# Recent Reports

Reports News from the GAO

- Fraud Risk Management: 2018-2022 Data Show Federal Government Loses an Estimated $233 Billion to $521 Billion Annually to Fraud, Based on Various Risk Environments What GAO FoundGAO estimated total direct annual financial losses to the government from fraud to be between $233 billion and $521 billion, based on data from fiscal years 2018 through 2022. The range reflects the different risk environments during this period. Ninety percent of the estimated fraud losses fell in this range.GAO collected data from three key sources to develop the estimate: investigative data, such as the number of cases sent for prosecution and the dollar value of closed cases; Office of Inspector General (OIG) semiannual report information; and confirmed fraud data reported to the Office of Management and Budget (OMB) by agencies. GAO organized these data around three fraud categories—adjudicated, detected potential, and undetected potential. Model design and validation were also informed by 46 fraud studies. OIG and other knowledgeable officials agreed with these categories and subcategories.Categories of Fraud-Related Data Used in GAO's EstimateGAO's approach is sensitive to the assumptions made about fraud and accounts for data uncertainty and limitations. GAO used a well-established probabilistic method for estimating a range of outcomes under different assumptions and scenarios where there is uncertainty. The estimate does not include fraud loss associated with federal revenue or fraud against federal programs that occurs at the state, local, or tribal level unless federal authorities investigated and reported it. GAO's estimate is in line with other estimates of fraud losses from the United Kingdom and Association of Certified Fraud Examiners, among others.As a first of its kind government-wide estimate of federal dollars lost to fraud, there are known uncertainties associated with the model and underlying data important to interpreting the results. These include caveats related toapplying the estimate to agencies or programs.  GAO's model was developed to estimate government-wide federal fraud. The fraud estimate's range represents 3 to 7 percent of average federal obligations. These percentages should not be applied at the agency or program level. While every federal program and operation is at risk of fraud, the level of risk can vary substantially. Controls, growth or shrinkage of budget, and the emergence of new fraud schemes are some reasons the risk level can vary;	drawing conclusions about pandemic fraud.  GAO's estimate is based on data from fiscal years 2018 through 2022. The data include time periods and programs with and without pandemic-related spending. Therefore, the estimate includes, but is not limited to, pandemic-related spending fraud. While the upper range of the estimate is associated with higher-risk environments, it is not possible to break out a subset of our government-wide estimate to describe pandemic program fraud;	comparing with improper payment estimates.  GAO's estimate is not comparable to improper payment estimates. Improper payment estimates are based on a subset of federal programs, using a methodology not designed to identify fraud. GAO has also consistently reported that the federal government does not know the full extent of improper payments and has long recommended that agencies improve their improper payment reporting. In contrast, GAO's fraud estimate includes all federal programs and operations and is based on fraud-related data. With these differences in scope and data, the upper end of GAO's estimated fraud range exceeded annual improper payment estimates; and	assuming the estimate is predictive.  GAO's estimate is not based on a predictive model. Factors such as the amount of emergency spending, the effectiveness of federal fraud risk management, and the nature of new fraud threats could substantially impact the scale of future fraud. GAO has previously issued Matters for Congressional Consideration and recommendations to improve agencies' program integrity, including fraud risk management. Fraud estimation provides opportunities to improve fraud risk management, according to OIG and agency officials. For example, estimates can demonstrate the scope of the problem, improve oversight prioritization, and help determine the return on investment from fraud risk management activities. While it is not possible to eliminate fraud, with a better understanding of the costs, agencies will be better positioned to manage the risk.How Fraud Estimates Can Improve Fraud Risk ManagementOIG and agency officials noted challenges in producing fraud estimates, such as limited available fraud-related data and use of varying terms and definitions of fraud for recording data. These data gaps and variability result in information that cannot be readily compared or consolidated to determine the extent of fraud across the federal government. Guidance for collecting and reporting fraud-related data is currently limited to OIG semiannual reports and confirmed fraud reported by agencies to OMB, which are not designed to support fraud estimation. With guidance targeted to the purpose of fraud estimation, agencies and OIGs would be better positioned to collect and report data on potential and adjudicated fraud in support of estimation efforts.OIG and agency officials also noted the utility of agency or program-level estimates compared with government-wide estimates. They further noted the need for expertise and data-analytics capacity to produce estimates. GAO previously reported that agencies identified limitations in expertise, data, and tools as a significant challenge for their fraud risk management efforts. These challenges could also impact agencies' ability to develop effective fraud estimates at a program or agency level. The Department of the Treasury's Office of Payment Integrity (OPI) supports agencies facing such challenges. OPI's resources are dedicated to preventing and detecting improper payments through a variety of data-matching and data-analytics services. Therefore, OPI is well positioned—with the expertise, data, and analytic tools—to evaluate and advance methods that the federal government can take to estimate fraud in support of fraud risk management.Why GAO Did This StudyAll federal programs and operations are at risk of fraud. Therefore, agencies need robust processes in place to prevent, detect, and respond to fraud. While the government obligated almost $40 trillion from fiscal years 2018 through 2022, no reliable estimates of fraud losses affecting the federal government previously existed.As part of GAO's work on managing fraud risks, this report (1) estimates the range of total direct annual financial losses from fraud based on 2018-2022 data and (2) identifies opportunities and challenges in fraud estimation to support fraud risk management.GAO estimated the range of total direct annual financial losses from fraud based on 2018-2022 data using a Monte Carlo simulation model. GAO identified opportunities and challenges through interviews and data collection focused on 12 agencies representing about 90 percent of federal obligations.
- Patient-Centered Outcomes Research Institute: Review of the Audit of the FY 2023 Financial Statements What GAO FoundGAO reviewed the independent public accounting firm's (IPA) financial audit of the Patient-Centered Outcomes Research Institute's (PCORI) fiscal year 2023 financial statements. Based on the limited procedures GAO performed in reviewing the IPA's audit, GAO did not identify any significant issues that it believes require attention. Had GAO performed additional procedures, other matters might have come to its attention that it would have reported. The IPA provided an unmodified audit opinion on PCORI's fiscal years 2023 and 2022 financial statements. Specifically, the IPA found that PCORI's financial statements were presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles. Further, for fiscal year 2023, the IPA did not identify any deficiencies in internal control that it considered to be material weaknesses or any reportable noncompliance with the selected provisions of laws, regulations, contracts, and grant agreements it tested. PCORI concurred with the IPA's conclusions.Why GAO Did This StudyThis report presents the results of GAO's review of PCORI's fiscal year 2023 financial statement audit. PCORI is a federally funded, nonprofit corporation that is neither an agency nor establishment of the U.S. government. PCORI's purpose is to help patients, clinicians, policymakers, and others make informed decisions about their health and health care options.The Patient Protection and Affordable Care Act requires PCORI to obtain an annual financial statement audit from a private entity with expertise in conducting financial audits. The act includes a provision for the Comptroller General of the United States to review the audit and report the results to the Congress annually. GAO's objective was to review the financial audit of PCORI's fiscal year 2023 financial statements. To satisfy this objective, GAO (1) read and considered various documents relating to the IPA's independence, objectivity, and qualifications; (2) analyzed key IPA audit documentation; (3) read PCORI's fiscal years 2023 and 2022 financial statements, the IPA's audit report on the financial statements, and the IPA's report on internal control over financial reporting and compliance; and (4) met with IPA representatives and PCORI management officials.For more information, contact Cheryl E. Clark at (202) 512-9377 or clarkce@gao.gov.
- Bureau of Indian Education: Improved Oversight of Schools' COVID-19 Spending is Needed What GAO FoundThe Bureau of Indian Education (BIE) and its schools used federal COVID-19 relief funds mainly to support distance learning and prevent the spread of COVID-19 in schools. For example, BIE spent nearly $60 million of its COVID funds on IT and broadband supports for schools, including student laptops and Wi-Fi equipment for distance learning. Similarly, nearly all of the 70 BIE schools that responded to GAO's survey reported prioritizing their COVID funds for laptops and tablets and for personal protective equipment, cleaning supplies, and COVID tests. Schools generally reported that BIE offered regular guidance and support for spending COVID funds.BIE uses several processes to monitor schools' COVID spending, including reviewing schools' single audit reports, overseeing schools at high risk of financial mismanagement, and monitoring schools' purchase card use for fraud and misuse. However, GAO found that due to insufficient controls, BIE staff did not consistently follow these processes, which limited accountability for use of COVID funds. For example, a little over a quarter of required fiscal year 2021 single audit reports for schools and Tribes that received BIE grant funds were late or not submitted as of November 2023. But BIE did not follow agency standard procedures for applying or increasing financial conditions for 19 of the 28 grantees that failed to submit a timely single audit report that year. Without timely single audit reports, BIE lacks vital information for overseeing schools' financial management. Further, BIE did not conduct sufficient oversight of high-risk schools' COVID spending and lacked the staff capacity to complete all required monitoring. Such oversight is critical for helping schools correct errors and avoid them in the future. Finally, GAO found that for BIE-operated schools, nearly half of COVID fund spending with purchase cards between March 2020 and August 2022 involved elevated risk transactions according to agency data (see figure). Examples of elevated risk transactions include the purchase of gift cards or multiple purchases at the same merchant within a certain number of days that total more than the single purchase limit. However, BIE did not provide evidence that it had investigated these transactions for fraud or misuse.Bureau of Indian Education Schools' COVID Fund Spending with Purchase Cards, March 2020 to August 2022In addition, GAO found that BIE staff did not consistently use the required tool or procedures for tracking and investigating suspicious transactions. Without addressing these gaps in its oversight of schools' COVID spending, BIE cannot ensure that schools will use remaining COVID funds appropriately to provide students the support they need.Why GAO Did This StudyMany of BIE's 183 schools are located in remote tribal lands that faced extraordinary challenges during the COVID-19 pandemic and continue to experience ongoing effects. Congress appropriated about $1.5 billion to help BIE and its schools respond to the pandemic. GAO reviewed the use of COVID-19 relief funds by schools and BIE as part of GAO's responsibilities under the CARES Act.This report examines how BIE and schools spent their COVID funds and BIE's guidance to schools on fund use, and the extent to which BIE oversees schools' fund use. GAO surveyed a generalizable sample of 85 BIE schools, with 70 schools responding, to collect information on their use of COVID funds and the extent to which BIE provided them guidance on spending. GAO also analyzed agency data on BIE schools' purchase card activity; reviewed relevant federal statutes, regulations, and agency policies and procedures for overseeing school COVID spending; and interviewed BIE and school officials.
- Improper Payments: Information on Agencies' Fiscal Year 2023 Estimates What GAO FoundFor fiscal year 2023, 14 agencies reported a total estimated $236 billion in improper payments across 71 programs. Agencies reported that about $175 billion (over 74 percent) of this total was the result of overpayments. About $186 billion (approximately 79 percent) was concentrated in five program areas. However, the $236 billion total does not include certain programs that agencies have determined are susceptible to significant improper payments, such as the Department of Health and Human Services' Temporary Assistance for Needy Families. The Department of Housing and Urban Development also did not report improper payment estimates for the Office of Public and Indian Housing's Tenant Based Rental Assistance program and the Office of Multifamily Housing's Project-Based Rental Assistance program. As a result, the government-wide estimate potentially does not represent the full extent of improper payments.Programs Reporting the Largest Percentage of Government-Wide Improper Payments Estimates for Fiscal Year 2023Agencies reported about $11 billion less in improper payments in fiscal year 2023 than they did the prior fiscal year. Those agencies that reported substantial decreases attributed the declines to factors such as terminating certain programs, implementing mitigation strategies, and suspending eligibility determinations for Medicaid during COVID-19.The Payment Integrity Information Act of 2019 (PIIA) and Office of Management and Budget (OMB) M-21-19 include criteria that executive branch agencies must comply with in assessing risk and estimating and reporting improper payments. In fiscal year 2022, 14 of the 24 Chief Financial Officers Act agencies fully complied with PIIA criteria and related OMB requirements, according to their inspectors general (IG). This was an increase from fiscal year 2021, when 10 agencies were reported compliant. IGs identified various causes for agencies' noncompliance with these criteria, such as inadequate risk assessments and unreliable estimates.Why GAO Did This StudyImproper payments—those that should not have been made or were made in the incorrect amount—have consistently been a government-wide issue. Since fiscal year 2003, cumulative improper payment estimates by executive branch agencies have totaled about $2.7 trillion. Reducing improper payments is critical to safeguarding federal funds.GAO has reported on improper payments in its audit reports on the U.S. government's consolidated financial statements since fiscal year 1997. GAO has found that these payments represent a material deficiency or weakness in internal controls. Specifically, GAO has noted that the federal government is unable to determine the full extent of its improper payments or to reasonably assure that appropriate actions are taken to reduce them.House Report 117-389, which accompanied the Legislative Branch Appropriations Act, 2023, includes a provision for GAO to provide quarterly reports on improper payments. This is GAO's fifth such report, and it provides an overview of federal agencies' reported improper payment estimates for fiscal year 2023. Additionally, this report discusses agencies' compliance with legal requirements for reporting and managing improper payments.For more information, contact M. Hannah Padilla at (202) 512-5683 or padillah@gao.gov.
- Grants: AmeriCorps Should Take Multiple Actions to Better Manage Fraud Risks What GAO FoundAmeriCorps—also known as the Corporation for National and Community Service—administers a variety of grant programs that support service opportunities aimed at addressing community needs. The agency has taken some steps to manage fraud risks in its major grant programs. For example, as part of ongoing efforts to formalize its fraud risk management program, in September 2023 AmeriCorps developed a draft standard operating procedure that documents key roles of those leading fraud risk management activities.Nevertheless, many of the agency's efforts to manage fraud risks do not fully align with selected leading practices in GAO's Fraud Risk Framework. For instance, AmeriCorps has not established a process to conduct regular fraud risk assessments in its major grant programs. The agency's current fraud risk assessment was conducted at the agency level and was not tailored to identify or address program-specific risks. The agency's programs vary in size and scope. For example, one program funded over 7,000 volunteers, while another program funded over 115,000 volunteers. The agency-level assessment may not result in the information necessary to effectively manage program-level fraud risks.Furthermore, AmeriCorps' current agency-level fraud risk assessment does not fully align with leading practices in GAO's Fraud Risk Framework. Specifically:Identifying fraud risks.  The fraud risk assessment did not fully identify specific risks or differences across its major grant programs—such as size and scope—that may warrant separate consideration.	Assessing inherent fraud risks.  AmeriCorps did not assess the likelihood or impact of the inherent fraud risks it identified.	Setting risk tolerance.  AmeriCorps set a fraud risk tolerance that does not align with guidance on the level of risk the agency is willing to accept. Specifically, AmeriCorps' guidance calls for a low fraud risk tolerance. However, the agency's fraud risk assessment set a higher risk tolerance, accepting more risk than called for by the agency's guidance.	Considering existing controls.  AmeriCorps did not fully consider the effect of existing controls because it had not assessed its inherent fraud risks.Conducting fraud risk assessments that fully align with leading practices can help ensure that AmeriCorps produces the program-level information necessary to strategically manage fraud risks across its major grant programs.AmeriCorps plans to explore and implement feasible antifraud data analytics, as called for by leading practices. However, the agency faces challenges that may hinder these efforts. For example, AmeriCorps does not collect any information on individual volunteers in certain programs, which may limit potential analytics. AmeriCorps has system modernization efforts currently underway that may improve data quality and allow for additional antifraud analytics. However, its plans do not explain whether its analysis will include the benefits and costs of collecting additional information or the anticipated benefits of its modernization efforts. Including these factors will help ensure that AmeriCorps fully explores the feasibility of antifraud data analytics in its major grant programs.Why GAO Did This StudyAmeriCorps' grant programs address various community needs, including disaster relief, educational support, and environmental stewardship. In fiscal year 2023, the agency received over $900 million to fund these grant programs.However, AmeriCorps has faced financial management challenges. In fiscal year 2023, AmeriCorps' Inspector General identified improving financial management and prioritizing fraud prevention and detection as major management challenges.GAO was asked to review issues related to AmeriCorps' management of fraud risks in its grant programs. This report examines the extent to which AmeriCorps' (1) fraud risk management activities for major grant programs and (2) antifraud data analytics align with selected leading practices from GAO's Fraud Risk Framework. GAO reviewed relevant policies and documentation, analyzed data, and interviewed agency officials and compared this information with selected leading practices.
- Financial Audit: Federal Deposit Insurance Corporation Funds' 2023 and 2022 Financial Statements What GAO FoundGAO found (1) the financial statements of the Deposit Insurance Fund (DIF) and of the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund (FRF) as of and for the years ended December 31, 2023, and 2022, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) the Federal Deposit Insurance Corporation (FDIC) maintained, in all material respects, effective internal control over financial reporting relevant to the DIF and to the FRF as of December 31, 2023; and (3) with respect to the DIF and to the FRF, no reportable instances of noncompliance for 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested. FDIC made progress during 2023 in addressing a significant deficiency that GAO reported in its prior year audits. Specifically, FDIC sufficiently addressed the deficiencies in contract documentation and payment review process controls such that GAO no longer considers the remaining control deficiencies in this area, individually or collectively, to represent a significant deficiency as of December 31, 2023.In commenting on a draft of this report, FDIC stated that it was pleased to receive unmodified opinions for the 32nd consecutive year on the DIF's and the FRF's financial statements, and noted that GAO reported that FDIC had effective internal control over financial reporting and that there was no reportable noncompliance with tested provisions of applicable laws, regulations, contracts, and grant agreements. FDIC also stated that it was pleased to report that it effectively remediated a significant deficiency in internal control over contract documentation and contract payment review processes. FDIC stated that while its controls have improved, FDIC reiterated its commitment to sound financial management and will continue to look for opportunities to improve.Why GAO Did This StudySection 17 of the Federal Deposit Insurance Act, as amended, requires GAO to audit the financial statements of the DIF and of the FRF annually. In addition, the Government Corporation Control Act requires that FDIC annually prepare and submit audited financial statements to Congress and authorizes GAO to audit the statements. This report responds to these requirements.For more information, contact M. Hannah Padilla at (202) 512-5683 or padillah@gao.gov.
- Financial Audit: FY 2023 and FY 2022 Consolidated Financial Statements of the U.S. Government What GAO FoundTo operate as effectively and efficiently as possible, Congress, the administration, and federal managers must have ready access to reliable and complete financial and performance information—both for individual federal entities and for the federal government as a whole. GAO's report on the U.S. government's consolidated financial statements for fiscal years 2023 and 2022 discusses progress that has been made, but also underscores that much work remains to improve federal financial management and that the federal government continues to face an unsustainable long-term fiscal path.GAO found the following:Certain material weaknesses in internal control over financial reporting and other limitations resulted in conditions that prevented GAO from expressing an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2023, and 2022.	Significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth, prevented GAO from expressing an opinion on the sustainability financial statements, which consist of the 2023 and 2022 Statements of Long-Term Fiscal Projections; the 2023, 2022, 2021, 2020, and 2019 Statements of Social Insurance; and the 2023 and 2022 Statements of Changes in Social Insurance Amounts. A material weakness in internal control also prevented GAO from expressing an opinion on the 2023 and 2022 Statements of Long-Term Fiscal Projections.	Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 2023.	Material weaknesses and other scope limitations, discussed above, limited tests of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year 2023.Three major impediments have continued to prevent GAO from rendering an opinion on the federal government’s accrual-based consolidated financial statements: (1) serious financial management problems at the Department of Defense, (2) the federal government’s inability to adequately account for intragovernmental activity and balances between federal entities, and (3) weaknesses in the federal government’s process for preparing the consolidated financial statements.In addition, the Small Business Administration and Department of Education were unable to obtain opinions on their fiscal years 2022 and 2023 financial statements because of weaknesses related to loans and loan guarantees. Efforts are under way to resolve these issues.The material weaknesses underlying these financial management challenges (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost, as well as the financial and nonfinancial performance, of certain programs and activities; (3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable, useful, and timely financial information to operate effectively and efficiently.Two other continuing material weaknesses are the federal government’s inability to (1) determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce them and (2) identify and resolve information system control deficiencies and manage information security risks on an ongoing basis. The fiscal year 2023 government-wide total of reported improper payment estimates was $236 billion, but it did not include estimates for certain government programs. Thirteen of the 24 agencies covered by the Chief Financial Officers Act of 1990 reported material weaknesses or significant deficiencies in information system controls.The comprehensive long-term fiscal projections presented in the Statement of Long-Term Fiscal Projections and related information show that based on current revenue and spending policies, the federal government continues to face an unsustainable long-term fiscal path. Since 2017, GAO has stated that Congress should develop a fiscal plan to place the federal government on a sustainable fiscal path and ensure that the United States remains in a strong economic position to meet its social and security needs, as well as to preserve flexibility to address unforeseen events like public health emergencies. Additionally, GAO recommended that Congress consider alternative approaches to the current debt limit as part of any long-term fiscal plan.In commenting on a draft of this report, Department of the Treasury and Office of Management and Budget (OMB) officials expressed their continuing commitment to addressing the problems this report outlines.Why GAO Did This StudyThe Secretary of the Treasury, in coordination with the Director of OMB, is required to annually submit audited financial statements for the U.S. government to the President and Congress. GAO is required to audit these statements. The Government Management Reform Act of 1994 has required such reporting, covering the executive branch of government, beginning with financial statements prepared for fiscal year 1997. The consolidated financial statements include the legislative and judicial branches.For more information, contact Dawn B. Simpson at (202) 512-3406 or simpsondb@gao.gov or Robert F. Dacey at (202) 512-3406 or daceyr@gao.gov.
- Environmental Cleanup: DOD Should Communicate Future Costs for Red Hill Remediation and Closure What GAO FoundThe Department of Defense (DOD) responded to fuel and other releases that accidentally occurred from 2014 through 2022 at the Red Hill Bulk Fuel Facility on O‘ahu, Hawaii, by containing pollutants and taking abatement measures. Since then, DOD has developed and begun implementing a defueling plan and developed an initial closure plan for the tank system. However, as of August 2023, DOD had not finished a site investigation or remediation plan. DOD plans to close the tanks in place and complete its site investigation by the end of fiscal year 2027, but comprehensive remediation of the site could take decades.Timeline of Major Releases during 2014 through 2022DOD faces three key challenges in its efforts to defuel, remediate, and close Red Hill: (1) obtaining regulatory approval from the Hawaii Department of Health and the Environmental Protection Agency (EPA), (2) assessing contamination amid the site's unique geologic complexity, and (3) gaining trust and working with community stakeholders. Red Hill's proximity to several drinking water wells in the Honolulu Hawaii area compounds the unique geologic complexity.Map of Red Hill Bulk Fuel Storage Facility, Nearby Navy Drinking Water Wells (Shafts), and the Surrounding AreaIn response to challenges, DOD has taken several actions, including developing a joint integrated master schedule to prioritize key deliverables for defueling tasks and align them with state officials' priorities and working with EPA to make groundwater well monitoring data more easily available to the public.DOD and its components stated that the accidental 2021 Red Hill fuel release affected their fiscal year 2022 financial statements in a variety of ways. DOD concluded that while the future outflow of resources to clean up and close Red Hill was probable, an amount was not reasonably estimable given the lack of a completed remedial investigation and experience with a similar site. Accounting standards require that if a future outflow or other sacrifice of resources is probable but not reasonably estimable, an entity should not record an environmental liability in the financial statements. In such cases, an entity should disclose certain information about the event within the notes of its financial statements. Accordingly, DOD and relevant DOD components disclosed information in their fiscal year 2022 financial statements, including a description of the Red Hill event and its effect.While federal accounting standards require certain environmental liabilities and contingencies to be reported or disclosed in federal agencies' financial statements, other future costs not included in financial statements can be communicated to Congress in budget materials. The financial statement estimates do not represent the total federal fiscal exposure or the total amount that the federal government may have to pay. In addition to the liabilities and contingencies in financial statements, there are other components that, when combined, account for total federal fiscal exposure. These include costs to clean up and close known sites that are not currently reasonably estimable, and unknown cleanup and closure costs that may be identified in the future as remedial investigations are completed and closure plans are approved.DOD had not, as of the end of fiscal year 2023, communicated information to Congress about total fiscal exposures for anticipated Red Hill remediation activities for fiscal years 2025 and beyond. Specifically, DOD is aware of millions of dollars of costs that it is likely to incur as part of the Red Hill remediation and closure. It is also aware of numerous other costs for significant tasks that it cannot estimate at this time. Congress has appropriated at least $1.2 billion to DOD for activities related to improvement of infrastructure and defueling at Red Hill, and DOD has spent or plans to spend these funds. However, DOD's reports to Congress have not included projected cost estimates for fiscal year 2025 and beyond, which is the time frame during which DOD will likely incur substantial costs. Because these projected cost estimates have not been conveyed, Congress does not have information on total estimated remediation and closure costs in budget materials. With this financial exposure information, Congress would be better equipped to make decisions regarding funding remediation and closure activities.Why GAO Did This StudyIn November 2021, approximately 21,000 gallons of fuel was accidentally released from Red Hill, part of a fuel storage system the Navy manages. The Navy was unable to recover about 5,500 gallons, which ultimately contaminated portions of the surrounding area and a nearby well that supplied drinking water to about 93,000 service members and civilians. The November 2021 spill was not the first accidental release at Red Hill. Over the last decade, this facility, which supplied various types of fuel to DOD resources in the Pacific, experienced several other spills that DOD could not fully recover. In March 2022, the Secretary of Defense announced that DOD planned to defuel and permanently close the facility and remediate the site.House Report 117-397 includes a provision for GAO to review DOD's efforts to remediate Red Hill and report on liabilities and costs to clean up and close the facility. This report (1) describes actions DOD is taking to defuel and close the Red Hill facility, including remediating the site, and the challenges it faces in doing so; (2) assesses to what extent DOD estimated and recorded environmental and contingent liabilities for the November 2021 Red Hill fuel release in its financial statements; and (3) assesses to what extent DOD estimated and reported to Congress on the total fiscal exposure to defuel and close Red Hill. GAO visited the Red Hill site, interviewed DOD regulatory and other officials, and evaluated financial and regulatory documentation. Specifically, GAO met with officials from EPA, the Hawaii Department of Health, the Honolulu Board of Water Supply, the Hawaii Commission on Water Resource Management, and five selected community groups.
- DOD Education Activity: Civilian Payroll Remediation Continues What GAO FoundThe Department of Defense's (DOD) Education Activity operates schools around the world, providing educational services for the dependents of military service members and civilian employees. Since fiscal year 2018, independent public accounting firms auditing DOD's annual financial statements have reported more than 100 notices of findings and recommendations across the department related to the civilian payroll system. Many of these notices remain open and affect the pay of all DOD employees, including overseas civilian employees.DOD Civilian Payroll Notices of Findings and Recommendations, as of March 2023			Total									Closed									No longer applicable									Open								147 									92									8									47					Source: GAO analysis of DOD data on notices auditors issued since fiscal year 2018. | GAO-24-105679Closed notices addressed issues such as approving and maintaining time cards, gross pay reconciliation, and unsupported payroll allowances for some components of DOD. Some common issues identified in the open notices are (1) inconsistent documentation supporting employees' payrolls and (2) payroll amounts not agreeing with calculations based on supporting documentation. These open issues are similar to instances GAO observed, as discussed below. DOD has developed corrective action plans and roadmaps to remediate these open notices, but they will take time to effectively implement and address the issues that other auditors and GAO found.DOD Education Activity uses the Civilian Human Resources Agency and the Defense Finance and Accounting Service to perform human resources and payroll processing. DOD bases payroll computations on various requirements and must support payments with one or more source documents.GAO reviewed payroll records for 10 overseas DOD Education Activity employees. GAO found that the records for regular pay and incentives were accurate and contained adequate supporting documentation. GAO also found that of the five employees receiving allowances—such as for their living quarters—the amounts paid to three were inconsistent with the supporting documentation. In addition, GAO found that for eight of these 10 employees, at least one payroll deduction was not adequately supported.GAO also reviewed payroll records for 24 employees and found that 21 had adjustments that were not all processed timely or communicated adequately. The department processed 57 adjustments for the 21 employees' pay, 23 of which were retroactive, paid in a lump sum, and without many details provided on the employees' earnings and leave statements. The amount of time it took to process the adjustments ranged from a low of one biweekly pay period to a high of 34 biweekly pay periods. According to Defense Finance and Accounting Service officials, these delays are attributable to retroactive pay adjustments, corrective actions initiated by human resources offices or timekeepers, or employee-generated changes that were not sent timely for processing.Why GAO Did This StudyA committee report accompanying a national defense authorization bill for fiscal year 2022 includes a provision for GAO to review DOD's payroll system for overseas DOD Education Activity employees. This report (1) describes the status of DOD's efforts to address auditors' prior recommendations to improve its civilian payroll system, which includes overseas DOD Education Activity employees, and (2) examines the process DOD used to calculate overseas DOD Education Activity employees' pay, including base pay, differentials, additional allowances, and deductions, as well as how the department communicated payroll changes to employees.GAO reviewed an extract from a database containing all civilian payroll notices of findings and recommendations as of March 2023 to report on the status of prior recommendations. GAO also examined fiscal year 2021 payroll records (the most recent available at the time of GAO's analysis) and interviewed DOD representatives to gain an understanding of the payroll process. GAO traced payroll records for 10 employees to supporting documentation and verified the calculations using applicable criteria. GAO also reviewed payroll adjustments for 24 employees that were the result of either normal adjustments or payroll errors. Since DOD was not able to provide sufficient supporting documentation timely, the number of DOD Education Activity employees that GAO was able to review was too small to support generalizable conclusions.For more information, contact Asif A. Khan at (202) 512-9869 or khana@gao.gov.
- Grants Management: HHS Has Taken Steps to Modernize Government-wide Grants Management What GAO FoundThe Department of Health and Human Services' (HHS) Office of Grants (OG) provides department-wide leadership on grants and serves several key government-wide roles fostering collaboration, innovation, consistency, and accountability in the administration and management of federal grants. It formulates department-wide HHS grants policies and provides oversight and review of the implementation of HHS grant policies. In January 2021, OMB designated HHS as the agency to house the Grants Quality Services Management Office (Grants QSMO) to facilitate the development and adoption of customer-focused, innovative, and efficient grants management solutions and services by federal awarding agencies, grant applicants, and recipients.Multiple HHS grants management modernization efforts aim to simplify and streamline processes. HHS's ReInvent Grants Management (RGM) effort (2017-2020) developed initiatives to improve grants administration that could be leveraged by all grant-making departments within HHS. In addition to the RGM initiatives, HHS's Recipient Data Insights (RDI) tool is an ongoing grants risk management tool that helps agencies assess the pre-award risk of awarding funds to grant applicants. In addition, RDIautomates the collection of grant applicant data from multiple sources,	keeps the information up to date, and	presents the data in an aggregated format that saves grant-making agencies time.The HHS Grants QSMO has taken steps to develop a marketplace of grants management solutions for HHS and other federal agencies. Launched in September 2022, Grants QSMO's shared solutions marketplace offers five government-based solutions, includinggrants management systems,	payment systems, and	negotiation services.These solutions are available for other federal agency customers and function across all parts of the grants management life cycle. In addition to the marketplace of shared solutions, the Grants QSMO maintains a Catalog of Market Research that compiles information on commercial grants award management IT vendors and includes suggestions for drafting an acquisition strategy. Grants QSMO's goal is to provide easier access to quality solutions that meet existing government-wide accepted standards.HHS's recent grants modernization efforts, including the RDI risk management tool and the Grants QSMO Marketplace, have not been incorporated into either the President's Management Agenda (PMA) or the Cross-Agency Priority (CAP) goal on building capacity in federal financial management. However, OMB staff stated that under this CAP goal a grants governance framework and governing body will be developed to manage government-wide grants policy.Why GAO Did This StudyThe federal government spent approximately $1.2 trillion in grants to tribal, state, local, and territorial governments in fiscal year 2022—an increase of more than $400 billion from fiscal year 2019. Federal grants comprised approximately 19 percent of total federal spending for fiscal year 2022. HHS is the largest grant-making agency in the federal government. It has recently taken steps to modernize certain grants management processes for HHS and other federal agencies.GAO was asked to review recent initiatives aimed at improving federal grant management practices. This report (1) describes recent grants modernization efforts HHS has taken and the extent to which HHS evaluated those efforts; (2) describes the accomplishments of the HHS Grants QSMO and the extent to which the Grants QSMO has achieved its goals and addressed its challenges; and (3) describes how the PMA or CAP goals incorporated grants management outcomes and process reforms.GAO reviewed documents related to prior HHS grant modernization work and the current efforts of the HHS OG and Grants QSMO as well as OMB guidance. GAO also conducted interviews with HHS officials from various agency subcomponents about their modernization efforts. In addition, GAO conducted interviews with OMB staff regarding the administration's integration of grants management work into the PMA and the CAP goals.For more information, contact Jeff Arkin at (202) 512-6806 or arkinj@gao.gov.
- COVID-19 Relief: Treasury Could Improve Its Administration and Oversight of State and Local Fiscal Recovery Funds What GAO FoundNearly all—$325.5 billion—of the $350 billion in State and Local Fiscal Recovery Funds (SLFRF) was allocated to state and local governments. As of March 31, 2023, states reported obligating 60 percent and spending 45 percent of SLFRF awards they received. Localities reported obligating 54 percent and spending 38 percent, of SLFRF awards they received. Recipients have until December 31, 2024, to obligate, and until December 31, 2026, to spend their awards.Officials in all 18 selected states and most larger selected localities GAO reviewed said they expanded their capacity to manage their awards, such as by reassigning existing or hiring new staff. Officials in most smaller localities said they administered their SLFRF awards with their existing staff and processes.Officials in most selected states and localities told GAO they benefitted from using their SLFRF awards to replace revenue lost during the pandemic—an allowable use under the SLFRF program. Specifically, they said that using funds to replace lost revenue (1) enhanced spending flexibilities by allowing funding of a broad range of government services; and (2) made it easier to meet the Department of the Treasury's reporting requirements.State and local officials identified a range of challenges in using their SLFRF awards, such as those related toPerformance indicators.  Officials in some selected states and one selected locality told GAO that the performance indicators they are required to report do not always align with their uses of SLFRF awards. Treasury established these indicators to understand and aggregate program outcomes across SLFRF recipients. However, some selected state and local officials said they needed clarity from Treasury on how to report on required performance indicators when they do not align with their uses of SLFRF awards and spending categories. Based on GAO's analysis, Treasury updated its guidance on November 30, 2023, to clarify reporting on these indicators.	Treasury assistance.  Officials in most selected states and some selected localities told GAO that the assistance Treasury provided by telephone or email through its Contact Center was not timely and did not meet their needs. Treasury established the center to field and respond to recipients' inquiries about programs administered by Treasury, but these officials said limited resources affected Treasury's assistance. Treasury has assessed some, but not all, of its staffing needs, limiting its ability to provide timely and useful assistance going forward.Treasury has established monitoring procedures for reviewing states' and localities' spending reports and annual single audit findings. Treasury modified its procedures for reviewing spending reports, adapting to lessons it learned. However, it did not document those changes in key internal program guidance, creating a risk that the new procedures will not be implemented consistently. Additionally, Treasury did not issue timely management decisions pertaining to SLFRF findings in recipients' single audit reports. As a result, Treasury does not have reasonable assurance that unallowable uses of funds are identified or remediated.Why GAO Did This StudyIn March 2021, the American Rescue Plan Act of 2021 appropriated $350 billion through the SLFRF to help tribal governments, states, localities, the District of Columbia, and U.S. territories cover costs stemming from the health and economic effects of the COVID-19 pandemic.The CARES Act includes a provision for GAO to report on its ongoing monitoring and oversight efforts related to the pandemic. GAO was also asked to review Treasury's administration of SLFRF. This report, part of a series on COVID-19 assistance to recipients, examines selected states' and localities' (1) actions to administer their awards, and (2) benefits and challenges they experienced, as well as (3) Treasury's plan to monitor the use of awards and the extent to which it has been implemented.GAO reviewed documents and interviewed officials in 18 states and 18 localities (one per state) selected based on SLFRF funding amount, population size, and geographic region. Combined, these states represent nearly 60 percent of the U.S. population and were allocated 60 percent of SLFRF funds. GAO also reviewed Treasury's policies and procedures for monitoring recipients' award uses and reviewing spending reports and single audit findings.
- Medicaid Managed Care: Rapid Spending Growth in State Directed Payments Needs Enhanced Oversight and Transparency What GAO FoundUsing state directed payments, states can direct how Medicaid managed care plans pay providers in certain circumstances. This includes requiring payments in addition to the base payment rates negotiated between plans and providers. State directed payment spending has grown to at least $38.5 billion in 2022, the sixth year of state use, and further growth is expected.Estimated 2022 Spending for State Directed Payments, by StateNote: For more details, see figure 3 in GAO-24-106202.States often relied on taxes on providers, instead of state general funds, to finance the nonfederal share of state directed payments. States' limited stake in the cost of state directed payments raises concerns for GAO given the weaknesses GAO identified in the Centers for Medicare &amp; Medicaid Services' (CMS) policies and procedures for approving such payments.Weak fiscal guardrails.  CMS has indicated that payments must be reasonable and appropriate, but has not established and communicated a definition of, or standards for, assessing that. CMS has set no other limits on spending under directed payments.	No consideration of payment outcomes when renewing.  CMS does not appear to consider state evaluation results or any other outcome information when deciding whether to approve a renewal of a directed payment.	Gaps in transparency.  CMS recently made payment applications publicly available, but does not post other information, such as attachments including important financing information, evaluation plans, and evaluation results.These weaknesses leave the agency at risk of approving ineffective payments.Why GAO Did This StudyIn 2022, spending for managed care represented more than half of the $800 billion spent on Medicaid. The percentage is expected to continue growing in the next decade. With few exceptions, states may not direct managed care plans' payments to providers. However, CMS began allowing a new exception in 2017: state directed payments. Since then, states have made widespread use of directed payments; for example, to increase payments to safety net providers to ensure beneficiary access.Among other issues, this report describes estimated spending for, and state financing of, state directed payments, and examines CMS's policies and procedures for approving these payments.GAO analyzed information on approved state directed payments in effect in 2022, and interviewed CMS and Medicaid officials from five states. These states were selected, in part, based on having a directed payment estimated at $1 billion or more in 2022. GAO assessed CMS's policies and procedures against agency guidance and federal internal controls.
- Armed Forces Retirement Home: Congress and Agency Management Should Take Actions to Improve Financial Sustainability What GAO FoundThe Armed Forces Retirement Home (AFRH) prepares at least four financial projections yearly for varying purposes. However, GAO found that AFRH's processes for preparing these projections do not conform to actuarial standards and practices. Specifically, AFRH used inaccurate and inconsistent data, did not have sufficient supporting information for its assumptions of future events and values, and did not make trust fund projections based on reasonable assumptions of expected occupancy levels. Without policies and procedures for preparing financial projections to help ensure staff consistently apply relevant standards and consult with appropriate experts, such as actuaries, AFRH increases the risk that its projections will not be useful for decision-making.AFRH has identified several proposals to generate revenue and address potential financial shortfalls. However, challenges affect its plans to implement them, including factors outside of AFRH's control. AFRH's planned proposals include a statutory increase in military withholdings, requiring all military service members who are currently eligible for AFRH residency to contribute, and obtaining health and medical care reimbursements from programs such as TRICARE and Medicare for services it provides. However, these proposals require actions from Congress for AFRH to effectively implement them.GAO developed projections of AFRH's trust fund balance through fiscal year 2042 under two scenarios: AFRH continuing to operate as-is and AFRH operating with all quantifiable proposals implemented. GAO's analysis shows that whether AFRH continues to operate under its current scenario or implements all proposals, the trust fund will likely continue to decline without other significant efforts to bolster it (see figure). Additionally, AFRH is not projected to meet its goal for the trust fund balance.GAO Projection of Armed Forces Retirement Home's Trust Fund BalanceAFRH has not achieved its goals to raise its declining occupancy or to implement its other proposals. Also, AFRH faces further financial risks from costly repairs to deteriorating facilities. AFRH has not developed plans to address these issues. Without further actions, AFRH may continue to face financial shortfalls that in the future could affect its ability to fulfill its mission.Why GAO Did This StudyAFRH is an independent entity within the executive branch designed to provide housing, health care, and well-being assistance to eligible veterans. AFRH is financed through a dedicated trust fund. However, certain revenue sources for its funding have decreased or remained static over time while costs have increased. To address its financial challenges without cutting services to residents, AFRH has worked to identify new revenue sources to help rebuild its trust fund balance.House Report 117-397 includes a provision for GAO to review the financial sustainability of AFRH. GAO examined the extent to which AFRH projected estimated revenues and expenses for its trust fund through 2042, and developed plans to address any potential financing shortfalls, among other objectives.GAO reviewed relevant laws, federal guidance, audit reports, and agency guidance and policies; interviewed agency officials and actuarial experts; conducted site visits; and developed a projection to analyze AFRH's financial position.
- Troubled Asset Relief Program: Lifetime Cost What GAO FoundIn October 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (EESA) in response to the financial crisis. EESA established the Office of Financial Stability (OFS) within the Department of the Treasury and created the Troubled Asset Relief Program (TARP). TARP-funded programs were designed to assist financial institutions and markets, businesses, homeowners, and consumers.EESA originally authorized TARP to purchase or guarantee up to $700 billion in assets. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 reduced that amount to $475 billion. By the time all TARP-funded programs concluded, on September 30, 2023, the total amount disbursed was $443.5 billion. However, after repayments, sales, dividends, interest, and other income, the lifetime cost of TARP-funded programs was $31.1 billion, significantly less than its original authorization (see figure). Further, while there will be no effect on the net cost, TARP has over $14.2 billion in unused funds that it will return to Treasury at the end of fiscal year 2025.Lifetime Cost of TARP-Funded ProgramsOFS established several programs under TARP to help stabilize the U.S. financial system, restart economic growth, and prevent avoidable foreclosures. For example:The Capital Purchase Program (CPP) was launched in October 2008 to help stabilize the financial system by providing capital to viable financial institutions. Through CPP, Treasury disbursed a total of $204.9 billion to 707 institutions in 48 states, Puerto Rico, and the District of Columbia. After repayments, sales, dividends, and interest, however, the program resulted in a net gain of $16.3 billion.	The Community Development Capital Initiative (CDCI) was created in February 2010 to help certified community development financial institutions and the communities they serve cope with the effects of the financial crisis. Though CDCI disbursed a total of $570.1 million, the final cost of the program—after repayments, sales, dividends, and interest—was $67.5 million.	The Automotive Industry Financing Program (AIFP) was launched in December 2008 to help prevent the collapse of General Motors and Chrysler, which would have significantly disrupted the U.S. auto industry. AIFP disbursed $79.7 billion in loans and equity investments. After repayments, sales, dividends, and interest, the program cost a total of $12.1 billion.	The American International Group, Inc. (AIG) Investment Program was intended to prevent the disorderly failure of AIG, which the U.S. government concluded would have caused catastrophic damage to the nation's financial system and economy. Starting in November 2008, Treasury used TARP funds to invest $67.8 billion in AIG, helping to secure its liquidity. After repayments, sales, dividends, interest, and other income related to AIG, TARP's ultimate cost was $15.2 billion. However, Treasury also received non-TARP shares of AIG, and the $17.5 billion in proceeds it received from the sale of these shares not only offset the TARP costs but resulted in a net gain for Treasury.	OFS launched two housing programs—Making Home Affordable and the Hardest Hit Fund—to help struggling homeowners avoid foreclosure and stabilize the housing market. In addition, TARP provided support to the Federal Housing Administration Refinance Program, designed to assist borrowers whose homes were worth less than the remaining amounts due on their mortgage loans. Under the terms of these programs, recipients were not required to repay the government for funds they received. In total, these programs assisted more than 3.3 million homeowners and supported neighborhood improvement efforts at a final cost of $31.4 billion.	Various additional TARP-funded programs disbursed $59.1 billion and resulted in a net gain of $11.4 billion.Why GAO Did This StudyEESA provided GAO with broad oversight authority to track actions related to TARP. GAO audited TARP's financial statements annually, including the costs of the individual programs, since the program's inception. For the entire 15-year duration of TARP, GAO issued unmodified (clean) opinions on its financial statements. In addition, GAO performed many other audits of TARP-funded programs and made over 70 recommendations for corrective action, most of which Treasury implemented. With the conclusion of TARP in September 2023, GAO can now summarize the ultimate cost of the program.For more information, contact Cheryl Clark at (202) 512-3406 or ClarkCE@gao.gov.
- Financial Audit: Federal Housing Finance Agency's FY 2023 and FY 2022 Financial Statements What GAO FoundGAO found (1) the Federal Housing Finance Agency's (FHFA) financial statements as of and for the fiscal years ended September 30, 2023, and 2022 are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) although internal controls could be improved, FHFA maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023; and (3) no reportable noncompliance for fiscal year 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested. In its written comments on a draft of this report, FHFA stated that it was pleased to accept GAO's unmodified audit opinions. In addition, it will continue to enhance its internal control and ensure the reliability of its financial reporting. This includes coordinating with its stakeholders involved in the financial statement consolidation process to implement additional controls to address the significant deficiency.Why GAO Did This StudyThe Housing and Economic Recovery Act of 2008 established FHFA as an independent agency empowered with supervisory and regulatory oversight of the housing-related government-sponsored enterprises: the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the 11 Federal Home Loan Banks, and the Office of Finance. This act requires FHFA to prepare financial statements annually and requires GAO to audit the agency's financial statements. In accordance with the act, GAO audited FHFA's financial statements.For more information, contact Anne Sit-Williams at (202) 512-7795 or sitwilliamsa@gao.gov.
- Financial Audit: Consumer Financial Protection Bureau's FY 2023 and FY 2022 Financial Statements What GAO FoundGAO found (1) the Consumer Financial Protection Bureau's (CFPB) financial statements as of and for the fiscal years ended September 30, 2023, and 2022, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) CFPB maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023; and (3) no reportable noncompliance for fiscal year 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested.In commenting on a draft of this report, CFPB stated that it was pleased to receive an unmodified audit opinion on its fiscal years 2023 and 2022 financial statements and on its internal control over financial reporting. In addition, CFPB stated that it will continue to work to enhance its system of internal control and ensure the reliability of its financial reporting.Why GAO Did This StudyTitle X of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Full-Year Continuing Appropriations Act, 2011, both require CFPB to prepare financial statements annually and require GAO to audit the agency's financial statements. This report responds to these requirements.For more information, contact James R. Dalkin at (202) 512-3133 or dalkinj@gao.gov.
- Financial Audit: Securities and Exchange Commission's FY 2023 and FY 2022 Financial Statements What GAO FoundGAO found (1) the United States Securities and Exchange Commission's (SEC) and its Investor Protection Fund's (IPF) financial statements as of and for the fiscal years ended September 30, 2023, and 2022, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) SEC maintained, in all material respects, effective internal control over financial reporting for SEC and for IPF as of September 30, 2023 and (3) no reportable noncompliance for fiscal year 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested.In commenting on a draft of this report, SEC stated that it is pleased that GAO found that its financial statements and notes were presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles. SEC recognized the significant deficiency reported and stated that SEC staff put corrective actions in place to remediate the significant deficiency by September 30, 2023.Why GAO Did This StudySEC is required by law to annually prepare and submit audited financial statements covering all accounts and associated activities of the agency to Congress and the Office of Management and Budget. Further, the Securities Exchange Act of 1934, as amended in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), requires SEC to annually prepare and submit a complete set of audited financial statements for its IPF to Congress. In accordance with its authority to audit statements and schedules prepared by executive agencies and their components, GAO audited the SEC and IPF financial statements.Section 963 of the Dodd-Frank Act further requires that (1) SEC annually submit a report to Congress describing management's responsibility for internal control over financial reporting and assessing the effectiveness of such internal control during the fiscal year; (2) the SEC Chair and Chief Financial Officer attest to SEC's report; and (3) GAO assess the effectiveness of SEC's internal control over financial reporting and evaluate, attest to, and report on SEC's assessment. Accordingly, this report also includes GAO's reporting in response to the requirement under the Dodd-Frank Act.For more information, contact M. Hannah Padilla at (202) 512-5683 or padillah@gao.gov.
- November 13, 2023 - GAO's Response to FASAB's Invitation to Comment on the Reexamination of Existing Standards Thank you for the opportunity to provide our comments on the Federal Accounting Standards Advisory Board's (FASAB) Invitation to Comment on the Reexamination of Existing Standards. In the enclosure to this letter, we respond to FASAB's questions on its generally accepted accounting principles hierarchy and provide observations concerning certain general issues we have noted in our audits. We are aware that other respondents have raised additional issues.
- Financial Audit: Bureau of the Fiscal Service's FY 2023 and FY 2022 Schedules of Federal Debt What GAO FoundGAO found (1) the Bureau of the Fiscal Service's Schedules of Federal Debt for fiscal years 2023 and 2022 are fairly presented in all material respects, and (2) Fiscal Service maintained, in all material respects, effective internal control over financial reporting relevant to the Schedule of Federal Debt as of September 30, 2023. GAO's tests of selected provisions of applicable laws, regulations, contracts, and grant agreements related to the Schedule of Federal Debt disclosed no instances of reportable noncompliance for fiscal year 2023.From fiscal year 1997, GAO's first year auditing the schedules, through fiscal year 2023, total federal debt managed by Fiscal Service has increased from $5.4 trillion to $33.2 trillion, and the debt limit has been raised 22 times.Total Federal Debt Outstanding, September 30, 1997, through September 30, 2023Note: A small amount of total federal debt is not subject to the debt limit.During fiscal year 2023, total federal debt increased by about $2.2 trillion, with about $2.0 trillion of the increase in debt held by the public. Additionally, interest on debt held by the public increased to $678 billion in fiscal year 2023—up from $497 billion in fiscal year 2022 and $392 billion in fiscal year 2021. The primary reason for the increase in debt held by the public was the federal deficit, which was $1.7 trillion for fiscal year 2023.On January 19, 2023, the Department of the Treasury determined that the federal debt had reached the debt limit and began taking extraordinary actions—consistent with relevant laws—to avoid exceeding the debt limit. On June 3, 2023, the Fiscal Responsibility Act of 2023 was enacted, suspending the debt limit through January 1, 2025. On June 5, 2023, Treasury discontinued its use of extraordinary actions and resumed normal debt operations.The current approach to the debt limit has created uncertainty and disruptions in the Treasury securities market and increased borrowing costs. Under current policy, spending is expected to exceed revenue, causing debt held by the public to rise continuously relative to the economy, which is an unsustainable fiscal path over the long term.Why GAO Did This StudyGAO audits the consolidated financial statements of the U.S. government. Because of the significance of the federal debt to the government-wide financial statements, GAO audits Fiscal Service's Schedules of Federal Debt annually to determine whether, in all material respects, (1) the schedules are fairly presented and (2) Fiscal Service management maintained effective internal control over financial reporting relevant to the Schedule of Federal Debt. Further, GAO tests compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements related to the Schedule of Federal Debt.Federal debt managed by Fiscal Service consists of debt held by the public and intragovernmental debt holdings. Debt held by the public primarily represents the amount the federal government has borrowed to finance cumulative cash deficits and is held by investors outside of the federal government. Intragovernmental debt holdings represent federal debt owed by Treasury to federal government accounts that typically have an obligation to invest their excess annual receipts (and interest earnings) over disbursements in federal securities.
- Financial Audit: Office of Financial Stability's (Troubled Asset Relief Program) FY 2023 and FY 2022 Financial Statements What GAO FoundGAO found (1) the Office of Financial Stability's (OFS) financial statements for the Troubled Asset Relief Program (TARP) as of and for the fiscal years ended September 30, 2023, and 2022, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) OFS maintained, in all material respects, effective internal control over financial reporting for TARP as of September 30, 2023; and (3) no reportable noncompliance for fiscal year 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested. As of September 30, 2023, all TARP programs have closed, and there are no remaining troubled assets held by OFS. In commenting on a draft of this report, OFS stated that it is proud to receive an unmodified opinion on its financial statements and its internal control over financial reporting. OFS also stated that it has always been committed to maintaining high standards and transparency in carrying out its responsibilities for TARP.Why GAO Did This StudyThe Emergency Economic Stabilization Act of 2008 (EESA) that authorized TARP on October 3, 2008, includes a provision for TARP, which is implemented by OFS, to annually prepare and submit to Congress and the public audited fiscal year financial statements that are prepared in accordance with U.S. generally accepted accounting principles. EESA further states that GAO shall audit TARP's financial statements annually. Since OFS sold all of its troubled assets and all programs are closed, this will be the final set of audited financial statements for TARP.For more information, contact Cheryl E. Clark at (202) 512-3406 or clarkce@gao.gov.
- Financial Audit: IRS's FY 2023 and FY 2022 Financial Statements What GAO FoundIn GAO's opinion, the Internal Revenue Service's (IRS) fiscal years 2023 and 2022 financial statements are fairly presented in all material respects, and although internal controls could be improved, IRS maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023. GAO's tests of IRS's compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements disclosed no instances of reportable noncompliance in fiscal year 2023.Limitations in the systems IRS uses to account for federal taxes receivable and other unpaid assessment balances, as well as other control deficiencies that led to errors in taxpayer accounts, continued to exist during fiscal year 2023.These control deficiencies affect IRS's ability to produce reliable financial statements without using significant compensating procedures. In addition, new and continuing information system control deficiencies in such areas as the use of multifactor authentication, encryption of sensitive data, and management of configuration settings for certain platforms increase the risk of unauthorized access to, modification of, and disclosure of sensitive data and programs, as well as the disruption of critical operations.IRS continues to take steps to address deficiencies in its internal control over financial reporting. However, the remaining deficiencies are significant enough to merit the attention of those charged with governance of IRS and therefore represent continuing significant deficiencies in internal control over financial reporting related to (1) unpaid assessments and (2) information system controls. Continued management attention is essential to fully addressing these significant deficiencies. In commenting on a draft of this report, IRS noted its intention to continue working to improve its internal control.Why GAO Did This StudyIn connection with fulfilling GAO's requirement to audit the consolidated financial statements of the U.S. government, and consistent with its authority to audit statements and schedules prepared by executive agency components, GAO has audited IRS's financial statements because of the significance of IRS's tax collections to the consolidated financial statements of the U.S. government. GAO annually audits IRS's financial statements to determine whether (1) the financial statements are fairly presented and (2) IRS management maintained effective internal control over financial reporting. GAO also tests IRS's compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements.IRS's tax collection activities are significant to overall federal receipts, and the effectiveness of its financial management is of substantial interest to Congress and the nation's taxpayers.For more information, contact Dawn B. Simpson at (202) 512-3406 or simpsondb@gao.gov.
- Freely Associated States: Agencies Should Enhance Procedures to Address Millions of Dollars in Questionable Spending What GAO FoundThe Departments of Health and Human Services (HHS) and Interior did not consistently issue management decisions for audit findings related to grants to the Federated States of Micronesia (FSM), Republic of the Marshall Islands (RMI), and Republic of Palau within the time frame specified by federal regulation. Each country must annually obtain an audit—known as a single audit—of its use of grant funds and submit a report of the findings. Within 6 months, the agencies must issue a management decision for each finding—including expenditures the auditor questioned, known as questioned costs—clearly stating any expected corrective action. For single audits in fiscal years (FY) 2015 through 2019, HHS failed to issue seven of 11 decisions and Interior failed to issue seven of 12 decisions within the 6-month time frame. Both agencies attributed their failure to issue timely decisions to staffing gaps. Taking appropriate action, such as devoting needed staffing resources, to ensure they issue management decisions in the required time frame would help the agencies reduce the risk that the countries will fail to implement timely corrective actions.Table 1: Timeliness of HHS and Interior Management Decisions for Questioned Costs Identified in FSM, RMI, and Palau Single Audits, Fiscal Years 2015–2019			Agency 									Management decisions required for findings with questioned costs 									Management decisions not issued in required timeframe 									Total questioned costs associated with delayed management decisions 								HHS									11									7									$1,430,918								Interior									12									7									2,044,207					Legend: HHS = Department of Health and Human Services, FSM = Federated States of Micronesia, RMI = Republic of the Marshall Islands, Palau = Republic of Palau.Source: GAO analysis of information from HHS and Department of the Interior. | GAO-23-106160GAO's review of FY 2019 single audit reports for FSM, RMI, and Palau found that HHS had not resolved, and Interior could not show it resolved, several long-standing questioned costs as federal regulation requires.At the time of our review, HHS had not yet resolved several questioned costs, totaling almost $600,000, that were first reported in FY 2010 for RMI. GAO found HHS did not initiate required follow-up to address some of these questioned costs until many years after they were first identified. HHS's procedures for resolving questioned costs do not specify when follow-up should begin or how frequently it should occur. Revising its guidance to specify timing for audit follow-up would help HHS reduce the risk of questioned costs remaining unresolved.	Interior was unable to provide information showing the resolution of three questioned costs totaling more than $650,000 that were first reported for FSM and RMI in FYs 2008 through 2014. Though Interior told GAO it had resolved these findings, evidence it provided did not substantiate its claim. Interior has not fully documented procedures for resolving audit findings. Documenting procedures would clarify Interior staff's responsibilities related to resolving audit findings, including issuing management decisions for FSM, RMI, and Palau.Why GAO Did This StudyFSM, RMI, and Palau annually receive millions of dollars of U.S. assistance. U.S. agencies have provided some of this assistance through grant awards under the U.S. compacts of free association and other agreements with the three countries. Because of the amount of their grant spending, each country must obtain a single audit of its use of these funds each year and submit a report of the audit findings, including any questioned costs.Federal regulation requires the awarding agency to issue a management decision for each audit finding. Federal regulation also requires the agency to follow up on audit findings to ensure timely corrective action. If agencies do not issue decisions and conduct follow-up within 2 years, the country may potentially avoid repayment of any ineligible costs. More than 95 percent of questioned costs identified in the single audit reports GAO reviewed were related to grants awarded by HHS and Interior.This report examines the extent to which HHS and Interior have met federal requirements for (1) issuing management decisions and (2) following up on questioned costs. GAO reviewed the single audit reporting packages the countries submitted for FYs 2015 through 2019—the most current reports available—and HHS and Interior documentation. GAO also interviewed HHS and Interior officials.
- Improper Payments: Opportunities for Interagency Collaboration and Improvements What GAO FoundThe Office of Management and Budget (OMB) requires agencies with high-priority programs to provide certain information quarterly, including actions agencies have planned and taken to mitigate root causes of monetary-loss improper payments in such programs. OMB publishes this information in a payment-integrity scorecard, also known as a high-priority program scorecard, on PaymentAccuracy.gov. OMB updated the fiscal year 2023 second-quarter scorecard to provide its users with additional context and detail regarding what agencies are doing to manage and mitigate improper payments.For programs OMB designated as high priority, scorecards contain key information that is important for both OMB and inspectors general (IG) in overseeing efforts to address improper payments. OMB staff told GAO that they rely on the work of the relevant IGs to identify deficiencies and trends in agency compliance with OMB guidance on improper payments. OMB's guidance, consistent with Payment Integrity Information Act of 2019 (PIIA), states that IGs have the key responsibilities for reviewing their respective agencies' scorecards.Because both OMB and IGs rely on the information that each provides the other, their collaboration is imperative. OMB receives copies of IGs' annual reports on agency compliance with PIIA criteria and related OMB guidance. These reports include information on high-priority programs. However, OMB does not review the reports to identify issues that may warrant revision to the scorecard's format and content, and OMB does not document and communicate to IGs its consideration of any such issues noted in the reports. These steps can increase collaboration between OMB and IGs of agencies with high-priority programs.The laws and guidance GAO reviewed, including PIIA, the Chief Financial Officers (CFO) Act of 1990, and OMB Circular No. A-123, Appendix C (M-21-19), generally do not define specific roles and responsibilities CFOs must perform in managing their agencies' efforts to detect and prevent improper payments. Instead, GAO found that these authorities directed requirements to the head of each agency. Based on responses to GAO's survey, CFOs at CFO Act agencies view their role to include some level of responsibility for tasks related to managing improper payments. GAO's prior matters to Congress recommended clarification of CFO roles and responsibilities. If implemented, they could increase accountability and help to ensure that CFOs continue to view reducing improper payments as a responsibility that is within their authority to manage.While federal agencies, OMB, and Congress have made efforts in recent years to improve payment integrity, additional opportunities remain to reduce improper payments. As of August 2023, of the 18 agencies that reported improper payment estimates in fiscal year 2022, eight had open GAO priority recommendations related to improper payments. In addition, 42 of GAO's 59 priority recommendations related to improper payments remained open, and one of three priority recommendations to OMB was closed. Further, there are 21 open GAO matters for congressional consideration to improve federal financial management.Why GAO Did This StudyThe reported government-wide estimates of improper payments—those that should not have been made or were made in incorrect amounts, including overpayments and underpayments—totaled about $247 billion for fiscal year 2022. Improper payments continue to be a significant problem in the federal government.House Report 117-389, which accompanied the Legislative Branch Appropriations Act, 2023, includes a provision for GAO to provide quarterly reports on its ongoing oversight of improper payments. In its June 2023 second quarterly report, GAO reported that agencies had reductions in estimated improper payment rates for several programs. While efforts have been made in recent years, more work remains to be done to improve payment integrity.This third quarterly report provides information on OMB's high-priority program scorecards and opportunities for improvements that GAO previously identified in matters for Congress and priority recommendations to agencies, among other objectives. GAO reviewed the information reported in the scorecard and recent open matters for congressional consideration and priority recommendations to agencies related to improper payments.
- White House Spending: FY 2022 Certificated Expenditures of the President and Vice President Were for Authorized Purposes What GAO FoundGAO found that the certificated (officially documented) expenditures by the President and Vice President of the United States for fiscal year 2022 were spent for the purposes authorized by law. These expenditures—$16,433,006 for the President and $89,727 for the Vice President—were reflected in the underlying accounting records and attested to by the Chief Financial Officer of the Executive Office of the President. GAO found no exceptions in the expenditures tested.Why GAO Did This StudyIn this report, GAO inspected and verified fiscal year 2022 certificated expenditures of the President of the United States and the Vice President of the United States. Sections 105(d) and 106(b) of Title 3 of the United States Code authorize the President and the Vice President to expend appropriated funds for certain specified purposes that may be accounted for solely on their certificates and as they determine, notwithstanding the provisions of any other law.Specifically, the President is authorized to expend appropriated funds for the care, maintenance, repair, alteration, refurnishing, improvement, air conditioning, heating, and lighting (including electric power and fixtures) of the Executive Residence at the White House. Further, the President and the Vice President are authorized to expend appropriated funds for official entertainment expenses of the President and the Vice President and for subsistence expenses of persons in the government service while traveling on official business in connection with the travel of the President and the Vice President. Sections 105(d) and 106(b) also authorize GAO to examine records related to these expenditures for the purpose of verifying that the expenditures were used for authorized purposes. In addition, GAO is to report to Congress its verification and any amounts not expended for authorized purposes.To meet this objective, GAO interviewed Executive Office of the President officials, reviewed the fiscal year 2022 independent auditor's report, performed analytical procedures, selected statistical samples of certificated expenditures of the President and Vice President, and verified these expenditures against the underlying supporting documentation in the Executive Office of the President's accounting records.For more information, contact Cheryl Clark at (202) 512-3406 or clarkce@gao.gov.
- DOD Financial Management: Improving Systems Planning and Oversight Could Improve Auditability The Big PictureFor over 30 years, the Department of Defense (DOD) has spent billions of dollars each year to acquire and modernize financial management, logistics, and other business systems. DOD's Fiscal Year 2023 IT and cyberspace budget includes $9.1 billion for business system investments.The goal of these efforts is to, among other things, improve management of DOD's business processes, increase efficiency, modernize its supporting systems environment, and achieve a clean audit opinion (i.e. an independent auditor determines that financial statements were presented fairly in accordance with generally accepted accounting principles). A clean audit opinion could help DOD to, among other things, improve its accountability over its extensive resources. For example, DOD reported that the Navy identified more than $4.4 billion in previously untracked material through inventory cleanup and redeployment programs dating back to 2018.DOD's financial management and business systems modernization efforts have been on GAO's list of high risk programs since 1995. In May 2023, the department's Inspector General reported that IT remains a material weakness that prevents DOD from achieving a clean audit opinionIn this snapshot, we discuss three reports related to DOD's modernization efforts. As of August 2023, DOD had not yet fully implemented 18 of the 19 recommendations made in these reports (see figure), including two that we consider high priority. Our priority recommendations warrant attention from heads of key department and agencies.Figure: Status of Related GAO Recommendations as of August 2023 What GAO’s Work ShowsDOD's Plans for Business and Financial Management SystemsIn September 2020, we reported that DOD had a financial management systems strategy that did not fully address requirements for a comprehensive and effective IT strategic plan. In particular, DOD did not include well-defined measures for tracking progress in achieving the strategy's goals. In addition, we reported that it had not developed an enterprise road map to implement its strategy.We made 6 recommendations  for DOD to, among other things, establish and clearly define performance measures and develop a road map to implement its financial management systems strategy.As of August 2023, DOD had implemented one, partially addressed three, and not addressed two recommendations, including one we consider high priority. The high priority recommendation calls for DOD to limit investments in financial management systems to what is essential until it implements all recommendations associated with this report.DOD's Oversight of Its Business and Financial Management SystemsIn March 2023, we reported that DOD established a process for overseeing its business and financial management systems. However, the guidance did not fully address how systems are to document compliance with statutory requirements, including documenting compliance with DOD's auditability requirements. This placed DOD at risk of making decisions based on a “check the box” exercise and developing systems that do not support a clean audit opinion.We made 9 recommendations  to DOD and the military departments to, among other things, update guidance for substantiating and documenting compliance.As of August 2023, the department had partially addressed one recommendation; the other eight remain unaddressed.Air Force's Financial Management Systems DeficienciesIn February 2022, we reported that the Air Force did not have a comprehensive strategy for its financial management systems modernization efforts, which impeded the Air Force's ability to address the system-related issues that independent auditors identified.We made 4 recommendations  for the Air Force to, among other things, develop a comprehensive strategy that includes all financial management systems modernization efforts.As of August 2023, all four recommendations remained unaddressed, including one we consider high priority. This high priority recommendation calls for the Air Force to develop a migration plan to transition to its target core accounting systems.Challenges and OpportunitiesThe lack of effective planning and oversight of its business and financial management systems are critical challenges as DOD seeks to achieve a clean audit opinion. For example, in March 2023 we reported that DOD faced challenges such as the large number of systems relevant to the audit and systems designed prior to DOD's audit requirements. Addressing the recommendations discussed in this snapshot could improve DOD's ability to overcome its challenges, achieve a clean audit opinion, and modernize its business and financial management systems environment.Further, by implementing GAO's recommendations, the department has the opportunity to identify financial benefits and improve efficiencies in its operations. For example, we have identified over $3 billion in benefits associated with DOD's efforts to improve how it manages its business and financial management systems. In addition, improving this systems environment can, among other things, provide accurate information for decision-makers and contribute to the department's ability to support the needs of the warfighter.For more information, contact: Vijay A. D’Souza, DSouzaV@gao.gov, Director, Information Technology &amp; Cybersecurity, (202) 512-7650, or Asif Khan, KhanA@gao.gov, Director, Financial Management &amp; Assurance, 202-512-9869.
- U.S. Consolidated Financial Statements: Improvements Needed in Internal Controls over Treasury and OMB Preparation Processes What GAO FoundGAO's audit of the fiscal year 2022 consolidated financial statements of the U.S. government (CFS) identified control deficiencies in the processes the Department of the Treasury, in coordination with the Office of Management and Budget (OMB), used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control that involve the federal government's inability toadequately account for intragovernmental activity and balances between federal entities;	reasonably assure that the consolidated financial statements are (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles (U.S. GAAP); and	reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Budget Deficit and (2) Statements of Changes in Cash Balance from Budget and Other Activities is complete, properly supported, and consistent with the underlying information in the audited entities' financial statements and other financial data.GAO found that Treasury, as part of a working group, has made significant progress in addressing the control deficiencies related to treaties and other international agreements (TIA) identified in previous years. GAO closed the five recommendations related to TIAs and made two new TIA recommendations in this report that are better aligned with the current status of the remaining control deficiencies related to TIAs.GAO also identified two new control deficiencies in the processes Treasury used to prepare the CFS.Treasury did not sufficiently identify information significant component entities submitted for inclusion in the CFS that did not link directly to information reported in the respective entities' audited financial statements.	Treasury did not reasonably assure the reliability of information used from sources other than significant component entities' audited financial statements to prepare the social insurance sections of the CFS.These deficiencies increase the risk that material amounts and disclosures may not be presented in the CFS in accordance with U.S. GAAP. In addition to the five closed TIA-related recommendations, Treasury implemented corrective actions that resolved one other open recommendation. As part of its fiscal year 2023 CFS audit, GAO will continue to monitor the status of corrective actions to address the five new recommendations made in this report as well as the nine open recommendations from prior years.Why GAO Did This StudyThe Secretary of the Treasury, in coordination with the Director of OMB, prepares the  Financial Report of the United States Government, which includes the CFS. Since GAO's first audit of the fiscal year 1997 CFS, certain material weaknesses and other limitations on the scope of its work have prevented GAO from expressing an opinion on the accrual-based consolidated financial statements. As part of the fiscal year 2022 CFS audit, GAO identified continuing material weaknesses and other control deficiencies in the processes used to prepare the CFS.The objectives of this report are to provide (1) details on new control deficiencies GAO identified related to the processes Treasury used to prepare the CFS, along with related recommendations, and (2) the status of corrective actions that Treasury, in coordination with OMB, has taken to address GAO's prior recommendations related to the processes used to prepare the CFS that remained open as of the completion of GAO's audit of the fiscal year 2021 CFS.
- Personnel Vetting: DOD Should Improve Management and Operation of Its Background Investigation Working Capital Fund What GAO FoundThe Defense Counterintelligence and Security Agency (DCSA) uses a working capital fund (WCF) to recover the costs of providing personnel vetting products and services, such as background investigations. Defense WCFs must plan to maintain monthly cash balances within an operating range. DCSA generally did so for fiscal years 2020 through 2022. However, GAO found DCSA miscalculated one element of its operating range in fiscal year 2021, resulting in an operating range being more than five times that of other defense WCFs. If calculated correctly, DCSA could have reduced prices and saved customers hundreds of millions of dollars.Defense Working Capital Funds' Operating Ranges, Fiscal Year 2021Source: GAO analysis of Defense Counterintelligence Security Agency (DCSA) and DOD data. | GAO-23-105812DCSA implemented two of four key operating principles for effective WCF management.Assessment of DCSA's Management of Its Working Capital Fund			Key operating principle									GAO analysis								Clearly delineate roles and responsibilities									●								Ensure self-sufficiency by recovering the agency's actual costs									●								Measure performance									◐								Build in flexibility to obtain customer input and meet customer needs									◐					Legend: ● Implemented ◐ Partially ImplementedSource: GAO analysis of Defense Counterintelligence Security Agency (DCSA) documents and GAO-12-56. | GAO-23-105812GAO found that DCSA's management of its WCF is limited by the following:DCSA has not aligned performance measures with its strategic goal for its WCF or developed targets for those performance measures, hindering its ability to evaluate and improve WCF performance.	DCSA could improve its understanding of customer needs by developing a systematic and reliable method for obtaining and analyzing information on customer satisfaction with WCF performance.Why GAO Did This StudyThe U.S. government relies on over 4 million personnel with security clearances to provide critical public services, including national defense. In October 2019, the Department of Defense (DOD) became the federal government's primary background investigation service provider through a new agency, DCSA, which considers security clearances for millions of federal and contractor personnel. DCSA established a WCF to finance its personnel vetting activities.House Report 117-118, accompanying a bill for the National Defense Authorization Act for Fiscal Year 2022, included a provision for GAO to evaluate, among other things, the extent to which DCSA maintained its monthly cash balances within established operating ranges and calculated cash requirements correctly, and managed its WCF in accordance with key operating principles for WCFs.To address these objectives, GAO assessed whether WCF monthly cash balances were within operating ranges; compared DCSA's calculation of its operating range with DOD's cash management guidance; assessed DCSA's WCF management; and interviewed officials.
- Tax Enforcement: IRS Audit Processes Can Be Strengthened to Address a Growing Number of Large, Complex Partnerships What GAO FoundIn tax year 2019, there were 20,052 large partnerships, increasing nearly 600 percent since tax year 2002. Eighty-four percent of large partnerships reported providing finance and insurance services or real estate and rental leasing. Large partnerships can be complex with income or business expenses passing through multiple levels such that a partnership could be a partner in another partnership.The Internal Revenue Service (IRS) audits few large partnerships—54 in tax year 2019—and the audit rate has declined since 2007. More than 80 percent of the audits resulted in no change to the return on average from tax years 2010 to 2018, double the rate of large corporate audits. For those that did change, the average adjustment was negative $264,000. IRS officials attributed the declining audit rate to resource constraints. The Inflation Reduction Act of 2022 (IRA) provided IRS with $45.6 billion for enforcement activities through the end of fiscal year 2031, and in response IRS identified large partnerships as an enforcement priority. About $1.4 billion of this funding was rescinded in 2023 with a White House briefing reporting an agreement to reduce future funding by $20 billion.Audit Rate for Large Partnerships, 2007–2019As part of its audit selection process, IRS uses statistical models to help review partnership returns for potential noncompliance, but the models were developed without using representative samples of returns and with untested assumptions. Additionally, IRS has not developed a plan to incorporate feedback from audit results into the models. Addressing these modeling issues could improve IRS's ability to better identify and audit noncompliant partnerships.IRS planning documents state that it will expand enforcement efforts related to large, complex partnerships using IRA funding. However, IRS has not defined complexity or size in terms specific enough to guide enforcement efforts. IRS also has not developed measures to ensure that additional audits focus on these entities. Developing such a definition and specific outcome measures would help IRS develop plans, track resources used, and assess the results of these new investments in large partnership audits.Why GAO Did This StudyBusiness activity has increasingly shifted toward legal structures known as partnerships and away from C corporations subject to the corporate income tax. A partnership is generally an unincorporated organization with two or more members that conducts a business and divides profits. Partnerships usually do not pay income taxes as entities but pass the net income or losses to partners, such as individuals or corporations, who then report the income and pay any applicable taxes.GAO was asked to examine trends in large partnerships and IRS auditing of them. This report (1) summarizes the number and characteristics of large partnerships; (2) describes the resources used and results of audits of large partnerships; and (3) assesses IRS's efforts to identify potential noncompliance risks in large partnerships. For purposes of this report, large partnerships are defined as having $100 million or more in assets and 100 or more total partners.GAO analyzed IRS data pertaining to business and audit activity for tax years 2002 through 2019, the most recent year for which complete data were available; compared IRS statistical models to relevant statistical modeling standards; interviewed agency officials; and held discussion groups with IRS staff.
- Professional Standards Update No. 89 To alert the audit community to changes in professional standards, we periodically issue Professional Standards Updates (PSU). These updates highlight the effective dates of recently issued standards and guidance related to engagements conducted in accordance with Government Auditing Standards. PSUs contain summary information only, and those affected by a change should refer to the respective standard or guidance for details.
- DOD Financial Management: Efforts to Address Auditability and Systems Challenges Need to Continue What GAO FoundThe Department of Defense (DOD) has been undergoing full-scope consolidated financial statement audits since fiscal year 2018. Although some smaller DOD components have been auditable, through fiscal year 2022, audits at the consolidated level and for many DOD components have resulted in disclaimers of opinion. This means that auditors were unable to obtain sufficient, appropriate evidence to provide a basis for an audit opinion. Auditors have issued thousands of notices of findings and recommendations and identified material weaknesses.GAO's prior work discussed how the financial statement audit has value far beyond the audit opinion, including helping to identify vulnerabilities and ways to improve operations. DOD audits have resulted in short- and long-term benefits. For example, as DOD reported in its June 2020 Financial Information and Audit Remediation report, the Navy identified and added nearly $2.4 billion of unrecorded inventory, operating materials and supplies, and general equipment. The Navy subsequently used those items to fill over 12,000 requisitions, which otherwise would have cost $50 million.For more than 30 years, DOD has initiated a variety of efforts and undergone several organizational responsibility changes to help modernize its systems. However, in previous reviews GAO identified that these efforts and changes have not been fully successful to date. For example, in September 2020, GAO reported that DOD had a financial management systems strategy that did not fully address all the requirements for a comprehensive and effective IT strategic plan. Specifically, DOD did not include measures for tracking progress in achieving the strategy's goals. GAO recommended that DOD establishperformance measures, including targets and time frames, and how it plans to measure values and verify and validate those values and	a specific time frame for developing an enterprise roadmap to implement its strategy and ensure that it is developed.DOD remains the only major federal agency that has never been able to achieve an unmodified (clean) audit opinion. Ongoing problems with its business and financial systems are key impediments to this effort, including outdated legacy systems. DOD management recognizes the risk legacy systems pose to its operations and related accounting, and is in the process of identifying, retiring, and replacing legacy systems.DOD has also taken steps to address auditor-identified problems and work toward achieving a clean audit opinion, including developing audit priority areas, a financial management strategy, corrective action plans, and audit roadmaps. However, GAO's past work found that these plans lack details that are important to remediate material weaknesses. DOD lacks a comprehensive plan to establish a clear department-wide vision for how to achieve a clean audit opinion.Addressing the challenges GAO and others have identified would help move DOD in the right direction to improve and oversee its systems and address audit findings. These are important steps toward achieving its goals for improved financial management and a clean audit opinion.Why GAO Did This StudySince 1995, GAO has designated DOD's financial management and business systems modernization as high risk because of pervasive deficiencies in the department's financial management systems, business processes, internal controls, and financial reporting. While DOD's capacity for modernizing its business systems has improved over time, significant challenges remain. These high-risk areas continue to be obstacles to DOD's efforts to achieve a clean audit opinion.This testimony discusses (1) the status of DOD's audits, and benefits of the audits; (2) DOD's efforts to improve and oversee its business and financial systems; and (3) DOD's plans to address audit findings and achieve a clean opinion.This testimony is based on prior GAO work from 2020 through 2023 related to DOD's financial management systems environment and efforts to obtain a clean audit opinion on its financial statements. Details on GAO's methodology can be found in each of the reports cited in this statement.