum impact from our actions. An example of this collaboration can be seen in the increased

coordination of the Financial Crimes Enforcement Network (FinCEN) advisories with other designations or targeted

outreach so as amplify the actions and cause a maximum disruption of funding to malign actors. Within the interagency

community, TFI has also made efforts to enhance coordination, to include working with the Intelligence Community to create

the National Intelligence Manager for Economic Security and Threat Finance to drive greater intelligence coordination and

integration on threat finance and economic security priorities. TFI will continue to further foster and enhance this type of

coordination across our programs.

OIG Challenge 4: Efforts to Promote Spending Transparency and to Prevent and Detect Improper Payments

The Digital Accountability and Transparency Act (DATA Act), in part, requires the Federal Government to provide

consistent, reliable, and useful online data about how it spends taxpayer dollars. In the OIG’s November 2017 audit report

on the Treasury agency DATA Act compliance, it identified issues with the agency submission. Additionally, the

Department must continue improvements to its Do Not Pay (DNP) analytical tools for helping to prevent and reduce

improper payments across the federal government. 

While the OIG concluded that Treasury’s FY 2017 second quarter submission resulted in inaccuracies, management

expressed concern with the audit methodology employed to assess the accuracy of Treasury’s spending data. Based on the

audit methodology employed, if any one of the audited data elements or components of an element (there were a total of 57

government-wide data elements, along with components within an element) included in a transaction could not be verified or

agreed to source records, the entire transaction was counted as inaccurate. This assumed all elements were weighted

equally, regardless of their significance. Based on the audit methodology employed, auditors assessed a less than five

percent accuracy on a transaction basis versus an over 70 percent accuracy rate based on the quality of individual data

elements. 

Within the same audit, OIG recognized that our award financial data elements were complete and accurate. Therefore, our

remediation efforts have primarily focused on improving the integrity of our non-financial award data. These remediation

efforts to date have focused on training and other related activities, including the development of a more comprehensive

remediation plan, a Data Quality Plan for both financial and non-financial data, which will be completed in the first quarter

of FY 2019. 

Related to improper payments, Fiscal Service’s DNP Business Center estimates that almost 98 percent of adjudicated

payment errors represent recurring payments which, when corrected, may then be removed from future disbursements. 

DNP continues to mature its analytical capabilities, embark on new studies, and other activities to further address concerns

around this challenge. 
DEPARTMENT OF THE TREASURY 187 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

IRS Management Response to TIGTA Identified Challenges

TIGTA Challenge 1: Security Over Taxpayer Data and Protection of IRS Resources

Protecting the confidentiality of taxpayer information from internal and external threats continues to be a top concern for 

IRS.

TIGTA reported that the IRS must ensure that contractors or other third parties are adequately protecting taxpayer data in

addition to protecting its own employees against threats in their 550 locations. The IRS continued to address inefficiencies

in protocols, oversight of security agreements and updates in internal policies. The IRS also implemented an incident

reporting training course to provide employees with basic guidance for reporting physical security incidents. Furthermore,

the IRS implemented an employee verification program to enhance taxpayer confidence when dealing with IRS professionals

outside of IRS facilities.

TIGTA Challenge 2: Implementing the Tax Cuts and Jobs Act and Other Tax Law Changes 

New tax law provisions administered by the IRS will need to be implemented due to the Tax Cuts and Jobs Act of 2017

(TCJA) which increases the risk that the 2019 Filing Season will be delayed. 

Although TIGTA discusses numerous challenges, risks, and discrepancies with the IRS administering new legislation and

tax law provisions (e.g. TCJA and PATH Act), our management initiated work on multiple efforts including: 1) requesting

programming changes on eligibility indicators and requirements for multiple tax credits 2) offering pre-refund audits on

returns; 3) thoroughly reviewing Individual Taxpayer Identification Numbers (ITINs) systemically deactivated under the

PATH Act due to non-use; and 4) implementing additional requirements to increase the accuracy of ITIN deactivation.

The IRS developed processes to identify all AOTC claims for both missing Tuition Statement Form, and claims that did not

provide the institution’s employer identification number. Furthermore, beginning with TY 2016 the IRS initiated pre-refund

audits on returns for which a student claimed the AOTC in the previous year without a corresponding Tuition Statement

Form filed for the prior year.

TIGTA Challenge 3: Identity Theft and Impersonation Fraud

Because new identity theft patterns are constantly evolving, the IRS needs to continuously adapt its detection and

prevention processes to reject fraudulent electronically filed tax returns and prevent fraudulent paper tax returns from

posting.

Tax scams remain an ongoing threat to taxpayers and a top priority for TIGTA and the IRS to address. In FY 2018, the IRS

added several new business return identity theft filters to expand business identity theft protections, allowing protection for

more business taxpayers through the expansion of upfront filtering and modeling. Additionally, the IRS implemented

programming to detect paper returns that report wages filed under an ITIN.

TIGTA Challenge 4: Providing Quality Taxpayer Service

The President’s Management Agenda outlines a goal of improving customer experience with Federal Services. Providing

taxpayers with quality customer service is a key component in the IRS’s mission will allow the IRS to direct its limited

resources more efficiently.
188 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

In FY 2018, the IRS provided requirements to modify the Identity Protection Personal Identification Number and

programming to implement additional identity theft prevention processes. The IRS also finalized case resolution guidance,

“The Taxpayer Treatment Guide,” to ensure consistency in taxpayer customer interactions by all IRS functions interfacing

with the public.

TIGTA Challenge 5: Upgrading Tax Systems and Expanding Online Services

The IRS’s reliance on legacy systems and its use of outdated programming languages poses significant risks to the IRS’s

ability to deliver its mission and ensuring that systems and data remain reliable.

TIGTA cites the IRS’s challenges with aged information technology hardware, software, and infrastructure. The IRS’s

commitment and efforts to modernize, standardize and upgrade tax systems and customer online services include: 1)

creating an aged infrastructure cross-functional team, which redefined the measurement criteria for aged hardware to

improve tracking precision, accuracy, and consistency; 2) finalizing FY 2018 aged hardware replacement targets that will

prevent growth in the aged asset inventory; 3) initiating work on a long-term plan that will deliver a proactive and

sustainable operating model to enable top-down, multi-year planning driven by operational risk assessment; 4) undertaking

a full review and update to the Security Change Management Standard Operating Procedures; and 5) formulating,

socializing and publishing the enterprise-wide cloud strategy, which identifies and formalizes the necessary personnel,

process, technology, and methodology changes that will allow the IRS to strategically manage cloud services.

TIGTA Challenge 6: Improving Tax Reporting and Payment Compliance

Ensuring that taxpayers understand their filing requirements is a key responsibility for the IRS in its effort to encourage

voluntary compliance with tax laws.

In responding to tax reporting and payment compliance challenges, the IRS developed a FY 2019 Communication Strategy

which includes the use of Social Media to provide explanatory information about the Private Debt Collection program,

including information about the Taxpayer Bill of Rights.

The IRS also contacted states indicating interest in participating in the State Audit Report Program (SARP) and new states

on testing SARP data to ensure proper format for delivery. In addition, the IRS incorporated formal procedures for the Lead 

Development Center database in June 2018.

IRS also sent letters to some tax return preparers to indicate to them when they have not been compliant with tax laws, and

included details about previously provided alleged noncompliance.

TIGTA Challenge 7: Reducing Fraudulent Claims and Improper Payments

Refundable credits can result in the issuance of tax refunds even if no income tax is withheld or paid and can be the targets

of unscrupulous individuals who file erroneous claims.

Eligibility rules for refundable tax credits contribute to the compliance burden for taxpayers and administrative costs for the

IRS. These rules differ by credit and are often complex because they must address complicated family relationships and

residency arrangements to determine eligibility. The relatively high overclaim error rates for these credits are partially a 

result of this complexity. Additionally, the lack of third-party data to verify eligibility requirements for these refundable

credits also complicates the ability of the IRS to administer these credits. 
DEPARTMENT OF THE TREASURY 189 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Furthermore, the IRS strategy with respect to improper payments is to intervene early to ensure compliance with the law. 

In FY 2018, the IRS addressed improper payments through its compliance programs, as well as through expansive outreach

and education efforts to taxpayers and preparers.

TIGTA Challenge 8: Impact of Global Economy on Tax Administration

The globalization of financial markets and the increased importance of multinational corporations are making it increasingly

difficult for the IRS to administer and enforce tax compliance.

TIGTA reported that the IRS took limited or no action on a majority of planned activities in the Foreign Account Tax

Compliance Act (FATCA) Compliance Roadmap. However, the IRS improved its exchange of information capabilities by

utilizing its Automatic Exchange of Information (AEOI) program, which receives monthly reports detailing incoming FATCA

filings by authority and tax year. The AEOI program also provides exam groups with FATCA information pertaining to

taxpayers in the audit inventory.

TIGTA Challenge 9: Protecting Taxpayer Rights

The IRS must balance its tax compliance activities against the rights of taxpayers to receive fair and equitable treatment.

Although TIGTA addresses issues with IRS’s process for sending lien notices and compliance with legal seizure provisions,

the IRS has updated its internal procedures on Notice of Federal Tax Lien requests. The IRS also mailed notices to about

1,800 property owners with forfeited assets pursuant to structuring violations for the years 2009 through 2016, advising

them that they may have an ownership interest in their previously seized and forfeited property. In addition, the IRS

updated its Bank Secrecy Act standard operating procedures for all Financial Crimes Task Forces to ensure management

oversight in the task forces’ respective investigations.

TIGTA Challenge 10: Achieving Program Efficiencies and Cost Savings

Continuing to identify and achieve greater program efficiencies and cost savings is imperative for the IRS as it strives to

successfully accomplish its mission with declining resources.

Recent audits by TIGTA revealed rental lease payments are the IRS’s largest operating expense. Although TIGTA cites that

the IRS did not take advantage of underutilized workspace reduction cost savings, the IRS made cost savings efforts in other

areas that are either operational or programmatic. Some of those efforts include: 1) correcting employee salary

overpayments or underpayments; 2) updating hiring policies and practices; 3) deploying a new enterprise email solution; 4)

conducting a Test and Learn strategy for better selecting high-dollar tax delinquency cases; and 5) improving software

license management.

Treasury remains committed to addressing the challenges identified by the inspectors general as we continue our work in

meeting the agency’s mission and achieving the agency’s strategic objectives.

 
190 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

SECTION D: SUMMARY OF FINANCIAL STATEMENT AUDIT AND

MANAGEMENT ASSURANCES

The following tables present information pertaining to Treasury’s reported material weaknesses, as well as information

related to our conformance with Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and compliance with Federal

Financial Management Improvement Act of 1996 (FFMIA). 

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion: Unmodified

Restatement: No

Beginning Ending

Material Weakness Balance New Resolved Consolidated Balance

Material Weakness in Internal Control Over 

Financial Reporting at the IRS 1 0 1 0 0

Total Material Weaknesses 1 0 1 0 0

SUMMARY OF MANAGEMENT ASSURANCES

EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING (FMFIA SECTION 2)

Statement of Assurance: Unmodified

Beginning Ending

Material Weakness Balance New Resolved Consolidated Reassessed Balance

IRS - Unpaid Tax Assessments 1 1 0 1 0 0 0

Total Material Weaknesses 1 0 1 0 0 0 1 GAO, Financial Audit: IRS's Fiscal Years 2018 and 2017 Financial Statements, GAO-19-150. 

EFFECTIVENESS OF INTERNAL CONTROL OVER OPERATIONS (FMFIA SECTION 2)

Statement of Assurance: Unmodified

Beginning Ending

Material Weakness Balance New Resolved Consolidated Reassessed Balance

Fiscal Service - Control Deficiencies in the 

Processes used to Prepare the Consolidated 

Government-wide Financial Statements 1 1 0 0 0 1 0

Total Material Weaknesses 1 0 0 0 1 0 1 Treasury, in conjunction with OMB and GAO, reassessed the Fiscal Service material weakness and determined that the material weakness relates to the audit

of the government-wide financial statement and has no operational or financial impact on Treasury operations or financial statements, therefore should be

reported only in the Consolidated Financial Statements. 

CONFORMANCE WITH FMFIA SECTION 4 

Statement of Assurance: Federal systems conform to financial management system requirements

Beginning Ending

Non-Conformances Balance New Resolved Consolidated Reassessed Balance

Total non-conformances 0 0 0 0 0 0
DEPARTMENT OF THE TREASURY 191 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

COMPLIANCE WITH FFMIA SECTION 803(a) 

Agency Auditor

1. Federal Financial Management System Requirements Lack of compliance noted

2. Applicable Federal Accounting Standards No lack of compliance noted

3. U.S. Standard General Ledger (USSGL) at Transaction Level No lack of compliance noted

FMFIA AND FFMIA REQUIREMENTS

The FMFIA requires agencies to establish and maintain internal control to ensure that federal programs operate efficiently,

effectively, and in compliance with laws and regulations. The Secretary must evaluate and report annually on (a) whether

there is reasonable assurance that the Agency’s controls are achieving their intended objectives, and (b) material weaknesses

in the Agency’s controls (FMFIA Section 2). Additionally, the Secretary must evaluate and report separately on whether the

Agency’s financial management systems comply with government-wide requirements (FMFIA Section 4). The FFMIA 

requires agencies to implement and maintain management systems that substantially comply with federal financial

management systems requirements. The requirements of the FMFIA serve as an umbrella under which other reviews,

evaluations, and audits should be coordinated and considered to support management’s assertion about the effectiveness of

internal control over operations, financial reporting, and compliance with laws and regulations.

As of September 30, 2018, we had no material weaknesses under Section 2 or Section 4 of the FMFIA. We downgraded the

long-standing IRS material weakness related to FMFIA Section 2 to a significant deficiency, and reassessed the Fiscal

Service material weakness over the processes used to prepare the Consolidated Financial Statements (CFS). We, along with

OMB and GAO, determined that the Fiscal Service material weakness should be reported only in the CFS as it relates to the

audit of the government-wide financial statements and has no operational or financial impact on our Treasury agency

operations or financial statements. The material weaknesses are summarized as follows:

Summary of FMFIA Material Weakness Section 2 Section 4 Total

Balance at the Beginning of FY 2018 2 0 2 

Closures/Downgrades during FY 2018 (1) 0 (1)

Reassessed during FY 2018 (1) 0 (1)

New Material Weakness Declared during FY 2018 0 0 0 

Balance at the End of FY 2018 0 0 0 
192 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

SECTION E: PAYMENT INTEGRITY

Our FY 2018 Payment Integrity reporting includes information required by the Improper Payments Information Act of 2002

(IPIA), as amended by the Improper Payments Elimination and Recovery Act of 2010 and Improper Payments Elimination

and Recovery Improvement Act of 2012 (IPERIA), Executive Order 13520, Reducing Improper Payments and Eliminating

Waste in the Federal Government, Appendix C to OMB Circular A-123, Requirements for Payment Integrity Improvement

and OMB Circular A-136. Additional information on current and prior year reported improper payments can be found at

https://paymentaccuracy.gov/. 

I. RISK ASSESSMENTS

Each year, bureaus and offices (hereafter referred to as “components”) are required to conduct risk assessments on all

material programs (i.e., programs with total non-federal disbursement amounts equal to or greater than $10 million) to

identify the risk of susceptibility to improper payments. OMB defines susceptibility to improper payments as gross annual

improper payments exceeding both 1.5 percent and $10 million in total program outlays, or $100 million at any rate. 

Components may perform a quantitative or qualitative risk assessment. The quantitative risk assessment consists of a 

review of a sample of disbursements to formulate the overall estimated improper payment rate for the program. The

qualitative risk assessment is a questionnaire used to assess a program’s internal control risks, which could lead to

susceptibility of significant improper payments.

Components must perform risk assessments at the payment type level (e.g., payroll, contracts, vendors, travel, etc.). Our

risk assessment process follows the seven risk factors outlined in OMB Circular A-123, Appendix C. The factors considered

in the determination of risk levels include:

• Whether the program or activity reviewed is new to the agency; 

• The complexity of the program or activity reviewed, particularly with respect to determining correct payment amounts; 

• The volume of payments made annually; 

• Whether payments or payment eligibility decisions are made outside of the agency, for example, by the state or local

government, or a regional federal office; 

• Recent major changes in program funding, authorities, practices, or procedures; 

• The level, experience, and quality of training for personnel responsible for making program eligibility determinations or

certifying that payments are accurate; and

• Significant deficiencies in the audit reports of the agency including, but not limited to, the agency Inspector General or

the GAO audit report findings, or other relevant management findings that might hinder accurate payment certification.

In FY 2018, risk assessments were performed on 65 programs. Two programs had quantitative risk assessments, and 63

programs had qualitative risk assessments. Programs identified as susceptible are required to perform: (1) statistical

sampling to determine an improper payment rate, and (2) develop and submit a corrective action plan to OMB for reducing

the improper payment rate below the statutory threshold. Treasury mandated actions for low and medium risk programs

include annual monitoring through risk assessments, and review of payment controls for improvement opportunities,

respectively. 
DEPARTMENT OF THE TREASURY 193 

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Since TY 2006, the IRS NRP has conducted annual studies of individual income tax reporting compliance. Each study

includes a stratified random sample of individual income tax returns for a given year that undergo a tax return audit. Since

these returns are selected through a stratified random sample, the results of the tax return audits can be extrapolated to the

population to produce unbiased estimates of reporting compliance, including the extent of noncompliance associated with

particular tax credits. The IRS has used the results of each NRP study (often combining studies from multiple years to

improve precision) to analyze compliance with the EITC, CTC, and education credits (see Part 3, Section A, of this report

titled “Tax Gap and Tax Burden”). Based on the analysis of NRP data, there is sufficient evidence to suggest that the nonEITC refundable tax credits – including the ACTC and the refundable portion of the American Opportunity Tax Credit – 

likely exceed the thresholds for improper payments reporting established by law and in OMB guidance, and may be

considered susceptible to significant improper payments. In FY 2019, the IRS will be developing and deploying a 

methodology appropriate for quantitatively analyzing and reporting on improper payments for these programs, with the

intention of having results available to report, as necessary, in the FY 2019 Treasury AFR. 

In addition, preliminary data for Net PTC from the TY 2014 NRP study, the first year of the PTC, has recently become

available for analysis. Examinations of returns that claimed Net PTC are not complete. However, preliminary results

indicate that the Net PTC may also be susceptible to significant improper payments. Because the number of returns

claiming Net PTC in the 2014 sample is small, examinations are incomplete, and 2014 was the first year that the credit was

available, the preliminary results should be interpreted with caution until the IRS collects more compliance data from future

NRP studies. The TY 2017 NRP study sample was designed so that estimates would likely meet improper payment

reporting precision requirements of a 95 percent confidence interval of +/- 3.0 percentage points required by OMB Circular A123, Appendix C.

A risk assessment was not conducted for the EITC program, which has been deemed by OMB as a high risk and high priority

program. Similar to programs identified as susceptible to significant improper payments, as a high risk and high priority

program, EITC is required to perform a statistical sample to determine an improper payment rate, and develop and submit a 

corrective action plan to OMB.

II. SAMPLING AND ESTIMATION 

EITC Program

The EITC, a refundable federal tax credit for working families with low to moderate income, is a social benefits program that

is administered through the IRC. It differs from other social benefits programs because claimants are not required to prove

eligibility before receiving benefits. To qualify to claim the EITC, individuals generally must have earned income, a valid

SSN for themselves and any children they are claiming, meet certain limits on filing status and income, have no more than a 

certain amount in investment income, and be a U.S. citizen or resident alien for the entire year claimed. 

As described below, the IRS engages in a number of activities to encourage voluntary compliance and prevent improper

payments. The IRS performs certain automatic checks of all claims and audits some claims before tax refunds are paid. In

addition, as with all tax provisions, the IRS performs some examinations after refunds are paid, and subsequently recovers

some improper payments. The improper payment amounts reported below include improper overclaims plus the absolute

value of underpayments. The error rate is the net total improper payment amount divided by the total amount of EITC

claimed.
194 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

In accordance with the requirements of IPERIA, we update the improper payment estimates annually. The EITC improper

payment rate is estimated using a statistically valid sample of about 2,700 returns audited through the IRS’s NRP. The 

EITC claimants sampled are large enough to estimate the improper payment percentage with plus or minus three

percentage point precision and 95 percent confidence.

III. PAYMENT REPORTING 

Improper Payment Estimate

The total estimated amount of FY 2018 EITC claims is $73.6 billion. Applying the current estimated improper payment rate

of 25.06 percent to the total estimated FY 2018 EITC claims amount yields an estimated amount of improper payments of

$18.4 billion (or between $16.9 and $20.0 billion). This improper payment amount is not comparable to prior years. In prior

years, the overclaims that were paid and later recovered through the IRS post-refund enforcement activities were netted

against total overclaims. To conform to current OMB guidance, the IRS updated its estimation methodology to add back

overclaims recovered through the IRS post-refund activities to the total overclaims amount in deriving the improper

payment rate for FY 2018.

The table below provides the EITC improper payment amounts for FY 2018 and the estimated improper payment rate for 

both FY 2018 and FY 2019. It should be noted that the estimated improper payment amounts reported in the table below

include the American Recovery and Reinvestment Act of 2009 EITC provisions, which expanded EITC for families with three

children, and increased the beginning of the phase-out range for married couples filing a joint return. The PATH Act made

the EITC expansion permanent. The PATH Act also included program integrity provisions that will continue to be evaluated

for their long-term effect on EITC.

IMPROPER PAYMENT REDUCTION OUTLOOK ($ IN MILLIONS)

Program

FY 2018 Outlays(1)

FY 2018 Proper 

Payment Amount

FY 2018 Proper 

Payment Rate

FY 2018 Improper

Payment Amount (2) (3)

FY 2018 Improper 

Payment Rate (4)

FY 2018 

Overpayments

FY 2018 

Underpayments

FY 2019 Estimated 

Improper Payment 

Rate (5)

EITC $73,589.06 $55,145.58 74.94% $18,443.48 25.06% $18,443.48 (6) 25.06%

Total $73,589.06 $55,145.58 74.94% $18,443.48 25.06% $18,443.48 (6) 25.06% (1)

FY 2018 EITC Outlays: Consistent with prior improper payment estimates, this table reports estimated EITC claims instead of outlays. FY 2018 estimated total

claims for the EITC are based on EITC tax expenditures plus outlays reported in the FY 2019 President's Budget, adjusted to account for the difference between

taxpayer claims and amounts received by taxpayers due to return processing and enforcement. 

(2) FY 2018 Improper Payment Amount: The estimated amount of net improper payments equal the estimated improper payment rate multiplied by the

estimated outlays. 

(3)

The total FY 2018 Improper Payment Amount reported was made directly by the government.

(4) FY 2018 Improper Payment Rate: The FY 2018 estimated improper payment rate was estimated using a statistically valid random sample of TY 2014 individual

income tax returns that claimed the EITC. Unlike all prior improper payment rate estimates, the FY 2018 estimated improper payment estimate does not

subtract projected recovered improper payments prior to calculating the rate. Therefore, the FY 2018 improper payment rate is not comparable to prior

improper payment estimates. Had projected recovered improper payments been subtracted prior to calculating the improper payment rate, the FY 2018

improper payment rate would have been 23.41%; lower than the comparable FY 2017 reported improper payment rate estimate of 23.87%. 

(5) The FY 2019 Estimated Improper Payment Rate is the same as the FY 2018 Improper Payment Rate. EITC is integrated into the tax system, and the program

itself experiences a high turnover rate from year to year due to factors such as the overall health of the economy and changing individual taxpayer

circumstances. Consequently the population of EITC claimants varies considerably on an annual basis and remains uncertain until individual tax returns are filed

with the IRS. The qualifying criteria for claiming EITC are self-reported by taxpayers, and the IRS lacks the statutory authority, resources, and independently

verifiable information needed to adjudicate every EITC claim before refunds are paid to taxpayers. The uncertainty created by these variables does not allow

for accurate future reduction target rate projections, hence the need to flat line the reduction target. 

(6) None identified in the statistically valid random sample used to estimate the improper payment rate.
DEPARTMENT OF THE TREASURY 195 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

While high priority programs are generally required to report reduction targets, setting improper payment reduction targets

for the EITC program does not create meaningful goals for the IRS. This is due to the complexity of the tax law around

EITC, lack of independent data regarding EITC eligibility, and the significant annual turnover within the participating

population. In FY 2014, the IRS and OMB collaborated on the development of a series of supplemental measures intended to

provide a more refined assessment of the EITC program and of our efforts to limit improper payments than would be

provided by standard reduction targets.

The supplemental measures include:

• The Annual Error Rate, which identifies the percentage of total EITC payments that are improper;

• The amount of Revenue Protected, which shows the total value of erroneous payments prevented, or recovered through

compliance activities;

• The amount of Revenue Protected from Paid Preparer Treatments, which shows dollars erroneously or fraudulently

claimed by paid tax preparers, but not paid out by Treasury; and

• The number of Preparer Due Diligence Penalties Proposed, reflecting the effectiveness of Treasury’s efforts to ensure 

paid tax preparers are submitting accurate, non-fraudulent EITC claims on behalf of taxpayers. 

These measures are tracked and updated annually based on Tax Filing Season results. 

The table below shows estimated values for these supplemental measures. 

FY 2018 EITC IMPROPER PAYMENT SUPPLEMENTAL MEASURES

Measure FY 2018 Value FY 2017 Value FY 2016 Value

Annual Error Rate Total Claims $73.6 Billion $68.0 Billion $69.8 Billion

Improper Payments $18.4 Billion (1) $16.2 Billion $16.8 Billion

Revenue Protected Dollars $4.9 Billion $4.5 Billion $5.7 Billion

Returns 1.4 Million 1.5 Million 1.9 Million (2)

Revenue Protected from Paid 

Preparer Treatments

Dollars $307 Million $415 Million $384 Million

Preparers 23,696 25,473 26,253 

Preparer Due Diligence Penalties 

Proposed

Dollars $16.1 Million $22.0 Million $32.8 Million

Preparers 974 1,038 1,137 (1) The FY 2018 improper payment estimate does not subtract projected recovered improper payments, as was done in the prior years. As such, the FY 2018

improper payment estimate is not comparable to prior year data.

(2) Value updated. Amount reported in Treasury’s FY 2016 Agency Financial Report of 1.8 Million was based on preliminary data.

In FY 2018, OMB updated its improper payments reporting guidance and phased out supplemental measures. Therefore,

they will not be reported after this fiscal year. The IRS and OMB will re-engage on an appropriate mechanism for assessing

progress in addressing reductions to EITC improper payments for FY 2019 and beyond. 

Improper Payment Classification

Improper payments do not always result in a monetary loss to the government. For example, underpayments, payments

made to the wrong recipient, or payments with insufficient documentation are considered as improper payments, but may

not cause an actual monetary loss to the government. The following table identifies the actual monetary loss and the

estimated total monetary loss to the government. 
196 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

EITC Overpayments, 

Inability to Authenticate 

Eligibility: Data Needed 

Does Not Exist, 

$17,336.87 

EITC Overpayments, 

Program Design or 

Structural Issue, 

$1,106.61 

Inability to Authenticate Eligibility: Data Needed Does Not Exist Program Design or Structural Issue

IMPROPER PAYMENT CLASSIFICATION ($ IN MILLIONS)

Program

Actual Monetary Loss to the Government 

Identified in Sample (1)

Estimated Total Monetary Loss to the 

Government (2)

EITC $3.01 $18,443.48 

Total $3.01 $18,443.48 (1) The actual monetary loss to the government identified in the sample is from a statistically valid random sample of TY 2014 individual income tax returns that

claimed the EITC. Those returns were selected as part of the TY 2014 IRS NRP Study and underwent a tax audit to ascertain the accuracy of the return, including

any EITC claims. The amount reported here reflects the unweighted results of the audits that had closed at the time of the development of the improper

payments estimate. The weighted results from the TY 2014 study were used to estimate the FY 2018 improper payment rate.

(2) The FY 2018 total monetary loss estimate is $18,443.48 million. Of that amount, an estimated $1,218.34 million will be recovered through the IRS

enforcement activities.

Improper Payment Root Cause(s)

Agencies are required to categorize improper payments using one or more of the following root causes: program design or

structural issue, inability to authenticate eligibility, failure to verify, administrative or process errors, medical necessity,

insufficient documentation to determine, and other. This year, OMB bifurcated the inability to authenticate eligibility root

cause into two sub-categories: (1) inability to access data, and (2) data needed does not exist. Based on the OMB updated

improper payment root cause categories, the IRS identified the two primary root causes for EITC improper payments as: (1) 

inability to authenticate eligibility – data needed does not exist and (2) program design or structural issues. 

The root causes explained below are based on the most recent detailed 3-year compliance study from TY 2006 through TY 

2008 and the updated FY 2018 estimates of improper payments computed using TY 2014 NRP study data. The updated

study indicates that many aspects of EITC compliance are qualitatively unchanged from the 1999 Compliance Study. 

Qualifying child errors continue to account for the highest dollar amount of overclaims. Income misreporting, and in

particular self-employment income misreporting, accounts for the second highest amount of overclaim dollars, with filing

status errors being the third largest contributor to overclaims.

The chart below illustrates the distribution of EITC improper payments by root causes.

IMPROPER OVERPAYMENT ROOT CAUSE CATEGORY ($ IN MILLIONS)
DEPARTMENT OF THE TREASURY 197 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Inability to Authenticate Eligibility: Data Needed Does Not Exist

Approximately $17.3 billion, or 94 percent, of EITC improper payments are from the inability to authenticate eligibility

because the data needed does not exist. This root cause includes errors associated with the inability to authenticate

qualifying child eligibility requirements, due to relationship and residency requirements and the exceptions to the age

requirement (full-time student and disability). Authentication is difficult because the IRS relies primarily on the selfclaimed information from the taxpayers and there is a lack of internal or external databases available with information that

would help the IRS to make a determination of eligibility.

Another major cause of error in this category is taxpayer income misreporting related to self-employment income, where the

income is not reported to the IRS by a third party. This category of errors also includes filing status errors, when married

couples incorrectly file as single or head of household, and data on marital status and living arrangements are not available. 

Finally, this category includes a small amount of error related to rules for all taxpayers claiming EITC related to valid SSNs,

residency of non-citizens, and when the taxpayer qualifies as a qualifying child of another taxpayer, none of which can be

authenticated by the IRS at time of filing.

Improper payments reported under this root cause category are essentially outside of Treasury’s control. Without the

availability of a third-party database to authenticate eligibility, or statutory changes such as increasing the IRS’s oversight

of paid tax preparers and, giving IRS greater flexibility to correct tax return errors before processing refunds, the IRS is

unable to significantly reduce the improper payments reported under this root cause category. In addition, due to the nature

of the root cause, i.e., data needed does not exist, proposed corrective actions would have limited success in reducing the

improper payment amounts.

Program Design or Structural Issues

Approximately $1.1 billion, or six percent, of improper payments are from program design limitations. Errors caused by

program design occur when information needed to confirm payment accuracy is not available at the time the return is

processed. These errors relate to certain income misreporting, tiebreaker errors, and joint return errors of qualifying

children. Although Form W-2 payer information is available to the IRS sooner due to the PATH Act integrity provisions,

payer information does not exist in all cases and may not be available to the IRS until after the filing season. Thus, the IRS

is unable to fully match wages and other income sources against the return at time of filing.

A very small portion of errors are attributable to tiebreaker errors, where more than one taxpayer claims the same

qualifying child. The IRS processes returns as they are filed and are unaware of duplicate situations when the first return is

filed or who is actually qualified in a tiebreaker situation. In addition, situations where a qualifying child files a joint return

also make up a small portion of this category. A child cannot be a qualifying child if he or she files a joint return for a reason

other than claiming a refund. Since all returns are not filed at the same time, the IRS cannot identify this situation until

both returns are filed.

Corrective Actions

The IRS’s strategy with respect to improper payments is to intervene early to ensure compliance with the law. In FY 2018,

the IRS addressed improper payments through its compliance programs, as well as through expansive outreach and

education efforts to taxpayers and preparers. The table below illustrates the corrective actions implemented by the IRS to

address the root causes identified.

As mentioned above, due to the nature of EITC, the corrective actions implemented by the IRS alone would not result in

significant reductions to the improper payment amounts. 
198 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

CORRECTIVE ACTION CATEGORIES

Improper Payment Root Causes

Examination Closures 

Math Error Notices

Document Matching

Amended Returns

Two and 10 Year Bans

Identify Theft and Fraud

Criminal Investigations

Soft Notices

Return Preparer Initiatives

Outreach and Education

Software Developer 

Working Group

Inability to Authenticate Eligibility: 

Data Needed Does Not Exist X X X X X X X X X X 

Program Design or Structural Issue X X X X X X X X X 

The IRS’s EITC enforcement programs protected approximately $2.9 billion in FY 2018. The revenue includes EITC and

other credits and taxes recovered or prevented from being paid in error in FY 2018, on returns filed in calendar year 2018 or

earlier years. The chart below shows that the IRS conducted 330,461 audited related to EITC, issued 153,882 math error

notices, and performed 457,308 document-matching reviews.

COMPLIANCE ACTIVITIES

FY13 FY14 FY15 FY16 FY17 (1) FY18 (2) FY19 (3) FY13-FY19 

Total 

Audit Closures 483,070 435,638 445,594 380,260 326,503 330,461 243,500 2,645,026 

Math Error Notices 241,975 194,127 166,611 159,906 160,227 153,882 150,804 1,227,532 

Document Matching 906,994 1,053,304 1,710,904 852,733 666,334 457,308 457,000 6,104,577 

Amended Returns (4) 8,130 17,723 24,282 9,895 10,296 8,448 7,000 85,774 (1) Restated actual.

(2) Preliminary data.

(3) Estimate based on FY 2018 preliminary data and FY 2019 plans.

(4) Amended Returns are a subset of Audit Closures but dollars are counted separately. 

These compliance activities have a significant effect, protecting $2.9 billion of revenue in FY 2018. Treasury projects that

continued enforcement efforts will protect a total of nearly $24.4 billion in revenue from FY 2013 through FY 2019, as shown

below.

PROTECTED REVENUE FROM COMPLIANCE ACTIVITIES ($ IN MILLIONS) 

FY13 FY14 FY15 FY16 FY17 (1) FY18 (2) FY19 (3) FY13-FY19 

Total 

Audit Closures $2,113.73 $1,751.32 $1,991.06 $1,826.30 $1,545.39 $1,510.12 $1,374.21 $12,112.13 

Math Error Notices 299.03 243.34 226.82 237.24 250.76 255.80 258.36 1,771.35 

Document Matching 1,422.60 1,385.06 2,313.96 1,570.54 1,248.26 1,136.20 1,136.00 10,212.62 

Amended Returns (4) 26.18 52.42 76.63 34.56 33.38 26.58 27.00 276.75 

Total $3,861.54 $3,432.14 $4,608.47 $3,668.64 $3,077.79 $2,928.70 $2,795.57 $24,372.85 (1) Restated actual.

(2) Preliminary data.

(3) Estimate based on FY 2018 preliminary data and FY 2019 plans.

(4) Amended Returns are a subset of Audit Closures but dollars are counted separately. 
DEPARTMENT OF THE TREASURY 199 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

In addition to the compliance activities described above, the following efforts also contributed to the IRS’s strategy of

identifying and reducing improper EITC refund claims in FY 2018:

• Base Enforcement Efforts: Delivered key compliance activities including 330,461 audits, 457,308 misreported income

cases, and an estimated 153,882 math error adjustments, protecting revenue of over $2.9 billion. 

• Two and 10 Year Bans: Imposed 2,059 two-year bans and 192 10-year bans for cases where the IRS determined during

an EITC audit that the taxpayer intentionally disregarded the rules and regulations or committed fraud. 

• Identity Theft and Fraud: Detected and stopped over 512,377 fraudulent EITC returns through our fraud detection

filters from being processed, preventing over $2.1 billion in erroneous refunds. 

• Criminal Investigations: Continued to stop fraudulent EITC refund claims through our Criminal Investigation (CI)

division indictments. CI issued 127 new EITC Questionable Refund Program scheme indictments and secured 170 

convictions. CI also issued 103 new EITC Return Preparer indictments and secured 85 convictions. 

• Soft Notices: Sent 75,042 letters to alert taxpayers that a qualifying child for the EITC claimed on their returns had also

been claimed by another person. 

• Return Preparer Initiatives: As a part of the FY 2018 Refundable Credits Return Preparer Strategy, the IRS completed

activities associated with a suite of progressive preparer treatments, addressing nearly 23,700 preparers selected

through our risk-based scoring model, before and during the filing season. Approximately 20,000 were EITC preparers. 

o The IRS closed 649 pre-filing season Due Diligence Visits (DDVs) with a penalty rate of 84 percent and over

$12 million in proposed penalties. Criminal investigation and revenue agents completed 73 EITC

educational Knock-and-Talk Visits (KTV) visits. The IRS also mailed nearly 14,800 EITC educational

notices and successfully completed 855 of 2,000 calls attempted to preparers before the FY 2018 filing

season. 

o The IRS closed 101 filing season DDVs with a penalty rate of 89 percent and nearly $1.8 million in

proposed penalties. The IRS proposed penalties of almost $267,800 on 17 of 25 DDVs completed as a followup for those preparers who received pre-filing season KTVs but did not improve their due diligence. The 

IRS also mailed 9,800 educational notices and successfully made 1,426 of 2,423 calls attempted to preparers

during the 2018 filing season. 

o The analysis of the FY 2018 Refundable Credits Return Preparer Strategy revealed that, in addition to the

penalties protected above, the preparer treatments protected approximately $374 million ($307 million

EITC and $68 million Child Tax Credit). 

• Return Preparer Penalties: The IRS sent over 6,663 warning letters and over 2,150 electronic alerts to warn preparers

who did not attach Form 8867, Paid Preparer's Due Diligence Checklist, to TY 2017 taxpayer returns. The IRS

subsequently proposed over $4.4 million in penalties to 358 EITC, AOTC and ACTC return preparers for failure to

exercise due diligence by attaching the form, as authorized by IRC Section 6695(g) and Treasury Regulation Section

1.6695–2. 

• Return Preparer Outreach and Education: Focused outreach and education efforts on EITC return preparers to educate

them on EITC and due diligence requirements. Over 15,570 preparers received a certificate of completion for the English

and Spanish interactive EITC Due Diligence Training module. Delivered webinars to over 7,000 tax professionals on due

diligence requirements. Additionally, over 7,314 preparers attended the Get Ready for the Tax Cuts and Jobs Act New

Due Diligence Requirements seminar at the 2018 National Tax Forums. 

• Software Developer Working Group: Continued our partnership with members of key tax software associations to reduce

EITC errors and assist preparers in meeting their EITC due diligence requirements. 
200 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

• Taxpayer Outreach and Education: The IRS conducted its EITC outreach campaign, including the twelfth annual EITC

Awareness Day, which centered on EITC underserved populations and included focused compliance messages. In

collaboration with IRS national, state, and local partners as well as Congressional and government officials, the IRS

held 226 nationwide events, resulting in media coverage that helped spread the word about the EITC tax credit. The IRS

also issued four news releases to over 336,000 and 49,800 subscribers in English and Spanish, respectively, and issued

five tax tips to over 679,000 subscribers. Social media outreach continued to expand with Twitter EITC messages

reaching over 13.4 million people and Thunderclap reaching over 2 million people. Also for the year, 557,416 taxpayers

visited the EITC Assistant on IRS.gov, a tool that allows taxpayers to determine whether they qualify for the credit. 

• PATH Act Integrity Provisions: The IRS continued applying tools provided by the PATH Act to EITC returns as follows: 

o Held taxpayers’ refunds until February 15, 2018 on returns claiming EITC and/or ACTC as directed in

Section 201(b), using the time to identify fraudulent returns. 

o Rejected amended and late filed original returns filed by taxpayers retroactively claiming EITC for any

prior year in which he/she did not have a valid social security number as directed in Section 204.

• Legislative Proposals: Worked on the following legislative proposals included in the FY 2019 budget proposal: 

o Provide greater flexibility to address correctable errors to help the IRS deny certain erroneous EITC claims

before refunds are paid. 

o Increase oversight of paid tax return preparers to help promote high quality services and improve

voluntary compliance. 

• Enterprise Research: Assessed the results of the FY 2018 enterprise research strategy and developed the FY 2019

strategy in partnership with internal organizations to better focus EITC compliance and outreach activities using

research data.

III. BARRIERS

A number of factors continue to serve as barriers to reducing overclaims in the EITC program. These include:

• Complexity of statutory eligibility requirements: The EITC eligibility requirements are known only by the taxpayer, and

a third-party database is not available to independently validate the data. The only method IRS can implement to verify

eligibility is to perform an audit of the tax return after filing. IRS currently performs such audits, with EITC claimants

audited at twice the national average for individual taxpayers. However, due to resource constraints, only a small

number of returns can be audited each year. 

• Lack of correctible error authority: The IRS has limited ability to make automatic changes (which would require

Congressional authorization) and must use lengthy deficiency procedures. 

• High turnover of eligible claimants: The IRS estimates that approximately one-third of the EITC applicants change

each year. This changing population of taxpayers who claim EITC increases the difficulty in improving EITC

compliance, as well as creates challenges in the IRS’s education, outreach, and enforcement efforts.

• Unscrupulous and/or incompetent return preparers: Unregulated tax return preparers contribute to the increase in

EITC non-compliance, fraud, and improper payments. IRS, with coordination with the Treasury, proposed legislation to

provide IRS and Treasury with the authority to regulate all paid return preparers. In the interim, to remediate this

barrier, IRS will continue its voluntary training and certificate of completion program for unenrolled return preparers,

as well as provide tools to help taxpayers locate qualified preparers. 
DEPARTMENT OF THE TREASURY 201 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

• Fraud: Fraudulent EITC returns and identity thefts continue to be a major barrier for EITC. To mitigate fraudulent

EITC claims, IRS uses the Electronic Fraud Detection System to identify schemes and suspicious patterns. Tax returns

identified as questionable are then routed to IRS employees for review before refunds are issued. 

None of these factors, on their own, can be considered the primary driver of program error. However, these barriers severely

impede the IRS’s dual mission of issuing refunds to those who are entitled, while ensuring refunds are paid only to those who

truly qualify for the credit. Additionally, statutory requirements further constrain the IRS’s ability to ensure that EITC

claims are valid before they are processed and paid. 

Since the EITC is administered through the IRC, it is claimed by taxpayers during the filing and processing of their tax

returns. The IRC requires the IRS to process tax returns and pay any related tax refunds within 45 days of receipt of the tax

return or the tax return due date, whichever is later. Beyond this 45-day period, interest begins accruing on the refund

amount, which must be paid along with the refund to the taxpayer. This interest period was unaffected by the PATH Act

provision that required IRS to hold EITC refunds until February 15 of the filing season.

In FY 2017, the changes enacted under the PATH Act to accelerate the filing of wage and non-employee compensation

information, allowed the IRS to use the data to address refund fraud and improper payments. However, delays and

extensions given for the forms limited IRS’s ability to use the information at the time of filing or within a reasonable period

thereafter in which a taxpayer would expect their refund. The IRS continues to face challenges when attempting to validate

the EITC claims of filers with non-wage income that may not have a reporting requirement by third parties. The 

requirements, expectations, and data accessibility relative to the timely payment of refunds constrain the IRS’s ability to

conduct up-front verification of claims. These conditions distinguish EITC and its administration through the tax system

from the extensive validity checks conducted by agencies administering other federal programs that typically establish

eligibility prior to the issuance of payments or benefits.

We submitted legislative proposals in the FY 2019 budget proposal to help address EITC improper payments.

IV. ACCOUNTABILITY

The Secretary has delegated responsibility for addressing improper payments to the Assistant Secretary for Management

(ASM). Improper payments fall under the Department’s management and internal control program. A major component of

the internal control program is risk assessments, which are an extension of each Treasury component’s annual improper

payment elimination and recovery review process, as required under OMB Circular A-123, Appendix C. Under Treasury

Directive 40-04, Treasury Internal Control Program, executives and managers are required to take all necessary steps to

create an environment within their respective organizations or programs to ensure operational efficiency and adherence to

all applicable statutory and regulatory standards related to internal controls. Managerial responsibility and accountability

in all internal control areas are visible and well documented with our oversight mechanisms, such as the Treasury CFO

Council and the Management Controls Executive Steering Committee. We have identified executives who are responsible

and accountable for reducing the level of EITC overclaims, while other senior and mid-level officials have responsibility for 

monitoring progress in this area as bureau and program internal control officers.

V. AGENCY INFORMATION SYSTEMS AND OTHER INFRASTRUCTURE

Overall, we have the internal controls, human capital, and information systems and other infrastructure needed to reduce

improper payments to the targeted levels.
202 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

VI. RECAPTURE OF IMPROPER PAYMENTS REPORTING

In accordance with IPERA and OMB Circular A-123, Appendix C, we perform and report annually on our payment recapture

program. During FY 2018, we issued approximately $6.1 billion in payments subject to the payment recapture audit. The 

IPERA, as amended, expanded the payment types reviewed beyond just contracts to include grants, benefits, loans, and

miscellaneous payments.

Our annual risk assessment process includes a review of pre-payment controls that minimize the likelihood and occurrence

of improper payments. We require each Treasury component to conduct post-award audits and report on payment recapture

activities, improper payments made, and recoveries achieved. Our components perform their payment recapture audit and

identify candidates for payment recapture action in accordance with the Treasury-wide guidance. 

We consider both pre- and post-reviews to identify payment errors a sound management practice that should be included

among basic payment controls. All of our components have a process in place to identify improper payments during pre- and

post-reviews. When applicable, our components may use the results of the Treasury Inspectors General and GAO reviews to

help identify payment anomalies and target areas for improvement. However, we apply extensive payment controls at the

time each payment is processed to minimize recapture activity. The table below illustrates the results from our payment

recapture audit process.

The improper payments identified through the payment recapture audit are recouped either by payment off-set (i.e., the

outstanding improper payment amount is offset by a future payment) or by establishing an accounts receivable. When an

accounts receivable is established for the improper payment, the accounts receivable is carried forward until payment is

received or a decision is made to write-off the outstanding receivable. 

RECAPTURED OVERPAYMENTS WITH AND WITHOUT RECAPTURE AUDIT PROGRAMS ($ IN MILLIONS)

Program

Total 

Improper 

Payment 

Amount 

Identified for 

Recapture

Total 

Amount 

Recovered 

via Payment 

Recapture (1)

% Recovered 

via Payment 

Recapture

Total 

Amount 

Identified via 

Outside 

Source (2)

Total 

Amount 

Recovered 

via Outside 

Source (2)

% Recovered 

via Outside 

Source

Amount 

Determined 

to be not 

Collectable (3)

% 

Determined 

to not be 

Collectable

CDFI 0.0001 0.0001 100% - - 0% - 0%

DO 0.0430 0.0181 42% 0.0011 0.0009 82% 0.0004 1%

FinCEN 0.0011 0.0005 45% 0.0009 0.0008 89% - 0%

Mint 0.0747 0.0588 79% 0.0005 0.0005 100% 0.0001 0%

ODCP 1.6324 1.3693 84% - - 0% 0.1414 9%

OFS 0.1181 0.0503 43% 0.0002 0.0002 100% 0.1613 137%

OIG 0.0044 0.0052 118% 0.0005 0.0005 100% - 0%

SIGTARP 0.0132 0.0128 97% 0.0001 0.0001 100% - 0%

TIGTA 0.0030 0.0033 110% 0.0015 0.0009 60% 0.0136 453%

TTB 0.0043 0.0035 81% 0.0059 0.0011 19% 0.0003 7%

Total $1.8943 $1.5219 80% $0.0107 $0.0050 47% $0.3171 17% (1) Cumulative total of FY 2018 amount and prior year amount.

(2) All improper payment identified were self-reported by the payee.

(3) Of the total Amount Determined to not be Collectable, approximately $0.19 million is from payments made in FY 2018 (or approximately 10 percent of total

improper payments made in FY 2018).
DEPARTMENT OF THE TREASURY 203 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Of our components reporting an Amount Determined to not be Collectable in the table above, we determined all of the writeoff amounts to be immaterial, with the exception of the Office of D.C. Pensions (ODCP) and the Office of Financial Stability

(OFS). ODCP’s amount determined not to be collectable is based on individual debt cases that were either waived as part of

due process, or deemed uncollectable. OFS’ amount determined not to be collectable is based on loan file overpayments

identified by Freddie Mac Making Home Affordable-Compliance that were deemed uncollectable due to the complexity of the

loan structures and legal compliance requirements.

In FY 2018, we determined that conducting a Payment Recapture Audit on the following nine low risk components was not

cost-effective:

• Departmental Franchise Fund (DFF) Programs;

• Fiscal Service Administration (FSA) Programs;

• Fiscal Service Debt (FSD) Programs; 

• Funds Management Branch (FSM) Programs; 

• Fiscal Service Umbrella (FSU) Programs;

• IRS’s Administrative Fund Programs;

• Office of International Assistance (OAS) Programs; 

• Office of the Comptroller of the Currency (OCC); and

• Treasury Executive Office for Asset Forfeiture / Treasury Forfeiture Fund (TEOAF/TFF). 

The justification that performing a payment recapture audit would not be cost-effective consists of the following reasons:

• The DFF programs reflect a low level of risk for all payment type categories assessed. 

• The Fiscal Service’s FSA, FSD, FSM, and FSU programs continued to reflect a low level of risk in nearly every group

and payment type category assessed, with no audit findings and material weaknesses identified.

• The IRS’s Administrative Fund Programs are low risk level programs, with no GAO or TIGTA identified deficiencies and

no prior payment recapture audit identified improper payments. 

• The Treasury International Programs disburse non-federal payments to the Multilateral Development Banks. 

Payments are made via payment vouchers on a letter of credit administered by the Federal Reserve Bank of New York,

or direct cash payments through the Secure Payment System. The International Programs also disburse federal

payments for Debt Restructuring via Intra-Governmental Payment and Collection or Standard Form 1081. Internal

reviews are performed before all payments are issued. 

• The OCC programs reflect a low level of risk for all payment type categories assessed, and annual internal reviews are

conducted for all payment types. In addition, OCC reported that the cost to perform the most recent payment recapture

audit exceeded the amount of improper payments identified.

• The TEOAF/TFF program is a low risk level program, with no identified prior improper payment issues. In addition,

program payments are made to state and local law enforcement agencies, reducing the risk of improper payments. 

Based on the above justifications, payment recapture audits for these programs were not performed. We sent notifications of

these justifications to OMB and the Treasury OIG in October 2018.
204 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Through the payment recapture audit, we recaptured approximately $1.52 million, of which approximately $1.51 million was

used for original purposes, and the remaining $0.01 million was returned to Treasury as miscellaneous receipts. The

following table represents the disposition of the recaptured improper payments by our components:

DISPOSITION OF FUNDS RECAPTURED THROUGH PAYMENT RECAPTURE AUDIT PROGRAMS ($ IN MILLIONS)

As of September 30, 2018, there were approximately $0.8 million identified improper overpayments outstanding, with

approximately $0.3 million identified in FY 2018 and $0.5 million identified in prior fiscal years. The table below shows the

aging of the improper overpayments outstanding.

BEP CDFI DO FinCEN MINT ODCP OFS OIG SIGTARP TIGTA TTB

Original Purpose 0.0001 0.0156 0.0001 0.0588 1.3693 0.0503 0.0044 0.0032 0.0015 0.0034

Returned to Treasury 0.0025 0.0004 0.0008 0.0096 0.0018 0.0001

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

Returned to Treasury Original Purpose
DEPARTMENT OF THE TREASURY 205 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

AGING OF OUTSTANDING OVERPAYMENTS IDENTIFIED IN THE PAYMENT RECAPTURE AUDITS 

($ IN MILLIONS)

Program or Activity

Total Amount 

Outstanding

0 to 6 months

Amount Percent 

Outstanding Outstanding

6 months to 1 year

Amount Percent 

Outstanding Outstanding

Over

Amount 

Outstanding

1 year

Percent 

Outstanding

BEP

CDFI

DO

FinCEN

MINT

ODCP

OFS

OIG

SIGTARP

TIGTA

TTB

 $0.0845 

N/A

 $0.0522 

 $0.0007 

 $0.0417 

 $0.6183 

N/A

N/A

 $0.0009 

 $0.0001 

 $0.0007 

N/A

N/A

$0.0003 

$0.0007 

$0.0004 

$0.0946 

N/A

N/A

$0.0003 

$0.0001 

N/A

N/A

N/A

0%

0%

0%

12%

N/A

N/A

0%

0%

N/A

N/A

N/A

$0.0253 

N/A

$0.0365 

$0.0974 

N/A

N/A

$0.0001 

N/A

$0.0007 

N/A

N/A

3%

N/A

5%

12%

N/A

N/A

0%

N/A

0%

$0.0845 

N/A

$0.0266 

N/A

$0.0048 

$0.4263 

N/A

N/A

$0.0005 

N/A

N/A

11%

N/A

3%

N/A

1%

53%

N/A

N/A

0%

N/A

N/A

Total $0.7991 $0.0964 12% $0.1600 20% $0.5427 68%

VII. AGENCY IMPROVEMENT OF PAYMENT ACCURACY WITH THE DO NOT PAY (DNP) INITIATIVE

The IPERIA requires pre-payment and pre-award reviews to determine program or award eligibility and to prevent improper

payments before the release of any federal funds. This review must include the relevant databases as prescribed by IPERIA, 

including:

• The death records maintained by the Commissioner of the Social Security Administration (SSA); 

• GSA System for Award Management Exclusion Records;

• Treasury’s Offset Program Debt Check Database;

• The Department of Housing and Urban Development’s Credit Alert System or Credit Alert Interactive Voice Response

System;

• The Department of Health and Human Services Office of the Inspector General’s List of Excluded Individuals/Entities;

and 

• Prisoner data maintained in the Prisoner Update Processing System by SSA.

In November 2017, OMB designated the following six additional databases for inclusion under the DNP Initiative:

• Treasury’s Office of Foreign Asset Control’s Specially Designated National List;

• Data from the GSA System for Award Management sensitive financial data from entity registration records (including

those records formerly in the legacy Excluded Parties List System);

• The IRS’s Automatic Revocation of Exemption List;

• The IRS’s Exempt Organization Select Check;

• The IRS’s e-Postcard database; and 

• The commercial database American InfoSource Deceased Data.
206 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

All of our components have incorporated pre-payment and pre-award reviews, as mandated by IPERIA, through established

internal control processes and procedures that require reviews against the databases consolidated within the DNP Business

Center (hereafter referred to as “DNP”), or through their own established databases. In FY 2018, none of the Treasury

components reported significant reductions in improper payments attributable to the DNP Initiative. Treasury components

continue to utilize the DNP portal to review vendor files prior to disbursement to identify any improper payments.
DEPARTMENT OF THE TREASURY 207 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

SECTION F: FRAUD REDUCTION REPORT

BACKGROUND

The Fraud Reduction and Data Analytics Act (FRDAA) of 2015, mandates agencies to take steps to improve financial and

administrative controls and procedures to assess and mitigate fraud risks, and to improve federal agencies’ development and

use of data analytics for identifying, preventing, and responding to fraud, including those arising from improper payments. 

Each agency is required to report its progress in implementing: (1) the financial and administrative controls; (2) the fraud

risk principle in the GAO Standards for Internal Control in the Federal Government (Green Book); and (3) management of

fraud risk in accordance with OMB Circular A-123. 

In response to FRDAA, GAO issued the Framework for Managing Fraud Risks in Federal Programs in July 2015, based on

leading practices for mitigating fraud risks and enhancing program integrity. The objective of fraud risk management is to

proactively facilitate a program’s mission by continuously and strategically mitigating the likelihood and impact of fraud. 

Whether an act is in fact fraud is a determination made through the judicial or other adjudicative system, and is beyond

management’s professional responsibility for assessing risk.1

FRAUD RISK MANAGEMENT

All of our components have a shared responsibility in preventing, detecting, and responding to potential fraud, including

improper payments. Our components have ownership and responsibility for managing fraud risk. The Office of Risk

Management is responsible for providing expertise and guiding principles to assist our components in the management of

fraud risk. The Office of the Deputy Chief Financial Officer, establishes Treasury-wide guidance designed to ensure that

financial, programmatic, and administrative internal controls provide an appropriate level of assurance towards operational

and fiscal effectiveness and efficiency. The Office of the Procurement Executive (OPE) is responsible for establishing

Treasury-wide policies and procedures for the use of the purchase card in program management and oversight. The OIG

Office of Investigation (OI) is responsible for receiving and assessing complaints, and investigating potential fraud cases. 

First Line of Defense

Our components are the first line of defense to prevent, detect, and respond to potential fraud. They are the risk owners for 

their programs, and have responsibility for mitigating fraud risk and enhancing program integrity, by designing and

implementing processes and controls that effectively prevent and detect potential fraud, both internal and external to

Treasury. Components must establish policies, procedures, techniques, and mechanisms to comply with risk management,

and internal control requirements to manage and respond to fraud risk. Employees who encounter incidents of fraud, waste

and abuse are encouraged to engage their respective OIs.

Mechanism used by individual components to manage fraud risk include:

• Many components ensure key duties and responsibilities are effectively segregated among different people to reduce the

risk of error, waste, or fraud, and systems have controls to limit access and ensure no one individual can control all

aspects of a transaction. 

• The Bureau of the Fiscal Service (Fiscal Service) hired a senior fraud program manager to lead an enterprise fraud

program. It also holds quarterly Enterprise Fraud Meetings across the bureau to discuss prevention, detection and

response strategies for fraud activities and events. 

 

1 GAO-14-704, Standards for Internal Control in the Federal Government.
208 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

• The IRS has developed programs to reduce issuance of fraudulent refunds and to review fraud trends and patterns to

inform fraud prevention techniques as well as using predictive and forensic analytics to detect and prevent fraudulent

activity. 

• Components provide in-depth training and monthly audits of all purchase and travel card transactions.

While the Treasury DNP focuses on identifying, preventing and detecting improper payments, many of the tools and data

analytics implemented through DNP can also serve as a first line of defense against potential fraud (or as a supplement to

other component-specific detection activities). The DNP’s primary methodology for detecting improper payments (some of

which could be due to fraud) is matching payment data to eligibility data. For example, Treasury disbursed payments are

automatically matched to death data. If DNP’s tools detect a payment to a deceased individual, DNP can help agencies stop

future payments or quickly move to reclaim payments. Data matching is used both in the DNP’s online portal as well as in

its analytics reports, and the data matching can be performed at different phases of the payment life cycle. For instance,

DNP can continuously monitor a list of payees against lists of vendors excluded from working with the federal government so

that an agency can take appropriate steps if a contractor has been debarred. In FY 2018, no Treasury program

disbursements were identified as improper as a result of the DNP data matching.

The DNP analytics team also conducts payment integrity checks for customer agencies to detect anomalies through its

Agency Insight Reports, which are an analysis of all of an agency’s Treasury-disbursed Payment Automation Manager data. 

The results of the analysis are provided to the agency for review. The agency must then make a determination regarding

whether the high risk payments or trends identified by DNP correspond to actual improper payments. The agency is also

responsible for following up on any payments or trends that they believe are due to potential fraud. 

Internal Controls

Through our OMB Circular A-123 assessments, controls are monitored and evaluated to provide assurances that our

components are effectively preventing, detecting, and responding to potential fraud. We incorporated GAO’s Green Book

Principle 8, Assess Fraud Risk, into our Treasury Implementation Guide for OMB Circular A-123, Appendix A. Our

guidance conforms to the requirements of the GAO Green Book and addresses internal control elements of the FRDAA.

All of our components are required to integrate the GAO definitions for fraud, and consider risks for fraudulent financial

reporting, misappropriation of assets, or corruption during their risk assessment process. Additionally, leading practices for 

mitigating fraud risk are required to be incorporated into our component’s internal control system design to prevent, detect,

and respond to fraud.

OPE developed Treasury’s Charge Card Management Plan for Government-wide Commercial Purchase Cards to incorporate

management controls in accordance with OMB Appendix B, Improving the Management of Government Charge Card

Programs. The purchase card program includes a variety of risk management controls designed to meet program objectives

including the reduction of fraud, waste, and abuse.

We also assess fraud risk during our improper payment reporting and recovery activities as part of Appendix C to OMB

Circular A-123, Requirements for Effective Estimation and Remediation of Improper Payment. Through our improper

payment reporting efforts, our components identify the programs deemed most susceptible to improper payments, based on

total program disbursements and inherent risks to the integrity of the program. Additional assessments are performed on

those susceptible programs to identify improper payments and determine potential fraud cases.

Additional information on Payment Integrity can be found in Part 3, Section E, of this report.
DEPARTMENT OF THE TREASURY 209 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Enterprise Risk Management

Fraud risk is addressed in the course of the Office of Risk Management’s (ORM’s) general risk advisory work. Our

leadership team has the opportunity to discuss potential fraud and other types of risks during regular Risk Committee

meetings led by the Chief Risk Officer. The ORM conducts regular Enterprise Risk Management Council meetings with the

bureau-level risk management contacts to discuss various risk topics, including fraud risk. Fraud risk is considered when

our components develop and update their annual risk profiles, or top risk lists, to share with the ORM. 

Investigations

Complaints come to the OIG’s OI from Treasury components, the public, and other government agencies by telephone,

facsimile, U.S. mail, electronic mail, online complaint forms, referrals from other law enforcement agencies, and referrals

from prosecutorial offices (U.S. Attorney’s Offices and District or State Attorney’s Offices). The following factors are used to

determine if a complaint is investigated:

• The impact on Treasury’s programs and operations;

• Alleged participation in the fraud, waste, or abuse by Treasury employees or contract employees; 

• Financial loss to Treasury or the government; and

• Criminal allegations or activity that would be accepted for prosecution by the U.S. Attorney’s Offices or State Attorney’s

Offices. 

o OI will investigate if there is a loss to Treasury that is prosecutable by subjects that are not employees of

Treasury.

o OI will also investigate all criminal activity alleged against Treasury employees, particularly senior

Treasury employees.
210 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

SECTION G: CIVIL MONETARY PENALTIES INFLATION ADJUSTMENT

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (2015 Act) amended the Federal Civil

Penalties Inflation Adjustment Act of 1990 (Inflation Adjustment Act), to improve the effectiveness of civil monetary

penalties (CMPs) and to maintain their deterrent effect. The 2015 Act requires agencies to: 1) use an interim final

rulemaking (IFR) to adjust the level of civil monetary penalties in 2016 with an initial “catch-up” adjustment, 2) make

subsequent annual adjustments for inflation, beginning in 2017; and 3) report annually in AFRs on these inflation

adjustments. The 2015 Act requires that agencies make annual inflation adjustments based on annual OMB guidance and

publish the latest penalty levels in the Federal Register no later than January 15 each year. The Inflation Adjustment Act

and the 2015 Act exclude penalties under the IRC and the Tariff Act of 1930. The table below depicts the covered CMPs that

are under our purview.

 

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

50 USC App. 16(b)(1) 

Trading with the Enemy Act,

Section 16(b)

Sanctions violation 1917 2018 $86,976 DO (OFAC)

83 Federal Register

11876 (March 19, 

2018)

https://www.gpo.gov/

fdsys/pkg/FR-2018-03-

19/pdf/2018-

05550.pdf

50 USC 1705 

International Emergency

Economic Powers Act (IEEPA),

Section 206

Sanctions violation 1977 2018 

The greater of

$295,141 or

twice the value

of the

underlying

transaction

DO (OFAC) Same as above

18 USC 2339B(b) 

Antiterrorism and Effective

Death Penalty Act of 1996 

Sanctions violation 1996 2018

The greater of

$77,909 or twice

the amount of

which a financial

institution was

required to

retain

possession or

control

DO (OFAC) Same as above

21 USC 1906(b) 

Foreign Narcotics Kingpin

Designation Act, Section 807

Sanctions violation 1999 2018 $1,466,485 DO (OFAC) Same as above

19 USC 3901-3913 

Clean Diamond Trade Act Sanctions violation 2003 2018 $13,333 DO (OFAC) Same as above

15 USC 6701 note 

Terrorism Risk Insurance Act

(TRIA), as amended

Civil Penalty 2002 2018 $1,360,525

DO (Federal

Insurance

Office)

Same as above 
DEPARTMENT OF THE TREASURY 211 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

12 USC 1829b(j) 

Bank Secrecy Act, as amended

Recordkeeping Violations

for Funds Transfers 1988 2018 $20,521 FinCEN Same as above

12 USC 1955 

Bank Secrecy Act, as amended

Willful/Grossly Negligent

Recordkeeping Violations 1988 2018 $20,521 FinCEN Same as above

31 USC 5318(k)(3)(C) 

Bank Secrecy Act, as amended

Failure to Terminate

Correspondent Relationship

with Foreign Bank

2001 2018 $13,881 FinCEN Same as above

31 USC 5321(a)(1) 

Bank Secrecy Act, as amended

General Civil Penalty

Provision for Willful

Violations of Bank Secrecy 

Act Requirements 

1986 2018 $55,907 to

$223,629 FinCEN Same as above

31 USC 5321(a)(5)(B)(i) 

Bank Secrecy Act, as amended

Foreign Financial Agency

Transaction - Non-Willful

Violation of Transaction

2004 2018 $12,921 FinCEN Same as above

31 USC 5321(a)(5)(C) 

Bank Secrecy Act, as amended

Foreign Financial Agency

Transaction - Willful

Violation of Transaction

2004 2018 $129,210 FinCEN Same as above

31 USC 5321(a)(6)(A) 

Bank Secrecy Act, as amended

Negligent Violation by

Financial Institution or NonFinancial Trade or Business1986 2018 $1,118 FinCEN Same as above

31 USC 5321(a)(6)(B) 

Bank Secrecy Act, as amended

Pattern of Negligent Activity

by Financial Institution or

Non-Financial Trade or

Business

1992 2018 $86,976 FinCEN Same as above

31 USC 5321(a)(7) 

Bank Secrecy Act, as amended

Violation of Certain Due

Diligence Requirements, 

Prohibition on

Correspondent Accounts for

Shell Banks, and Special

Measures

2001 2018 $1,388,081 FinCEN Same as above

31 USC 5330(e) 

Bank Secrecy Act, as amended

Civil Penalty for Failure to

Register as Money

Transmitting Business

1994 2018 $8,249 FinCEN Same as above

12 USC 93(b) 

Section 5239(b) of the Revised

Statutes

Tier 1 Violation of Various

Provisions of the National

Bank Act

1978 2018 $9,819 OCC 

83 Federal Register

1657 (January 12, 

2018) 

https://www.gpo.gov/

fdsys/pkg/FR-2018-01-

12/pdf/2018-

00521.pdf

12 USC 93(b) 

Section 5239(b) of the Revised

Statutes

Tier 2 Violation of Various

Provisions of the National

Bank Act

1978 2018 $49,096 OCC Same as above

12 USC 93(b) 

Section 5239(b) of the Revised

Statutes

Tier 3 Violation of Various

Provisions of the National

Bank Act

1978 2018 $1,963,870 OCC Same as above

12 USC 164 

Section 5213 of the Revised

Statutes

Tier 1 Violation of Reporting

Requirements 1869(2) 2018 $3,928 OCC Same as above
212 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

12 USC 164 

Section 5213 of the Revised

Statutes

Tier 2 Violation of Reporting

Requirements 1869(2) 2018 $39,278 OCC Same as above

12 USC 164 

Section 5213 of the Revised

Statutes

Tier 3 Violation of Reporting

Requirements 1869(2) 2018 $1,963,870 OCC Same as above

12 USC 481 

Section 5240 of the Revised 

Statutes

Refusal of Affiliate to

Cooperate in Examination

(National Banks)

1864(2) 2018 $9,819 OCC Same as above

12 USC 504 

Section 29 of the Revised

Statutes

Tier 1 Violation of Various

Provisions of the Federal

Reserve Act

1978 2018 $9,819 OCC Same as above

12 USC 504 

Section 29 of the Revised

Statutes

Tier 2 Violation of Various

Provisions of the Federal

Reserve Act

1978 2018 $49,096 OCC Same as above

12 USC 504 

Section 29 of the Revised

Statutes

Tier 3 Violation of Various

Provisions of the Federal

Reserve Act

1978 2018 $1,963,870 OCC Same as above

12 USC 1817(j)(16) 

Section 7(j)(16) of the Federal

Deposit Insurance Act

Tier 1 Violation of Change in

Bank Control Act 1978 2018 $9,819 OCC Same as above

12 USC 1817(j)(16) 

Section 7(j)(16) of the Federal

Deposit Insurance Act

Tier 2 Violation of Change in

Bank Control Act 1978 2018 $49,096 OCC Same as above

12 USC 1817(j)(16) 

Section 7(j)(16) of the Federal

Deposit Insurance Act

Tier 3 Violation of Change in

Bank Control Act 1978 2018 $1,963,870 OCC Same as above

12 USC 1818(i)(2) 

Section 8(i)(2) of the Federal

Deposit Insurance Act

Tier 1 Violation of Law,

Unsafe or Unsound

Practice, or Breach of

Fiduciary Duty

1978 2018 $9,819 OCC Same as above

12 USC 1818(i)(2) 

Section 8(i)(2) of the Federal

Deposit Insurance Act

Tier 2 Violation of Law,

Unsafe or Unsound

Practice, or Breach of

Fiduciary Duty

1978 2018 $49,096 OCC Same as above

12 USC 1818(i)(2) 

Section 8(i)(2) of the Federal

Deposit Insurance Act

Tier 3 Violation of Law,

Unsafe or Unsound

Practice, or Breach of

Fiduciary Duty

1978 2018 $1,963,870 OCC Same as above

12 USC 1820(k)(6)(A)(ii) 

Section 10(k)(6)(A)(ii) of the

Federal Deposit Insurance Act

Violation of PostEmployment Restrictions 2004 2018 $323,027 OCC Same as above

12 USC 1832(c) 

Section 2 of Public Law 93-100

Violation of Withdrawals by

Negotiable or Transferable

Instrument for Transfers to

Third Parties (National

Banks)

1973 2018 $2,852 OCC Same as above

12 USC 1832(c ) 

Section 2 of Public Law 93-100

Violation of Withdrawals by

Negotiable or Transferable

Instrument for Transfers to

Third Parties (Federal

Savings Associations)

1973 2018 $2,593 OCC Same as above
DEPARTMENT OF THE TREASURY 213 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

12 USC 1884 

Section 5 of the Bank

Protection Act of 1968

Violation of the Bank

Protection Act 1968 2018 $285 OCC Same as above

12 USC 1972(2)(F) 

Section 106(b)(2)(F) of the Bank

Holding Company Act

Amendments of 1970

Tier 1 Violation of AntiTying Provisions Regarding

Correspondent Accounts,

Unsafe or Unsound

Practices, or Breach of

Fiduciary Duty

1978 2018 $9,819 OCC Same as above

12 USC 1972(2)(F) 

Section 106(b)(2)(F) of the Bank

Holding Company Act

Amendments of 1970

Tier 2 Violation of AntiTying Provisions Regarding

Correspondent Accounts,

Unsafe or Unsound

Practices, or Breach of

Fiduciary Duty

1978 2018 $49,096 OCC Same as above

12 USC 1972(2)(F) 

Section 106(b)(2)(F) of the Bank

Holding Company Act

Amendments of 1970

Tier 3 Violation of AntiTying Provisions Regarding

Correspondent Accounts,

Unsafe or Unsound

Practices, or Breach of

Fiduciary Duty

1978 2018 $1,963,870 OCC Same as above

12 USC 3110(a) 

Section 16(a) of the

International Banking Act of

1978

Violation of Various

Provisions of the

International Banking Act

(Federal Branches and

Agencies)

1991 2018 $44,881 OCC Same as above

12 USC 3110(c) 

Section 16(c) of the

International Banking Act of

1978

Tier 1 Violation of Reporting

Requirements of the

International Banking Act

(Federal Branches and

Agencies)

1991 2018 $3,591 OCC Same as above

12 USC 3110(c) 

Section 16(c) of the

International Banking Act of

1978

Tier 2 Violation of Reporting

Requirements of the

International Banking Act

(Federal Branches and

Agencies)

1991 2018 $35,904 OCC Same as above

12 USC 3110(c) 

Section 16(c) of the

International Banking Act of

1978

Tier 3 Violation of Reporting

Requirements of the

International Banking Act

(Federal Branches and

Agencies)

1991 2018 $1,795,216 OCC Same as above

12 USC 3909(d)(1) 

Section 910(d)(1) of the

International Lending

Supervision Act of 1983

Violation of International

Lending Supervision Act 1983 2018 $2,443 OCC Same as above

15 USC 78u-2(b) 

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 1 (natural person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2018 $9,239 OCC Same as above
214 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

15 USC 78u-2(b) 

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 1 (other person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2018 $92,383 OCC Same as above

15 USC 78u-2(b) 

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 2 (natural person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2018 $92,383 OCC Same as above

15 USC 78u-2(b) 

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 2 (other person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2018 $461,916 OCC Same as above

15 USC 78u-2(b) 

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 3 (natural person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2018 $184,767 OCC Same as above

15 USC 78u-2(b) 

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 3 (other person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2018 $923,831 OCC Same as above

15 USC 1639e(k) 

Section 129E(k) of the Truth in

Lending Act

First Violation - Violation of

Appraisal Independence

Requirements

2010 2018 $11,279 OCC Same as above

15 USC 1639e(k) 

Section 129E(k) of the Truth in

Lending Act

Subsequent Violations - 

Violation of Appraisal

Independence

Requirements

2010 2018 $22,556 OCC Same as above

42 USC 4012a(f)(5) 

Section 102(f)(5) of the Flood

Disaster Protection Act of 1973

Flood Insurance 1994 2018 $2,133 OCC Same as above

12 USC 1464(v) 

Section 5(v) of the Home

Owners' Loan Act

Tier 1 Reports of Condition -

Savings Associations 1989 2018 $3,928 OCC Same as above

12 USC 1464(v) 

Section 5(v) of the Home

Owners' Loan Act

Tier 2 Reports of Condition -

Savings Associations 1989 2018 $39,278 OCC Same as above

12 USC 1464(v) 

Section 5(v) of the Home

Owners' Loan Act

Tier 3 Reports of Condition -

Savings Associations 1989 2018 $1,963,870 OCC Same as above
DEPARTMENT OF THE TREASURY 215 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

12 USC 1467(d) 

Section 9(d) of the Home

Owners' Loan Act

Refusal of Affiliate to

Cooperate in Examination 1989 2018 $9,819 OCC Same as above

12 USC 1467a(r) 

Section 10(r) of the Home

Owners' Loan Act

Tier 1 Late/Inaccurate

Reports (Savings and Loans) 1989 2018 $3,928 OCC Same as above

12 USC 1467a(r) 

Section 10(r) of the Home

Owners' Loan Act

Tier 2 Late/Inaccurate

Reports (Savings and Loans) 1989 2018 $39,278 OCC Same as above

12 USC 1467a(r) 

Section 10(r) of the Home

Owners' Loan Act

Tier 3 Late/Inaccurate

Reports (Savings and Loans) 1989 2018 $1,963,870 OCC Same as above

27 USC 218 

Federal Alcohol Administration

Act, as amended; Section 207 

of the Alcohol Beverage

Labeling Act of 1988, P.L. 100-

690

Violation 1988 2018 $20,521 TTB

Federal Register 83

(January 12, 2018) 

1552 – 1553

https://www.ttb.gov/r

egulation_guidance/ab

lapenalty.shtml

31 USC 333 

Prohibition of Misuse of

Department of the Treasury

Names, Symbols, etc.

Misuse of Treasury name or

symbol 1994 None(3) $5,000 DepartmentWide None

31 USC 333 

Prohibition of Misuse of

Department of the Treasury

Names, Symbols, etc.

Misuse of Treasury name or

symbol in broadcast or

telecast

1994 None(3) $25,000 Department

Wide None

31 USC 3729 

False Claims Act False Claims Act 1986 2018

$11,181 to

$22,363 plus 3 

times the

amount of

damages which

the Government

sustains because

of the act

Department

Wide

Department of Justice

(DOJ) issued

regulations at Federal

Register 83 (January

29, 2018) 3944 – 3947

31 USC 3802 

Program Fraud Civil Remedies 

Act

Program Fraud Civil

Remedies Act 1986 2018 

Up to $11,181

for each claim

plus 2 times the

amount of the

claim

Department

Wide

DOJ issued regulations

at Federal Register 83 

(January 29, 2018) 

3944 - 3947 

(1) Current penalty level amounts represent the maximum penalty amounts.

(2) For purposes of calculating the appropriate inflation factor, OMB’s guidance issued February 24, 2016 uses the calendar year 1914 CMP CatchUp Adjustment Multiplier for all penalties enacted prior to 1914.

(3) We plan to complete regulations to adjust the penalty level of this CMP by the end of 2018.
216 DEPARTMENT OF THE TREASURY

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SECTION H: GRANTS OVERSIGHT AND NEW EFFICIENCY ACT 

REQUIREMENTS

The Grants Oversight and New Efficiency Act of 2016 (GONE Act) requires the head of each agency to submit to Congress, in

coordination with the Secretary of HHS, a report on federal grant and cooperative agreement awards for which closeout has

not yet occurred and the period of performance, including any extensions, has been expired for more than two years. Other

types of financial assistance, including loans, are excluded from the reporting requirements. With the goal of improving the

timely closeout of federal grant awards and thereby improving the accountability and oversight in grants management under

the GONE Act, OMB also set forth follow-on reporting and analysis requirements for subsequent years. The summary table

below shows the total number and balances of federal grants and cooperative agreements that we awarded for which closeout

has not yet occurred and the period of performance has elapsed by more than two years.

 

CATEGORY 2-3 Years >3-5 Years >5 Years

Number of Grants/Cooperative Agreements with Zero Dollar Balances 1 - -

Number of Grants/Cooperative Agreements with Undisbursed Balances - - -

Total Amount of Undisbursed Balances $ - $ - $ -

We have closed out 84 of the 85 awards that were listed in the FY 2017 GONE Act submission. The only award that is not

closed has to remain open due to a pending audit. We will close out the account once the audit is complete.
DEPARTMENT OF THE TREASURY 217 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

APPENDIX: GLOSSARY OF ACRONYMS

Abbreviation Description 

2015 Act Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015

ACH Automated Clearinghouse

ACS Automated Collection System

ACTC Additional Child Tax Credit

AEDPA Antiterrorism and Effective Death Penalty Act

AEOI Automatic Exchange of Information

AFR Agency Financial Report

AGI Adjusted Gross Income

AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism

AOTC American Opportunity Tax Credit

APG Agency Priority Goal

APR Annual Performance Report

ARC Administrative Resource Center

ARRA American Recovery and Reinvestment Tax Act of 2009

ASM Assistant Secretary for Management

BEP Bureau of Engraving and Printing

CDFI Community Development Financial Institutions

CFIUS Committee on Foreign Investment in the United States

CFO Chief Financial Officer

CFS U.S. Consolidated Financial Statement

CI Criminal Investigation

Civil Service Fund Civil Service Retirement and Disability Trust Fund

CMP Civil Monetary Penalties

CPI Consumer Price Index

CRO Chief Risk Officer

CRS Centralized Receivables Service

CSRS Civil Service Retirement System

CTC Child Tax Credit

D.C. District of Columbia

DATA Act Digital Accountability and Transparency Act

DCP Office of D.C. Pensions

DDV Due Diligence Visits

DFF Departmental Franchise Fund

DHS Department of Homeland Security

DNP Do Not Pay

DO Departmental Offices

DOJ Department of Justice

DOL Department of Labor

EESA Emergency Economic Stabilization Act of 2008

ECM Enterprise Case Management
218 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Abbreviation Description 

EIN Employer Identification Number

EITC Earned Income Tax Credit

EO Executive Order

ERM Enterprise Risk Management

ESA Exchange Stabilization Agreement

ESF Exchange Stabilization Fund

Fannie Mae Federal National Mortgage Association

FARS Financial Analysis and Reporting System

FASAB Federal Accounting Standards Advisory Board

FATCA Foreign Account Tax Compliance Act

FATF Financial Action Task Force

FCDA Foreign Currency Denominated Assets

FCRA Federal Credit Reform Act

FDC Funds from Dedicated Collections

FECA Federal Employees’ Compensation Act

FedRAMP Federal Risk and Authorization Management Program

FEGLI Federal Employees Group Life Insurance

FEHBP Federal Employees Health Benefits Program

FERS Federal Employees’ Retirement System

FEVS Federal Employee Viewpoint Survey

FFB Federal Financing Bank

FFMIA Federal Financial Management Improvement Act of 1996

FHFA Federal Housing Finance Agency

FinCEN Financial Crimes Enforcement Network

FIRRMA Foreign Investment Risk Review Modernization Act

Fiscal Service Bureau of the Fiscal Service

FISMA Federal Information Security Management Act

FMB Funds Management Branch

FMFIA Federal Managers’ Financial Integrity Act

FOMC Federal Open Market Committee

FR System Federal Reserve System

FRB Federal Reserve Bank

FRBNY Federal Reserve Bank of New York

FRDAA Fraud Reduction and Data Analytics Act of 2015

Freddie Mac Federal Home Loan Mortgage Corporation

FRN Floating Rate Note

FSA Fiscal Service Administration

FSD Fiscal Service Debt

FSM Funds Management Branch

FSU Fiscal Service Umbrella

FTO Fine Troy Ounce

FY Fiscal Year
DEPARTMENT OF THE TREASURY 219 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Abbreviation Description 

G-7 Group of Seven

G-20 Group of 20

GAAP Generally Accepted Accounting Principles

GAB General Arrangements to Borrow

GAO U.S. Government Accountability Office

General Fund General Fund of the U.S. Government

GONE Act Grants Oversight and New Efficiency Act of 2016

GPRA Government Performance and Results Act of 1993

GPRAMA GPRA Modernization Act of 2010

GSA General Services Administration

GSE Government Sponsored Enterprise

HERA Housing and Economic Recovery Act

HFA Housing Finance Agency

HHS Department of Health and Human Services

HVA High Value Assets

IAP International Assistance Programs

IEEPA International Emergency Economic Powers Act

IFR Interim Final Rulemaking

IMF International Monetary Fund

Inflation Adjustment Act Federal Civil Penalties Inflation Adjustment Act of 1990

IPAC Intra-Governmental Payment and Collection

IPERA Improper Payments Elimination and Recovery Act

IPERIA Improper Payments Elimination and Recovery Act Improvement Act of 2012

IPIA Improper Payments Information Act of 2002

IRC Internal Revenue Code

IRGC-QF Islamic Revolutionary Guard Corps – Qods Force

IRS Internal Revenue Service

ISIS Islamic State of Iraq and Syria

IT Information Technology

ITIN Individual Taxpayer Identification Number

ITM Integrated Talent Management

JCPOA Joint Comprehensive Plan of Action

KTV Knock-and-Talk Visits

LITC Low Income Taxpayer Clinic

LLC Lifetime Learning Credit

LOS Level of Service

MADR Market Adjusted Discount Rate

MDB Multilateral Development Bank

NAB New Arrangements to Borrow

NAFA North American Framework Agreement

NFTL Notice of Federal Tax Lien

NIBP New Issue Bond Program
220 DEPARTMENT OF THE TREASURY

FY 2018 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Abbreviation Description 

NRP National Research Program

OAS International Assistance Programs

OCC Office of the Comptroller of the Currency

ODCP Office of D.C. Pensions

OFAC Office of Foreign Assets Control

OFR Office of Financial Research

OFS Office of Financial Stability

OI Office of Investigation

OIG Office of the Inspector General

OMB Office of Management and Budget

OPE Office of the Procurement Executive

OPEB Other Post-Employment Benefits

OPM Office of Personnel Management

ORB Other Retirement Benefits

ORM Office of Risk Management

OTA Office of Technical Assistance

OTC Over-the-Counter

P.L. Public Law

PAM Payment Automation Manager

PATH Act Protecting Americans from Tax Hikes Act

PCA Private Collection Agencies

PDC Private Debt Collection

PII Personally Identifiable Information

PIO Performance Improvement Officer

PMO Program Management Office

Postal Benefits Fund Postal Service Retiree Health Benefits Fund

PP&E Property, Plant, and Equipment

PTC Premium Tax Credit

PTIN Preparer Tax Identification Number

RTC Resolution Trust Corporation

SARP State Audit Report Program

SBLF Small Business Lending Fund

SBR Statement of Budgetary Resources

SDR Special Drawing Rights

Secretary Secretary of the Treasury

SFFAC Statement of Federal Financial Accounting Concepts

SFFAS Statement of Federal Financial Accounting Standards

SIGTARP Special Inspector General for the Troubled Asset Relief Program

SIPPRA Social Impact Partnerships to Pay for Results Act

SLGS State and Local Government Series

SOAR Strategic Objective Annual Review

SOMA System Open Market Account
DEPARTMENT OF THE TREASURY 221 

OTHER INFORMATION | FY 2018 AGENCY FINANCIAL REPORT

Abbreviation Description 

SPSPA Senior Preferred Stock Purchase Agreements

SSA Social Security Administration

SSN Social Security Number

TARP Troubled Asset Relief Program

TCJA Tax Cuts and Jobs Act

TEOAF Treasury Executive Office of Asset Forfeiture

TFF Treasury Forfeiture Fund

TFI Terrorism and Financial Intelligence

TFS TIER Financial Statements

TFTC Terrorist Financing Targeting Center

TGA Treasury General Account

TIER Treasury Information Executive Repository

TIGTA Treasury Inspector General for Tax Administration

TIN Taxpayer Identification Number

TIPS Treasury Inflation-Protected Securities

TRIA Terrorism Risk Insurance Act

TRIP Terrorism Risk Insurance Program

TSP Thrift Savings Plan

TTB Alcohol and Tobacco Tax and Trade Bureau

TWEA Trading with the Enemy Act

TY Tax Year

U.S. United States

U.S. Mint United States Mint

USA Patriot Act United and Strengthening America by Providing Appropriate Tools Required to

Intercept and Obstruct Terrorism Act of 2001

USC United States Code

USPS United States Postal Service

UTP Uncertain Tax Position Statement
 

 

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