DEPARTMENT OF THE 

TREASURY 

AGENCY 

FINANCIAL REPORT 

FISCAL YEAR 2019
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DEPARTMENT OF THE 

TREASURY 

AGENCY 

FINANCIAL REPORT 

FISCAL YEAR 2019
FY 2019 AGENCY FINANCIAL REPORT

ABOUT THIS REPORT

Our Agency Financial Report

(AFR) for Fiscal Year (FY) 2019

presents the Department of the

Treasury’s (Treasury,

Department, or our) financial

information relative to our vital

mission and stewardship of the

resources entrusted to us. The

AFR also highlights our

priorities, accomplishments, and challenges implementing

programs that promote conditions for sustaining economic

growth and stability at home and abroad, protecting the

integrity of our nation’s financial system, and effectively

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

and resources. In accordance with Office of Management

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

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

AFR issued on November 15, 2019, and (ii) an Annual

Performance Report (APR) submitted with Treasury’s

congressional budget justification, to be issued by

February 1, 2020. The AFR will be available online at

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

will be available online at

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

HOW THIS REPORT IS ORGANIZED

Our AFR provides financial and performance information

for the FY beginning October 1, 2018, and ending on

September 30, 2019, with comparative prior year data,

where appropriate. The AFR demonstrates our

commitment to our mission and accountability to

Congress and the American people. This report presents

Treasury’s operations, accomplishments and challenges. 

The AFR begins with a message from the Secretary of the

Treasury, Steven T. Mnuchin. This introduction is

followed by three main sections.

Part 1: Management’s

Discussion and Analysis

Provides a high-level overview of

our organizational structure,

strategic framework,

programmatic and financial

performance, and management

assurances related to Treasury’s

internal controls.

Part 2: Financial Section

Begins with a message from the

Assistant Secretary for 

Management and Deputy Chief

Financial Officer, followed by

the Independent Auditors’

Report, audited financial

statements and notes, and

supplementary information.

Part 3: Other Information

Contains various information

including Management and

Performance Challenges

identified by the Inspectors

General and Management’s

response, along with

information related to tax gap

and tax burden, improper

payments, and other relevant

information.
FY 2018 AGENCY FINANCIAL REPORT

FY 2018 AGENCY FINANCIAL REPORT

FY 2019 AGENCY FINANCIAL REPORT

TABLE OF CONTENTS

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

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

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

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

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

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

ENTERPRISE RISK MANAGEMENT ............................................................................................................................................... 30

FY 2020 OUTLOOK ....................................................................................................................................................................... 31

FINANCIAL HIGHLIGHTS – FINANCIAL OVERVIEW ................................................................................................................... 32

MANAGEMENT ASSURANCES ........................................................................................................................................................ 37

SYSTEMS, CONTROLS AND LEGAL COMPLIANCE ....................................................................................................................... 38

PART 2: FINANCIAL SECTION

MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT AND DEPUTY CHIEF FINANCIAL OFFICER ............... 45 

INSPECTOR GENERAL’S TRANSMITTAL LETTER ....................................................................................................................... 47 

INDEPENDENT AUDITORS’ REPORT ............................................................................................................................................ 49 

MANAGEMENT’S RESPONSE TO INDEPENDENT AUDITORS’ REPORT ..................................................................................... 55 

FINANCIAL STATEMENTS .............................................................................................................................................................. 56 

NOTES TO THE FINANCIAL STATEMENTS ................................................................................................................................... 63

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) ............................................................................................... 141

PART 3: OTHER INFORMATION (UNAUDITED) 

SECTION A: TAX GAP AND TAX BURDEN................................................................................................................................ 151

SECTION B: REDUCE THE FOOTPRINT .................................................................................................................................... 161

SECTION C: MANAGEMENT CHALLENGES AND TREASURY RESPONSE .............................................................................. 162

SECTION D: SUMMARY OF FINANCIAL STATEMENT AUDIT AND MANAGEMENT ASSURANCES .................................... 196

SECTION E: PAYMENT INTEGRITY ........................................................................................................................................... 198 

SECTION F: FRAUD REDUCTION REPORT ............................................................................................................................... 216

SECTION G: CIVIL MONETARY PENALTIES INFLATION ADJUSTMENT ............................................................................... 220

APPENDIX: GLOSSARY OF ACRONYMS ..................................................................................................................................... 226
4 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MESSAGE FROM THE SECRETARY OF THE TREASURY

MESSAGE FROM THE SECRETARY OF THE TREASURY

M ISSION S TATEMENT

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

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

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

government’s finances and resources effectively.

Treasury’s annual Agency Financial Report offers an

opportunity for reflection and allows us to review the

accomplishments of the past year. We have taken great

strides towards achieving sustained economic growth and

prosperity. The steps we have taken to hold those that

fund terrorism accountable, reduce regulatory burdens on

taxpayers, promote free and reciprocal trade, and

ultimately serve as good stewards of taxpayer dollars are

producing positive results for the American people. In the

coming year, we will remain focused on security issues

and promoting pro-growth policies that spur continued

economic growth.

TAX CUTS AND JOBS ACT IMPLEMENTATION

Successfully implementing the historic Tax Cuts and Jobs

Act (TCJA) was, and continues to be, a top priority of the

Treasury Department. Our economy is strong thanks in

large part to this law, which cut taxes for families and

made American businesses competitive. Companies have

been investing in America’s workforce and pouring

hundreds of billions of dollars back into our economy.

The Internal Revenue Service (IRS) acted quickly to

implement more than 119 tax provisions at

unprecedented speed, delivering 50 new tax products and

updates to 500 existing products for individuals and

businesses to date. Implementing these provisions

required modifying 128 complex systems and 550 new or

revised business rules. The IRS delivered new tools for 

taxpayers including a new withholding estimator, which

has been used by over 250,000 unique users since

deployment in August. Altogether taxpayers have visited

IRS.gov more than 600 million times in 2019, a six

percent increase. The IRS has answered more than 46

million taxpayer calls and served two million taxpayers at

Taxpayer Assistance Centers. The IRS also hosted

hundreds of events for the tax community. This timely

guidance and outreach provided individuals and

businesses essential information for tax year 2018 filing. 

While the TCJA has already delivered results, there is

still more to be done. Treasury’s Office of Tax Policy and
DEPARTMENT OF THE TREASURY 5 

MESSAGE FROM THE SECRETARY OF THE TREASURY | FY 2019 AGENCY FINANCIAL REPORT

IRS continue to issue important tax guidance to reflect

changes in the law.

HOUSING FINANCE REFORM

Pursuant to a March 2019 Presidential Memorandum, the

Department released the Treasury Housing Finance

Reform Plan in September. Treasury met with a diverse

range of stakeholders and interagency partners to propose

nearly 50 legislative and administrative reforms designed

to protect American taxpayers against future bailouts,

preserve the 30-year fixed-rate mortgage, and help

hardworking Americans fulfill their goal of buying a 

home. The housing finance system is in serious need of

reform, and Treasury’s proposals achieve the goals of a 

vibrant availability of mortgages and ending the

conservatorships of the Government-sponsored

enterprises, promoting competition in the housing finance

system, and enhancing taxpayer protections.

CFIUS

Foreign direct investment is vital to innovation, job

creation, and economic growth in the United States. 

Treasury chairs the Committee on Foreign Investment in

the United States (CFIUS), which reviews foreign

investment for potential national security risks. 

Recently, the Department proposed regulations in order

to comprehensively implement the Foreign Investment

Risk Review Modernization Act of 2018 (FIRRMA) that

strengthens and modernizes CFIUS’s capabilities to

address national security concerns. These regulations

enhance CFIUS’s ability to protect America’s open

investment policy and address its authority to review real

estate transactions and non-controlling investments. 

FIRRMA received strong bipartisan support in Congress,

and the Department will continue to collaborate with its

interagency committee members to ensure that the

legislation is properly implemented.

TRADE

Free, fair, and reciprocal trade has been a cornerstone of

the Trump administration’s economic agenda, and

Treasury has worked with our interagency colleagues and

trading partners in order to modernize trade for the

benefit of all Americans. These values have been

reflected in our government’s ongoing negotiations with

China, and in the historic trade deal we recently signed

with Japan. The United States-Mexico-Canada

Agreement will establish the highest standards ever in a 

trade agreement to protect intellectual property rights,

support small and mid-sized businesses, open markets for

agricultural products, and spur manufacturing. The

Administration continues to engage with Congress to

secure approval of the agreement for American workers

and businesses. 

ILLICIT FINANCE

Treasury has continued to use every tool in its economic

toolbox to advance the administration’s national security

priorities and protect the international financial system

from potential abuse. The economic authorities of

Treasury’s Office of Terrorism and Financial Intelligence

(TFI) play an increasingly central role in countering the

nation’s most critical national security and illicit finance

threats. In the last two years, TFI has, among many

other achievements, cut off billions of dollars in revenue

that would have otherwise flowed to Iran, the world’s

largest state sponsor of terror; disrupted major networks

that had provided Bashar al-Assad with oil and other

resources to brutalize the Syrian people, destabilize the

region and fund terror; choked off funds to Hizballah;

expanded sectoral and other sanctions in response to

Russia’s continued aggression; exposed and disrupted the

malign activity of Russian oligarchs; disrupted North

Korean shipping, financial, and export networks and

worked in concert with our allies and the United Nations

to create a diplomatic opening for discussion; led the

Financial Action Task Force (FATF) in adopting

comprehensive measures to prevent digital assets from

being used for illicit activity; and targeted and disrupted

networks of human rights abusers and corrupt officials all

over the world, including the illegitimate Maduro regime

in Venezuela. Treasury has worked with the intelligence

community and our national security partners to expose

and disrupt numerous illicit finance schemes around the

world.
6 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MESSAGE FROM THE SECRETARY OF THE TREASURY

GENERAL ECONOMY

Strengthening our economy for the American people has

been at the core of President Trump’s agenda. The 

American economy’s Gross Domestic Product (GDP)

realized 2.9 percent annual growth in 2018, and the

current economic expansion became the longest on record

in July 2019. Through September 2019, employers have

added 6.5 million nonfarm payroll jobs since the election. 

Average hourly earnings for production workers are up

3.5 percent in nominal terms over the year through

September. The unemployment rate averaged just 3.9

percent in 2018 and, in 2019, reached a 50-year low of 3.5

percent in September. 

The historic success of our economy is thanks, in large

part, to the role Treasury plays in eliminating

burdensome regulations, promoting pro-growth economic

policies and serving as responsible stewards of taxpayer

dollars.

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

effective stewards of taxpayer resources and to provide

transparent reporting to the American people. I am

pleased to report that Treasury received an unmodified

audit opinion of its consolidated financial statements and

validated its financial and performance data as complete

and reliable. Treasury strengthened management

controls and made progress toward achieving all U.S.

financial systems and control objectives. We provide this

report as a comprehensive review of the Department’s

important work and finances.

Treasury’s outstanding workforce is fully committed to

upholding the storied history of this great American

institution, and their hard work is improving the lives of

families all across our nation. I look forward to the

coming year and the steps we will be taking to secure a 

prosperous future for all Americans.

Steven T. Mnuchin

Secretary of the Treasury

November 15, 2019
PART 1: 

MANAGEMENT'S DISCUSSION AND ANALYSIS 

(UNAUDITED

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

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

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

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

ENTERPRISE RISK MANAGEMENT......................................... 30

FY 2020 OUTLOOK........................................................... 31

FINANCIAL HIGHLIGHTS – FINANCIAL OVERVIEW.................... 32

MANAGEMENT ASSURANCES .............................................. 37

SYSTEMS, CONTROLS AND LEGAL COMPLIANCE...................... 38
 

 
DEPARTMENT OF THE TREASURY 9 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

TREASURY AT A GLANCE

FOUNDATION

After the American Revolution, Congress realized that

funding a war without proper infrastructure and financial

discipline presented an enormous challenge to our

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

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

finances, Congress established the Department of the

Treasury on September 2, 1789. President George

Washington appointed Alexander Hamilton as Treasury’s

first Secretary. Since then, 77 Secretaries have led the

Department.

Throughout its history, Treasury has been the foundation

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

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

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

were all, at one time, under our jurisdiction.

The Treasury building in the late 1800s. The Treasury

building colonnade from the southeast side shows the bustle

of pedestrian traffic on 15th Street as they passed in front of 

the Treasury building.

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

TODAY’S TREASURY AND HOW WE SERVE THE

NATION

Treasury remains as one of the premier financial

institutions, responsible for the nation’s debt

management, cash production, issuing Social Security

and other benefit payments, loans made to other federal

agencies, tax collection, and economic policy formulation. 

We are a trusted policy advisor to the President,

formulating and recommending domestic and

international financial, economic, and tax policy. Our

contributions to policy development shape America’s

economic health and security.

The Department also performs a critical and far-reaching

role in enhancing national security and reducing our

exposure to international terrorism. We do this by

employing the Department’s national security tools and

authorities—including sanctions—to identify, disrupt,

and dismantle priority national security and foreign

policy threats.
10 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Additionally, we identify and reduce vulnerabilities in the

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

actors. We also leverage our relationships with our

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

to our economic stability before they occur.

We work to increase opportunities for small businesses,

which are the backbone of our economy; create jobs to

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

grow our national economy. We have been a continuously

influential part of the government’s service to the

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

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

forums and international financial institutions, including

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

which hold annual summits with heads of state to discuss

global foreign policy issues. We play a vital role in

promoting stability and growth in the global economy via

our leadership roles in the International Monetary Fund,

the World Bank, regional development banks, and other

multilateral organizations, such as the Financial Stability

Board and the Financial Action Task Force.

Although Treasury has evolved to meet the nation’s

needs, our core mission has remained the same since

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

remain steadfast in our commitment to promote

conditions that enable economic growth and stability at

home and abroad, protect the integrity of the financial

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

finances and resources. We remain the principal steward

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

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

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

ORGANIZATION

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

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

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

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

DEPARTMENTAL OFFICES

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

Treasury securities market, strengthen financial

institutions and markets, and promote access to credit, in

service to long-term economic strength and stability.

Terrorism and Financial Intelligence (TFI) uses unique

policy, intelligence, enforcement and regulatory tools and

authorities to disrupt and disable terrorists, criminals,

and other national security threats while also

safeguarding the financial system against abuse by illicit

actors.

International Affairs protects economic prosperity and

national security by working to foster a most favorable

external environment for sustained jobs and economic

growth.

Tax Policy develops and implements tax policies and

programs, reviews regulations and rulings to administer

the Internal Revenue Code, and provides revenue

estimates for the President’s Budget.

Economic Policy reports on economic developments and

assists in the determination of appropriate economic

policies. It also reviews and analyzes domestic economic

issues and financial market developments.

The Treasurer of the United States serves as a principal

advisor to the Secretary and leads the Office of Consumer

Policy, which provides policy leadership, research, and

analysis to foster economic growth and financial security

for American families in a robust consumer marketplace. 

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

advising the Secretary on coinage matters and liaising

with the Federal Reserve.

The Office of Management and Chief Financial Officer, 

manages the Department’s financial resources and

oversees Treasury-wide programs, including human

capital, organizational performance, information

technology, acquisition, and diversity issues.

 

Other offices within Departmental Offices include the

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

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

INSPECTORS GENERAL

 

Three Inspectors General – the Office of Inspector General

(OIG), the Treasury Inspector General for Tax Administration

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

Asset Relief Program (SIGTARP) – provide independent

audits, investigations, and oversight of Treasury and our

programs.

BUREAUS

The Alcohol and Tobacco Tax and Trade Bureau (TTB)

collects federal excise taxes on alcohol, tobacco, firearms,

and ammunition and enforces and administers laws

covering production, use, and distribution of alcohol and

tobacco products.

The Bureau of Engraving and Printing (BEP) develops and

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

documents for government use.

The Financial Crimes Enforcement Network (FinCEN)

safeguards the financial system from illicit use and

combats money laundering. It also promotes national

security through the collection, analysis, and

dissemination of financial intelligence and strategic use of

financial authorities.

The Bureau of the Fiscal Service (Fiscal Service) promotes

financial integrity and operational efficiency by operating

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

and providing central payment services to the American

public on behalf of federal agencies. It also manages the

collection of delinquent debt, borrows funds needed to

operate the U.S. government through the sale of

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

and accounts for the resulting debt. Additionally, it

delivers administrative shared services to federal agencies

and provides government-wide accounting and reporting. 

The Internal Revenue Service (IRS) determines, assesses,

and collects U.S. tax revenue and helps taxpayers

understand their tax responsibilities and combats taxrelated fraud.

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

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

strikes Congressional gold medals and other medals of

national significance, and maintains physical custody and

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

assets.

The Office of the Comptroller of the Currency (OCC)

charters, regulates, and supervises national banks and

federal savings associations as well as federal branches

and agencies of foreign banks to ensure that they operate

in a safe and sound manner, provide fair access to

financial services, treat customers fairly, and comply with

applicable laws and regulations.
14 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

TREASURY STRATEGIC MANAGEMENT

FRAMEWORK

The Government Performance and Results Act (GPRA)

and the GPRA Modernization Act of 2010 require

agencies to identify goals, report progress against targets,

and conduct data-driven reviews. These practices serve

two key purposes for stakeholders within and outside of

the organization — to assess the organization’s health

and impact, and to enhance effective decision-making and

strategy, including resource allocation. In this spirit,

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

our strategic goals and objectives.

ORGANIZATIONAL PERFORMANCE REVIEW CYCLE

Our organizational performance reviews provide a regular

forum for open dialogue and coordination between bureau

and departmental policy office management and

leadership. We bring together different perspectives to

set and align priorities, identify and solve problems,

review agency performance, and drive results. The cycle

integrates statutory requirements to conduct quarterly

performance reviews of agency goals and a Strategic

Objective Annual Review (SOAR). The SOAR process

includes analyzing cross-cutting performance and

identifying a set of strategic objectives as priority focus

areas. In 2019, the Foundation for Evidence-Based Policy

Act was signed into law to further advance the Federal

Government’s evidence-building functions. In this fiscal

year, Treasury approached the implementation of the

evidence-building requirements by leveraging Treasury’s

strategic management framework, including the SOAR, to

initiate an agency learning agenda.

At designated points throughout the fiscal year, we set

annual priorities, evaluate progress against goals and

objectives, discuss new strategies to improve program

outcomes, and assess funding options to increase results

for the agency. Treasury’s process and framework for 

managing to our strategic objectives and performance

outcomes are described in Table 1 below. 

TABLE 1: STRATEGIC FRAMEWORK Sessions

Fall

(October – November)

Winter

(February – March)

Spring

(April – May)

Summer

(June – July)

Focus

Organizational Performance SOAR Organizational Performance Budget

Chair

Assistant Secretary for

Management/Performance

Improvement Officer

(ASM/PIO)

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

Officer

Goals/Outcomes

• Review prior year’s

performance at the

bureau/office level

• Set priorities for year

ahead

• Recognize successes

• Identify shortfalls/

accountability

• Evaluate cross-agency

progress toward strategic

objectives

• Identify strategic shifts/

validate Treasury priorities

• Outline potential topics for

annual review with the

Office of Management and

Budget (OMB)

• Assess progress on priorities

• Identify necessary

adjustments/near-term

improvements

• Surface problems or

assistance needed

• Recognize successes

• Identify shortfalls/

accountability

• Connect priorities to

future funding

• Explore performance

impacts

• Strengthen information

technology 

acquisition 

budgeting 

accountability
DEPARTMENT OF THE TREASURY 15 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

FY 2018 – 2022 STRATEGIC FRAMEWORK

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

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

within this framework. In FY 2019, after Treasury’s annual review to assess progress towards the Department’s strategic

objectives, Treasury leadership identified three key updates. First, we realigned Strategic Objective 2.2 (Foreign Exchange

Practices) as a new strategy under Strategic Objective 1.4 (Free and Fair Trade). Second, we updated Strategic Objective 3.3

(Economic Strength and National Security) to ensure our supporting strategies on this objective better distinguished

responsibilities among offices and to reflect Treasury’s current efforts. Finally, we expanded Strategic Objective 5.3 from

only reflecting “customer value” to “customer value and experience” to better align with the President’s Management

Agenda’s goal of improving customer experience. Our updated goals and objectives are reflected below.

Strategic Goals Strategic Objectives/APGs

Contributing

Bureaus/Offices

Economic

Goal 1: Boost U.S.

Economic Growth

1.1: Tax Law Implementation

 Aligned APG: Reducing Refund Fraud

1.2: Strong Economic Fundamentals

1.3: Trusted Currency and Services

 Aligned APG: Improved Business Qualification Process

1.4: Free and Fair Trade

Domestic Finance

International Affairs

Tax Policy

Treasurer

Economic Policy

IRS

BEP

U.S. Mint

TTB

OCC 

Goal 2: Promote

Financial Stability

2.1: Housing Finance Reform

2.2: (Incorporated into Strategic Objective 1.4) 

2.3: Foreign Technical Assistance

2.4: Financial Sector Critical Infrastructure and Cybersecurity

Domestic Finance

International Affairs

Management

OCC 

Security

Goal 3: Enhance

National Security

3.1: Strategic Threat Disruption

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

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

3.3: Economic Strength and National Security

TFI

FinCEN

International Affairs

Economic Policy

OCC 

Financial

Goal 4: Transform

Government-wide

Financial

Stewardship

4.1: Financial Data Access and Use

4.2: Debt Management

4.3: Federal Financial Performance

Domestic Finance

International Affairs

IRS

Fiscal Service

Management

Goal 5: Achieve

Operational

Excellence

5.1: Workforce Management

5.2: Treasury Infrastructure 

5.3: Customer Value and Experience

All Offices and

Bureaus, led by the

Office of

Management
16 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

PERFORMANCE OVERVIEW

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

U.S. and global economies and continue to progress in our mission to meet the needs of the nation. The Treasury Strategic

Plan 2018–2022 charts a course to guide our responsibilities to taxpayers. The following performance overview reflects our

accomplishments and challenges in achieving the goals of economic growth, financial stability, national security, financial

stewardship, and operational excellence in service to our country. 

Goal 1: Boost U.S. Economic Growth

The Administration set forth a bold agenda to bolster

economic growth, with Treasury playing a central role in

fostering prosperity for the American people. The

Department has four strategic objectives aligned with the

goal of achieving economic growth. Our first strategic

objective—assessed as an area of noteworthy progress

and a focus area for improvement in our FY 2019 SOAR

process—concentrates on administering the tax law to

better enable its implementation and protecting the

integrity of the tax system. Our second strategic objective

under this goal—assessed as achieving noteworthy

progress in our FY 2019 SOAR process—relates to strong

economic fundamentals. This objective aims to spur

faster economic growth by right-sizing regulations and

advancing domestic economic policies that boost

investment, employment, and innovation. Our third

strategic objective pushes Treasury to deliver trusted

currency and services that enable citizens and businesses

to participate in the economy. Lastly, our fourth strategic

objective under this goal advances free and fair trade for 

U.S. businesses through the successful negotiation of

trade agreements and implementation of investment

policies. We made noteworthy progress in two of four of

these strategic objectives and noted one strategic objective

for a focus area for improvement in our FY 2019 SOAR.

TAX LAW IMPLEMENTATION

The Office of Tax Policy continued the successful

implementation of the regulatory guidance associated

with the Tax Cuts and Jobs Act (TCJA), P.L. 115-097. In

addition, Treasury also worked with the State

Department and Senate Foreign Relation Committee to

obtain Senate approval for the ratification of the longpending tax protocols with Spain, Japan, Switzerland and

Luxembourg. This approval and ratification represents a 

significant positive step toward restoring confidence to

existing and potential new treaty partners. Treasury also

continues to work on making progress on the approval of

our income tax treaties with Chile, Poland, and Hungary.

The most visible taxpayer service the IRS provides each

year is the delivery of an efficient, reliable tax filing

season. The implementation of TCJA, along with the

lapse in appropriations in January 2019 presented

challenges for the bureau. The IRS took steps to

minimize TCJA implementation issues by educating

employees, taxpayers, and partners on the TCJA

legislative changes. The IRS’s top priority was to ensure

that taxpayers and tax professionals had the information

they needed and the support of knowledgeable IRS

employees to help fulfill tax obligations with the least

possible burden.

The IRS developed and heavily promoted the new IRS

Publication 5307, Tax Reform Basics for Individuals and

Families, which was translated into seven languages and

provides an overview of TCJA provisions that impact

individual taxpayers and highlights the changes to

deductions, retirement plans, and dependent benefits for

the 2018 tax year.

Since the implementation of TCJA, the IRS has been

encouraging taxpayers to do a “Paycheck Checkup,” to

ensure they are not over- or under-withholding at tax

time, by using the Withholding Calculator on IRS.gov. In

July 2019, the IRS redesigned and renamed this online

tool. The IRS’s new Tax Withholding Estimator is even

more user-friendly and covers a wider range of tax

situations. 
DEPARTMENT OF THE TREASURY 17 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

As an indication of our success, the IRS began the 2019

filing season on time on January 28, 2019. Additionally,

the IRS continued to issue nine out of ten refunds within

21 days of receiving taxpayer’s return.

STRONG ECONOMIC FUNDAMENTALS

Following focused deregulation and tax reform, the

American economy’s Gross Domestic Product (GDP)

realized 2.9 percent annual growth in 2018, and the

current economic expansion became the longest on record

in July 2019. Employers added 2.7 million jobs in 2018,

while workers’ average hourly wages grew 3.3 percent

and inflation remained steady. The unemployment rate

averaged just 3.9 percent in 2018 and, in 2019, reached a 

near 50-year low in the months of April and May. Small

business optimism, consumer confidence, and consumer

sentiment all reached their highest levels since before the

2008 financial crisis.

TRUSTED CURRENCY AND SERVICES

Treasury continues to deliver on our responsibilities

related to U.S. currency and other business services. In

FY 2019, BEP received authority to construct a new

facility, and delivered currency orders on time. The 

effective construction of a new facility is a major

undertaking critical to delivering the next generation of

trusted currency on time. From a customer service

perspective, Treasury continues to assess the decline in 

Mint’s customer base on promoting a successful coin

program.

Treasury also continues to improve business and product

services for industry, as reflected in TTB’s permitting and

labeling initiatives for the alcohol industry, despite slowdowns in service levels this fiscal year.

ADVANCING THE U.S. TRADE AGENDA

Treasury continues to be deeply engaged in the trade

agenda of the Administration to reduce barriers and level

the playing field for U.S. workers and companies. For

example, we advocate for open markets for U.S. financial

services firms through engagement with finance officials

and regulators globally. In 2019, we played a lead role in

analyzing implications for U.S. financial services firms in

relation to the United Kingdom’s exit from the European 

Union. Treasury also crafted rules in the context of our

trade agreements to prevent the use of currency

manipulation by our trading partners to gain a trade

advantage.

FY 2019 Filing Season 

On April 15, 2019, the IRS processed about 15.3

million returns, the largest single-day filing volumes

ever recorded, and observed record-breaking use of

the IRS On-line Account and Direct Pay applications.
18 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

GOAL 1: KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 16 FY 17 FY 18 FY 19 FY 19 

Target Result vs Target

Customer Service Representative Level of

Service (IRS)1 53.4% 77.1% 75.9% 65.4% 63.0% Exceeded

Enterprise Self-Assistance Participation Rate 

(IRS)2 89.0% 79.0% 82.0% 85.4% Indicator N/A

Timeliness of Critical Individual Filing Season

Tax Products (IRS)3 92.5% 93.1% 59.6% 92.6% 85.0% Exceeded

Percentage of Permit Applications Processed

within Service Standards (TTB)4 32.4% 48.1% 71.2% 57.6% 85.0% Unmet

Currency Notes Delivered Returned Due to

Defects – Parts per Million (BEP)5 N/A <0.008 0.0031 .09 <1 Met

Explanation of Results

1This measure represents the number of toll-free callers that either speak to a Customer Service Representative or receive

information messages divided by the total number of attempted calls. FY 2019 Level of Service was 65.4 percent, exceeding the

target of 63.0 percent. 

2This indicator represents the percentage of taxpayer assistance requests resolved using self-assisted automated services. The

FY 2019 Enterprise Self-Assistance Participation Rate was 85.4 percent, exceeding the FY 2018 result by 3.4 percent. This is due in

part to, Get Transcripts Online increased by 30 percent, Where's My Refund increased more than 19 percent, and Transcript

Delivery System increased by almost 31 percent from prior year.

3This measure represents the percentage of critical individual filing season tax products (tax forms, schedules, instructions,

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

available to the public in a timely fashion. The FY 2019 result of 92.6 percent surpassed its target of 85 percent. These results

were achieved as a result of preparation for Tax Reform changes that started in October 2017. The FY 2020 target will be

increased to 89 percent.

4This measure represents the overall rate at which TTB is meeting its annual service standard (75 days for FYs 2016 – 2019) for all

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

effective communication with industry members as to level of service. TTB performance fell below target in FY 2019 based on the

service delays that resulted from the 35-day lapse in appropriations in December 2018. At year-end, TTB was able to reduce

average processing times to 75 days. However, during the lapse in appropriations, with industry continuing to file for Federal

permit approval, the backlog of pending applications continued to increase and age. As a result, the percent of applications

processed within TTB’s 75-day service standard was 56 percent for FY 2019. Based on progress made in Q4, TTB plans to

maintain its 85 percent target for this measure in FY 2020. To meet the target, TTB is undertaking process and system

improvements, including an effort to streamline the permit application requirements, to meet its service standard more

consistently going forward.

5This measure incentivizes continuous product quality improvement and reduces defect-driven returns of currency notes by the

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

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

exists for years prior to FY 2017.

 
DEPARTMENT OF THE TREASURY 19 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

Goal 2: Promote Financial Stability

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

sustainable way, which is why Treasury works to promote

financial stability around the world. Of the four strategic

objectives for achieving this goal, we identified two focus

areas for improvement in the FY 2019 SOAR,

underscoring important priorities for Treasury in

FY 2020. The first strategic objective identified as a focus

area, centers on resolving the conservatorships of the

Federal National Mortgage Association (Fannie Mae) and

the Federal Home Loan Mortgage Corporation (Freddie

Mac), known as the Government-Sponsored Enterprises

(GSEs). The second strategic objective is to achieve

foreign exchange practices through multilateral

engagement with international partners. This objective is

now aligned as a strategy under Strategic Objective 1.4

(Free and Fair Trade) per our strategic plan update. The

third strategic objective is to provide technical assistance

to enable foreign partner countries to better raise and

manage financial resources and protect their financial

sectors. Finally, our fourth strategic objective, also

identified as a focus area, emphasizes enhancing security,

improving resiliency, and reducing the risk of significant

cybersecurity and other incidents to the financial sector’s

critical infrastructure (domestically and internationally).

HOUSING FINANCE REFORM

In March 2019, the President signed a memorandum

(Presidential Memorandum) on the urgent need to reform

the U.S. housing finance system. During the 2008 

financial crisis, the GSEs suffered significant losses

because of structural flaws and a lack of sufficient 

oversight. To prevent the GSEs’ failure, they were placed

in conservatorship, which continues today. The

Presidential Memorandum directed Treasury to develop a 

plan for administrative and legislative reforms to achieve

specific housing reform goals. In September 2019,

Treasury released its Housing Finance Reform Plan

(Plan), which made recommendations to achieve the

reforms outlined in the Presidential Memorandum. In

FY 2020, Treasury will work to implement the Plan to

pass comprehensive housing finance reform legislation

that ends the conservatorships of the GSEs; facilitates

competition in the housing finance market; safeguards

the safety and soundness of the GSEs or their successors;

and provides for the federal government to be

compensated for its support of the secondary housing

market. Pending such congressional action, Treasury will

work to implement the Plan through administrative

reforms.

FINANCIAL SECTOR CYBERSECURITY AND

CRITICAL INFRASTRUCTURE PROTECTION

In FY 2019, Treasury’s Office of Cybersecurity and

Critical Infrastructure Protection promoted enhanced

cybersecurity and resilience of the financial services

sector’s critical infrastructure both domestically and

internationally. Treasury leverages a vast network of

vital partnerships responsible for protecting

interdependent infrastructures (e.g. private-sector

financial firms, trade associations, federal and state

regulators, other government agencies). In FY 2019,

Treasury worked with financial regulators in the

Financial and Banking Information Infrastructure

Committee (FBIIC) to coordinate responses to cyber and

natural hazard incidents and promote information

sharing. Furthermore, we led various work streams to

identify and remediate systemic cyber risks and financial

infrastructure vulnerabilities, which will continue into

FY 2020 and beyond. We also worked closely with the

Financial Services Sector Coordinating Council (FSSCC), 

including joint meetings with the FBIIC and FSSCC, to

promote open communications of cyber-related activities,

vulnerabilities, and encourage open dialogue. Treasury

continues to provide regular threat briefings to privatesector officials and regulators to promote timely

protective measures to respond to the changing threat

environment.
20 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

GOAL 2: KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 16 FY 17 FY 18 FY 19 FY 19 

Target Result vs Target

Engagement of Partner Countries in

Programs – 5 point scale (International

Affairs)1

3.9 4.0 3.8 3.6 3.6 Met

Explanation of Results

1Measures the degree to which foreign counterparts are engaging proactively and constructively with Office of Technical

Assistance (OTA) advisors, at the working and policy levels. Counterpart engagement is both a key outcome of OTA efforts to

structure and execute effective technical assistance projects that support host country ownership as well as the most crucial

input to the successful achievement of the intermediate goals and ultimate outcomes described in the project’s terms of

reference and work plan during the fiscal year – such as passage of law or regulation, an increase in government revenues, an

improvement in a government’s credit rating, or a reduction in economic crimes. The measure is scored on a 5-point scale and

averaged across all projects to provide one overall measure of OTA’s performance.
DEPARTMENT OF THE TREASURY 21 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

Goal 3: Enhance National Security 

Through its national security mission and statutory

authority, Treasury’s Office of Terrorism and Financial

Intelligence (TFI) and the Financial Crimes Enforcement

Network (FinCEN) have broad tools to address activity

that threatens national security in the interest of

protecting the U.S. and international financial system

from abuse. There are three strategic objectives for

achieving this goal, the first two of which are under TFI’s 

and FinCEN’s purview. The first strategic objective— 

identified as an area of noteworthy progress in the

FY 2019 SOAR process—focuses on identifying,

disrupting, and dismantling priority threats to the U.S.

and international financial systems. The second objective

is to identify and reduce vulnerabilities in the U.S. and

international financial system to prevent abuse by illicit

actors. The third strategic objective, led by our Office of

International Affairs and identified as a focus area for

improvement in the FY 2019 SOAR, advances American

prosperity and security through economic growth,

investment, trade, and expansion of the American

industrial base while protecting national security.

STRATEGIC THREAT DISRUPTION

TFI deploys Treasury’s powerful economic tools and

authorities in a tailored, strategic way to ensure

maximum effect against rogue regimes, proliferators of

weapons of mass destruction, terrorist groups,

transnational criminal organizations, and human rights

abusers, among others. In deploying our financial tools

and authorities, TFI evaluates each threat individually to

ensure that we achieve maximum impact and further our

national security objectives.

Treasury continued to play a leading role in the

implementation of the Administration's Iran

policy. Treasury’s actions have disrupted the Iranian

regime's ability to fund its broad range of malign

activities, including supporting its proxies, Hizballah and

Hamas. Following the Administration’s decision to fully

impose nuclear-related sanctions previously lifted or

waived under the Joint Comprehensive Plan of Action

(JCPOA), Treasury took the largest single-day action by

sanctioning over 700 individuals, entities, aircraft, and

vessels in November 2018. We followed these sanctions

with a number of targeted financial measures to disrupt

funding sources such as oil (Iran’s primary source of

funds), as well as other areas such as banking,

petrochemicals, shipping, and metals. Of note, in

September 2019, Treasury designated with sanctions the

Central Bank of Iran and the National Development Fund

of Iran, which provided billions of dollars and served as a 

major source of foreign currency to the Islamic

Revolutionary Guard Corps, among other entities.

Treasury’s financial tools also made a significant impact

in the fight against terrorist organizations by disrupting

the financial networks that support terrorist activity. 

Over the past year, TFI used its powerful tools and

authorities to target Hizballah and Hamas, as well as the

Islamic State of Iraq and Syria (ISIS) and Al-Qa’ida with

impactful counterterrorism actions. Over the past year,

Treasury designated with sanctions over 40 Hizballahaffiliated individuals and entities, more than any

previous year. Hizballah’s leader made an unprecedented

call to supporters for additional funds due to the financial

pressure caused by our sanctions. Treasury also took

action to disrupt key ISIS financial facilitators operating

across Europe, Africa, and the Middle East, designating

with sanctions individuals and entities in Turkey, Iraq,

Syria, and Belgium.

We also applied our tools and authorities against

Venezuela’s corrupt Maduro regime. Specifically,

Treasury designated with sanctions nearly 200

individuals and entities pursuant to its authorities,

including former President Maduro and members of his

inner circle, as well as a state-owned oil company aligned

to his regime. FinCEN also issued an advisory to

financial institutions to assist in reporting suspected

Venezuelan public corruption and assisted in blocking

funds from moving through the U.S. financial system.
22 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

In addition, FinCEN issued requests to dozens of

financial institutions related to a range of illicit finance

concerns, including North Korea, Iran, Venezuela, Third

Party Money Launders, and Transnational Organized

Crime. FinCEN expects to receive approximately 50

million records in response to these requests which will

help to identify future targets and further map out broad

illicit financial activity under Section 311 of the United

and Strengthening America by Providing Appropriate

Tools Required to Intercept and Obstruct Terrorism Act of

2001 (USA PATRIOT Act). Moreover, in coordination

with interagency partners, TFI expanded the use of its

Section 311 authorities by investigating cases of drug

trafficking and illicit financial activity in Latin America,

the proliferation of weapons of mass destruction in Asia,

and other activities in the Middle East and sub-Saharan

Africa.

On Russia, Treasury continued to exert financial pressure

in response to threats to our democracy. Treasury

strategically deployed tools to maximize financial

pressure on Russia to include expanded sectoral and other

sanctions in response to continued aggression. Similarly,

Treasury continued to designate with sanctions

individuals and entities using our authorities under the

Countering America’s Adversaries through Sanctions Act.

Finally, Treasury continued to target and disrupt

networks of human rights abusers and corrupt officials all

over the world under authorities contained in a number of

our programs, including the Magnitsky Act and the

Global Magnitsky Act. In FY 2019, Treasury targeted a 

former governor of Mexico, complicit members of his

family and a number of related business entities for a 

wide array of corrupt activities, including the

misappropriation of state assets and taking bribes from

drug trafficking organizations. We also targeted those

involved in the deplorable actions of the Maduro regime

to obstruct humanitarian aid delivery and steal from

Venezuela’s food distribution program. Treasury also

designated sanctions on a former Ugandan official for his

role in serious human rights abuse and corruption. Using

authorities under the Magnitsky Act, Treasury further

sanctioned three individuals and their related entities for 

undermining peace and security in South Sudan.

ANTI-MONEY LAUNDERING (AML)/COMBATING

FINANCING OF TERRORISM (CFT) FRAMEWORK

In June 2019, Treasury completed its presidency over the

Financial Action Task Force (FATF), which is an

international money laundering/combating the financing

of terrorism (AML/CFT) standard setting body. During

our tenure, Treasury achieved critical advances in the

fight to combat illicit finance. Under U.S. leadership,

FATF prioritized initiatives including virtual currencies,

which resulted in the adoption of comprehensive

measures for how countries must regulate and supervise

digital assets. Additionally, we placed emphasis on

combating terrorist financing, and enhancing work on

preventing the financing of the proliferation of weapons of

mass destruction. Treasury also co-chaired the FATF 

Inter-Cooperation Review Group that publicly identified

countries with significant AML/CFT deficiencies. 

FinCEN issued a series of important advisories

addressing critical issues to combat money laundering

and terrorist financing, as detailed in the following

graphic.
DEPARTMENT OF THE TREASURY 23 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

COMMITTEE ON FOREIGN INVESTMENT IN THE

U.S. (CFIUS)

As CFIUS chair, Treasury began implementing an

expanded scope as authorized by the Foreign Investment

Risk Review Modernization Act (FIRRMA) and

experienced an increased workload. In October 2018,

Treasury issued temporary pilot program regulations to

protect critical American technology and intellectual

property from potentially harmful foreign acquisitions. 

The pilot program also made effective FIRRMA’s

mandatory declarations provision for transactions that

fall within the scope of the pilot program. In

September 2019, Treasury issued proposed regulations to 

comprehensively implement FIRRMA and to better

address national security concerns arising from certain

types of investments and certain real estate transactions.

Advisory Notices Issued in FY 2019 

FinCEN issued a series of important advisories in FY

2019 addressing critical issues to combat money

laundering and terrorist financing:

• Venezuela – listed red flags to assist with

identifying and reporting suspicious activity that

may be indicative of political corruption.

• Iran – addressed illicit and malign activities, and

attempts to exploit the financial system.

• Nicaragua – alerted U.S. financial institutions of

the increasing risk that proceeds of political

corruption from Nicaragua may enter the U.S.

financial system.

• Fentanyl – alerted financial institutions to

financial schemes related to the trafficking of

fentanyl and other synthetic opioids that will

assist these institutions in detecting and reporting

related criminal activity.
24 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

GOAL 3: KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 16 FY 17 FY 18 FY 19 FY 19 

Target Result vs Target

Percentage of CFIUS Cases Reviewed within

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

Number of New or Modified Sanctions

Programs Established by Executive Order or

Congressional Mandate (TFI)2

6 5 5 7 Indicator N/A

Percentage of Domestic Law Enforcement

and Foreign Financial Intelligence Units

finding FinCEN’s Analytic Products Valuable

to the detection and deterrence of illicit

activity (FinCEN)3

95% 92% 95% 92% 95% Not Met

Explanation of Results

1This measure tracks compliance with statutory deadlines for completing national security reviews of transactions notified to the

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

2This indicator tracks the number of new or modified sanctions programs that must be implemented and enforced, but does not

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

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

program is not itself a measure of success. 

3This performance measure tracks what the analytics products are intended to do, i.e. be useful to a wide range of customers and

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

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

threats to the financial system. Even though the target was narrowly missed, FinCEN was able to achieve this high level of

performance by continuously evaluating and enhancing the processes that FinCEN uses to ensure that intelligence products meet

the demands of its domestic and international stakeholders. Increased outreach and feedback to and from the users of FinCEN’s

intelligence products resulted in the introduction of new types of intelligence products focusing on high-profile actors and illicit

finance networks.
DEPARTMENT OF THE TREASURY 25 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

Goal 4: Transform Government-wide Financial Stewardship

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

Treasury plays a central role in managing taxpayer funds

responsibly. Of the three strategic objectives for

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

and use of federal financial data to strengthen

government-wide decision-making, transparency, and

accountability. The second strategic objective is to fund

the federal government at minimal cost over time. The

third strategic objective aims to improve federal financial

management performance, using innovative practices to

support effective government.

FINANCIAL DATA ACCESS AND USE

During FY 2019, Treasury led the federal government in

strengthening the use of financial data, including through

the management of the “Do Not Pay” Program and

USASpending.gov. In FY 2020, data accessibility and

quality will likely remain as challenges, but Treasury

continues to be confident that we can lead the federal

government to further improvements.

Do Not Pay (DNP) Program

Through June 2019, federal agencies identified or stopped

15,489 improper payments totaling $27.3 million using

DNP tools. The DNP Program also actively engaged and

partnered with states and other federal agencies on

analytical projects that ultimately led to legislative

proposals aimed at provisioning DNP direct authority to

acquire (designate) data sources for inclusion in DNP

systems to combat improper payments. Additionally,

Fiscal Service continued to pursue access to additional

data sources that will enable agencies to further reduce

improper payments. 

Fiscal Service established the Payment Integrity Center

of Excellence, a community of experts from various

programs within the bureau that provide business insight

and solutions to assist government agencies in

identifying, preventing, and recovering improper

payments. This initiative increases the ability to predict,

detect, and recover improper payments, while enabling

the U.S. government to take corrective actions to ensure

that payments are made to the right people, at the right

time, in the right amount.

USASpending.gov

USASpending.gov and the Data Lab promote

transparency of federal government spending by making

federal financial data available and accessible to all

Americans. Using a combination of interactive

visualizations and a personalized approach, visitors to

USASpending.gov and the Data Lab can learn about

federal finance across a variety of topics, including federal

contracts, grants, and other spending by federal agencies.

In FY 2019, the Data Lab published “Your Guide to

America’s Finances” (formerly known as the Citizen’s

Guide). The guide translates the complicated aspects of

the federal government’s revenue, spending, deficit, and

debt into a simple, straightforward, and engaging

customer experience. 

We also led work across the federal government to

improve data standards and effectively roll out

enhancements. We addressed requests to improve our 

data from the public and other stakeholders.
26 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

DEBT MANAGEMENT

In FY 2019, Treasury introduced a new product to the

Treasury securities market. Treasury launched the 8-

week Treasury bill with the intentions of satisfying

investors and helping Treasury meet issuance goals.

Fiscal Service is working to modernize the Treasury

auction system, as some components of the system reach

their end-of-life over the coming years. Fiscal Service will

ensure that the existing auction system continues to meet

high-performance standards during a complex

modernization effort that faced challenges in FY 2019. In

FY 2020, Fiscal Service will be finalizing plans for moving

the modernization effort forward.

FEDERAL FINANCIAL PERFORMANCE

Fiscal Service continues to explore and implement

innovative solutions that advance federal financial

management and performance. In FY 2019, Fiscal

Service successfully conducted two Distributed Ledger

Technology proofs of concept. They demonstrated

opportunities to increase efficiency, reduce reporting

burdens, and automate transactions and workflows.

Fiscal Service also actively participated in the RPA

Community of Practice, which the General Services

Administration initiated, to further the adoption of RPA

across the federal government. Fiscal Service led

development of an RPA Playbook. It will help guide

agencies that are just beginning to use RPA, as well as

those agencies that are expanding their use of RPA.

Similarly, Fiscal Service initiated efforts to explore

artificial intelligence to help improve the customer

experience. For example, Fiscal Service is exploring the

use and feasibility of chat technology to enhance customer

experiences. 

Lastly, in FY 2019, OMB pre-designated Treasury as the

Financial Management Quality Service Management

Organization (QSMO). The Financial Management

QSMO will create a marketplace of solutions and services

to help agencies meet their financial management needs

and shared government-wide goals to standardize

processes and data. It also will reduce operations and

maintenance costs, modernize and automate processes,

and improve customer satisfaction.

Robotic Process Automation (RPA) 

In FY 2019, Fiscal Service’s Administrative Resource

Center automated 30 processes using RPA generating

savings of $450 thousand and 6,900 labor hours. The

bots implemented so far are projected to save more

than $2 million over the next five years, and new bots

in the pipeline have the potential to save another $3.5

million over five years.
DEPARTMENT OF THE TREASURY 27 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

GOAL 4: KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 16 FY 17 FY 18 FY 19 FY 19 

Target Result vs Target

Dollar Amount (in millions) of Improper

Payments Identified and Prevented through

the Do Not Pay (DNP) program (Fiscal

Service)1

$58.98 $36.58 $ 35.53 $27.3 $33.6 Undetermined

Dollar Amount (in billions) of Delinquent

Debt Collected through All Tools (Fiscal

Service)2

$7.41 $7.61 $7.44 $9.65 $7.7 Exceeded

Percentage of Treasury Payments Made

Electronically (Fiscal Service)3 94.9% 95.1% 95.4% 95.6% 95.4% Exceeded

Percentage of Total Federal Government

Receipts Settled Electronically (Fiscal

Service)4

98.2% 98.3% 98.0% 98.4% 98.0% Exceeded

Explanation of Results

1This measure provides the dollar amount, in millions, of payments identified as improper plus the payments that were prevented

through the DNP program. The FY 2019 value is through June 30, 2019. DNP will not have the final FY 2019 results until

November 2019, when agencies report back. Therefore, the Result vs Target is undermined as of the date this report is

published.

2This measure provides the total amount of delinquent debt collected, in billions, through debt collection tools operated by Fiscal

Service. 

3This measure provides the portion of the total volume of payments that is made electronically.

4This measure provides the percentage of total federal government revenue collection dollars settled electronically.
28 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Goal 5: Achieve Operational Excellence 

The federal government strives to emulate successful

businesses that provide exceptional value by improving

internal operations wherever and whenever possible. 

There are three strategic objectives for achieving this goal

of operational excellence. Our first strategic objective

under this goal—assessed as a focus area for

improvement in our FY 2019 SOAR process— intends to

foster a culture of innovation for hiring, engaging,

developing, and optimizing a diverse workforce with the

competencies necessary to accomplish our mission. Our

second strategic objective targets mission delivery by

improving the reliability, security, and resiliency of

Treasury’s infrastructure. Lastly, in our third strategic

objective, we aim to improve customer value and

experience by increasing product and service quality,

while lowering costs.

WORKFORCE MANAGEMENT

In FY 2019, Treasury designed and began implementing a 

new governance structure and operationalizing processes

that improve human capital planning and performance

management. Treasury continued deploying the

Integrated Talent Management Learning and

Performance Management modules. This single,

integrated system now delivers training to 90% of

Treasury bureaus, delivers performance management

functionality to 100% of the Senior Executive Service, and

will be used to conduct the General Schedule

employee performance management process in 50% of the

bureaus in FY 2020. 

Treasury continued to make strides in workforce

satisfaction in FY 2019. In the wake of an extended lapse

in appropriations, Treasury still demonstrated

improvement in its Federal Employee Viewpoint Survey

in FY 2019. Results in 11 out of 13 indices showed an

increase in positive employee perceptions with no change

in the remaining two indices. Notably, the overall

employee satisfaction scores increased by 3%, the largest

increase of all indices. Because workforce risks and

challenges overlapped in a majority of Treasury’s

strategic objectives, Treasury’s workforce management

strategic objective remains a focus area for improvement

for FY 2020.

CUSTOMER VALUE AND EXPERIENCE

Because the public’s trust in government is directly

related to the experience they have with government

employees and services, Treasury emphasizes improving

the customer experience across all bureaus in the coming

year. FY 2019 saw a number of enhancements to

Treasury’s key public-facing services. Highlights include

updates to the U.S. Mint’s public website to improve the

overall customer experience and security, as well as the

deployment of a new ID Verify tool championed by the

IRS. Furthermore, the IRS continues to work on

consolidating more than 60 case management tools into a 

single tool, and TTB has launched an initiative (MyTTB) 

to develop a personalized, “one-stop” shop for industry

members doing business with them online. 

ACQUISITION

Oversight of mission-critical procurement actions ensures

proper acquisition planning and execution, while

providing an opportunity to cultivate better business

strategies and economical outcomes across the

Department. In FY 2019, the Office of Procurement 

Executive reviewed 30 major acquisitions for a total value

of $7.4 billion. Treasury continued its trend of increasing

use of best-in-class vehicles in support of the President’s

Management Agenda’s Cross Agency Priority Goal,

increasing procurement spending for best-in-class

vehicles from 39.5 percent to 41.4 percent.

INFRASTRUCTURE

Information technology is a key enabler for many of the

essential services Treasury provides. Modernizing and

protecting that infrastructure is essential to ensuring

Treasury’s continued ability to safely meet the

expectations of the markets Treasury serves. Treasury

continued its adoption of cloud-based infrastructure while

also consolidating internal data centers. 

Correspondingly, we remain diligent in strengthening our

cyber defenses, with more than 85 percent of findings
DEPARTMENT OF THE TREASURY 29 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

closed associated with internal reviews of Treasury’s High

Value Asset systems. Treasury also continues to move

forward with its Treasury Enterprise Infrastructure

Solutions (TEIS) acquisition. When awarded, TEIS will

provide a modernized enterprise-wide network for 

telecommunications and other infrastructure components

to improve efficiency, reliability, scalability, and

elasticity.

GOAL 5: KEY PERFORMANCE DATA HIGHLIGHTS 

Measure

(Responsible Bureau/Office)

FY 16 FY 17 FY 18 FY 19 FY 19 

Target Result vs Target

Percentage of Aged Hardware (IRS)1 52.2% 52.3% 45.5% 31.0% 43.8% Exceeded

Seigniorage per Dollar Issued (U.S. Mint)2 0.52 0.45 0.37 0.40 0.36 Exceeded

Manufacturing Costs – Dollar Costs per

Thousand Notes Produced (BEP)3 $44.25 $43.58 $47.41 $51.01 $51.66 Exceeded

Treasury-wide EVS Satisfaction Index

(Management)4 61% 65% 63% 66% 65% Exceeded

Percent of High or Critical Findings closed for

Treasury’s High Valued Assets (HVAs)

(Management)5

N/A N/A N/A 86% 100% Unmet

Explanation of Results

1The measure shows the quantity of IT hardware in operation past its useful life as a percentage of total hardware in use. The IRS

has made considerable progress reducing the percentage of aged hardware within the IT environment from 45.5 percent at the

end of FY 2018 to 31 percent at the end of FY 2019. This represents a reduction of nearly 36,000 aged assets during the fiscal

year through efforts such as refreshing employee workstations, upgrading aged server operating systems and related aged

hardware, and phasing out old equipment.

2Seigniorage per dollar issued is the seigniorage generated from each dollar of circulating coinage face-value shipped to the

Federal Reserve Banks. FY 2019 results exceeded the target as a result of a 12 percent decrease in cost of goods sold.

3Manufacturing Costs for Currency (dollar cost per 1,000 notes produced) is an indicator of manufacturing efficiency and

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

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

efficiency, and capacity utilization goals.

4The Federal Employee Viewpoint Survey (FEVS) is the primary tool that agencies use to measure employee sentiment. Each

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

5This measure is the percentage of High or Critical findings against Treasury’s HVAs that were closed in FY 2019. These findings

are typically discovered during reviews of Treasury’s key assets/systems.
30 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

ENTERPRISE RISK MANAGEMENT

FRAMEWORK

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

for Enterprise Risk Management and Internal Control, 

provides guidance to federal managers to effectively

manage risks to achieve strategic objectives. 

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

is responsible for establishing a governance structure to

effectively implement a robust process of risk

management and internal control and for developing an

enterprise-wide risk profile. Successful implementation

requires us to establish and foster an open, transparent

culture that encourages people to communicate

information about potential risks and other concerns.

The CRO meets regularly with senior leaders to discuss

top risks to critical programs, systems, projects, and

priorities, including response strategies. The Office of

Risk Management (ORM) has also established an

Enterprise Risk Management (ERM) Council, chaired by

the Deputy CRO, which brings together risk managers

from each of our bureaus and policy offices on a bimonthly basis to share best practices, and discuss risks. 

ORM works with the bureaus and policy offices across

Treasury to monitor and annually update our risk profile.

Beyond its work at Treasury, ORM leads an interagency

ERM community of practice including officials from

approximately 40 federal agencies. This group grew from

ORM’s efforts to support agencies in their implementation

of ERM, including the July 2016 publication of the

Playbook: Enterprise Risk Management (ERM) for the

U.S. Federal Government. This government-wide

working group meets on a bi-monthly basis to discuss

common risks and various methods of implementing the

guidelines of the Circular.

ENTERPRISE RISKS AND CHALLENGES

Through the FY 2019 SOAR and enterprise risk

management process, we identified the following crosscutting operational risks. 

Evolving Cyber Climate: Treasury, the U.S. government,

and the whole financial sector face growing complexity of

technology, increasing sophistication of adversaries, and

techniques.

Aging IT Infrastructure, Data Sharing and Analytics 

Capabilities: Aging infrastructure and technical debt, a 

risk shared across the U.S. government, can impede

analytics capabilities, program innovation, and improved

delivery of products and services.

Procurement, Acquisition, and Vendors: Supply chain

vulnerabilities and insufficient acquisition planning

increase operational risk.

Workforce Management: Ongoing government-wide

challenges in recruiting and retaining qualified

candidates presents mission risks, and exacerbates the

long-standing risk of knowledge and skills gaps as a 

greater proportion of Treasury’s workforce becomes

eligible to retire.

Balancing Mission Objectives and Resource Constraints: 

Treasury is at the forefront of several new initiatives to

improve our economy and keep it on a stable footing. Due

to uncertain funding amounts and timing, there is a risk

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

new innovations or initiatives with existing requirements

or projects.
DEPARTMENT OF THE TREASURY 31 

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

FY 2020 OUTLOOK

Our FY 2019 SOAR outlined several critical leadership

actions for the coming year: (1) implement the tax law; (2)

reform housing finance; (3) address vulnerabilities in the

financial sector critical infrastructure and cybersecurity;

(4) implement new legal requirements regarding

investment security; and (5) transform how we manage

our workforce.

Looking ahead, we will make progress in these areas and

other key priorities through several targeted initiatives: 

• Effectively advocate for and implement the IRS

Integrated Business Modernization plan to address

inefficiency in the aged architectural structure,

improve taxpayer experience, and ensure systems

and data are secure;

• Engage with stakeholders to pass legislation that

implements recommendations on housing finance

reform;

• Improve identification and response to threats to the

financial sector;

• Take the necessary steps to implement new

legislation modernizing the Committee on Foreign

Investment in the United States; and 

• Roll out the integrated talent management system

and related change management efforts across

Treasury.

In addition, we will work diligently to implement the

Taxpayer First Act of 2019, which Congress intended to

improve taxpayer service and ensure that the IRS

continues to enforce the tax laws in a fair, impartial

manner. The act authorizes modernization of the

organizational structure of the IRS, which was last

updated between 1998 – 2000, and addresses other key

issue areas for the IRS, including identity theft and

disclosure, customer service, electronic filing, training,

and information technology.
32 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL HIGHLIGHTS – FINANCIAL OVERVIEW

The financial highlights below are an analysis of the

information included in our consolidated financial

statements that appear within Part 2, “Financial Section” 

of this report. Our principal financial statements have

been prepared to report the agency’s financial position

and results of operations, pursuant to the requirements of

31 USC 3515(b). These consolidated financial statements

have been prepared from the books and our records in

accordance with U.S. Generally Accepted Accounting

Principles (GAAP) for federal entities and the formats

prescribed by OMB. The consolidated financial

statements are in addition to the financial reports used to

monitor and control budgetary resources, which are

prepared from the same books and records. The financial

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

sovereign entity.

The chart below presents changes in key financial

statement line items as of and for the fiscal year ended

September 30, 2019 compared to September 30, 2018.

 

Summary Financial Information (dollars in billions) 

2019 2018 $ Change % Change

Total Assets $ 25,614.5 $ 24,273.8 $ 1,340.7 5.5 % 

Total Liabilities $ 25,125.0 $ 23,777.9 $ 1,347.1 5.7 %

Total Net Position $ 489.5 $ 495.9 $ (6.4) (1.3)% 

Total Net Cost of Treasury Operations $ 16.6 $ 21.4 $ (4.8) (22.4)%

Net Federal Debt Interest Costs $ 528.9 $ 485.0 $ 43.9 9.1 %

GSEs Non-Entity Revenue, Net $ (14.2) $ (30.4) $ 16.2 (53.3)% 

Total Net Cost of Treasury Operations and Non-Entity Costs $ 542.6 $ 488.2 $ 54.4 11.1 %

Total Budgetary Resources $ 930.3 $ 882.3 $ 48.0 5.4 %

Agency Outlays, Net $ 537.9 $ 498.3 $ 39.6 7.9 % 

Net Revenue Received (Custodial) $ 3,190.2 $ 3,098.1 $ 92.1 3.0 %

Financial Overview. Our financial performance as of and

for the fiscal year ended September 30, 2019, reflects

several major trends. Most significantly, the outstanding

federal debt, including interest, rose by $1.2 trillion to

$22.8 trillion to finance the U.S. government’s operations. 

Additionally, our “Total Net Cost of Treasury Operations

and Non-Entity Costs” for FY 2019 increased by

$54.4 billion. This increase primarily stems from

$43.9 billion of higher net federal debt interest costs, and

$16.2 billion of lower revenue from our GSE investments

– Fannie Mae and Freddie Mac – pursuant to our Senior

Preferred Stock Purchase Agreements (SPSPAs), as

amended (refer to the GSEs Non-Entity Revenue, Net

discussion below). 
DEPARTMENT OF THE TREASURY 33

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

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

Total Assets of $25.6 trillion at September 30, 2019

consist of a receivable due from the General Fund of the

U.S. government (General Fund) of $22.9 trillion, intragovernmental loans and interest receivable of

$1.6 trillion, and fund balance and various other assets, 

which totaled $1.2 trillion (Figure 2). 

Figure 2: FY 2019 Total Assets (Composition)

The $1.3 trillion (or 5.5 percent) increase in total assets at

the end of FY 2019 over the prior year is primarily due to

a $1.2 trillion increase in our receivable, “Due from the

General Fund of the U.S. Government,” which

corresponds to the increase in federal debt and interest

payable. The “Due from the General Fund of the U.S.

Government” asset account represents future funds

required from the General Fund to pay borrowings from

the public and other federal agencies. 

Intra-governmental loans and interest receivable

represent loans issued primarily by the Fiscal Service to

other federal agencies for their own use or for the

agencies to loan to private sector borrowers whose loans

are guaranteed by the federal agencies. This receivable

grew by $56.3 billion (or 3.7 percent) to $1.6 trillion at the

end of FY 2019 due to increased borrowings by various

federal agencies—such as the Departments of Education, 

Transportation, Agriculture, and Housing and Urban

Development—to fund their existing programs. 

Among other things, other assets include operating cash

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

currency investments, and other monetary assets

(primarily Special Drawing Rights), as well as

investments in, and credit program receivables due from,

certain financial institutions for which we provide

financial assistance in the effort to stabilize financial

markets. Other assets increased by $75.8 billion, largely

reflecting an increase in net federal taxes receivable. 

This increase is a result of unpaid taxes related to

Internal Revenue Code USC 965, implemented as part of

the TCJA, which allows certain taxpayers to pay their

965(h) taxes on foreign earnings on an installment

schedule (refer to Note 8 to the Consolidated Financial

Statements entitled Taxes, Interest, and Other

Receivables, Net). 

$25

$125

$225

$325

$425

$525

$0

$5,000

$10,000

$15,000

$20,000

$25,000

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Total Assets $20,768.7 $22,170.9 $22,686.2 $24,273.8 $25,614.5

Total Liabilities $20,354.6 $21,667.0 $22,188.8 $23,777.9 $25,125.0

Net Position $414.1 $503.9 $497.4 $495.9 $489.5

Total Assets and 

Total Liabilities

Net Position

 
34 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

Figure 3: FY 2019 Total Liabilities (Composition)

Total Liabilities of $25.1 trillion at September 30, 2019

principally consist of the federal debt held by the public,

including interest, of $16.8 trillion (Figure 3), which was

mainly issued as Treasury Notes and Bills. Liabilities

also include intra-governmental liabilities totaling

$8.2 trillion (of which $6.0 trillion represent principal and

interest of federal debt in the form of Treasury securities

held by other federal agencies), and various other

liabilities totaling $81.2 billion. The $1.3 trillion (or 

5.7 percent) increase in total liabilities over the prior year

is attributable to a $1.2 trillion increase in federal debt,

including interest, held by the public and other federal

agencies that was needed to finance the U.S.

government’s budget deficit. 

The increase in total liabilities is also attributable to a 

$140.7 billion increase in our payable “Due to the General

Fund,” which corresponds primarily to the increases in

the intra-governmental loans and interest receivable and

net federal taxes receivable, as discussed above.

Total Net Position of $489.5 billion at September 30, 2019

represents the combined total of our cumulative results of

operations and unexpended appropriations at the end of

the fiscal year. The $6.4 billion (or 1.3 percent) decrease

in the net position at the end of FY 2019 was principally

attributable to normal business operations.

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

Total Net Cost of Treasury Operations and Non-Entity 

Costs, is presented on our Consolidated Statements of Net

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

represents the gross costs, net of earned revenues, we

incurred related to our own entity activities comprising

both operating bureaus and Departmental Offices that

are consolidated with the Department. “Net Non-Entity

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

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

Fund), and primarily include federal debt interest costs,

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

revenues. “Total Net Cost of Treasury Operations and

Non-Entity Costs” totaled $542.6 billion and

$488.2 billion for FY 2019 and 2018, respectively, an 

increase of $54.4 billion (or 11.1 percent) over the prior

year. Net costs associated with our non-entity operations

 

$0

$100

$200

$300

$400

$500

$600

$0

$100

$200

$300

$400

$500

$600

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Net Cost of Treasury Operations $23.5 $17.7 $20.1 $21.4 $16.6

Net Non-Entity Costs $351.4 $385.9 $418.6 $466.8 $526.0

Total Net Cost $374.9 $403.6 $438.6 $488.2 $542.6

Total Net Cost

Net Cost of Treasury Operations

and Net Non-Entity Costs
DEPARTMENT OF THE TREASURY 35

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

(“Net Non-Entity Costs”) contributed $59.2 billion to the

year-over-year increase in this line item, partially offset 

by a decrease of $4.8 billion in our entity operations (“Net

Cost of Treasury Operations”).

Figure 5 : Net Cost of Treasury Operations by Strategic

Program (in billions)

Net Cost of Treasury Operations is presented on our

Consolidated Statements of Net Cost by strategic

program. There are three main categories of strategic

programs presented—financial, economic, and security—

as well as a management strategic program which is

combined with the financial program due to the

immateriality of the management program

(Figure 5). Our Net Cost of Treasury Operations totaled

$16.6 billion for FY 2019 compared to $21.4 billion for

FY 2018, a decrease of $4.8 billion (or 22.4 percent). This

decrease primarily reflects $4.0 billion in liquidity

payments to the GSEs in FY 2018 under the terms of the

SPSPAs, to cover their net worth deficit that was driven

by a reduction in the U.S. corporate income tax rate in

connection with the TCJA. There were no required

liquidity payments made to the GSEs in FY 2019. 

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

primarily reflect interest expense on the federal debt, net

of interest income on loans, which increased $43.9 billion

(or 9.1 percent) in FY 2019. The higher cost was

primarily attributable to an increase in outstanding debt

held by the public. 

GSEs Non-Entity Revenue, Net totaled $14.2 billion for 

FY 2019 compared to $30.4 billion for FY 2018. GSE nonentity revenue is driven by fair value changes to our GSE

investments, changes to the liquidation preference of our

GSE senior preferred stock, and cash dividends received

from the GSEs pursuant to the SPSPAs. The $16.2 billion

year-over-year decrease in net revenue was driven by a 

combination of a $16.8 billion decrease in the estimated

value of our GSE investments at the end of FY 2019, and

a decrease of $4.8 billion associated with our senior

preferred stock liquidation preference. These decreases

were partially offset by a $5.4 billion increase in preferred

stock dividends received in FY 2019. Our GSE

investments are comprised of the estimated value of our

senior preferred stock and our warrants to purchase GSE

common stock. 

Our senior preferred stock fair value decreased year-overyear as a result of an increase in the market value of the

GSEs’ other equity securities that comprise the GSEs’

total equity value, partially offset by a lower discount rate

which was driven by a lower risk-free rate and reduced

volatility among comparable companies. This decrease in

the value of our senior preferred stock was partially offset

by an increase in the fair value of our warrants due to an

increase in the market value of GSE common stock. The

liquidation preference of our senior preferred stock

increased in value by $5.2 billion in FY 2019 compared to

$10.0 billion in FY 2018, further contributing $4.8 billion

to the year-over-year decrease in our GSE non-entity

revenue. We increased the value of this liquidation

preference by $5.2 billion and $6.0 billion for FY 2019 and

2018, respectively, pursuant to amendments to the

SPSPAs that increased the GSEs’ capital reserve

amounts. The liquidation preference in FY 2018 was

further increased by the $4.0 billion in liquidity payments

made to the GSEs. (Refer to Note 10 to the Consolidated

Financial Statements entitled Investments in

Government Sponsored Enterprises). 

$2.8

$12.9

$0.4

$4.0

$16.8

$0.5

Financial Economic Security

FY 2019 FY 2018
36 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Total Budgetary Resources of $930.3 billion in FY 2019

(Figure 6) increased by $48.0 billion (or 5.4 percent)

primarily due to a $51.5 billion increase in appropriations

received to pay interest on the public debt.

Agency Outlays, Net of $537.9 billion were higher in

FY 2019 (Figure 6) by $39.6 billion (or 7.9 percent) 

primarily due to a $43.8 billion increase in interest

payments on public debt.

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

Net Revenue Received (Custodial), representing the net

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

includes various taxes, primarily income taxes, as well as

user fees, fines and penalties, and other revenue

(Figure 7). Over 90 percent of these revenues (before

refunds) are related to income and social security taxes. 

Net revenue received was $3.2 trillion for FY 2019, an

increase of $92.1 billion (or 3.0 percent) over the prior

fiscal year. This increase is attributable mainly to an

overall growth in individual and corporate income tax

collections, partially offset by reduced deposit of earnings

from the Federal Reserve System.

$800.0 $797.3 $818.5 $882.3 $930.3 

$370.2 $400.3 $420.5 $498.3 $537.9 

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Total Budgetary Resources Net Outlays

$3,024.0 $3,048.7 

$3,087.3 $3,098.1

$3,190.2 

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
DEPARTMENT OF THE TREASURY 37

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

MANAGEMENT ASSURANCES

THE SECRETARY’S ASSURANCE STATEMENT

The Department of the Treasury’s management is

responsible for managing risks and maintaining effective

internal control and financial management systems to

meet the objectives of the Federal Managers’ Financial

Integrity Act (FMFIA). We conducted our assessment of

risk and internal controls in accordance with OMB

Circular A-123, Management’s Responsibility for

Enterprise Risk Management and Internal Control. 

Based on our assessment, we can provide reasonable

assurance that, in accordance with Section 2 of the

FMFIA, Treasury’s internal control over operations,

reporting, and compliance with laws and regulations were

operating effectively as of September 30, 2019. In

addition, we can provide reasonable assurance that, as of

September 30, 2019, we are in substantial conformance

with the federal financial management systems

requirements of Section 4 of the FMFIA, with the

exception of the significant deficiencies related to the

financial management systems at the IRS and Fiscal

Service. 

As a result of the significant deficiencies at the IRS and

Fiscal Service, our financial management systems are not

in substantial compliance with the Federal Financial

Management Improvement Act (FFMIA) as of September

30, 2019. We continue to make progress in remediating

these deficiencies, and remain committed to focusing

management’s attention and resources on appropriate

corrective actions. Overall, we continue our efforts to

ensure high standards, minimize internal control

weaknesses, and meet federal financial management

requirements. Additional information on the lack of

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

report.

Steven T. Mnuchin

Secretary of the Treasury

November 15, 2019
38 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

SYSTEMS, CONTROLS AND LEGAL COMPLIANCE

FMFIA

Background

The FMFIA requires executive branch agencies to

establish and maintain internal control and financial

systems to provide reasonable assurances that:

• Obligations and costs are in compliance with

applicable laws;

• Funds, property, and other assets are safeguarded

against waste, loss, unauthorized use, or

misappropriation; and

• Revenues and expenditures applicable to agency

operations are properly recorded and accounted for to

permit the preparation of accounts and reliable

financial and statistical reports, and to maintain

accountability over the assets.

OMB Circular A-123 provides the implementing guidance

for FMFIA and defines management’s responsibility for

establishing and assessing internal controls. The 

Circular also requires federal agencies to adhere to the

Government Accountability Office’s (GAO) Standards for 

Internal Control in the Federal Government, and to

evaluate and report on the effectiveness of the

organization’s internal controls to achieve: (1) the

objectives of effective and efficient operations, (2) reliable

reporting for internal and external use, and (3) 

compliance with applicable laws and regulations (FMFIA 

Section 2). Additionally, agencies are required to assess

whether financial management systems comply with

federal financial management systems requirements

(FMFIA Section 4). 

Analysis of Controls

The Secretary relies on the annual assurances of

Treasury’s principal bureaus and offices (components), 

which are supported by a comprehensive risk-based

internal control evaluation plan. This plan includes a 

methodology that identifies and documents key controls

and provides for the assessment and testing of those

controls to provide reasonable assurance that the controls

are designed, implemented, and operating effectively. As

part of the evaluation process, we considered results of

this extensive testing and assessment across the

Department, as well as independent audits conducted by

the OIG and GAO. 

Internal Control over Financial Reporting

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

Management of Reporting and Data Integrity Risk, we

also conducted an assessment of Treasury’s internal

controls over financial reporting. Our components

completed their testing and assessment of internal

controls for material transactions as of

September 30, 2019. Based on the results of this

assessment we can provide reasonable assurance

regarding the effectiveness of our internal control over

financial reporting as of September 30, 2019. 
DEPARTMENT OF THE TREASURY 39

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

FFMIA AND FINANCIAL MANAGEMENT SYSTEMS

FFMIA

The FFMIA requires federal agencies to implement and

maintain financial management systems that

substantially comply with federal financial management

systems requirements, applicable federal accounting

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

transaction level. A financial management system

includes an agency’s overall financial operation, reflecting

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

summarize, and report data in a meaningful manner to

support business decisions.

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

annual determination of the agency’s substantial

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

of relevant factors. We assess our financial management

systems annually for conformance with the requirements

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

Federal Financial Management Improvement Act of 1996, 

and other federal financial management system

requirements. Our assessment process includes the use

of the FFMIA Compliance Determination Framework,

(the “Compliance Framework”) in OMB Circular A-123,

Appendix D, which is a risk and evidence based

assessment model that leverages existing audits,

evaluations, and reviews that auditors and agency

management already perform. The Compliance

Framework is an outcome-based approach to assessing

FFMIA compliance through a series of financial

management goals that are common to all agencies.

In applying the Compliance Framework, we assess

available information from audit reports and other

relevant and appropriate sources, such as Federal

Information Security Modernization Act (FISMA) 

compliance activities, to determine whether our financial

management systems substantially comply with FFMIA. 

We also assess improvements and ongoing efforts to

strengthen financial management systems and the impact

of instances of noncompliance on overall financial

management system performance. Based on the results

of our overall assessment, we concluded that our financial

management systems were not substantially compliant

with federal financial management system requirements

as of September 30, 2019, due to significant deficiencies at

the IRS and Fiscal Service.

The IRS has a significant deficiency in internal control

over financial reporting related to its unpaid assessments

and financial reporting systems. Specifically, this 

deficiency relates to the IRS’s information system

controls, business process application controls, and

general controls. The IRS worked diligently during

FY 2019 to continue to enhance its Information

Technology (IT) security. The IRS implemented a 

strategy and assessment process to verify the

effectiveness of internal controls for the financial systems

that affect the financial statements. This assessment

supports the IRS’s overall internal control framework and

helps mitigate deficiencies in the IT environment. 

The Fiscal Service has a significant deficiency in internal

control related to its cash management and debt

management systems. Fiscal Service is fully committed

to enhancing its corrective action plans and focusing its

efforts to meet federal financial management systems

requirements. 

Financial Management Systems

Our financial management systems framework consists of

two foundational components: (1) financial and mixed

systems maintained by Treasury bureau components, and

(2) the Treasury-wide Financial Analysis and Reporting

System (FARS). Bureaus process and record detailed

financial transactions and submit summary-level data to

the FARS, which maintains the key financial data

necessary for Treasury-wide consolidated financial

reporting. This framework satisfies the financial

operational and reporting needs of our reporting entities,

as well as our internal and external reporting

requirements. The FARS framework plays a key role in

the Department’s efforts to obtain an unmodified audit

opinion.

The FARS includes the following financial applications:

• Treasury Information Executive Repository (TIER) —

a financial data repository used to consolidate and
40 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

validate bureau financial data, and supporting

external financial reporting requirements

• TIER Financial Statements (TFS) — a reporting

application used to produce monthly and annual

financial statements, notes, and other supporting

reports

Our bureaus submit summary-level financial data to

TIER on a monthly basis. The TFS application uses the

bureau data to produce financial statements and report

on a Treasury-wide and component-level basis. 

Fifteen of our bureaus and offices use centralized

financial management, budget formulation and

performance management, and IT hosting provided by the

Fiscal Service’s Administrative Resource Center (ARC). 

This shared service approach enables bureaus and offices

to have access to core financial systems without having to

maintain separate technical and system architectures. 

ARC also provides administrative services in the areas of

financial management transaction processing, human

resources, procurement, and travel to our bureaus and

offices as well as to other federal entities to support core

business activities. Using shared services reduces the

need for Treasury to maintain duplicative financial

management systems, thereby promoting efficiency and

cost savings while enhancing the quality, timeliness, and

accuracy of financial management processes. 

In FY 2019, ARC piloted a Robotic Process Automation

effort for 30 of our business processes to improve

efficiency, timeliness, and quality in our service

operations.

Goals and Supporting Strategies

Our financial system goals and supporting strategies

focus on improving, streamlining, and integrating current

bureau financial management systems, as well as the

current FARS applications, in order to support new

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

FY 2019, we continued refining TIER and TFS to meet

evolving reporting requirements. Additionally, we

continued enhancing our business processes related to the

reporting of financial and non-financial award data in

accordance with the Digital Accountability and

Transparency Act (P.L. 113–101) (DATA Act). To that

end, we developed and implemented a Data Quality Plan

for enhancing the accuracy and integrity of our nonfinancial award data presented on USAspending.gov as

stipulated by the recently amended OMB Circular A-123,

Appendix A guidelines. 

Along with bureau financial systems, the TIER and TFS 

applications form a unified financial governance solution

that focuses on improving financial processes and

controls. These systems and applications help to reduce

operating costs; enable us to provide assurance over

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

provide timely, transparent, and well controlled financial

information. 

We maintain an information security program for our

financial systems consistent with applicable FISMA

requirements, OMB policy and guidance, and National

Institute of Standards and Technology standards and

guidelines. Our systems undergo annual security

reviews, and security weaknesses identified through those

reviews are remediated by developing and implementing

plans of action and milestones. We monitor bureau

conformance with government-wide information

technology security targets and provide roll-up reports

quarterly to OMB. Our compliance with FISMA is

evaluated annually by representatives of the OIG.

OTHER LAWS

We made significant progress in improving the quality of 

Treasury’s agency-level reported award data in 

accordance with the DATA Act. The OIG concluded in its 

second DATA Act audit report related to our first quarter 

of FY 2019 data submission, that our implementation and 

use of the data standards established by Treasury’s DATA 

Act Program Management Office and OMB, resulted in: 

(1) a complete and timely data submission to the DATA

Act broker for publication on USAspending.gov, and (2) 

complete and accurate summary-level data. We will 

continue to improve the overall quality of our award data 

reported on USAspending.gov in accordance with our 

Data Quality Plan.
DEPARTMENT OF THE TREASURY 41

MANAGEMENT’S DISCUSSION AND ANALYSIS | FY 2019 AGENCY FINANCIAL REPORT

We are not aware of any violations of the Anti-deficiency 

Act. We have received the U.S. Government 

Accountability Office’s (GAO) Legal Decision (B-1331093) 

with the subject, U.S. Department of the Treasury—Tax 

Return Activities during the Fiscal Year 2019 Lapse in 

Appropriations. In the Legal Decision, GAO concluded 

that Treasury violated the Anti-deficiency Act when, 

during the lapse in appropriations, the Department 

incurred obligations to process tax remittances (payments 

submitted by individuals) and issued tax refunds. The 

Department obtained approval from the OMB in 

January 2019 to incur such obligations during a lapse in 

appropriations. We are currently reviewing GAO’s Legal 

Decision. As of September 30, 2019, and through the date 

of this report, we have not made a report to Congress and 

the President, nor provided a copy to the Comptroller 

General.

IMPROPER PAYMENTS

Background

The Improper Payments Elimination and Recovery

Improvement Act (IPERIA) of 2012 requires agencies to

annually report on all programs and activities, identify

those that may be susceptible to significant improper

payments, estimate annual improper payments in the

susceptible programs and activities, and report the

results of their improper payment activities. An improper

payment is any payment that should not have been made

or that was made in an incorrect amount (including both

overpayments and underpayments). 

Risk Assessments and Results

In FY 2019, we completed a full program inventory and

performed risk assessments to identify programs that

have a significant risk of improper payments. We

performed our assessment of each program, excluding the

Earned Income Tax Credit (EITC), using the seven

qualitative risk factors identified in Appendix C. We also

performed quantitative risk assessments and assessed

risks related to the amounts of payments processed

relative to the OMB specified threshold amounts which

define payment programs susceptible to significant

improper payments. As a result of the risk assessments,

we determined that in addition to the EITC, the American

Opportunity Tax Credit (AOTC), the Additional Child Tax

Credit (ACTC) and the Premium Tax Credit (PTC) were

deemed susceptible to significant improper payments.

The EITC, AOTC, and ACTC are refundable tax credits

that offset income tax owed by taxpayers. If the credit

exceeds the amount of taxes due, the IRS provides a 

refund payment to those who qualify. The IRS estimates

that for FY 2019, 25% ($17.2 billion) of the total EITC

payments of $68.7 billion were improper. For the AOTC,

the IRS estimates that for FY 2019, 26% ($2 billion) of the

total payments of $7.9 billion were improper. For the

ACTC, the IRS estimates that for FY 2019, 15% ($7.2 

billion) of the total payments of $47.7 billion were

improper. The IRS is not reporting an estimate for FY 

2019 for PTC, as further analysis of the related data is

needed. The IRS has a robust enforcement program for

all of its refundable tax credits which consists of

examinations and audits, math error notices, and

document matching. 

We are reporting improper payment estimates for these

three refundable tax credits in accordance with OMB

Circular A-123, Appendix C: Requirements for Payment

Integrity Improvement. However, it is our position that

refundable tax credit refunds that result in overclaims

should not be reported under the improper payments

framework. Rather they are more appropriately

addressed in the tax gap (see Part 3, Section A: Tax Gap

and Tax Burden, of this report), which is how we manage

noncompliance. Additional information on refundable tax

credits and improper payment reporting can be found in

Part 3, Section E: Payment Integrity.

Payment Recapture Audits

The Improper Payments Elimination and Recovery Act of

2010 (IPERA) requires agencies to conduct payment

recapture audits (also known as recovery audits) for each

program and activity that expends $1 million or more

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

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

Details on our improper payments and payment recapture
42 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | MANAGEMENT’S DISCUSSION AND ANALYSIS

program activities and results can be found in Part 3,

Section E, of this report.

Do Not Pay Initiative

Our Do Not Pay Working System (hereafter referred to as

“Working System”) is the legislatively mandated and

OMB designated source of centralized data and analytic

services to help agencies verify eligibility and to identify

and prevent potential fraud, waste, and abuse associated

with improper payments. The results of the checks

against these data sources provide information that an

agency should consider in pre-award or prepayment

assessments to help prevent improper payments. Our

shared service provider, the Administrative Resource

Center (ARC) within Fiscal Service, compares our records

in the financial system with payee records in the Working

System. We review potential matches on an ongoing

basis to prevent improper payments, and incorporate a 

pre-award check on potential contractors against the

Working System. Additional information on the Do Not

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

report.
PART 2: 

FINANCIAL SECTION

MESSAGE FROM THE ASSISTANT SECRETARY

FOR MANAGEMENT AND DEPUTY CHIEF

FINANCIAL OFFICER.......................................................45

INSPECTOR GENERAL’S TRANSMITTAL LETTER.........................47

INDEPENDENT AUDITORS’ REPORT........................................49

MANAGEMENT’S RESPONSE TO INDEPENDENT

AUDITORS’ REPORT.......................................................55

FINANCIAL STATEMENTS .....................................................56

NOTES TO THE FINANCIAL STATEMENTS................................. 63

REQUIRED SUPPLEMENTARY INFORMATION

(UNAUDITED) .............................................................141

DEPARTMENT OF THE TREASURY 45

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT AND

DEPUTY CHIEF FINANCIAL OFFICER

In fiscal year 2019, Treasury pursued an aggressive set of initiatives to manage

the Department more efficiently and responsibly. Treasury vigorously embraced

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

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

modernizing information technology, improving workforce performance, leveraging

data as a strategic asset, and delivering excellent financial management services.

In fiscal year 2019, Treasury also demonstrated effective fiscal and management

leadership by: 

• Treasury refined our cutting-edge strategic planning and performance measurement processes and tools to consistently

focus on our highest priorities, including the President’s Management Agenda, while identifying ways to meaningfully

implement new “good government” legislative requirements under the Evidence Act and the Program Management

Improvement Accountability Act;

• The Chief Information Officer strengthened our internal cybersecurity by driving critical reviews of and improvements

to our High Value Assets, and expansion of our education and awareness programs.

• Treasury’s human capital and information technology communities collaborated to implement the first module of an

Integrated Talent Management system that consolidates numerous Treasury human resources systems into a single

platform;

• In the wake of an extended lapse in appropriations this past January, Treasury provided ongoing support to federal

programs that remained operational during the partial shutdown by ensuring the continuity of their allowable payments

and collections without major disruption;

• Management began identifying and implementing ways to improve communications within and across the Department

to drive higher levels of employee engagement; and

• For the first time in eight years, Treasury received an A+ rating for small business programs compliance efforts that met

all requirements pertaining to the Small Business Act Section 15(k).

The Department received an unmodified audit opinion on its consolidated financial statements for the 20th consecutive year. 

Despite the complexity of Treasury’s financial systems, we continue to make steady progress toward fully resolving all

remaining deficiencies associated with our internal controls. 

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

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

David F. Eisner Carole Y. Banks

Assistant Secretary for Management Deputy Chief Financial Officer 

November 15, 2019 November 15, 2019

David F. Eisner

Assistant Secretary 

for Management

Carole Y. Banks

Deputy Chief Financial

Officer
[Page intentionally left blank]
DEPARTMENT OF THE TREASURY 47

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

OFFICE OF

INSPECTOR GENERAL

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

INSPECTOR GENERAL’S TRANSMITTAL LETTER

November 15, 2019 

INFORMATION MEMORANDUM FOR SECRETARY MNUCHIN

FROM: Richard K. Delmar /s/

 Acting Inspector General

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

Fiscal Years 2019 and 2018 

INTRODUCTION

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

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

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

KPMG LLP (KPMG) to audit the consolidated financial statements of Treasury as of September 30, 2019 

and 2018, and for the years then ended, to provide a report on internal control over financial reporting, to 

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

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

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

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

standards and Office of Management and Budget (OMB) Bulletin No. 19-03, Audit Requirements for 

Federal Financial Statements. 

RESULTS OF INDEPENDENT AUDIT 

In its audit of Treasury, KPMG reported

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

with U.S. generally accepted accounting principles;

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

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

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

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

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

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

representing a significant deficiency for Treasury as a whole;

• noncompliance with certain requirements of FFMIA related to federal financial management

systems requirements; and

• no instances of reportable noncompliance with laws, regulations, contracts and grant agreements

tested.

EVALUATION OF AUDITORS’ PERFORMANCE

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

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

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

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

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

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

report dated November 15, 2019, and the conclusions expressed in the report. However, our review 

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

government auditing standards. 

I appreciate the courtesy and cooperation extended to KPMG and my staff during the audit. If you wish to 

discuss this report, please contact me at (202) 622-1090 or Deborah L. Harker, Assistant Inspector General 

for Audit, at (202) 927-5400. 

Attachment

cc: David F. Eisner 

Assistant Secretary for Management

Carole Y. Banks 

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

firm of the KPMG network of independent member firms affiliated with 

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

KPMG LLP

Suite 12000

1801 K Street, NW

Washington, DC 20006

Independent Auditors’ Report 

Acting Inspector General 

Department of the Treasury: 

Report on the Financial Statements 

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

(Department), which comprise the consolidated balance sheets as of September 30, 2019 and 2018, and the 

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

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

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

statements”).

Management’s Responsibility for the Financial Statements 

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

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

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

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

Auditors’ Responsibility 

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

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

Department, which statements reflect total assets of $153.3 and $66.7 billion, net cost of operations of $13.1 

and $12.6 billion before applicable eliminating entries, budgetary resources of $13.1 and $13.1 billion, and 

custodial activity of $3,651 and $3,471 billion, as of and for the years ended September 30, 2019 and 

September 30, 2018, respectively. Those statements were audited by other auditors, whose report has been 

furnished to us, and our opinion, insofar as it relates to the amounts included for IRS, is based solely on the 

report of the other auditors. 

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

the Department, which statements reflect total assets of $15.8 and $17.2 billion, net cost of operations of $1.4 

and $2.2 billion before applicable eliminating entries, and budgetary resources of $262 and $240 million, as of 

and for the years ended September 30, 2019 and September 30, 2018, respectively. Those statements were 

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

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

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

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

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

Management and Budget (OMB) Bulletin No. 19-03, Audit Requirements for Federal Financial Statements. 

Those standards and OMB Bulletin No. 19-03 require that we plan and perform the audit to obtain reasonable 

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

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

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

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

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

49
preparation and fair presentation of the consolidated financial statements in order to design audit procedures

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

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

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

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

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

audit opinion.

Opinion 

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

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

as of September 30, 2019 and 2018, and its net costs, changes in net position, budgetary resources, and

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

Emphasis of Matter 

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

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

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

Furthermore, as discussed in Notes 1V and 10, the value of certain investments and commitments is based on

estimates. These estimates are inherently subject to substantial uncertainty arising from the likelihood of future

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

between the estimated value of these investments and commitments as of September 30, 2019 and 2018, and

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

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

opinion is not modified with respect to these matters.

Other Matters 

Interactive Data

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

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

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

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

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

an opinion or provide any assurance on it.

Required Supplementary Information

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

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

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

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

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

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

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

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

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

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

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

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

50
Other Information

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

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

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

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

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

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

Other Reporting Required by Government Auditing Standards

Internal Control over Financial Reporting 

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

September 30, 2019, we considered the Department’s internal control over financial reporting (internal control)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

important enough to merit attention by those charged with governance.

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

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

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

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

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

below that we consider to be significant deficiencies.

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

Service

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

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

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

manage government-wide cash and the federal debt. Although Fiscal Service made progress towards

remediating prior-year information system control deficiencies, Fiscal Service had unresolved and newly

identified control deficiencies related to its general information technology controls over the government-wide

cash and the federal debt information systems as follows:

1. Cash Management Information Systems

Fiscal Service had unresolved and newly identified control deficiencies related to its general information

technology controls over its cash management systems and did not provide reasonable assurance that: (1) the

concept of least privilege is employed to prevent significant security exposures; (2) accounts were reviewed for

compliance with account management requirements and access to systems is protected against unauthorized

modification, loss, or disclosure; (3) separated user accounts are disabled and removed in a timely manner; (4)

security events are logged and monitored, and potential vulnerabilities are investigated and resolved; (5)

51
responsibilities are properly segregated; (6) changes to systems are authorized, properly configured, and

secured as intended; and (7) baseline policies and procedures for security configuration controls, including

password controls, were adequately documented and fully implemented for all platforms. These deficiencies

resulted because Fiscal Service did not effectively verify and validate that its corrective actions remediated

control deficiencies; identify and effectively confirm that the controls were properly designed, implemented, and

operating effectively; identify all risks and implement controls to address such risks; establish clear

responsibilities in its information technology plans, policies, and procedures; and focus sufficient resources to

perform the controls for all platforms supporting financial systems. Until these control deficiencies are fully

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

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

financial systems.

2. Federal Debt Information Systems

Fiscal Service continued to have information system control deficiencies—primarily unresolved control

deficiencies from prior audits—related to its federal debt information systems. These continuing control

deficiencies relate to information system general controls in the areas of security management, access

controls, and configuration management. Fiscal Service’s corrective action plans for addressing the prior year

deficiencies did not include sufficient detail to facilitate a common understanding of the deficiencies and the

root causes or the steps and resources needed to fully resolve them. As a result, Fiscal Service’s corrective

actions did not consistently resolve the underlying causes of the control deficiencies and many of the

deficiencies that contributed to the significant deficiency reported in the prior year—all of which, according to

Fiscal Service, had been remediated—remained unresolved as of September 30, 2019. Specifically, Fiscal

Service continued to have instances in which known information system vulnerabilities and deviations from

baseline security requirements were not being remediated on a timely basis and or adequately tracked for

remediation. Additionally, Fiscal Service continued to have instances in which mainframe security controls were

not employed in accordance with the concept of least privilege.

Recommendation

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

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

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

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

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

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

financial information is obtained, maintained, and reported in accordance with OMB Circular A-123,

Management’s Responsibility for Enterprise Risk Management and Internal Control. However, the other

auditors reported significant deficiencies in internal control over unpaid tax assessments and internal control

over financial reporting systems that we collectively considered as a significant deficiency at the Department

level. IRS internal control deficiencies are summarized as follows:

1. Unpaid Tax Assessments

IRS continued to have limitations in the financial systems it uses to account for federal taxes receivable and

other unpaid assessment balances, as well as other control deficiencies that led to errors in the taxpayer

accounts. As a result, IRS financial reporting systems did not provide timely, reliable, and complete

transaction-level financial information necessary to enable IRS to appropriately classify and report unpaid

assessment balances. IRS applied a complex and labor-intensive statistical estimation process to

compensate for the effects of its system limitations and other deficiencies on a material portion of its federal

taxes receivable balance to help ensure that this balance was free of material misstatement. During FY

2019, IRS recorded multi-billion dollar adjustments to correct the effects of continued errors in its underlying

data that IRS identified during its manual estimation process. This estimation process does not provide IRS

management with readily available, reliable unpaid assessment information on a daily basis throughout the

52
year in order to effectively manage unpaid assessment balances. Further, errors in taxpayer accounts create

a burden for those taxpayers whose accounts were affected.

2. Financial Reporting Systems

IRS had unresolved and newly identified control deficiencies related to its business process application

controls and general controls in its information systems. Specifically, IRS did not correct previously reported

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

monitoring of systems and accounts, (3) out-of-date and unsupported hardware and software, (4) change

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

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

during this year’s audit, the other auditors found new control deficiencies in the following areas: (1)

implementing automated financial controls of interfaces between key applications, (2) ensuring that

authorized personnel reviewed key documents for external systems, (3) enforcing multifactor authentication,

(4) enforcing adequate encryption to protect systems and data, and (5) ensuring that patches installed on

systems were current to protect against known vulnerabilities.

Recommendation

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

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

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

Compliance and Other Matters 

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

as of and for the year ended September 30, 2019 are free from material misstatement, we, and the other

auditors, performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant

agreements, noncompliance with which could have a direct and material effect on the determination of financial

statement amounts. However, providing an opinion on compliance with those provisions was not an objective of

our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances

of noncompliance or other matters that are required to be reported under Government Auditing Standards or

OMB Bulletin No. 19-03.

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

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

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

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

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

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

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

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

transaction level.

C. Noncompliance with Federal Financial Management Improvement Act of 1996

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

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

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

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

systems in accordance with the federal financial management system requirements.

Recommendation

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

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

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

53
plans outlining actions to be taken to resolve noncompliance with the federal financial management system

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

Department’s Response to Findings

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

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

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

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

express no opinion on the response.

Purpose of the Other Reporting Required by Government Auditing Standards 

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

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

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

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

Washington, DC

November 15, 2019

54
DEPARTMENT OF THE TREASURY 55

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

MANAGEMENT’S RESPONSE TO INDEPENDENT AUDITORS’ REPORT

November 15, 2019 

KPMG LLP

1801 K Street, NW

Washington, DC 20006 

Ladies and Gentlemen:

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

Treasury's fiscal year 2019 consolidated financial statements. Our bureaus and program offices are

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

financial statements for the 20th consecutive year.

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

conducting this year's audit contributed greatly to Treasury's successful fiscal year 2019 results. We

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

audit process -the Office of Inspector General, Government Accountability Office, and the firms that

audited several of our bureaus.

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

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

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

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

proud of our progress and remain committed to ensuring high standards of integrity and transparency in

reporting our financial performance.

David F. Eisner Carole Y. Banks 

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

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Consolidated Balance Sheets

As of September 30, 2019 and 2018

(in millions) 2019 2018 

ASSETS

Intra-governmental Assets

Fund Balance (Note 2) $ 415,327 $ 424,868 

Loans and Interest Receivable (Note 3) 1,581,019 1,524,696 

Advances to Federal Supplementary Medical Insurance Trust Fund (Note 4) 3,152 5,027 

Due From the General Fund (Note 4) 22,855,331 21,646,633 

Other Intra-governmental Assets 1,011 770 

Total Intra-governmental Assets 24,855,840 23,601,994 

Cash, Foreign Currency, and Other Monetary Assets (Note 5) 441,365 444,571 

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

Reserve Position in the International Monetary Fund (Note 7) 22,955 15,364 

Taxes, Interest, and Other Receivables, Net (Note 8) 145,878 59,637 

Credit Program Receivables, Net (Note 9) 4,867 5,017 

Loans and Interest Receivable, Net (Note 7) 2,525 4,509 

Investments in Government Sponsored Enterprises (GSEs) (Note 10) 112,070 113,150 

Investments in Multilateral Development Banks (Note 11) 7,773 7,741 

Other Investments and Related Interest (Note 12) 6,631 7,062 

Property, Plant, and Equipment, Net (Note 13) 2,870 2,947 

Other Assets 700 701 

Total Assets (Note 14) $ 25,614,536 $ 24,273,755 

Heritage Assets (Note 13)

The accompanying notes are an integral part of these financial statements.
DEPARTMENT OF THE TREASURY 57

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Consolidated Balance Sheets

As of September 30, 2019 and 2018

(in millions) 2019 2018 

LIABILITIES 

Intra-governmental Liabilities

Federal Debt and Interest Payable (Notes 4 and 15) $ 5,981,029 $ 5,821,642 

Other Debt and Interest Payable (Note 16) 8,869 10,414 

Due To the General Fund (Note 4) 2,213,616 2,072,917 

Other Intra-governmental Liabilities (Note 18) 632 631 

Total Intra-governmental Liabilities 8,204,146 7,905,604 

Federal Debt and Interest Payable (Notes 4 and 15) 16,839,627 15,789,917 

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

Allocation of Special Drawing Rights (Note 5) 48,146 49,274 

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

Refunds Payable (Notes 4 and 22) 2,939 2,994 

D.C. Federal Pension and Judicial Retirement Actuarial Liability (Note 17) 8,398 8,372 

Other Liabilities (Note 18) 5,467 5,544 

Total Liabilities (Note 18) 25,124,960 23,777,942 

Commitments and Contingencies (Note 26)

NET POSITION

Unexpended Appropriations: 

 Funds from Dedicated Collections (Note 23) 200 200 

 Other Funds 419,396 425,792 

 Subtotal 419,596 425,992 

Cumulative Results of Operations:

 Funds from Dedicated Collections (Note 23) 46,351 46,163 

 Other Funds 23,629 23,658 

 Subtotal 69,980 69,821 

Total Net Position - Funds from Dedicated Collections (Combined Totals) (Note 23) 46,551 46,363 

Total Net Position - Other Funds (Combined Totals) 443,025 449,450 

Total Net Position (Note 19) 489,576 495,813 

Total Liabilities and Net Position $ 25,614,536 $ 24,273,755 

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

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Consolidated Statements of Net Cost

For the Fiscal Years Ended September 30, 2019 and 2018

(in millions) 2019 2018 

Cost of Treasury Operations: 

Financial Program

Gross Cost $ 6,214 $ 6,984 

Less Earned Revenue (3,446) (2,954) 

Net Program Cost 2,768 4,030 

Economic Program

Gross Cost 22,423 28,402 

Less Earned Revenue (9,488) (11,598) 

Net Program Cost 12,935 16,804 

Security Program

Gross Cost 432 466 

Less Earned Revenue (5) (7) 

Net Program Cost 427 459 

Total Program Gross Costs 29,069 35,852 

Total Program Gross Earned Revenues (12,939) (14,559) 

Total Net Program Cost before Changes in Actuarial Assumptions 16,130 21,293 

(Gain)/Loss on Pension, ORB, or OPEB Assumption Changes 500 113 

Total Net Cost of Treasury Operations (Note 20) 16,630 21,406 

Non-Entity Costs:

Federal Debt Interest 570,948 527,144 

Restoration of Foregone Federal Debt Interest (Note 15) 2,371 804 

Less Interest Revenue from Loans (44,385) (42,948) 

Net Federal Debt Interest Costs 528,934 485,000 

Other Federal Costs, Net (Note 20) 12,016 12,940 

GSEs Non-Entity Revenue, Net (Note 10) (14,199) (30,391) 

Other, Net (761) (706) 

Total Net Non-Entity Costs 525,990 466,843 

Total Net Cost of Treasury Operations and Non-Entity Costs $ 542,620 $ 488,249 

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

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Consolidated Statements of Changes in Net Position

For the Fiscal Years Ended September 30, 2019 and 2018

(in millions) 2019 2018 

UNEXPENDED APPROPRIATIONS (Notes 19 and 23)

Beginning Balance $ 425,992 $ 427,329 

Budgetary Financing Sources

Appropriations Received (Note 19) 600,585 547,756 

Appropriations Transferred In/Out - 10 

Other Adjustments (Note 19) (10,433) (5,839) 

Appropriations Used (596,548) (543,264) 

Total Budgetary Financing Sources (6,396) (1,337) 

Total Unexpended Appropriations 419,596 425,992 

CUMULATIVE RESULTS OF OPERATIONS (Notes 19 and 23)

Beginning Balance 69,821 69,996 

Budgetary Financing Sources

Appropriations Used 596,548 543,264 

Non-Exchange Revenue 427 179 

Donations and Forfeitures of Cash/Equivalent 600 413 

Transfers In/Out Without Reimbursement (766) (86) 

Other 233 102 

Other Financing Sources (Non-Exchange)

Donation/Forfeiture of Property 74 156 

Accrued Interest and Discount on Debt 8,030 21,395 

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

Imputed Financing Sources (Note 20) 807 779 

Transfers to the General Fund and Other (Note 19) (63,174) (77,468) 

Total Financing Sources 542,779 488,074 

Net Cost of Treasury Operations and Non-Entity Costs (542,620) (488,249) 

Net Change 159 (175) 

Cumulative Results of Operations 69,980 69,821 

Net Position $ 489,576 $ 495,813 

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

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Combined Statement of Budgetary Resources

For the Fiscal Year Ended September 30, 2019

Non-Budgetary 2019 

(in millions) Budgetary Financing Total 

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net

 (discretionary and mandatory) $ 314,985 $ 19 $ 315,004 

Appropriations (discretionary and mandatory) (Note 19) 606,913 - 606,913 

Borrowing authority (discretionary and mandatory) (Note 21) - 125 125 

Spending authority from offsetting collections 

 (discretionary and mandatory) 7,830 425 8,255 

Total Budgetary Resources $ 929,728 $ 569 $ 930,297 

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 614,608 $ 340 $ 614,948 

Unobligated balance, end of year:

 Apportioned, unexpired accounts 272,845 12 272,857 

 Exempt from apportionment, unexpired accounts 1,752 - 1,752 

 Unapportioned, unexpired accounts 40,148 217 40,365 

 Unexpired unobligated balance, end of year 314,745 229 314,974 

 Expired unobligated balance, end of year 375 - 375 

Unobligated balance, end of year 315,120 229 315,349 

Total Status of Budgetary Resources $ 929,728 $ 569 $ 930,297 

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ 606,826 $ (202) $ 606,624 

Distributed offsetting receipts (68,686) - (68,686) 

Agency Outlays, Net (Discretionary and Mandatory) $ 538,140 $ (202) $ 537,938 

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

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Combined Statement of Budgetary Resources

For the Fiscal Year Ended September 30, 2018

Non-Budgetary 2018 

(in millions) Budgetary Financing Total 

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net

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

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

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

Spending authority from offsetting collections 

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

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

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 568,169 $ 482 $ 568,651 

Unobligated balance, end of year:

 Apportioned, unexpired accounts 271,380 9 271,389 

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

 Unapportioned, unexpired accounts 40,139 83 40,222 

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

 Expired unobligated balance, end of year 419 - 419 

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

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

OUTLAYS, NET

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

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

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

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

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Statements of Custodial Activity

For the Fiscal Years Ended September 30, 2019 and 2018

(in millions) 2019 2018 

Sources of Custodial Revenue (Note 22)

Individual Income and FICA Taxes $ 3,176,406 $ 3,089,758 

Corporate Income Taxes 277,058 262,742 

Estate and Gift Taxes 17,565 23,866 

Excise Taxes 100,566 94,267 

Railroad Retirement Taxes 6,219 6,324 

Unemployment Taxes 6,438 8,807 

Deposit of Earnings, Federal Reserve System 52,793 70,750 

Fines, Penalties, Interest and Other Revenue 5,591 5,712 

Total Revenue Received 3,642,636 3,562,226 

Less Refunds and Other Payments (452,434) (464,167) 

Net Revenue Received 3,190,202 3,098,059 

Non-Cash Accrual Adjustment 86,298 6,213 

Total Custodial Revenue 3,276,500 3,104,272 

Disposition of Custodial Revenue (Note 22)

Amounts Provided to Fund Non-Federal Entities 454 455 

Amounts Provided to Fund the Federal Government 3,189,748 3,097,604 

Non-Cash Accrual Adjustment 86,298 6,213 

Total Disposition of Custodial Revenue 3,276,500 3,104,272 

Net Custodial Revenue $ - $ - 

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

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

TABLE OF CONTENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.......................................................................................................................... 64

2. FUND BALANCE ....................................................................................................................................................................................... 83

3. LOANS AND INTEREST RECEIVABLE – INTRA-GOVERNMENTAL ..................................................................................................... 84

4. DUE FROM THE GENERAL FUND AND DUE TO THE GENERAL FUND ............................................................................................. 86

5. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS ........................................................................................................ 88

6. GOLD AND SILVER RESERVES, AND GOLD CERTIFICATES ISSUED TO THE FEDERAL RESERVE BANKS .................................... 90

7. RESERVE POSITION IN THE INTERNATIONAL MONETARY FUND AND RELATED LOANS AND INTEREST RECEIVABLE .......... 91

8. TAXES, INTEREST, AND OTHER RECEIVABLES, NET ......................................................................................................................... 92

9. CREDIT PROGRAM RECEIVABLES,NET ............................................................................................................................................... 93

10. INVESTMENTS IN GOVERNMENT SPONSORED ENTERPRISES........................................................................................................... 95

11. INVESTMENTS IN MULTILATERAL DEVELOPMENT BANKS ........................................................................................................... 100

12. OTHER INVESTMENTS AND RELATED INTEREST ............................................................................................................................ 100

13. PROPERTY, PLANT, AND EQUIPMENT, NET ..................................................................................................................................... 101

14. NON-ENTITY VS. ENTITY ASSETS ...................................................................................................................................................... 102

15. FEDERAL DEBT AND INTEREST PAYABLE ........................................................................................................................................ 103

16. OTHER DEBT AND INTEREST PAYABLE ............................................................................................................................................ 107

17. D.C. FEDERAL PENSION AND JUDICIAL RETIREMENT ACTUARIAL LIABILITY ........................................................................... 108

18. LIABILITIES ........................................................................................................................................................................................... 110

19. NET POSITION ...................................................................................................................................................................................... 111

20. CONSOLIDATED STATEMENTS OFNET COST ANDNET COSTS OF TREASURY SUB-ORGANIZATIONS .................................... 112

21. ADDITIONAL INFORMATION RELATED TO THE COMBINED STATEMENTS OF BUDGETARY RESOURCES ............................... 118

22. SOURCES AND DISPOSITION OF CUSTODIAL REVENUE .................................................................................................................. 120

23. FUNDS FROM DEDICATED COLLECTIONS ......................................................................................................................................... 122

24. RECONCILIATION OFNET COST OF TREASURY OPERATIONS ANDNON-ENTITY COSTS TO AGENCY OUTLAYS, NET ........ 126

25. SCHEDULE OF FIDUCIARY ACTIVITY ................................................................................................................................................. 128

26. COMMITMENTS AND CONTINGENCIES .............................................................................................................................................. 129

27. RECLASSIFICATION OF AGENCY FINANCIAL STATEMENTS TO FINANCIAL REPORT

OF THE U.S. GOVERNMENT FORMAT ............................................................................................................................................ 134

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED – SEE ACCOMPANYING AUDITORS’ REPORT) ................................... 141
64 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. REPORTING ENTITY

The accompanying financial statements include the operations of the Department of the Treasury, one of 24 Chief Financial

Officers (CFO) Act agencies of the Executive Branch of the United States (U.S.) government, and certain custodial activities

the Department manages on behalf of the entire U.S. government. Except where the content clearly indicates otherwise, the

use of the terms “Department,” “Treasury,” “we,” “us,” or “our” refers to the Department of the Treasury, including its

Departmental Offices (DO) and operating bureaus which are further discussed below. The following paragraphs describe the

activities of the reporting entity.

We were established by an Act of Congress approved on September 2, 1789. Many subsequent acts affected our development,

delegating new duties to our charge and establishing the numerous bureaus and divisions that now comprise the

Department. As a major policy advisor to the President, the Secretary of the Treasury (Secretary) has primary responsibility

for formulating and managing the domestic and international tax and financial policies of the U.S. government.

Further, the Secretary is responsible for recommending and implementing U.S. domestic and international economic and

fiscal policy; governing the fiscal operations of the U.S. government; maintaining foreign assets control; managing the

federal debt; collecting income and excise taxes; representing the U.S. on international monetary, trade, and investment

issues; overseeing our overseas operations; and directing the manufacture of coins, currency, and other products for customer

agencies and the public.

Our reporting entities include DO and seven operating bureaus. For financial reporting purposes, DO is composed of:

Community Development Financial Institutions (CDFI) Fund, Office of D.C. Pensions (ODCP), Exchange Stabilization Fund

(ESF), Federal Financing Bank (FFB), Government Sponsored Enterprises (GSEs) Program, International Assistance

Programs (IAP), Office of Financial Research (OFR), Office of Financial Stability (OFS), Office of Inspector General (OIG),

Small Business Lending Fund (SBLF), Special Inspector General for the Troubled Asset Relief Program (SIGTARP), 

Treasury Forfeiture Fund (TFF), Treasury Inspector General for Tax Administration (TIGTA), and the DO policy offices.

Our seven operating bureaus are: Bureau of Engraving and Printing (BEP), Bureau of the Fiscal Service (Fiscal Service), 

Financial Crimes Enforcement Network (FinCEN), Internal Revenue Service (IRS), U.S. Mint (Mint), Office of the

Comptroller of the Currency (OCC), and Alcohol and Tobacco Tax and Trade Bureau (TTB). Our consolidated financial

statements reflect the reporting of our entity activities, comprising both our operating bureaus and DO. This includes

appropriations received to conduct our operations and revenue generated from those operations. They also reflect the

reporting of certain non-entity (custodial) functions we perform on behalf of the U.S. government and others. Non-entity

activities include collecting certain federal revenue, servicing the federal debt, disbursing certain federal funds, and

maintaining certain assets and liabilities for the U.S. government (refer to Notes 4 and 14), as well as for other federal

entities. Our reporting entity does not include the General Fund of the U.S. Government (General Fund), which maintains

receipt, disbursement, and appropriation accounts for all federal agencies. 
DEPARTMENT OF THE TREASURY 65

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Following U.S. Generally Accepted Accounting Principles (GAAP) for federal entities, we do not consolidate into our financial

statements the assets, liabilities, or results of operations of any financial organization or commercial entity in which we hold

either a direct or indirect majority equity investment, unless they meet the principles of inclusion for “consolidation entities”

as described in Statement of Federal Financial Accounting Standards (SFFAS) No. 47, Reporting Entity. Certain of our

significant equity investments do not meet the inclusion principles for “consolidation entities.” SFFAS No. 47 also provides

criteria for reporting “disclosure entities” and “related party” relationships of such significance that it would be misleading to

exclude information about them. Refer to the accounting policy below entitled “Disclosure Entities and Related Parties” for 

additional information on Treasury’s “disclosure entities” and “related parties” which are material to our consolidated

financial statements, of significance to the public, or required by SFFAS No. 47.

B. BASIS OF ACCOUNTING AND PRESENTATION

The financial statements have been prepared from our accounting records in conformity with GAAP, and Office of

Management and Budget (OMB) Circular No. A-136, Financial Reporting Requirements, as revised. Accounting principles

generally accepted for federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board

(FASAB). The American Institute of Certified Public Accountants recognizes FASAB as the official accounting standardssetting body for the U.S. government. SFFAS No. 56, Classified Activities, allows certain presentations and disclosures to be

modified, if needed, to prevent the disclosure of classified information. 

These financial statements consist of the Consolidated Balance Sheets, the Consolidated Statements of Net Cost, the

Consolidated Statements of Changes in Net Position, the Combined Statements of Budgetary Resources, and the Statements

of Custodial Activity. The statements and the related notes are prepared in a comparative form to present both fiscal year

(FY) 2019 and 2018 information.

We have eliminated transactions and balances among our entities from the Consolidated Balance Sheets, Consolidated

Statements of Net Cost, and Consolidated Statements of Changes in Net Position. We present the Statements of Budgetary

Resources on a combined basis; therefore, intra-departmental transactions and balances have not been eliminated from these

statements. 

While these financial statements have been prepared from our accounting records in accordance with the formats prescribed

by OMB, these financial statements are in addition to the financial reports used to monitor and control budgetary resources

which are prepared from the same accounting records. 

Intra-governmental assets and liabilities are those due from or to other federal entities. Intra-governmental earned

revenues are collections or accruals of revenue from other federal entities, and intra-governmental costs are payments or

accruals of expenditures to other federal entities.
66 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

The financial statements should be read with the recognition that we are a component of the U.S. government, a sovereign

entity and, accordingly, our liabilities not covered by budgetary resources cannot be liquidated without the legislative

enactment of an appropriation, and that the payment of all liabilities other than for contracts can be abrogated by the

sovereign entity. Liabilities represent the probable and measurable future outflow or other sacrifice of resources as a result

of past transactions or events. Liabilities covered by budgetary resources are those liabilities for which Congress has

appropriated funds or funding is otherwise available to pay amounts due. Liabilities not covered by budgetary resources

represent amounts owed in excess of available, congressionally appropriated funds or other amounts, and there is no

certainty that the appropriations will be enacted. Liabilities not requiring budgetary resources are liabilities that have not

in the past required, nor will in the future, require budgetary resources, e.g., liabilities for clearing accounts, non-fiduciary

deposit funds, custodial collections, and unearned revenue. 

We have reclassified certain FY 2018 activity and balances presented on the financial statements to conform to the 

presentation in the current year, the effects of which are immaterial. 

There are numerous acronyms used throughout the notes herein as well as other sections of this Agency Financial Report

(AFR). Refer to the “Glossary of Acronyms” located in the Appendix of this report for a complete listing of these acronyms

and their definitions.

C. FUND BALANCE

“Fund Balance” is the aggregate amount of our accounts with the U.S. government’s central accounts from which we are

authorized to make expenditures and pay liabilities. It is an asset because it represents our claim to the U.S. government’s

resources. “Fund Balance” is not equivalent to unexpended appropriations because it also includes non-appropriated

revolving and enterprise funds, suspense accounts, and custodial funds such as deposit funds, special funds, and trust funds.

D. LOANS AND INTEREST RECEIVABLE

Intra-Governmental

Intra-governmental entity loans and interest receivable from other federal agencies represent the principal and related

interest receivable on loans we issue through FFB. We do not record loan loss allowance for credit reform subsidy costs for 

loans purchased from federal agencies or for guaranteed loans made to non-federal borrowers because those agencies

guarantee the outstanding balances (interest and principal). 

Intra-governmental non-entity loans and interest receivable from other federal agencies represent the principal and related

interest receivable on loans we issue, through the Fiscal Service. We act as an intermediary issuing these loans because the

agencies receiving these loans lend these funds to third parties to carry out various programs of the U.S. government. 

Because of our intermediary role in issuing these loans, we do not record a loan loss allowance related to these non-entity

intra-governmental loans. Instead, the ultimate lender, the federal agency that issued the loans to the public, recognizes

loan loss allowances and subsidy costs. We accrue interest revenue on intra-governmental loans when earned. 
DEPARTMENT OF THE TREASURY 67

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Public 

Public loans and interest receivable primarily represent a supplemental borrowing arrangement between the U.S. and the

International Monetary Fund (IMF) (refer to Note 7). These loans are denominated in Special Drawing Rights (SDRs) and

recorded at the equivalent U.S. dollar amount (refer to the accounting policy below entitled “Special Drawing Rights”). We

periodically adjust the value of these loans, due to fluctuations in the value of the U.S. dollar with respect to the SDR, to

maintain the amount of these loans in dollar terms. We do not record a loan loss allowance for these loans as we do not

anticipate any defaults on the repayment of these loans. 

E. ADVANCES TO THE FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND

The General Fund issues advances to the Department of Health and Human Services’ (HHS) Federal Supplementary

Medical Insurance Trust Fund to temporarily replace the reduction in Medicare Part B participants’ premiums. The Fiscal

Service accounts for the advances issued on behalf of the General Fund. As outlined in 42 USC 1395, Prohibition Against

Any Federal Interference, these advances do not bear any interest. HHS repays advances over time from amounts collected

from certain participants’ increase in premiums until the balance due reaches zero. 

F. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS

Substantially all of our operating cash is non-entity government-wide cash held in depository institutions and Federal

Reserve Bank (FRB) accounts. Agencies deposit funds that are submitted to them directly into either a Federal Reserve

Treasury General Account (TGA) or a local TGA depositary. We transfer the balances in these TGA accounts into the

Federal Reserve Bank of New York’s (FRBNY) TGA throughout the day.

Operating cash of the U.S. government represents balances from tax collections, customs duties, other revenue, federal debt

receipts, and other various receipts, net of cash outflows for budget outlays and other payments held in the FRBs and in

foreign and domestic financial institutions. Outstanding checks net against operating cash until they clear the Federal

Reserve System (FR System). 

The FRBNY maintains the TGA, which functions as the U.S. government’s checking account for deposits and disbursements

of public funds. Cash in the TGA is restricted for government-wide operations.

We classify our foreign currency investments having original maturities of three months or less as cash equivalents. SDR

holdings comprise most of the other monetary assets (refer to the accounting policy below entitled “Special Drawing Rights”).

G. TAXES, INTEREST, AND OTHER RECEIVABLES, NET

We do not accrue federal taxes receivable, net, and the corresponding liability due to the General Fund, until related tax

returns are filed or assessments are made by the IRS and agreed to by either the taxpayer or the court. Additionally,

prepayments are netted against liabilities. We make accruals to reflect penalties and interest on taxes receivable through

the balance sheet date.
68 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Taxes receivable consist of unpaid taxes related to Internal Revenue Code (IRC) USC 965 which requires of taxpayers who

are shareholders of certain specified foreign corporations to pay a transition tax on foreign earnings as if those earnings had

been repatriated to the United States. Taxes receivable also consist of unpaid assessments (taxes and associated penalties 

and interest) due from taxpayers. The existence of a receivable is supported by a taxpayer agreement, such as filing of a tax

return without sufficient payment, or a court ruling in favor of the IRS. We record an allowance for doubtful accounts to

reflect an estimate of the portion of total taxes receivable deemed to be uncollectible.

Compliance assessments are unpaid assessments which neither the taxpayer nor a court has affirmed the taxpayer owes to

the U.S. government. Examples include assessments resulting from an IRS audit or examination in which the taxpayer does

not agree with the results. Write-offs consist of unpaid assessments for which the IRS does not expect further collections due

to factors such as taxpayers’ bankruptcy, insolvency, or death. We do not report compliance assessments and write-offs on

the balance sheet. Statutory provisions require the accounts to be maintained until the statute for collection expires.

H. CREDIT PROGRAM RECEIVABLES, NET

We account for all of our credit program receivables under the provisions of credit reform accounting pursuant to the Federal

Credit Reform Act (FCRA). Credit programs include loans or equity securities associated with our state and local Housing

Finance Agency (HFA) initiative programs, SBLF program, CDFI Fund programs, and the Troubled Asset Relief Program

(TARP) (refer to Note 9). 

To account for our credit program receivables, we apply the accounting provisions of SFFAS No. 2, Accounting for Direct

Loans and Loan Guarantees, as amended. SFFAS No. 2 requires measurement of the asset or liability at the net present

value of the estimated future cash flows. The cash flow estimates for each credit program transaction reflect the actual

structure of the instruments. For each of these instruments, we estimate cash inflows and outflows related to the program

over the estimated term of the instrument. Further, each cash-flow estimate reflects the specific terms and conditions of the

program, technical assumptions regarding the underlying assets, risk of default or other losses, and other factors as

appropriate. The measurement of assets within these programs is primarily derived from inputs which generally represent

market data and, when such data is not available, management’s best estimate of how a market participant would assess the

asset’s inherent risk.

The primary purpose of the FCRA is to measure the cost of federal credit programs, and to place the cost of such credit

programs on a basis equivalent with other federal spending. FCRA requires that the ultimate costs of a credit program be

calculated and the budgetary resources be obtained before incurring the direct loan obligations. To accomplish this, we first

predict or estimate the future performance of direct and guaranteed loans when preparing our annual budget. We reestimate the data used for these budgetary estimates at the fiscal year-end to reflect changes in actual loan performance and

actual interest rates in effect when the loans were issued. The re-estimated data reflect adjustments for market risks, asset

performance, and other key variables and economic factors. We then use the re-estimated data to report the cost of the loans

disbursed under the direct or guaranteed loan program as a “Program Cost” in our Consolidated Statements of Net Cost.

Cash flows associated with our credit programs generally include disbursements, repayments, repurchases, fees, recoveries,

interest, dividends, proceeds from sales of instruments, borrowings from Treasury, negative subsidy, and the subsidy cost

received from the program accounts. We draw security-level data and assumptions used as the basis for cash flow model

forecasts and program performance from widely available market sources, as well as information published by investees. 

Key inputs and assumptions to the cash flow forecasts include, but are not limited to:
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• Security characteristics such as unpaid principal balance, coupon rate, weighted-average loan age, issued bond balance,

credit rating, maturity date, sinking fund schedules, principal and interest payment schedules, and performance of

underlying collateral;

• Discount rate and Market Adjusted Discount Rate (MADR);

• Department actions, as well as changes in legislation;

• Forecast dividend payments, late payments, prepayment rates and default rates;

• Expected escrow conversion and return rates;

• Default and recovery reports published by Moody’s and Standard and Poor’s;

• Other third-party market sources.

The recorded subsidy cost associated with each of our credit programs represents the difference between our projected costs

of the program and the future cash flows we anticipate receiving. The subsidy allowance specifically takes into consideration

projected repayments and defaults, and the projected cost of borrowings. We amortize the allowance to reflect the difference

between projected and actual financing costs. 

Our actions, as well as changes in legislation, may impact estimated future cash flows and related subsidy costs. We

recognize the cost or cost savings of a modification in subsidy costs when the terms of a program are modified. Workouts are

actions taken to maximize repayments of existing credit programs, and the expected effects on cash flows are included in the

original estimate and re-estimates of the subsidy cost. Subsidy costs are also impacted by re-estimates which may occur as a 

result of updates to the original program subsidy cost estimates to reflect actual cash flows experience, as well as changes in

forecasts of estimated future cash flows associated with the credit program.

I. INVESTMENTS

Investments in GSEs

We hold senior preferred stock and warrants for the purchase of common stock of two GSEs: the Federal National Mortgage

Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). We present these non-federal

investment holdings at their fair value. We record changes in the valuation of these investments as non-entity exchange

transactions on the Consolidated Statements of Net Cost. We also record dividends related to these investments as nonentity exchange transactions, and accrue when declared.

The GSE Senior Preferred Stock Purchase Agreements (SPSPAs), which we entered into with each GSE when the GSEs

were placed under conservatorship, require that we increase our investment in the GSEs’ senior preferred stock if, at the end

of any quarter, the Federal Housing Finance Agency (FHFA), acting as the conservator, determines that the liabilities of

either GSE exceed its respective assets. Since funding to the GSEs to pay their excess liabilities is appropriated directly to

us, we report such payments, as needed, as entity expenses within the “Economic Program” on the Consolidated Statements

of Net Cost, and in the line item, “Cumulative Results of Operations,” on the Consolidated Balance Sheets. These payments

also result in an increase to the non-entity investment in the GSEs’ senior preferred stock, with a corresponding increase to

“Due To the General Fund,” as we hold the investment on behalf of the General Fund.
70 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Investments in Multilateral Development Banks

On behalf of the U.S., we invest in Multilateral Development Banks (MDBs) to support poverty reduction, private sector

development, transitions to market economies, and sustainable economic growth and development, thereby advancing U.S.

economic, political, and commercial interests abroad. As a participating member country, we provide a portion of the capital

base of the MDBs, through subscriptions to capital, which allows the MDBs to issue loans at market-based rates to middleincome developing countries. These paid-in capital investments are non-marketable equity investments valued at cost on

our Consolidated Balance Sheets.

In addition, on behalf of the U.S., we contribute funding to MDBs to finance grants and extend credit to poor countries at

below market-based interest rates. We report these U.S. contributions, also referred to as “concessional window”

contributions, as an expense within the “Financial Program” on our Consolidated Statements of Net Cost.

Other Investments and Related Interest

The ESF holds most of our foreign currency investments. We classify the ESF’s other foreign currency denominated assets

and investment securities as either available-for-sale or trading securities recorded at fair value. These holdings are

normally invested in interest-bearing securities issued or held through foreign governments or monetary authorities. We

recognize interest on investments, amortization of premiums, and accretion of discounts on an accrual basis, and amortize or

accrete premiums and discounts over the life of the related investment security as an adjustment to yield using the effective

interest method. 

J. PROPERTY, PLANT, AND EQUIPMENT, NET

General

Property, plant, and equipment (PP&E) is composed of capital assets used in providing goods or services. It also includes

assets acquired through capital leases, which are initially recorded at the amount recognized as a liability for the capital

lease at its inception. PP&E is stated at full cost, including costs related to acquisition, delivery, and installation, less

accumulated depreciation. Major alterations and renovations, including leasehold and land improvements, are capitalized,

while maintenance and repair costs are charged to expense as incurred. Costs for construction projects are recorded as

construction-in-progress until completed, and are valued at actual (direct) cost plus applied overhead and other indirect

costs.

Internal-use software encompasses software design, development, and testing of projects adding significant new

functionality and long-term benefits. We accumulate costs for developing internal-use software in work-in-development until

we place a project into service and testing and final acceptances are successfully completed. Once completed, we transfer the

costs to depreciable property.

We lease land and buildings from the General Services Administration (GSA) to conduct most of our operations. We have no

material leases that meet capital lease requirements for financial reporting purposes. GSA charges a standard level user fee

which approximates commercial rental rates for similar properties. 
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Our bureaus are diverse both in size and in operating environment. Accordingly, our capitalization policy provides minimum

capitalization thresholds, which generally range from $25,000 to $50,000 for all property categories except for internal-use

software. Minimum capitalization thresholds for internal-use software generally range from $50,000 to $250,000 (except for 

the IRS, for which minimum capitalization thresholds generally ranges from $10 million to $50 million). We also use a 

capitalization threshold for bulk purchases, which generally ranges from $50,000 to $500,000 for non-manufacturing

bureaus, and $25,000 to $50,000 for manufacturing bureaus. Bureaus determine the individual items that comprise bulk

purchases based on our guidance. 

Depreciation is expensed on a straight-line basis over the estimated useful life of the asset with the exception of leasehold

improvements and capital leases. We depreciate leasehold improvements over the term of the lease or the useful life of the

improvement, whichever is shorter. We depreciate capital leases over the estimated life of the asset or term of the lease,

whichever is shorter. Service life ranges (2 to 50 years) are wide due to the diversity of our PP&E. We do not depreciate

land and land improvements, construction-in-progress, and internal-use software in development. We record impairment

costs related to a significant and permanent decline in the service utility of general PP&E and construction-in-progress in

the period incurred. 

Heritage Assets

Heritage assets are of historical significance. Multi-use heritage assets are those heritage assets for which the predominant

use is general government operations. We capitalize all acquisition, reconstruction, and betterment costs for our multi-use

heritage asset buildings as general PP&E, and depreciate these costs over their service life.

K. FEDERAL DEBT AND INTEREST PAYABLE

We issue federal debt in the form of Treasury securities. This debt relates to monies borrowed from the public and certain

other federal agencies to fund the operations of the U.S. government. We issue certain federal debt at a discount or

premium. We amortize these discounts and premiums over the term of the security using an interest method for all longterm securities and the straight-line method for short-term securities. Interest costs accrue as an expense as incurred and

are reported on the Consolidated Statements of Net Cost as non-entity costs. 

L. COMMITMENTS AND CONTINGENCIES

Through FFB, we make loan commitments with federal agencies, or private sector borrowers with loans guaranteed by

federal agencies, to extend credit for their own use (refer to the accounting policy above entitled “Loans and Interest

Receivable, Intra-Governmental”). We establish loan commitments when FFB and other parties fully execute agreements in

which we become obligated to issue loans pursuant to the terms and conditions within the agreements. We reduce loan

commitments when we issue the loans or when the commitments expire.

On behalf of the U.S., we subscribe to shares of certain MDBs, of which some shares represent capital commitments that are

callable under certain limited circumstances to meet the obligations of the respective MDB. The callable capital

commitments become binding on the U.S. when we issue instruments of commitment subscribing to the U.S. portion of

callable capital. 
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FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Additionally, on behalf of the U.S., we have established financial commitments through our participation in the IMF through

a quota subscription and a borrowing arrangement that supplements IMF resources. U.S. financial commitments to the IMF

become binding when the U.S. consents to an increase in its participation as an IMF member country, and all other

conditions to the increase have been met. The outstanding financial commitment in the U.S. quota decreases or increases

when the IMF draws upon or repays funding obtained pursuant to a letter of credit established by the U.S. to make domestic

currency available to the IMF as needed. The outstanding financial commitment in the supplemental borrowing

arrangement decrease or increase when the IMF borrows and repays loans under the related supplemental funding

arrangement (refer to Note 7).

In accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government, we recognize material contingent

liabilities meeting the following criteria:

• A past event or exchange transaction has occurred;

• A future cash outflow is probable; and

• A future cash outflow is measurable.

The estimated liability we record is either a specific amount or within a range of amounts. If some amount within the range

is a better estimate than any other amount within the range, that amount is recognized. If no amount within the range is a 

better estimate than any other amount, we recognize the minimum amount in the range, and we disclose the range and a 

description of the nature of the contingency. We follow this policy in recording a contingent liability, if any, related to the

GSE SPSPA program (refer to Note 10), and loss contingencies that may arise from claims, assessments, litigations, fines,

penalties, and other sources (refer to Note 26).

If one or more, but not all, of the above criteria for recognition are met, and there is a reasonable possibility of loss, we will

disclose, if material, the nature of the contingent liability, along with a range of possible loss, if estimable, and a description

of the nature of the contingency. 

M. SPECIAL DRAWING RIGHTS

The SDR is an international reserve asset created by the IMF to supplement its member countries’ official reserves. Under

its Articles of Agreement, the IMF may allocate SDRs to member countries in proportion to their IMF quotas. Pursuant to

the Special Drawing Rights Act of 1968, as amended, the ESF holds all SDRs allocated to or otherwise acquired by the U.S.

Allocations and Holdings

We record the SDR holdings as part of “Cash, Foreign Currency, and Other Monetary Assets,” and we record the SDR

allocations as a liability entitled “Allocation of Special Drawing Rights” when the IMF allocates SDRs to the U.S. We carry

this liability since the SDRs may be withdrawn as needed by the IMF unless the following occurs: a withdrawal by the U.S.

from the IMF membership, cancellation of the SDRs, or liquidation of the IMF or SDR Department of the IMF.
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SDR holdings increase primarily as a result of IMF SDR allocations. We record SDR transactions as incurred, and include

acquisitions and sales of SDRs, interest received on SDR holdings, interest charges on SDRs allocations, and valuation

adjustments. The U.S. government also receives remuneration in SDRs from the IMF based on claims on the IMF as

represented by the U.S. Reserve Position in the IMF and loans receivable from the supplemental borrowing arrangement. 

We credit remuneration to the ESF, which transfers to the TGA account an equivalent amount of dollars plus nominal

interest. The allocations and holdings are revalued monthly based on the SDR valuation rate as calculated by the IMF,

resulting in the recognition of unrealized gains or losses on revaluation that are reported on the Consolidated Statements of

Net Cost.

Certificates Issued to the Federal Reserve

The Special Drawing Rights Act of 1968 authorizes the Secretary to issue certificates, not to exceed the value of SDR

holdings, to the FRB in return for dollar amounts equal to the face value of certificates issued. We issue certificates to

finance the acquisition of SDRs from other countries or to provide U.S. dollar resources to finance other ESF operations. 

Certificates issued are redeemed by us at such times and in such amounts as the Secretary may determine, and do not bear

interest. We report certificates issued to the FRB at their face value which approximates their carrying value since, under

the terms of the agreement, there is no set repayment date and no interest accrued while certificates remain outstanding.

N. REFUNDS PAYABLE

Refunds payable arise in the normal course of tax administration when it is determined that taxpayers have paid more than

the actual taxes they owe. We record amounts concluded to be valid refunds owed to taxpayers as a liability entitled

“Refunds Payable” on the Consolidated Balance Sheets, with a corresponding receivable from the General Fund included in

the line entitled “Due From the General Fund.”

O. FEDERAL EMPLOYEE BENEFITS PAYABLE – FECA ACTUARIAL LIABILITY

The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection to covered federal civilian

employees injured on the job, and employees who have incurred a work-related injury or occupational disease. The FECA

program is administered by the DOL which pays valid claims and subsequently seeks reimbursements from us for these paid

claims. Generally, we reimburse the DOL within two to three years once funds are appropriated. The FECA liability

consists of two components. The first component is based on actual claims paid by the DOL but not yet reimbursed by us. 

The second component is the estimated liability for future workers compensation as a result of past events. We report both

components in “Other Liabilities” on the Consolidated Balance Sheets. These future workers’ compensation estimates are

generated by applying actuarial procedures developed to estimate the liability for FECA benefits. The actuarial liability

estimates for FECA benefits include the expected liability for death, disability, medical, and miscellaneous costs for approved

compensation cases.

P. ANNUAL, SICK, AND OTHER LEAVE

We report annual and compensatory leave earned by our employees, but not yet used, as an accrued liability. We adjust the

accrued balance annually to reflect current pay rates. Any portion of the accrued leave for which funding is not available is

recorded as an unfunded liability as reported in “Other Liabilities” on the Consolidated Balance Sheets. We expense sick

and other leave as taken and do not record a liability for such amounts, because employees do not vest in sick and other

leave benefits. 
74 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Q. PENSION COSTS, OTHER RETIREMENT BENEFITS, AND OTHER POST-EMPLOYMENT BENEFITS

Federal Pension Costs, Other Retirement Benefits, and Other Post-Employment Benefits

We recognize the full cost of our employees’ pension benefits, including recognizing imputed cost for the difference between

the estimated service cost and the sum of participants’ pension benefit withholdings and agency contributions. However, the

Office of Personnel Management (OPM) rather than the Department recognizes the assets and liabilities associated with

these benefits. 

Most of our employees hired prior to January 1, 1984 participate in the Civil Service Retirement System (CSRS), and

employees hired between January 1, 1984 and December 31, 1986 are covered under the CSRS Offset System, to which we

contribute 7.0 percent and 7.5 percent of pay for regular and law enforcement employees, respectively. On January 1, 1987,

the Federal Employees’ Retirement System (FERS) went into effect pursuant to the Federal Employees’ Retirement System

Act of 1986, Public Law (P.L.) 99-335. FERS is a three-tiered retirement system consisting of a Basic Benefit Plan, Thrift 

Savings Plan (TSP), and Social Security Benefits. For the FERS Basic Benefit Plan, we contribute between 11.9 percent and

13.7 percent for regular employees, and between 28.4 percent and 30.1 percent for law enforcement officers. The TSP under

FERS is a 401(k)-type savings plan in which we automatically contribute one percent of base pay and match any employee

contributions up to an additional four percent of base pay. For most employees hired after December 31, 1983, we also

contribute the employer’s matching share for Social Security. 

Similar to federal retirement plans, OPM, rather than the Department, reports the assets and liability for future payments

to retired employees who participate in the Federal Employees Health Benefits Program (FEHBP) and Federal Employees

Group Life Insurance (FEGLI) Program. We report the full cost of providing other retirement benefits (ORB). We also

recognize an expense and a liability for other post-employment benefits (OPEB), which includes all types of benefits,

provided to former or inactive (but not retired) employees, their beneficiaries, and covered dependents. Additionally, one of

our bureaus, OCC, separately sponsors a postretirement life insurance benefit plan for current and future retired employees,

and is the administrator for a private defined benefit retirement plan, the Pentegra Defined Benefit Plan, that provides

retirement, disability, and death benefits for certain retired employees who meet eligibility requirements. In addition to the

TSP, the OCC, together with OFR, sponsor a 401(k) plan.

District of Columbia Federal Pension and Judicial Retirement Plans

Pursuant to Title XI of the Balanced Budget Act of 1997, as amended, we became responsible for benefit payments to certain

District of Columbia (D.C.) police officers, firefighters, teachers and judges under D.C. retirement plans (refer to Note 17). 

The actuarial cost method used to determine costs and actuarial liability for the judges’ retirement plan is the Individual

Entry Age Normal Funding Method, which approximates the methodology specified by the Aggregate Entry Age Normal

Actuarial Cost Method. The actuarial cost method used for the police officers, firefighters, and teachers retirement plan is

the Project Unit Credit Method, which recognizes that all service has been fully accrued by participants and does not

generate a normal cost. These methodologies base actuarial liabilities on long-term economic assumptions. The pension

benefit costs incurred by the plans are included on the Consolidated Statements of Net Cost.
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FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

The economic assumptions used for the valuation of the D.C. Federal Pension and Judicial retirement plans differ from those

used by the OPM for the following reasons: (i) the annual rate of salary increase assumptions are based on different plan

member experience; (ii) the annual rate of inflation and cost-of-living adjustment assumptions are based on different 

statutory requirements (applicable Consumer Price Index [CPI] and period of calculation); and (iii) for the annual rate of

investment return assumption, OPM and the D.C. Federal Pension and Judicial retirement plans use the same underlying

yield curve but, unlike the D.C. Federal Pension plan, OPM converts to a single equivalent rate.

R. REVENUE AND FINANCING SOURCES

Our activities are financed either through exchange revenue we receive from others or through non-exchange revenue and

financing sources (such as appropriations provided by the Congress and penalties, fines, and certain user fees collected). 

User fees primarily include collections from the public for the IRS costs to process installment agreements, letter ruling and

determinations, and income verification. We recognize exchange revenue when earned, i.e., goods are delivered or services

are rendered. We recognize revenue from reimbursable agreements when providing services. We record non-exchange

revenues when received or when accrued due to a legal claim. We recognize appropriations used as financing sources when

related expenses are incurred or assets are purchased. 

We also incur certain costs paid in total or in part by other federal entities, such as pension costs, the FEHBP, and any unreimbursed payments made from the Treasury Judgment Fund on our behalf. We recognize these subsidized costs on the

Consolidated Statements of Net Cost, and we recognize the imputed financing for these costs on the Consolidated

Statements of Changes in Net Position. As a result, there is no effect on net position. We also recognize other non-exchange

financing sources, such as donations and transfers of assets without reimbursements, for the period in which they occurred

on the Consolidated Statements of Changes in Net Position.

We recognize revenue we receive from disposition of forfeited property as non-exchange revenue on the Consolidated

Statements of Changes in Net Position. We report costs related to the Forfeiture Fund program on the Consolidated

Statements of Net Cost. The TFF is the special fund account for depositing non-tax forfeiture proceeds received pursuant to

laws enforced or administered by law enforcement bureaus that participate in the TFF. We report forfeited property

balances in “Other Assets” on the Consolidated Balance Sheets.

S. CUSTODIAL REVENUES

Non-entity revenue reported on our Statements of Custodial Activity includes cash we collected, primarily from taxes. It

does not include revenue collected by other federal agencies, such as user fees and other receipts, which are remitted for 

general operating purposes of the U.S. government or are dedicated for certain trust funds. We present the Statements of

Custodial Activity on the “modified accrual basis.” We recognize revenues as cash is collected, and record a “non-cash

accrual adjustment” representing the net increase or decrease during the reporting period in net revenue-related assets and

liabilities, mainly taxes receivable. 

T. APPROPRIATIONS AND OTHER BUDGETARY ACTIVITY

Combined Statement of Budgetary Resources Activity

We record appropriations when authorized by legislation. Incurred obligations of appropriations are recorded when we place

an order or sign a contract for goods and services, award a grant, or take other actions that require us to make payments to

the public or another federal entity. Outlays are recorded when disbursements are made. 
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FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Permanent and Indefinite Appropriations

We use permanent and indefinite appropriations to disburse tax refunds, income tax credits, and child tax credits. We

recognize refund payment funding as appropriations are used. Permanent indefinite authority for refund activity is

available for an unlimited period of time in the amount necessary to cover the refund and/or credit. We report tax refunds

and credits as a custodial activity of the Department, since they are, in substance, a custodial revenue-related activity

resulting from taxpayer overpayments of their tax liabilities.

We have two permanent and indefinite appropriations related to debt activity. One permanent and indefinite appropriation

is used to pay interest on the public debt securities, and the other is used to redeem securities that are matured, called, or

eligible for early redemption. These accounts are not annual appropriations and do not have refunds. We report debt

redemption appropriations related to our liability on our Consolidated Balance Sheets. We record interest appropriations at

the beginning of the fiscal year and again at mid-year, if necessary, and we return any unused authority to the General Fund

at the end of the fiscal year. Permanent indefinite authority for debt redemptions and related interest is available for an

unlimited period of time.

We also have permanent and indefinite appropriations to fund increases in the projected subsidy costs of credit programs as

determined by the re-estimation process required by the FCRA, and to also cover our American Recovery and Reinvestment

Tax Act of 2009, Section 1603 program.

Additionally, we have other permanent and indefinite appropriations to make certain payments on behalf of the U.S.

government. We receive these appropriations to make payments to the FRB for fiscal services provided, and to the financial

institutions for services provided as financial agents of the U.S. government. They also include appropriations provided to

make other disbursements on behalf of the U.S. government, including payments made to various parties as a result of

certain claims and judgments rendered against the U.S. 

U. INCOME TAXES

As an agency of the U.S. government, we are exempt from all income taxes imposed by any governing body, whether it is a 

federal, state, commonwealth, local, or foreign government.

V. USE OF ESTIMATES

We have made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues, expenses, and the

disclosure of contingent liabilities to prepare our financial statements. Actual results may differ from these estimates. 

Adverse changes in the outlook for the key assumptions underlying management’s estimates may materially affect the

results of our operations, cash flows and/or our financial position in future periods. Transactions subject to estimates

principally include loan and credit program receivables, credit reform subsidy costs, investments in GSEs and other nonfederal securities and related impairment, tax receivables, loan guarantees, depreciation, actuarial liabilities, cost and

earned revenue allocations, as well as contingencies and any related recognized liabilities. The following is a discussion of

certain significant transactions subject to estimation.
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We account for all of our credit program receivables in accordance with credit reform accounting (refer to the accounting

policy above entitled “Credit Program Receivables, Net” and Note 9). These receivables are derived using credit reform

modeling, which is subject to the use of estimates and forecasts that have inherent uncertainty. We recognize the sensitivity

of credit reform modeling to slight changes in certain model assumptions such as general economic conditions, specific stock

price volatility of the entities in which we have an equity interest, estimates of expected default, and prepayment rates. 

We use regular review of model factors, statistical modeling, and annual re-estimates to reflect the most accurate cost of the

credit programs to the U.S. government. The purpose of re-estimates is to update original program subsidy cost estimates to

reflect actual cash flow experience as well as changes in forecasts of future cash flows. We update forecasts of future cash

flows based on actual program performance to date, additional information about the portfolio, additional publicly available

relevant historical market data on securities performance, revised expectations for future economic conditions, and

enhancements to cash flow projection methods. 

We perform annual calculations, as of September 30, to assess our need for recording an estimated liability in accordance

with SFFAS No. 5 related to our funding commitment to the GSEs under the SPSPAs. Liability recognition is predicated on

the probable future occurrence of an excess of liabilities and minimum capital reserve amounts, as defined, over the assets of

either GSE at the end of any reporting quarter. The occurrence of future GSE deficits, which ultimately determines our

liability to the GSEs, is most sensitive to future changes in the housing price index and, to a lesser extent, future changes in

guarantee fees received by the GSEs on single-family mortgages and interest rates. 

The annual valuation as of September 30 of the preferred stock and warrants comprising the “Investments in Government

Sponsored Enterprises” line item on the Consolidated Balance Sheets incorporates various forecasts, projections and cash

flow analyses to develop an estimate of the assets’ fair value. The value of the senior preferred stock is estimated by first

estimating the fair value of the total equity of each GSE (which, in addition to the senior preferred stock, is comprised of

other equity instruments including common stock, common stock warrants, and junior preferred stock). The fair value of the

total equity is based on a discounted cash flow valuation methodology, whereby the primary input is the present value of the

projected quarterly cash flows to equity holders. The fair value of the GSEs’ other equity instruments is then deducted from

its total equity, with the remainder representing the fair value of the senior preferred stock. The primary input into the

warrants valuation is the market value of the shares of common stock of the GSEs which, along with the junior preferred

stock, are traded on the over-the-counter (OTC) Bulletin Board. We evaluate the need for adjusting our OTC market-based

valuation of the warrants for the effects, if any, of significant events occurring after the close of the market but before the

end of the measurement date. We record any changes in valuation, including impairment, and disclose changes in

accordance with SFFAS No. 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary

and Financial Accounting, as amended. Since the valuation is an annual process, we deem changes in valuation of the

preferred stock and warrants as usual and recurring. Note 10 includes a detailed discussion of the results of the asset

valuation and estimated liability assessment.

Estimation of such complex and long-duration receivables, investments, and contingencies is subject to uncertainty. It is

possible that new developments will adversely impact the value of receivables, investments, and contingencies, as well as

ultimate amounts we are required to fund. Except as expressly noted herein, we have not revalued or included in our

estimates as of September 30, 2019 the effects of any new developments that may have occurred subsequent to

September 30, 2019. Refer to the accounting policy entitled “Pension Costs, Other Retirement Benefits, and Other PostEmployment Benefits” above and Note 8 for additional discussion related to the estimation of actuarial liabilities and tax

receivables, respectively.
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FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

W. OTHER-THAN-TEMPORARY IMPAIRMENTS

A decline in the market value (either due to credit, price or currency) of any investment below cost that is deemed to be

other-than-temporary is accounted for as an impairment, and the carrying value is reduced to fair value for financial

reporting purposes. To determine whether an impairment is other-than-temporary, we consider whether we have the ability

and intent to hold the investment until a market price recovery, and consider whether evidence indicating the cost of the

investment is recoverable outweighs evidence to the contrary.

X. CREDIT, MARKET AND FOREIGN CURRENCY RISK

Credit risk is the potential, no matter how remote, for financial loss from a failure of a borrower or counterparty to perform

in accordance with underlying contractual obligations. We take on possible credit risk when we make direct loans or

guarantees to non-federal entities, provide credits to foreign entities, or become exposed to institutions which engage in

financial transactions with foreign countries (refer to Note 12). Our following programs entail credit risk: monetary assets

held; committed but undisbursed direct loans; funding commitment to the GSEs; GSE obligations obtained under the HFA

initiative (the New Issue Bond Program); investments, loans, and other credit programs including the CDFI Fund programs, 

SBLF, and TARP. 

Our activities generally focus on the underlying problems in the credit markets. We developed these programs to provide

credit where borrowers are not able to get access to credit with reasonable terms and conditions. Because these programs

attempt to correct for a market imperfection, it can expose us to potential costs and losses. Additional risk of costs and losses

could result from terrorist attacks under the Terrorism Risk Insurance Program. The extent of the risk we assumed is

described in more detail in the notes to the financial statements and, where applicable, is factored into credit reform models

and reflected in fair value measurements (refer to Notes 9, 10, and 26). 

For Emergency Economic Stabilization Act programs, the statute requires calculation of budgetary costs of the troubled

assets and guarantees of troubled assets by adjusting the discount rate for market risks. We adjust our cost estimates for 

the TARP programs based on a MADR to reflect the additional return required by the market to compensate for variability

around the expected losses reflected in the cash flows. Consistent with SFFAS No. 2, market risk relative to asset type is

factored in the cash flow estimates. The inclusion of the MADR is the mechanism for deriving a fair value of the assets. 

We face certain risks and uncertainties as a result of holding securities denominated in foreign currency. The price of

holdings of such securities may widely fluctuate as a result of volatility in foreign currency markets and changes in real and

perceived credit risk of our counterparties. 

Y. FUNDS FROM DEDICATED COLLECTIONS

We account for revenues and other financing sources for funds from dedicated collections (FDC) separately from other funds. 

Such funds are financed by specifically identified revenues provided to the U.S. government by non-federal sources, often

supplemented by federal and other financing sources, which remain available over time. Statute requires use of these

specifically identified revenues and other financing sources for designated activities, benefits, or purposes. We apply the

following criteria for purposes of designating funds as dedicated collections: (i) a statute committing the U.S. government to

use specifically identified revenues and/or other financing sources that are originally provided to the U.S. government by a 

non-federal source only for designated activities, benefits, or purposes; (ii) explicit authority for the fund to retain revenues

and/or other financing sources not used in the current period for future use to finance the designated activities, benefits, or

purposes; (iii) a requirement to account for and report on the receipt, use, and retention of the revenues and/or other
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financing sources that distinguishes the fund from the U.S. government’s general revenues; and (iv) for funds comprised of

both federal and non-federal sources, such funding is predominantly non-federal, or the non-federal funding is material to

our financial statements.

Z. ALLOCATION TRANSFERS

We are a party to allocation transfers with other federal agencies as both a transferring (parent) entity and/or a receiving

(child) entity. Allocation transfers are legal delegations by one department of its authority to obligate budget authority and

outlay funds to another department. A separate fund account (allocation account) is created in Treasury as a subset of the

parent fund account for tracking and reporting purposes. All allocation transfers of balances are credited to this account,

and subsequent obligations and outlays incurred by the child entity are charged to this allocation account as they execute the

delegated activity on behalf of the parent. Parent federal agencies report both the proprietary and budgetary activity and

the child agency does not report any financial activity related to budget authority allocated from the parent federal agency to

the child federal agency. However, OMB guidance requires the child to report the activity when we receive allocation

transfers, as the child, from the Executive Office of the President (See Circular No. A-136, II.3.1, Parent-Child Reporting for 

two exceptions). 

We allocate funds, as the parent, to the Agency for International Development and HHS. Also, we receive allocation

transfers, as the child, from HHS, Department of Transportation, Department of Justice, and the Executive Office of the

President.

AA. FIDUCIARY ACTIVITIES

Fiduciary activities are the collection or receipt, and the management, protection, accounting, investment, and disposition by

the U.S. government of cash or other assets in which non-federal individuals or entities have an ownership interest that the

U.S. government must uphold. Fiduciary cash and other assets are not assets of the U.S. government. We do not report

these activities in our consolidated financial statements, but instead report them in Note 25. 

AB. DISCLOSURE ENTITIES AND RELATED PARTIES

SFFAS No. 47, Reporting Entity, requires that our consolidated financial statements reflect the balances and activities of

consolidation entities, or those Treasury bureaus and other reporting entities meeting the following “principles for inclusion”

as a whole: (1) the entity is included in the Budget of the United States (also known as the President’s Budget); (2) the U.S.

government holds “majority ownership interest”; (3) the U.S. government has “control with risk of loss or expectation of

benefit”; or (4) it would be misleading to exclude such entity. SFFAS No. 47 also provides guidance for assessing whether an

organization meeting the inclusion principles is reported as a disclosure entity or related party. 

A disclosure entity exists when we determine that an entity meets any of the following SFFAS No. 47 “inclusion principles”

with respect to the U.S. government but does not meet the characteristics of a “consolidation entity.” Based on SFFAS 

No. 47 criteria, the Federal Reserve System is considered to be a disclosure entity. Additionally, entities owned and/or

controlled by the U.S. government as a result of regulatory actions—such as organizations in receivership or

conservatorship—or other U.S. government intervention actions are generally classified as disclosure entities if the

relationship with such entities is not expected to be permanent. 

A related party exists when one party to an established relationship has the ability to exercise significant influence over

another party in making policy decisions. Related parties generally do not meet the SFFAS No.47 inclusion principles;
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FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

however, we report on a relationship that is of such significance that it would be misleading to exclude information about

that entity. Disclosure entities and related parties are not considered components of the consolidated Treasury reporting

entity and, thus, are only disclosed in the notes to our consolidated financial statements. Using the principles prescribed in

SFFAS No. 47, we identified the following disclosure entities and related parties as of September 30, 2019. 

Disclosure Entities

Federal Reserve System

Congress, under the Federal Reserve Act of 1913 (Federal Reserve Act), created the FR System. The FR System includes the

Federal Reserve Board of Governors (Board of Governors), Federal Reserve Banks (FRB), and the Federal Open Market

Committee (FOMC). Collectively, the FR System serves as the nation’s central bank and is responsible for formulating and

conducting monetary policy, issuing and distributing currency (Federal Reserve Notes), supervising and regulating financial

institutions, providing nationwide payments systems (including large-dollar transfers of funds, automated clearinghouse

operations, and check collection), providing certain financial services to federal agencies and fiscal principals, and serving as

the U.S. government’s bank. Monetary policy includes actions undertaken by the FR System that influence the availability

and cost of money and credit as a means of helping to promote national economic goals. The FR System also conducts

operations in foreign markets in order to counter disorderly conditions in exchange markets or to meet other needs specified

by the FOMC to carry out its central bank responsibilities. 

While we consult with the FR System on matters affecting the economy and certain financial stabilization activities it is

considered an independent central bank, and the executive branch of the U.S. government does not ratify its decisions. In

accordance with SFFAS No. 47 criteria, the FR Systems’ assets, liabilities, and operations are not consolidated into our

consolidated financial statements; however, we account for and disclose our financial activities with the FR System within

our consolidated financial statements. 

Federal Reserve System Structure

Board of Governors of the Federal Reserve System 

The Board of Governors is an independent regulatory organization governed by seven members appointed by the President

and confirmed by the Senate. The full term of a Board of Governors member is 14 years, and the appointments are

staggered so that one term expires on January 31 of each even-numbered year. The Board of Governors has a number of

supervisory and regulatory responsibilities for institutions including, among others, state-chartered banks that are members

of the FR System, bank holding companies, and savings and loan holding companies. In addition, the Board of Governors

has general supervisory responsibilities for the 12 FRBs, and issues currency (Federal Reserve Notes) to the FRBs for

distribution. No government appropriation is required to support the operation of the Board of Governors. The Board of

Governor’s budget transactions are not included in the President’s Budget, nor are they subject to the President’s review

because of its unique role in conducting monetary policy. 

Federal Reserve Banks 

The 12 FRBs are chartered under the Federal Reserve Act, which requires each member bank to own the capital stock of its

FRB. Each FRB has a board of directors that exercises supervision and control of each FRB, with three members appointed

by the Board of Governors, and six board members elected by their member banks. The FRBs participate in formulating and

conducting monetary policy, distributing currency and coin, and serving as the government’s fiscal agent, as well as the fiscal

agent for other fiscal principals (i.e. banks, credit unions, saving and loan institutions). Additionally, the FRBs provide
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short-term loans to depository institutions and loans to participants in programs or facilities with broad-based eligibility in

unusual and crucial circumstances when approved by the Board of Governors and the Secretary of the Treasury. 

We utilize the services of the FRBs to execute a variety of transactions on behalf of the Fiscal Service and the ESF. The 

following are examples of our interaction with the FRBs:

• The FRBs serve as our fiscal agent and depositary, executing banking and other financial transactions on our behalf

(refer to Note 5). We reimburse the FRBs for these services, the cost of which is included on the Consolidated

Statements of Net Costs.

• The FRBs hold Treasury and other federal securities in the FRBs’ System Open Market Account (SOMA) for the purpose

of conducting monetary policy.

• The FRBs hold gold certificates issued by the Department in which the certificates are collateralized by gold (refer to

Note 6).

• The FRBs hold SDR certificates issued by the Department which are collateralized by SDRs (refer to Notes 5 and 7).

• The FRBs are required by Board of Governors policy to transfer their excess earnings to us on behalf of the U.S.

government (refer to Notes 8 and 22).

Federal Open Market Committee 

The FOMC is comprised of the seven Board of Governors members and five of the 12 FRB presidents. FOMC formulates and

conducts monetary policy primarily through open market operations (the purchase and sale of certain securities in the open

market), the principal tool of national monetary policy. These operations affect the amount of reserve balances available to

depository institutions, thereby influencing overall monetary and credit conditions. 

Federal Reserve System Assets and Liabilities

The FRBs hold Treasury and other securities in the SOMA for the purpose of conducting monetary policy. These assets are

generally subject to the same market conditions as other financial instruments. In the open market, the FR System

purchases and sells Treasury securities as a mechanism for controlling the money supply. 

The FRBs have deposit liabilities with Treasury and depository institutions. The FRBs issue Federal Reserve Notes, the

circulating currency of the U.S., which are collateralized by the Treasury securities and other assets held by the FRBs. 

Financial and other information concerning the FR System may be obtained from the FR System website.

FRB Residual Earnings Transferred to the Department

FRBs generate income from interest earned on securities, reimbursable services provided to federal agencies, and the

provision of priced services to depository institutions as specified by the Monetary Control Act of 1980. Although the FRBs

generate earnings from carrying out open market operations, via the earnings on securities held in the SOMA account, their

execution of these operations is for the purpose of accomplishing monetary policy rather than generating earnings. Each

FRB is required by Board of Governors policy to transfer to us its residual (or excess) earnings after providing for the cost of

operations, payment of dividends, and surplus funds not to exceed an FRB’s allocated portion of an aggregate of $7.5 billion

for all FRBs, in accordance with the provisions of Bipartisan Budget Act of 2018 (P.L. 115-123). 

FRBs’ residual earnings may vary due to, among other things, changes in the SOMA balance levels that may occur in

conducting monetary policy. Under P.L. 115-123, if an FRB’s earnings for the year are not sufficient to provide for the cost of
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FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

operations, payment of dividends, or allocated portion of the $7.5 billion aggregate surplus funds limitation, an FRB will

suspend its payments to us until such earnings become sufficient. The FRB residual earnings of $52.8 billion and

$70.8 billion for fiscal years ended September 30, 2019 and 2018, respectively, are reported as custodial revenues on our

Statements of Custodial Activity. They constituted 1.4 percent and 2.0 percent of our total custodial revenues collected in

FY 2019 and 2018, respectively. “Taxes, Interest and Other Receivables, Net” includes a receivable for FRB’s residual

earnings which represents the earnings due to us as of September 30, but not collected by us until after the end of the month

(refer to Note 8).

Government Sponsored Enterprises – Fannie Mae and Freddie Mac

During the FY 2008 financial crisis, the U.S. government placed Fannie Mae and Freddie Mac under conservatorship to help

ensure their financial stability. These entities meet the SFFAS No. 47 criteria for disclosure entities as organizations owned

or controlled by the U.S. government as the result of regulatory actions (“such as conservatorship”). Additionally, the U.S.

government’s intervention actions with regards to these GSEs are not expected to be permanent. Accordingly, these entities

are not consolidated as part of our consolidated financial statements; however, the value of our investments in these entities

is presented as equity investments on our Consolidated Balance Sheets (refer to Note 10).

Related Parties

In accordance with SFFAS No. 47 determination principles, we currently maintain related party relationships with the IMF

and the MDBs. The IMF is an international organization of 189 member countries that works to foster global monetary

cooperation, secure financial stability, sustain economic growth, and reduce poverty around the world. The U.S. government

holds the largest quota subscription of any member. The U.S. quota subscription serves as the key determinant for our

16.5 percent share of voting rights in various IMF decisions for which the U.S. government has a substantial voice. The 

Secretary serves as the U.S. Governor to the IMF, and the U.S. Governor nominates and elects the U.S. Executive Director of

the IMF, who is one of 24 directors responsible for exercising voting rights over the strategic direction of the institution.

The U.S. commitment to the IMF is in the form of cash and interest-bearing instruments. Historically, the U.S. has not

experienced a loss to its commitment in the IMF (refer to accounting policies above entitled “Loans and Interest Receivable,”

“Commitments and Contingencies,” “Special Drawing Rights,” and Notes 5, 7 and 26 for a further description of our

relationship, financial risk, and activities with the IMF). 

Additionally, on behalf of the U.S., we invest in and provide funding to the MDBs to support poverty reduction and promote

sustainable economic growth in developing countries. The MDBs provide financial and technical support by means of

strengthening institutions, providing assistance that addresses the root causes of instability in fragile and conflict-affected 

states, responding to global crises, and fostering economic growth and entrepreneurship. U.S. participation in the MDBs is

in the form of financial contributions used to ensure the effectiveness and impact of the MDBs’ global development agenda. 

The U.S. has voting power in each of the MDBs to which we contribute, ranging from approximately 6 percent to 50 percent

(refer to accounting policies above entitled “Investments,” “Commitments and Contingencies,” and Notes 11 and 26 for a 

further description of our relationship, financial risk, and activities with the MDBs). 
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2. FUND BALANCE

STATUS OF FUND BALANCE

As of September 30, 2019 and 2018, the status of the fund balance consisted of the following: 

(in millions) 2019 2018 

Unobligated Balance - Available $ 274,609 $ 273,020 

Unobligated Balance - Not Available 40,740 40,641 

Obligated Balance Not Yet Disbursed 62,132 64,694 

Subtotal 377,481 378,355 

Adjustment for ESF (93,195) (94,050) 

Adjustment for Intra-Treasury Investments (8,697) (8,618) 

Adjustment for Borrowing Authority (6,248) (6,523) 

Adjustment for IMF 127,304 138,131 

Adjustment for Authority Unavailable for Obligations 16,442 16,119 

Other Adjustments 2,240 1,454 

Total Status of Fund Balance $ 415,327 $ 424,868 

Portions of the Unobligated Balance Not Available, as shown on the Combined Statement of Budgetary Resources, include

amounts appropriated in prior fiscal years that are not available to fund new obligations. However, we may use such

amounts for upward and downward adjustments for existing obligations in future years. The Obligated Balance Not Yet

Disbursed represent amounts designated for payment of goods and services ordered but not received, or goods and services

received but for which payment has not yet been made.

Since the following line items are either a component of Fund Balance or post to budgetary status accounts, the following

adjustments are required to reconcile the budgetary status to the non-budgetary Fund Balance as reported on the

Consolidated Balance Sheets:

• Adjustments for ESF – ESF investments in Treasury securities (which are eliminated on the Consolidated Balance

Sheets), foreign investments, SDR holdings, and related balances that meet the criteria for reporting as part of

budgetary resources are reported on the Combined Statements of Budgetary Resources; however, they are not a

component of the Fund Balance as they represent invested funds;

• Adjustments for Intra-Treasury Investments – Budgetary resources include Treasury security investments; however, we

have moved the money from the Fund Balance to Investments, which we eliminate on the Consolidated Balance Sheets;

• Adjustments for Borrowing Authority – Borrowing authority is in budgetary status reported on the Combined

Statements of Budgetary Resources but not in the Fund Balance because we have not received the amounts;

• Adjustments for IMF – The funding received through appropriation warrants for IMF is reported as a component of

Fund Balance; however, the IMF transactions are not reported as budgetary resources and uses on the Combined

Statements of Budgetary Resources (refer to Note 7); and

• Adjustment for Authority Unavailable for Obligations – Resources unavailable for obligations reduced the budgetary

resources reported on the Combined Statements of Budgetary Resources; however, they do not impact the Fund Balance.

As of September 30, 2019 and 2018, we had no budgetary authority in the Fund Balance that was specifically withheld from

apportionment by the OMB. We hold balances in non-entity funds, such as certain deposit funds (e.g., seized cash), for the

public or for another federal entity, such as the General Fund. Such funds have an offsetting liability equal to the Fund

Balance. Refer to Note 7 regarding restrictions related to the letter of credit held for a portion of the U.S. quota in the IMF. 
84 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

3. LOANS AND INTEREST RECEIVABLE – INTRA-GOVERNMENTAL

ENTITY INTRA-GOVERNMENTAL

Through FFB, we issue loans to federal agencies for the agencies’ own use or for the agencies to loan to private sector

borrowers whose loans are guaranteed by the federal agencies. FFB is a wholly-owned Government corporation that

operates under the general supervision of the Secretary, and has its own broad statutory authority to finance any obligations

that are issued, sold, or guaranteed by federal agencies. For agencies that have the statutory authority to borrow in the

market, but not from Treasury through the Fiscal Service (refer to the Non-Entity Intra-Governmental section below), FFB 

uses its statutory authority to make these loans directly to federal agencies.

FFB also uses its statutory authority to finance direct or indirect federally-guaranteed obligations which, as a matter of longstanding federal credit policy, is the least expensive and most efficient method of financing these credit-risk obligations when

compared to private sector lender financing. When a federal agency has to honor its guarantee because a private-sector

borrower defaults, the federal agency that guaranteed the loan must obtain an appropriation or use other resources to repay

FFB. 

All principal and interest on FFB loans to federal agencies and private-sector borrowers are, or have a commitment to be,

backed by the full faith and credit of the U.S. government. Accordingly, we have not recognized any credit-related losses on

its loans, nor have we recorded an allowance for uncollectible intra-governmental loans. 

As of September 30, 2019 and 2018, entity intra-governmental loans (issued by FFB) and interest receivable consisted of the

following: 

Loans Interest 2019 Loans Interest 2018 

(in millions) Receivable Receivable Total Receivable Receivable Total 

Department of Agriculture $ 46,289 $ 525 $ 46,814 $ 46,288 $ 359 $ 46,647 

Department of Energy 14,817 76 14,893 13,593 68 13,661 

United States Postal Service(1) 11,000 43 11,043 13,200 41 13,241 

Department of Housing & Urban

 Development 1,969 7 1,976 1,665 6 1,671 

Department of Education 1,482 13 1,495 1,452 13 1,465 

Other Agencies 4 - 4 4 - 4 

Total Entity Intra-governmental $ 75,561 $ 664 $ 76,225 $ 76,202 $ 487 $ 76,689 

(1) The United States Postal Service (USPS) experienced an operating deficit in both FY 2019 and FY 2018.

We, along with Congress and other stakeholders, are aware of the current and long-term financial issues 

of the USPS. Congress is considering legislative solutions for returning the USPS to financial stability. 
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NON-ENTITY INTRA-GOVERNMENTAL

Through the Fiscal Service, we account for and report on the principal borrowings from and repayments to the General Fund

for various funds managed by other federal agencies, as well as the related interest due to the General Fund. These federal

agencies are statutorily authorized to borrow from the General Fund, through the Fiscal Service, to make loans for a broad

range of purposes, such as education, housing, farming, and small business support. The information below reflect amounts

borrowed under the federal agency’s statutory authorization, and does not include unused available borrowing authority.

As of September 30, 2019 and 2018, non-entity intra-governmental loans (issued by the Fiscal Service) and interest

receivable that were due to the General Fund consisted of the following:

Loans Interest 2019 Loans Interest 2018 

(in millions) Receivable Receivable Total Receivable Receivable Total 

Department of Education $ 1,287,511 $ - $ 1,287,511 $ 1,258,499 $ - $ 1,258,499 

Department of Agriculture 90,753 - 90,753 70,164 1 70,165 

Department of Housing and Urban

 Development 30,409 - 30,409 24,843 - 24,843 

Department of Transportation 20,756 - 20,756 16,710 - 16,710 

Department of Homeland Security 20,596 - 20,596 20,541 - 20,541 

Export Import Bank of the U.S. 16,946 - 16,946 20,213 - 20,213 

Small Business Administration 11,810 - 11,810 11,213 - 11,213 

Department of Energy 6,104 32 6,136 6,142 32 6,174 

Department of Labor 5,958 - 5,958 5,991 - 5,991 

Railroad Retirement Board 3,934 48 3,982 3,725 45 3,770 

Overseas Private Investment

 Corporation 3,829 - 3,829 3,475 - 3,475 

Executive Office of the President/

 Security Assistance Accounts 3,114 - 3,114 3,112 - 3,112 

Department of Defense 1,714 - 1,714 1,686 - 1,686 

Other Agencies 1,280 - 1,280 1,615 - 1,615 

Total Non-Entity Intra- 

 governmental $ 1,504,714 $ 80 $ 1,504,794 $ 1,447,929 $ 78 $ 1,448,007 

Total Intra-governmental Loans

 and Interest Receivable (Entity 

 and Non-Entity) $ 1,580,275 $ 744 $ 1,581,019 $ 1,524,131 $ 565 $ 1,524,696 
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FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

4. DUE FROM THE GENERAL FUND AND DUE TO THE GENERAL FUND

The General Fund consists of assets and liabilities used to finance the daily and long-term operations of the U.S government,

as a whole. It also includes accounts used in the management of the Budget of the U.S. Government. 

We hold and manage General Fund assets, such as loans and interest receivable, cash, and investments in the GSEs on

behalf of the U.S. government. General Fund assets constitute resources available to meet the operating needs of the U.S.

government. We report these managed assets separately on the Consolidated Balance Sheets, with a corresponding amount

reported as Due To the General Fund that represents a liability to reflect assets we owed to the General Fund. 

General Fund liabilities, primarily federal debt and interest payable and liability for restoration of federal debt principal and

interest, are obligations of the U.S. government. We report these Department-managed liabilities separately on the

Consolidated Balance Sheets, with a corresponding amount reported as Due From the General Fund that represents a 

receivable, or future funds required of the General Fund to repay borrowings from the public and other federal agencies.

As of September 30, 2019 and 2018, the General Fund liabilities we owed exceeded the assets held on behalf of the General

Fund by $20.6 trillion and $19.6 trillion, respectively. This represents the amount needed by the U.S. government, through

a combination of future tax collections and/or continued borrowing from the public and federal agencies to meet its

obligations.

As of September 30, 2019 and 2018, Due From the General Fund included the following non-entity liabilities:

Liabilities Requiring Funding from the General Fund (in millions) 2019 2018 

Federal Debt and Interest Payable - Held by the Public (Note 15) $ 16,839,627 $ 15,789,917 

Federal Debt and Interest Payable - Intra-governmental (Note 15) 5,981,029 5,821,642 

Refunds Payable (Note 22) 2,939 2,994 

Adjustment for Eliminated Liabilities 31,736 32,080 

Total Due From the General Fund $ 22,855,331 $ 21,646,633 

The Adjustment for Eliminated Liabilities principally represents investments in U.S. government securities held by our

reporting entities that were eliminated against Federal Debt and Interest Payable Intra-governmental.
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FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

As of September 30, 2019 and 2018, Due To the General Fund included the following non-entity assets:

Assets to be Distributed to the General Fund (in millions) 2019 2018 

Fund Balance $ 1,875 $ 1,097 

Loans and Interest Receivable - Intra-governmental (Note 3) 1,504,794 1,448,007 

Advances to Federal Supplementary Medical Insurance Trust Fund 3,152 5,027 

Cash Due To the General Fund (Held by the Department) (Note 5) 376,136 378,617 

Taxes and Other Non-Entity Receivables Due To the General Fund 145,717 59,475 

Investments in Government Sponsored Enterprises (Note 10) 112,070 113,150 

Adjustment for Eliminated Assets 68,646 66,638 

Other 1,226 906 

Total Due To the General Fund $ 2,213,616 $ 2,072,917 

The assets to be distributed to the General Fund do not represent all of the non-entity assets we manage. Refer to Note 14 for all

of our non-entity assets held.

The Fund Balance reported above represents the non-entity funds we hold on behalf of the General Fund. It is used to

administer programs such as the Presidential Election Campaign and payments for Legal Services Corporation and thus not

available for our general use.

Advances to the Federal Supplementary Medical Insurance Trust Fund represents transfers from the General Fund to

HHS’s Federal Supplementary Medical Insurance Trust Fund to temporarily replace the reduction in Medicare Part B 

participants’ premiums as authorized by the Bipartisan Budget Act of 2015 (P.L. 114-74). We transfer HHS’s repayment of

these advances to the General Fund. 

Taxes and Other Non-Entity Receivables Due To the General Fund primarily represents IRS-related federal taxes receivable

(refer to Note 8).

The Adjustment for Eliminated Assets principally represents loans and interest payable owed by our Treasury reporting

entities, which were eliminated against Loans and Interest Receivable Intra-governmental held by the Fiscal Service.
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FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

5. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS

Cash, Foreign Currency, and Other Monetary Assets held as of September 30, 2019 and 2018 were as follows: 

(in millions) 2019 2018 

Entity: 

Cash $ 74 $ 52 

Foreign Currency and Foreign Currency Denominated Assets 14,032 13,834 

Other Monetary Assets:

 Special Drawing Right Holdings 50,054 51,000 

 U.S. Dollars Held in Cash by the IMF 304 305 

Total Entity 64,464 65,191 

Non-Entity: 

Operating Cash of the U.S. government 376,070 378,468 

Foreign Currency 100 100 

Miscellaneous Cash Held by All Treasury Reporting Entities 731 812 

Total Non-Entity 376,901 379,380 

Total Cash, Foreign Currency, and Other Monetary Assets $ 441,365 $ 444,571 

We hold non-entity operating and other miscellaneous cash due to the General Fund which consisted of the following as of

September 30, 2019 and 2018: 

(in millions) 2019 2018 

Operating Cash - FRB Account $ 382,483 $ 384,712 

Outstanding Checks (6,413) (6,244) 

Total Operating Cash of the U.S. government 376,070 378,468 

Miscellaneous Cash 70 152 

Subtotal 376,140 378,620 

Amounts Due to the Public (4) (3) 

Total Cash Due to the General Fund (Note 4) $ 376,136 $ 378,617 

ENTITY

Entity cash, foreign currency, and other monetary assets principally include foreign currency, foreign currency denominated

assets (FCDAs), and SDRs. These assets are valued as of September 30, 2019 and 2018 using current exchange rates plus

accrued interest. 

Foreign Currency and Foreign Currency Denominated Assets

Foreign currency and FCDAs represent foreign deposit accounts and securities with original maturities of three months or

less which were valued at $14.0 billion and $13.8 billion as of September 30, 2019 and 2018, respectively.

Special Drawing Rights

The SDR is an international reserve asset created by the IMF to supplement existing reserve assets. The IMF has allocated

new SDRs on several occasions to members participating in the IMF’s SDR department. The SDR derives its value as a 

reserve asset essentially from the commitments of participants to hold and accept SDRs and to honor various obligations

connected with their proper functioning as a reserve asset. Pursuant to the Special Drawing Rights Act of 1968, as

amended, we issued certificates to the Federal Reserve, valued at $5.2 billion which were reported as a liability on the
DEPARTMENT OF THE TREASURY 89

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Consolidated Balance Sheets as of September 30, 2019 and 2018. The certificates were issued to finance the ESF’s

acquisition of SDRs from other countries or to provide U.S. dollar resources for financing other ESF operations.

On a daily basis, the IMF calculates the value of the SDR using the currency exchange rate in terms of the U.S. dollar from

weighted amounts of each of five freely usable currencies, as defined by the IMF. These currencies are the U.S. dollar, the

European euro, the Japanese yen, the British pound sterling, and the Chinese renminbi. We revalue the U.S. SDR holdings

and allocations from the IMF monthly based on the SDR valuation rate calculated by the IMF.

Pursuant to the IMF Articles of Agreement, SDR holdings and allocations acquired by the U.S. are permanent resources or

liabilities unless:

• cancelled by the Board of Governors pursuant to an 85.0 percent majority decision of the total voting power of IMF

members;

• the SDR department of the IMF is liquidated;

• the IMF is liquidated; or

• the U.S. chooses to withdraw from the IMF or terminate its participation in the SDR department.

Except for the payment of interest and charges on SDR allocations to the U.S., the payment of the U.S. commitment related

to SDR allocations is conditional on events listed above, in which the U.S. has a substantial or controlling voice. The U.S.

has received no SDR allocations since 2009.

As of September 30, 2019 and 2018, the total amount of SDR holdings of the U.S. (including interest receivable) was the

equivalent of $50.1 billion and $51.0 billion, respectively. As of September 30, 2019 and 2018, the total value of SDR

allocations to the U.S. was the equivalent of $48.1 billion and $49.3 billion, respectively.

NON-ENTITY

We manage the non-entity cash, foreign currency, and other monetary assets which principally included Operating Cash of

the U.S. government. Also included is foreign currency maintained by various U.S. disbursing offices, miscellaneous cash

such as seized monetary instruments, undistributed cash, and offers in compromises which are maintained as a result of our

tax collecting responsibilities. The Operating Cash of the U.S. government represents balances from tax collections, other

revenues, federal debt receipts, and other receipts, net of checks outstanding, which are held in the FRBNY. 
90 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

6. GOLD AND SILVER RESERVES, AND GOLD CERTIFICATES ISSUED TO

THE FEDERAL RESERVE BANKS

Through the Mint, we are responsible for safeguarding most of the U.S. government’s gold and all of the silver reserves in

accordance with 31 USC 5117; a smaller portion of the gold is in the custody of the FRBs.

The gold reserves we hold are partially offset by a liability for gold certificates issued by the Secretary to the FRBs at the

statutory rate, as provided in 31 USC 5117. Since 1934, Gold Certificates have been issued in non-definitive or book-entry

form to the FRBs. Our liability incurred by issuing the Gold Certificates, as reported on the Consolidated Balance Sheets, is

limited to the gold we hold at the statutory value. Upon issuance of Gold Certificates to the FRBs, we deposit the proceeds

from the certificates into the operating cash of the U.S. government. All of our certificates issued are payable to the FRBs. 

The Mint also holds 100,000 fine troy ounces (FTO) ($4 million at the statutory carrying value) of gold reserves without

certificates.

The gold and silver bullion reserve (deep storage and working stock) are reported on the consolidated financial statements at

the values stated in 31 USC 5116 – 5117 (statutory rates) which are $ 42.2222 per FTO of gold and no less than

$1.292929292 per FTO of silver. Accordingly, the silver is valued at $1.292929292 per FTO. The market values of the gold

and silver reserves disclosed below are based on the London Gold Fixing. As of September 30, 2019 and 2018, the values of

gold and silver reserves consisted of the following:

2019 

Statutory 2019 

Carrying Market Market 

Statutory Value Rate Per Value

FTOs Rate (in millions) FTO (in millions)

Gold 248,046,116 $ 42.2222 $ 10,473 $ 1,485.30 $ 368,423 

Gold Held by Federal Reserve Banks 13,452,811 $ 42.2222 568 $ 1,485.30 19,982 

Total Gold 261,498,927 11,041 388,405 

Silver 16,000,000 $ 1.2929 21 $ 17.26 276 

Total Gold and Silver Reserves $ 11,062 $ 388,681 

2018 

Statutory 2018 

Carrying Market Market 

Statutory Value Rate Per Value

FTOs Rate (in millions) FTO (in millions)

Gold 248,046,116 $ 42.2222 $ 10,473 $ 1,187.25 $ 294,493 

Gold Held by Federal Reserve Banks 13,452,811 $ 42.2222 568 $ 1,187.25 15,971 

Total Gold 261,498,927 11,041 310,464 

Silver 16,000,000 $ 1.2929 21 $ 14.31 229 

Total Gold and Silver Reserves $ 11,062 $ 310,693 
DEPARTMENT OF THE TREASURY 91

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

7. RESERVE POSITION IN THE INTERNATIONAL MONETARY FUND AND

RELATED LOANS AND INTEREST RECEIVABLE

The U.S. participates in the IMF through a quota subscription and a borrowing arrangement—the New Arrangements to

Borrow (NAB)—that supplements IMF resources. 

As a result of the Consolidated Appropriations Act, 2016 (P.L. 114-113) we obtained appropriation warrants to cover the full

amount of the commitment made to the IMF and received current indefinite authority to maintain the U.S. dollar equivalent

of the SDR funding commitment levels. The IMF transactions—other than related interest earnings and cost estimates for 

U.S. quota and NAB adjustments—are not reported as budgetary resources and uses on our Combined Statement of

Budgetary Resources. 

RESERVE POSITION IN THE INTERNATIONAL MONETARY FUND

We pay quota subscriptions partly through the transfer of reserve assets, such as foreign currencies or SDRs, which are

international reserve assets created by the IMF, and partly by making domestic currency available as needed through a noninterest-bearing letter of credit. This letter of credit, issued by us and maintained by the FRBNY, represents our available 

commitment to the IMF which may be drawn upon by the IMF. 

Transfers to the IMF under the U.S. quota do not result in net budgetary outlays as they constitute an exchange of monetary

assets in which the U.S. receives an equal offsetting claim on the IMF in the form of an increase in the U.S. reserve position

in the IMF. Similarly, when the IMF repays dollars to the U.S., no net budgetary receipt results because the U.S. reserve

position declines concurrently in an equal amount. The U.S. reserve position is an interest-bearing asset like other

international reserve assets held by the U.S., and is available at any time to meet U.S. funding needs.

The U.S. quota is denominated in SDRs. As of September 30, 2019 and 2018, the U.S. quota in the IMF was SDR 83.0

billion. The equivalent U.S. dollar value of the U.S. quota consisted of the following:

(in millions) 2019 2018 

Letter of Credit (1) $ 90,033 $ 100,275 

Reserve Position (2) 22,955 15,364 

Total U.S. Quota in the IMF $ 112,988 $ 115,639 

(1) Letter of Credit amounts are included as part of the “Fund Balance” as reported on the Consolidated Balance Sheets. Amounts also include

approximately 0.25 percent of the U.S. quota held in cash in an IMF account at the FRBNY. 

(2) The Reserve Position amounts are reported as “Reserve Position in the IMF” on the Consolidated Balance Sheets. 

Fluctuations in the value of the U.S. dollar with respect to the SDR result in valuation changes in dollar terms for the U.S.

quota. We periodically adjust this balance to maintain the SDR value of the U.S. quota as required by the IMF Articles of

Agreement. As of September 30, 2019 and 2018, the U.S. quota reflects a net downward adjustment in value of $2.7 billion

and $1.5 billion, respectively, due to the appreciation of the U.S. dollar against the SDR. 

LOANS AND INTEREST RECEIVABLE

In addition to quota subscriptions, the IMF maintains borrowing arrangements to supplement its resources in order to

forestall or cope with an impairment of the international monetary system when IMF liquidity is low. The U.S. has the

authority to participate in two such arrangements – the NAB and the General Arrangements to Borrow (GAB). However,

GAB donors unanimously allowed the GAB to lapse when its term ended on December 25, 2018, making the NAB the only
92 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

borrowing arrangement active as of September 30, 2019. When the U.S. transfers funds to the IMF under the NAB, the U.S.

receives in exchange a liquid and interest-bearing claim on the IMF. 

In accordance with P.L. 114-113, U.S. participation in the NAB as of September 30, 2019 and 2018 was SDR 28.2 billion,

which was equivalent to $38.4 billion and $39.3 billion respectively. As of September 30, 2019 and 2018, under the U.S.

NAB arrangement with the IMF, there was $2.5 billion and $4.5 billion, respectively, of U.S. loans outstanding which were

reported as “Loans and Interest Receivable” on the Consolidated Balance Sheets. 

8. TAXES, INTEREST, AND OTHER RECEIVABLES, NET

As of September 30, 2019 and 2018, Taxes, Interest, and Other Receivables, Net consisted of the following:

(in millions) 2019 2018 

Non-Entity 

Federal Taxes Receivable, Gross $ 369,257 $ 218,205 

Less Allowance on Taxes Receivable (225,251) (160,192) 

Receivable on FRB Deposits of Earnings 603 414 

Other Receivables 1,247 1,182 

Less Allowance on Other Receivables (127) (121) 

Total Non-Entity (Note 14) 145,729 59,488 

Entity 

Miscellaneous Entity Receivables and Related Interest 149 149 

Total Taxes, Interest, and Other Receivables, Net $ 145,878 $ 59,637 

Federal taxes receivable constitutes the largest portion of these receivables, with IRS-related taxes receivable representing

the majority of the balance. The growth in the IRS’s taxes receivable is largely due to the inclusion of non-delinquent IRC

965(h) amounts. IRC 965 allows taxpayers to elect to pay their 965(h) tax on an installment schedule. IRS federal taxes

receivable also consists of delinquent tax assessments, penalties, and interest which were not paid or abated, and which were

agreed to by either the taxpayer and IRS, or the courts. Federal taxes receivable is reduced by an allowance for doubtful

accounts which we established to represent an estimate for uncollectible amounts. The portion of taxes receivable estimated

to be collectible and the allowance for doubtful accounts are based on projections of collectability from a statistical sample of

taxes receivable (refer to the section entitled Required Supplementary Information (unaudited) for additional discussion on

IRS Federal Taxes Receivable, Net). 

Federal taxes receivable also includes amounts related to criminal restitution owed to the U.S. government. As of September

30, 2019 and 2018, respectively, gross receivables related to criminal restitution orders we monitored were $3.1 billion and

$3.6 billion, of which we determined $0.4 billion and $0.5 billion were collectible.

In addition to amounts attributed to taxes, these receivables also include accrued interest income due on funds deposited in

FRBs. We do not establish an allowance for the receivable on deposits of FRB earnings because weekly deposits are required

by the Federal Reserve Act, as amended, and there has been no history of uncollectible accounts.
DEPARTMENT OF THE TREASURY 93

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

9. CREDIT PROGRAM RECEIVABLES, NET

We administer a number of programs designed to stabilize the nation’s financial system and restore the flow of credit to

consumers, businesses, and homeowners. As of September 30, 2019 and 2018, Credit Program Receivables, Net consisted of

the following:

(in millions) 2019 2018 

State and Local Housing Finance Agency Program (GSE sponsored) $ 3,684 $ 3,994 

Other (1) 1,183 1,023 

Total $ 4,867 $ 5,017 

(1) Includes CDFI, SBLF, and TARP credit program receivables valued at $1.1 billion, $48 million and $23 million, respectively, as of

September 30, 2019, and $783 million, $186 million, and $54 million, respectively, as of September 30, 2018. 

STATE AND LOCAL HOUSING FINANCE AGENCY PROGRAM (GSE SPONSORED) 

Under the Housing and Economic Recovery Act of 2008 (HERA), (P.L. 110-289), we, together with the FHFA, Fannie Mae,

and Freddie Mac, created a program in October 2009 to provide support to HFAs. The HFA Program is comprised of the

New Issue Bond Program (NIBP) that is designed to support low mortgage rates and expand resources for low- and middleincome borrowers to purchase or rent homes, making them more affordable over the long term. Under the terms of the

NIBP, we purchased securities of Fannie Mae and Freddie Mac backed by new mortgage revenue bonds issued by HFAs. As

of September 30, 2019 and 2018, the HFA net credit program receivable of $3.7 billion and $4.0 billion, respectively, included

a positive subsidy allowance of $582 million and $630 million, respectively, which reflects our projection that the HFA

program will result in a net cost to us after accounting for repayments, interest, and fees. 

We performed a financial statement re-estimate of the NIBP program’s cost as of September 30, 2019 and 2018. These reestimates resulted in a downward re-estimate, or a decrease in the cost of the program, of $17 million and $7 million as of

September 30, 2019 and 2018, respectively. The downward re-estimates in FY 2019 and 2018 were primarily driven by

higher than estimated principal collections, and a higher prepayment curve used in the projection of future years’ cash flows

as a result of improved economic conditions. 

SUMMARY TABLES

The following tables provide the net composition, subsidy cost, re-estimates, a reconciliation of subsidy cost allowances, and

the components of the subsidy for each of our credit programs for the fiscal years ended September 30, 2019 and 2018. The

tables also include budget subsidy rates pertaining only to the cohorts for the fiscal year presented. These rates cannot be

applied to the direct loans disbursed during the current reporting year to yield the subsidy expense. The subsidy expense for 

new loans reported in FY 2019 and 2018 could result from disbursements of loans from both current year cohorts and prior

year(s) cohorts, and also includes re-estimates. Amounts reported in the line item “Net Credit Program Receivables” are not

necessarily the same as the proceeds that we would expect to receive from selling these assets. 
94 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

2019

(in millions) HFA Other(2) TOTAL

Credit Program Receivables, Net:

 Credit Program Receivables, Gross $ 4,266 $ 1,201 $ 5,467

 Subsidy Cost Allowance (582) (18) (600)

Net Credit Program Receivables $ 3,684 $ 1,183 $ 4,867

New Credit Program Loans Disbursed $ - $ 353 $ 353

Obligations for Loans Not Yet Disbursed $ - $ 537 $ 537

Reconciliation of Subsidy Cost Allowance:

 Balance, Beginning $ 630 $ 18 $ 648

 Subsidy Cost for Disbursements - (10) (10)

 Fees, Interest and Dividend Revenue Received 118 38 156

 Net Proceeds from Sales and Repurchases of Assets

 in Excess of Cost - 72 72

 Subsidy Allowance Amortized (1) (149) (34) (183)

Balance, Ending, Before Re-estimates 599 84 683

 Subsidy Re-estimates (17) (66) (83)

Balance, Ending $ 582 $ 18 $ 600

Re-estimates

 Interest on Re-estimate $ (5) $ 8 $ 3 

 Technical/Default Re-estimate (12) (74) (86)

Total Re-estimates – Increase (Decrease) in

 Subsidy Cost $ (17) $ (66) $ (83)

Reconciliation of Subsidy Costs:

 Subsidy Cost for Disbursements $ - $ (10) $ (10)

 Subsidy Re-estimates (17) (66) (83)

Total Credit Program Receivables Subsidy Costs $ (17) $ (76) $ (93)

Administrative Expense $ 1 $ 5 $ 6 

2018

(in millions) HFA Other(3) TOTAL

Credit Program Receivables, Net:

 Credit Program Receivables, Gross $ 4,624 $ 1,041 $ 5,665

 Subsidy Cost Allowance (630) (18) (648)

Net Credit Program Receivables $ 3,994 $ 1,023 $ 5,017

New Credit Program Loans Disbursed $ - $ 231 $ 231

Obligations for Loans Not Yet Disbursed $ - $ 788 $ 788

Reconciliation of Subsidy Cost Allowance:

 Balance, Beginning $ 669 $ 43 $ 712

 Subsidy Cost for Disbursements - (5) (5)

 Fees, Interest, and Dividend Revenue Received 128 34 162

 Net Proceeds from Sales and Repurchases of Assets

 Less than Cost - 23 23

 Loans Written Off - (24) (24)

 Subsidy Allowance Amortized (1) (160) (29) (189)

Balance, Ending, Before Re-estimates 637 42 679

 Subsidy Re-estimates (7) (24) (31)

Balance, Ending $ 630 $ 18 $ 648

Re-estimates

 Interest on Re-estimate $ (2) $ 7 $ 5 

 Technical/Default Re-estimate (5) (31) (36)

Total Re-estimates – Increase (Decrease) in

 Subsidy Cost $ (7) $ (24) $ (31)

Reconciliation of Subsidy Costs:

 Subsidy Cost for Disbursements $ - $ (5) $ (5)

 Subsidy Re-estimates (7) (24) (31)

Total Credit Program Receivables Subsidy Costs $ (7) $ (29) $ (36)

Administrative Expense $ 2 $ 5 $ 7 

(1) Amount includes net interest income (expense) on borrowings from the Fiscal Service and financing account balance.

(2) CDFI Financial Assistance Direct Loan Program budget subsidy rates for Interest Differential and for Defaults were 1.00% and 9.11%, respectively.

(3) CDFI Financial Assistance Direct Loan Program budget subsidy rates for Interest Differential and for Defaults were 1.29%, and 9.43%, respectively. 
DEPARTMENT OF THE TREASURY 95

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

10. INVESTMENTS IN GOVERNMENT SPONSORED ENTERPRISES

Congress established Fannie Mae and Freddie Mac as GSEs to support mortgage lending. A key function of the GSEs is to

purchase mortgages, package those mortgages into securities, which are subsequently sold to investors, and guarantee the

timely payment of principal and interest on these securities.

Leading up to the financial crisis, increasingly difficult conditions in the housing market challenged the soundness and

profitability of the GSEs, thereby threatening to undermine the entire housing market. In response, Congress passed HERA

(P.L. 110-289) in July 2008. This act created FHFA, with enhanced regulatory authority over the GSEs, and provided the

Secretary with certain authorities intended to ensure the financial stability of the GSEs, if necessary. In September 2008,

FHFA placed the GSEs under conservatorship, and we invested in the GSEs by entering into a SPSPA with each GSE. We

took these actions to preserve the GSEs’ assets, ensure a sound and solvent financial condition, and mitigate systemic risks

that contributed to market instability. The purpose of such actions is to maintain the solvency of the GSEs so they can

continue to fulfill their vital roles in the home mortgage market while the Administration and Congress determine what

structural changes should be made to the housing finance system. Draws under the SPSPAs result in an increased

investment in the GSEs as further discussed below.

Under the SPSPAs, we initially received from each GSE: (i) 1,000,000 shares of non-voting variable liquidation preference

senior preferred stock with a liquidation preference value of $1,000 per share, and (ii) a non-transferable warrant for the

purchase, at a nominal cost, of 79.9 percent of common stock on a fully-diluted basis. The warrants expire on

September 7, 2028. Under the amended SPSPAs, the quarterly dividend payment changed from a 10.0 percent per annum

fixed rate dividend on the total liquidation preference (as discussed below) to an amount equivalent to the GSEs’ positive net

worth above a capital reserve amount. The capital reserve amount, which was initially set at $3.0 billion for calendar year

2013, declined by $600 million at the beginning of each calendar year thereafter, and was scheduled to reach zero by

calendar year 2018. 

On December 21, 2017, the Department and the FHFA modified the SPSPAs between Treasury and the GSEs to increase the

capital reserve amount for each GSE back to $3 billion, effective with the December 2017 dividend payment. In exchange for

the increase in the capital reserve, Treasury’s liquidation preference in each GSE increased by $3 billion on

December 31, 2017. On September 27, 2019, the Department and the FHFA agreed to increase the capital reserve amounts

of Fannie Mae and Freddie Mac to $25 billion and $20 billion, representing an increase of $22 billion and $17 billion,

respectively, over the prior reserve amount of $3 billion. In exchange, our liquidation preference in each GSE will gradually

increase up to the adjusted capital reserve amounts based on the quarterly earnings of each GSE. As of September 30, 2019, 

Treasury’s liquidation preference in Fannie Mae and Freddie Mac increased by $3.4 billion and $1.8 billion, respectively. 

The GSEs will not pay a quarterly dividend if their positive net worth is below their capital reserve threshold. We received

cash dividends of $15.3 billion and $9.9 billion during fiscal years ended September 30, 2019 and 2018, respectively. 
96 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

The SPSPAs, which have no expiration date, require us to disburse funds to the GSEs if, at the end of any quarter, the

FHFA determines that the liabilities of either GSE exceed its assets. Draws from the Department under the SPSPAs are

designed to ensure that the GSEs maintain positive net worth, with a fixed maximum amount available to each GSE under

this agreement, established as of December 31, 2012 (refer to the “Contingent Liability to GSEs” section below). Draws

against the funding commitment of the SPSPAs do not result in the issuance of additional shares of senior preferred stock;

instead, they increase the liquidation preference of the initial 1,000,000 shares by the amount of the draw. The combined

cumulative liquidation preference totaled $204 billion and $199 billion as of September 30, 2019 and 2018, respectively. 

There were no payments to the GSEs for the fiscal year ended September 30, 2019. Actual payments of $4.0 billion were

made to the GSEs for the fiscal year ended September 30, 2018. 

ACCOUNTING TREATMENT

Entity Transactions― If we estimate a probable contingent liability to the GSEs, we will accrue and report this liability on

our Consolidated Balance Sheets, and fund the liability through our direct appropriations. We will report the liability

accrual, if any, at its gross amount as an “entity” cost on our Consolidated Statements of Net Cost, and within the line item,

“Cumulative Results of Operations” on our Consolidated Balance Sheets, without considering the increase in senior preferred

stock liquidation preference/fair value adjustments, and future dividend receipts from the GSEs.

Non-Entity Transactions― If we make actual payments to the GSEs, they will result in increases to the U.S. government’s

liquidation preference in the GSEs’ senior preferred stock, and thus represent General Fund exchange revenue reported on

our Consolidated Statements of Net Cost as “GSEs Non-Entity Revenue, Net.” Changes in the fair valuation of the GSE

preferred stock and common stock warrants, and related dividends received, are General Fund-related costs and revenues

which we report as “GSEs Non-Entity Revenue, Net.”

INVESTMENTS IN GSES

As of September 30, 2019 and 2018, our investments in the GSEs consisted of the following: 

Gross Cumulative 

Investments Valuation 9/30/19 

GSEs Investments (in millions) As of 9/30/19 Gain/(Loss) Fair Value

Fannie Mae Senior Preferred Stock $ 127,041 $ (78,341) $ 48,700 

Freddie Mac Senior Preferred Stock 77,298 (38,498) 38,800 

Fannie Mae Warrants Common Stock 3,104 12,896 16,000 

Freddie Mac Warrants Common Stock 2,264 6,306 8,570 

Total GSEs Investments $ 209,707 $ (97,637) $ 112,070 

Gross Cumulative 

Investments Valuation 9/30/18 

GSEs Investments (in millions) As of 9/30/18 Gain/(Loss) Fair Value

Fannie Mae Senior Preferred Stock $ 123,676 $ (64,476) $ 59,200 

Freddie Mac Senior Preferred Stock 75,472 (31,272) 44,200 

Fannie Mae Warrants Common Stock 3,104 3,186 6,290 

Freddie Mac Warrants Common Stock 2,264 1,196 3,460 

Total GSEs Investments $ 204,516 $ (91,366) $ 113,150 
DEPARTMENT OF THE TREASURY 97

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

SENIOR PREFERRED STOCK AND WARRANTS FOR COMMON STOCK

In determining the fair value of the senior preferred stock and warrants for common stock, we relied on the GSEs’ public

filings and press releases concerning their financial statements, as well as non-public, long-term financial forecasts, monthly

summaries, quarterly credit supplements, independent research regarding preferred stock trading, independent research

regarding the GSEs’ common stock trading on the OTC Bulletin Board, discussions with each of the GSEs and FHFA, and

other information pertinent to the valuations. Because the instruments are not publicly traded, there is no comparable

trading information available. The fair valuations rely on significant unobservable inputs that reflect assumptions about the

expectations that market participants would use in pricing. 

The fair value of the senior preferred stock considers the amount of forecasted cash flows to equity. The fair valuations

assume that a hypothetical buyer would acquire the discounted dividend stream as of the transaction date. The fair value of

the senior preferred stock decreased as of September 30, 2019 when compared to September 30, 2018, mainly driven by the

increase in the market value of the GSEs’ other equity securities that comprise the GSEs’ total equity value. The effect of

the market value increase was partially offset by a lower discount rate, driven by a lower risk-free rate and reduced volatility

among comparable companies (refer to Note 1V).

Factors impacting the fair value of the warrants include the nominal exercise price and the large number of potential

exercise shares, the market trading of the common stock that underlies the warrants as of September 30, the principal

market, and the market participants. Other factors impacting the fair value include, among other things, the holding period

risk related directly to the assumption of the amount of time that it will take to sell the exercised shares without depressing

the market. The fair value of the warrants increased at the end of FY 2019, when compared to 2018, primarily due to

increases in the market price of the underlying common stock of each GSE.

CONTINGENT LIABILITY TO GSES

As part of the annual process undertaken by the Department, we prepare a series of long-term financial forecasts to assess, 

as of September 30, the likelihood and magnitude of future draws to be required by the GSEs under the SPSPAs within the

forecast time horizon. We used 25-year financial forecasts prepared through years 2044 and 2043 in assessing if a 

contingent liability was required as of September 30, 2019 and 2018, respectively. If future payments under the SPSPAs are

deemed to be probable within the forecast horizon, and we can reasonably estimate such payment, we will accrue a 

contingent liability to the GSEs to reflect the forecasted equity deficits of the GSEs. We do not discount this accrued

contingent liability, nor do we take into account any of the offsetting dividends that we could receive, as the dividends, if any,

would be owed directly to the General Fund. We will adjust such recorded accruals in subsequent years as new information

develops or circumstances change. 

Based on our annual assessment, we estimated there was no probable future funding draws as of September 30, 2019 and

2018, and thereby accrued no contingent liability. However, as of September 30, 2019, it is reasonably possible that market

volatility or non-recurring events—for instance, changes to accounting policies that impact credit loss provisions—could

potentially cause the GSEs to generate quarterly losses and, therefore, result in future funding draws against our funding

commitment. Due to challenges quantifying future market volatility or the timing, magnitude, and likelihood of nonrecurring events, we could not estimate the total amount of this reasonably possible future funding liability as of September

30, 2019. There were no payments to the GSEs for the fiscal year ended September 30, 2019. At September 30, 2019 and

2018, the maximum remaining contractual commitment to the GSEs for the remaining life of the SPSPAs was $254.1 billion. 
98 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

In assessing the need for an estimated contingent liability, we rely on the GSEs’ public filings and press releases concerning

their financial statements, monthly summaries, and quarterly credit supplements, as well as non-public, long-term financial

forecasts, the FHFA House Price Index, discussions with each of the GSEs and FHFA, and other information pertinent to the

liability estimates. The forecasts prepared in assessing the need for an estimated contingent liability as of

September 30, 2019 include three potential wind-down scenarios, with varying assumptions regarding the timing as to when

the GSEs would cease new business activities, including purchasing mortgage loans and issuing new guaranteed mortgagebacked securities. The forecasts as of September 30, 2019, also assumed the maintenance of the GSEs’ retained mortgage

portfolios (and corresponding net interest income) below the $250 billion maximum permitted under the SPSPAs. The

maximum balance of the GSEs’ retained mortgage portfolio was initially set at $650 billion as of December 31, 2012, and the

amended SPSPAs required that the GSEs reduce this maximum balance to $250 billion by December 31, 2018, which was

accomplished by both GSEs.

ESTIMATION FACTORS

Our forecasts concerning the GSEs may differ from actual experience. Estimated senior preferred values and future draw

amounts will depend on numerous factors that are difficult to predict including, but not limited to, changes in government

policy with respect to the GSEs, the business cycle, inflation, home prices, unemployment rates, interest rates, changes in

housing preferences, home financing alternatives, availability of debt financing, market rates of guarantee fees, outcomes of

loan refinancings and modifications, new housing programs, and other applicable factors. 

FINANCIAL PERFORMANCE OF THE GSES

The summarized unaudited aggregated financial condition of the GSEs as of September 30, 2019 and 2018, along with their

summarized unaudited aggregated financial operating results for the nine months ended September 30, 2019 and 2018 were

as follows: 

(in millions) 2019 2018 

Combined Assets

 Investment Securities $ 119,878 $ 123,368 

 Mortgage Loans 5,311,626 5,135,562 

 Other 233,178 205,632 

Total Combined Assets 5,664,682 5,464,562 

Combined Liabilities

 Long-Term Debt 5,480,961 5,319,340 

 Other 166,705 132,688 

Total Combined Liabilities 5,647,666 5,452,028 

Combined Net Equity $ 17,016 $ 12,534 

For the Nine Months Ended September 30 

Combined Net Interest Income $ 23,602 $ 25,256 

Combined Benefit for Loan Losses 4,206 2,606 

Combined Net Interest Income After Benefit for Loan Losses $ 27,808 $ 27,862 

Combined Total Comprehensive Income $ 15,042 $ 19,516 

We obtained this financial information from the GSEs’ quarterly financial reports filed with the Securities and Exchange

Commission. The financial information above excludes certain financial guarantees not directly reflected on the

GSEs’ balance sheets.
DEPARTMENT OF THE TREASURY 99 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

GSES NON-ENTITY REVENUE

For the fiscal years ended September 30, 2019 and 2018, GSEs Non-Entity Revenue, Net consisted of the following:

Summary of GSEs Non-Entity Revenue (in millions) 2019 2018 

General Fund Revenue from Increase in Liquidation Preference of GSEs 

 Preferred Stock $ (5,191) $ (9,999) 

Fair Value Loss/(Gain) on GSEs Warrants/Preferred Stock 6,271 (10,511) 

GSEs Preferred Stock Dividends (15,279) (9,881) 

Total GSEs Non-Entity Revenue, Net $ (14,199) $ (30,391) 

REGULATORY ENVIRONMENT

To date, Congress has not passed legislation nor has FHFA taken actions to end the conservatorships to address the future of

the GSEs. The GSEs continue to operate under the direction of FHFA as conservator. On March 27, 2019, the President

issued a Memorandum that directed the Secretary of the Treasury to develop a plan for administrative and legislative

reforms to achieve the following housing finance reform goals: (i) ending the conservatorships of the GSEs upon completion

of specified reforms; (ii) facilitating competition in the housing finance market; (iii) establishing regulation of the GSEs that

safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the U.S.; and (iv)

providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or

the secondary housing finance market. On September 5, 2019, we released our Housing Reform Plan, which included

recommended legislative and administrative reforms to achieve each of these goals. 

The Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78) was funded by an increase of ten basis points in the

GSEs’ guarantee fees (referred to as “the incremental fees”) which began in April 2012, and is effective through

September 30, 2021. The incremental fees are remitted to us and not retained by the GSEs and, thus, do not affect the

profitability of the GSEs. For FY 2019 and 2018, the GSEs remitted to us the incremental fees totaling $3.9 billion and

$3.6 billion, respectively, which are reported within the line item entitled “Fines, Penalties, Interest and Other Revenue” on

our Statements of Custodial Activity. 

 
100 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

11. INVESTMENTS IN MULTILATERAL DEVELOPMENT BANKS

As of September 30, 2019 and 2018, Investments in Multilateral Development Banks consisted of the following:

(in millions) 2019 2018 

International Bank for Reconstruction and Development $ 2,850 $ 2,850 

Inter-American Development Bank (1) 2,023 2,023 

Asian Development Bank 991 991 

European Bank for Reconstruction and Development 636 636 

International Finance Corporation 569 569 

African Development Bank 434 402 

North American Development Bank 225 225 

Multilateral Investment Guarantee Agency 45 45 

Total $ 7,773 $ 7,741 

Refer to Note 26 for a description of the additional commitments related to these institutions. 

(1) Includes Inter-American Investment Corporation 

12. OTHER INVESTMENTS AND RELATED INTEREST

Other investments and related interest include foreign currency holdings that we typically invest in interest-bearing

securities issued or held through foreign governments or monetary authorities (refer to Note 5). The ESF holds most of our

foreign currency investments. Of the total $6.6 billion fair value of foreign investments (excluding interest receivable) held

at September 30, 2019, $1.2 billion will mature within one year, $3.2 billion will mature after one year but before five years,

and $2.2 billion will mature after five years but before ten years.

As of September 30, 2019 and 2018, Other Investments and Related Interest consisted of the following:

Cost/ Unamortized 9/30/19 

Acquisition (Premium)/ Interest Net Unrealized 9/30/19 

Type of Investment (in millions) Value Discount Receivable Investment Gain/(Loss) Fair Value

Foreign Investments:

 Euro Bonds & Notes $ 5,039 $ 370 $ 53 $ 5,462 $ 100 $ 5,562 

 Japanese Government Bonds 941 - - 941 111 1,052 

Other Investments 29 (1) - 28 (11) 17 

Total Non-Federal $ 6,009 $ 369 $ 53 $ 6,431 $ 200 $ 6,631 

Cost/ Unamortized 9/30/18 

Acquisition (Premium)/ Interest Net Unrealized 9/30/18 

Type of Investment (in millions) Value Discount Receivable Investment Gain/(Loss) Fair Value

Foreign Investments:

 Euro Bonds & Notes $ 4,990 $ 468 $ 61 $ 5,519 $ 257 $ 5,776 

 Japanese Government Bonds 1,207 1 1 1,209 60 1,269 

Other Investments 29 (1) - 28 (11) 17 

Total Non-Federal $ 6,226 $ 468 $ 62 $ 6,756 $ 306 $ 7,062 
DEPARTMENT OF THE TREASURY 101 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

13. PROPERTY, PLANT, AND EQUIPMENT, NET

As of September 30, 2019 and 2018, Property, Plant, and Equipment, Net consisted of the following:

2019 

Net

Depreciation Service Accumulated Book

(in millions) Method Life Cost Depreciation Value

Buildings, Structures and Facilities S/L 3 - 50 years $ 811 $ (510) $ 301 

Furniture, Fixtures and Equipment S/L 2 - 20 years 2,951 (2,133) 818 

Construction-in-Progress N/A N/A 180 - 180 

Land and Land Improvements N/A N/A 20 (3) 17 

Internal-Use Software in Use S/L 2 - 15 years 3,646 (2,525) 1,121 

Internal-Use Software in Development N/A N/A 276 - 276 

Assets Under Capital Lease S/L 2 - 25 years 33 (14) 19 

Leasehold Improvements S/L 2 - 25 years 407 (269) 138 

Total $ 8,324 $ (5,454) $ 2,870 

2018 

Net

Depreciation Service Accumulated Book

(in millions) Method Life Cost Depreciation Value

Buildings, Structures and Facilities S/L 3 - 50 years $ 781 $ (485) $ 296 

Furniture, Fixtures and Equipment S/L 2 - 20 years 2,865 (2,107) 758 

Construction-in-Progress N/A N/A 171 - 171 

Land and Land Improvements N/A N/A 18 (3) 15 

Internal-Use Software in Use S/L 2 - 15 years 3,584 (2,263) 1,321 

Internal-Use Software in Development N/A N/A 210 - 210 

Assets Under Capital Lease S/L 2 - 25 years 29 (12) 17 

Leasehold Improvements S/L 2 - 25 years 417 (258) 159 

Total $ 8,075 $ (5,128) $ 2,947 

The service life ranges vary significantly due to the diverse nature of PP&E we hold.

HERITAGE ASSETS

We have 15 heritage assets, of which five are considered multi-use, for FY 2019 and 2018. The Treasury Complex (Main 

Treasury Building and Annex), declared a national historical landmark in 1972, is treated as a multi-use heritage asset, 

along with the collection of artifacts within, and is expected to be preserved indefinitely. The buildings that house the Mint

in Denver, San Francisco, Fort Knox, and West Point are also multi-use heritage assets and included on the National

Register of Historic Places. Additionally, the Mint maintains heritage assets consisting of four coin collections and six

collections of historical artifacts. 
102 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

14. NON-ENTITY VS. ENTITY ASSETS 

Non-entity assets are those that we hold and manage on behalf of the General Fund but are not available for our use. The

table below shows our total assets, segregated between non-entity and entity, as of September 30, 2019 and 2018: 

 2019 

(in millions) Non-Entity Entity Total 

Intra-governmental Assets: 

Fund Balance (a) $ 3,294 $ 412,033 $ 415,327 

Loans and Interest Receivable (Note 3) 1,504,794 76,225 1,581,019 

Advances to Federal Supplementary Medical Insurance Trust Fund (Note 4) 3,152 - 3,152 

Due From the General Fund (Note 4) 22,855,331 - 22,855,331 

Other Intra-governmental Assets 989 22 1,011 

Total Intra-governmental Assets 24,367,560 488,280 24,855,840 

Cash, Foreign Currency, and Other Monetary Assets (Note 5) 376,901 64,464 441,365 

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

Taxes, Interest, and Other Receivables, Net (Note 8) 145,729 149 145,878 

Investments in GSEs (Note 10) 112,070 - 112,070 

Other Assets (b) 7 48,314 48,321 

Total Assets $ 25,013,329 $ 601,207 $ 25,614,536 

(a) $1.9 billion of the non-entity balance represents assets held on behalf of the General Fund (refer to Note 4).

(b) Other Assets (Entity) include loans and interest receivable, other investments and related interest, reserve position in the IMF, and other

various assets on the Consolidated Balance Sheets not separately presented in this table.

2018 

(in millions) Non-Entity Entity Total 

Intra-governmental Assets:

Fund Balance (c) $ 1,884 $ 422,984 $ 424,868 

Loans and Interest Receivable (Note 3) 1,448,007 76,689 1,524,696 

Advances to Federal Supplementary Medical Insurance Trust Fund (Note 4) 5,027 - 5,027 

Due From the General Fund (Note 4) 21,646,633 - 21,646,633 

Other Intra-governmental Assets 729 41 770 

Total Intra-governmental Assets 23,102,280 499,714 23,601,994 

Cash, Foreign Currency, and Other Monetary Assets (Note 5) 379,380 65,191 444,571 

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

Taxes, Interest, and Other Receivables, Net (Note 8) 59,488 149 59,637 

Investments in GSEs (Note 10) 113,150 - 113,150 

Other Assets (d) 8 43,333 43,341 

Total Assets $ 23,665,368 $ 608,387 $ 24,273,755 

(c) $1.1 billion of the non-entity balance represents assets held on behalf of the General Fund (refer to Note 4).

(d) Other Assets (Entity) include loans and interest receivable, other investments and related interest, reserve position in the IMF, and other

various assets on the Consolidated Balance Sheets not separately presented in this table.
DEPARTMENT OF THE TREASURY 103 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

15. FEDERAL DEBT AND INTEREST PAYABLE

Treasury is responsible for administering the federal debt on behalf of the U.S. government. The federal debt includes

borrowings from the public as well as borrowings from federal agencies. The federal debt does not include debt issued by

other governmental agencies, such as the Tennessee Valley Authority or Department of Housing and Urban Development.

Debt held by the public primarily represents the amount the U.S. government has borrowed to finance cumulative cash

deficits. In contrast, debt held by other federal agencies, primarily trust funds, represents balances of Treasury securities

held by individual federal agencies with either the authority or the requirement to invest excess receipts in Treasury

securities, with the principal and interest guaranteed by the full faith and credit of the U.S. government.

Federal Debt and Interest Payable as of September 30, 2019 and 2018 was as follows:

Held by Other Federal Agencies (Intra-governmental) (in millions) 2019 2018 

Beginning Balance $ 5,712,537 $ 5,527,721 

New Borrowings/(Repayments) - Net 156,558 184,816 

Subtotal at Par Value 5,869,095 5,712,537 

Premium/(Discount) 73,111 69,843 

Debt Principal Not Covered by Budgetary Resources (Note 18) 5,942,206 5,782,380 

Interest Payable Covered by Budgetary Resources 38,823 39,262 

Total $ 5,981,029 $ 5,821,642 

Held by the Public (in millions) 2019 2018 

Beginning Balance $ 15,761,155 $ 14,673,429 

New Borrowings - Net of Repayments 1,047,937 1,087,726 

Subtotal at Par Value 16,809,092 15,761,155 

Premium/(Discount) (42,688) (44,766) 

Debt Principal Not Covered by Budgetary Resources (Note 18) 16,766,404 15,716,389 

Interest Payable Covered by Budgetary Resources 73,223 73,528 

Total $ 16,839,627 $ 15,789,917 

FEDERAL DEBT HELD BY OTHER FEDERAL AGENCIES

Certain federal agencies are allowed to invest excess funds in debt securities we issue on behalf of the U.S. government. The

terms and the conditions of debt securities issued allow the U.S. government to meet its cash needs. The vast majority of

debt securities are non-marketable securities issued at par value, but others are issued at market prices and interest rates

that reflect market terms. The average intra-governmental interest rate for debt held by the federal entities, excluding

Treasury Inflation-Protected Securities (TIPS) and Floating Rate Notes (FRNs), for FY 2019 and 2018 was 2.7 percent and

2.8 percent, respectively. The average intra-governmental interest rate on TIPS for both FY 2019 and 2018 was 1.3 percent. 

The average interest rate on FRNs for FY 2019 and 2018 was 1.9 percent and 2.3 percent, respectively. The average interest

rate represents the original issue weighted effective yield on securities outstanding at the end of the fiscal year.

The federal debt also includes intra-governmental marketable debt securities that certain agencies are permitted to buy and

sell on the open market. The debt held by federal agencies at par value (not including premium/discount or interest payable)

as of September 30, 2019 and 2018 was as follows: 
104 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

(in millions) 2019 2018 

Social Security Administration $ 2,900,916 $ 2,894,654 

Office of Personnel Management 1,051,505 1,033,785 

Department of Defense Agencies 1,093,955 995,540 

Department of Health and Human Services 307,225 304,789 

All Other Federal Entities — Consolidated 515,494 483,769 

Total Federal Debt Held by Other Federal Agencies $ 5,869,095 $ 5,712,537 

These amounts do not include intra-departmental debt and related interest that are eliminated from our financial statements.

FEDERAL DEBT HELD BY THE PUBLIC

Federal Debt Held by the Public at par value (not including premium/discount or interest payable) as of September 30, 2019

and 2018 consisted of the following:

Average

Interest 

(at par value in millions) Term Rates 2019 

Marketable: 

Treasury Bills 1 Year or Less 2.1% $ 2,376,370 

Treasury Notes Over 1 Year - 10 Years 2.2% 9,755,985 

Treasury Bonds Over 10 Years 3.9% 2,311,517 

Treasury Inflation-Protected Securities (TIPS) 5 Years or More 0.8% 1,454,698 

Treasury Floating Rate Notes (FRN) 2 Years 2.0% 424,067 

Total Marketable 16,322,637 

Non-Marketable On Demand to Over 40 Years 2.2% 486,455 

Total Federal Debt Held by the Public $ 16,809,092 

Average

Interest 

(at par value in millions) Term Rates 2018 

Marketable: 

Treasury Bills 1 Year or Less 2.1% $ 2,239,473 

Treasury Notes Over 1 Year - 10 Years 2.0% 9,150,301 

Treasury Bonds Over 10 Years 4.1% 2,114,982 

Treasury Inflation-Protected Securities (TIPS) 5 Years or More 0.8% 1,376,180 

Treasury Floating Rate Notes (FRN) 2 Years 2.2% 369,142 

Total Marketable 15,250,078 

Non-Marketable On Demand to Over 40 Years 2.8% 511,077 

Total Federal Debt Held by the Public $ 15,761,155 

We generally issue Treasury bills, notes, bonds, and TIPS to meet the borrowing needs of the U.S. government. We issue

marketable bills at a discount or at par, and pay the par amount of the security upon maturity. The average interest rate on

Treasury bills represents the original issue effective yield on securities outstanding at year end. 
DEPARTMENT OF THE TREASURY 105 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

We issue marketable notes and bonds as long-term securities that pay semi-annual interest based on the securities’ stated

interest rates. We issue these securities at either par value or at an amount that reflects a discount or premium. The

average interest rate on marketable notes and bonds represents the stated interest rate adjusted by any discount or

premium on securities outstanding at year-end. We also issue TIPS that have interest and redemption payments tied to the

CPI for all Urban Consumers, a widely used measurement of inflation. We adjust the principal for TIPS daily over the life of

the security based on the CPI for all Urban Consumers. At maturity, TIPS are redeemed at the inflation-adjusted principal

amount, or the original par value, whichever is greater. TIPS pay a semi-annual fixed rate of interest applied to the

inflation-adjusted principal. The average interest rate on TIPS represents the stated interest rate on principal plus

inflation, adjusted by any discount or premium on securities outstanding as of the end of the fiscal year. The inflationadjusted TIPS principal balance of federal debt held by the public included inflation of $150.6 billion and $134.1 billion as of

September 30, 2019 and 2018, respectively.

We also issue marketable FRNs which pay interest quarterly based on the interest rate at the time of payment. The interest

rate of FRNs can change over time and is indexed to the highest acceptable discount rate of the most recent 13-week

marketable bill auction. Similar to marketable notes and bonds, we issue these securities at either par value or at an

amount that reflects a discount or premium. The average interest rate on marketable FRNs represents the highest accepted

discount rate of the most recent 13-week marketable auction as of September 30, adjusted by any discount or premium on

securities outstanding as of that date. 

Federal Debt Held by the Public includes federal debt held outside of the U.S. government by individuals, corporations,

FRBs, state and local governments, foreign governments, and central banks. As of September 30, 2019, the FRBs had total

holdings of $1.6 trillion which: (i) excluded $475.0 billion in Treasury securities used in overnight reverse repurchase

transactions, and (ii) included a negligible amount lent to dealers and not collateralized by other Treasury securities. As of

September 30, 2018, the FRBs had total holdings of $1.8 trillion which: (i) excluded $531.8 billion in Treasury securities used

in overnight reverse repurchase transactions, and (ii) included a net of $1.0 billion in Treasury securities held by the FRB as

collateral for securities lending activities. For the years ended September 30, 2019 and 2018, we incurred interest expense of

$59.0 billion and $64.1 billion, respectively, related to Treasury securities held by the FRBs.

STATUTORY DEBT LIMIT 

The statutory debt limit is the total amount of money that the U.S. government is authorized to borrow to meet its existing

legal obligations, with certain adjustments. Outstanding debt obligations subject to the statutory limit were $22.7 trillion

and $21.5 trillion as of September 30, 2019 and 2018, respectively. Congress has provided us with statutory authority to

take certain extraordinary measures in the event that the public debt nears the statutory debt limit and a delay in raising

the statutory debt limit occurs. These measures authorize us to deviate from our normal debt management operations – 

which include the investment (or non-investment) of trust fund balances in Treasury securities – to avoid exceeding the

statutory debt limit.
106 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

During a period of delay in raising the statutory debt limit, we may undertake the following extraordinary measures: (i) 

suspend new issuances of Treasury securities to the Government Securities Investment Fund (G Fund) of the FERS TSP, the

Civil Service Retirement and Disability Fund (Civil Service Fund), the Postal Service Retiree Health Benefits Fund (Postal

Benefits Fund), and the ESF; (ii) redeem early a certain amount of Treasury securities held by the Civil Service Fund and

Postal Benefit Fund; (iii) suspend new issuances of State and Local Government Series (SLGS) securities; (iv) utilize FFB to

exchange outstanding Treasury securities held by the Civil Service Fund for non-Treasury securities (refer to Note 16); and

(v) issue cash management bills to manage short-term financing needs.

When the period of delay in raising the statutory debt limit ends, we discontinue our use of extraordinary measures and

resume our normal debt management operations. Furthermore, we are required by the relevant statutes to issue to the G 

Fund, along with the OPM-administered Civil Service Fund and Postal Benefits Fund (the OPM funds), Treasury securities

that bears such interest rates and maturity dates necessary to replicate the investments the funds would have held had the

delay not occurred (the unissued securities). In addition, relevant statutes require us to pay these funds the related lost

interest (foregone interest) on the unissued securities. While we may restore the ESF, relevant statutes do not permit us to

pay the ESF interest lost during a period of delay. 

A delay in raising the statutory debt limit occurred from December 9, 2017 until February 9, 2018. On February 9, 2018,

Congress enacted the Bipartisan Budget Act of 2018 (P.L. 115-123) which temporarily suspended the debt limit through

March 1, 2019. Another delay in raising the statutory debt limit occurred from March 2, 2019 until August 1, 2019. On

August 2, 2019, Congress enacted the Bipartisan Budget Act of 2019 (P.L. 116-37) which temporarily suspended the debt

limit through July 31, 2021.

During the period from December 11, 2017 through February 8, 2018, we departed from our normal debt management

operations and undertook extraordinary measures to avoid exceeding the statutory debt limit. On February 9, 2018, when

Congress temporarily suspended the debt limit, we discontinued the use of extraordinary measures and resumed normal

debt management operations. On this date, we restored unissued securities totaling $175.6 billion, of which $156.7 billion

was restored to the G Fund and $18.9 billion was restored to the two OPM Funds. We also restored foregone interest of

$485 million owed to the G Fund for the period of December 11, 2017 through February 8, 2018 on February 12, 2018. We

restored foregone interest related to the unissued securities owed to the two OPM funds for the period of December 11, 2017

through February 8, 2018, which totaled $247 million, on the semi-annual interest payable date of June 29, 2018. In

FY 2018, we also accrued and restored $72 million of foregone interest related to the period of delay in raising the statutory

debt limit that occurred from March 16, 2017 through September 7, 2017. The foregone interest was reported in FY 2018 as

a then current year, non-entity expense on the Consolidated Statements of Net Costs within the line item “Restoration of

Foregone Federal Debt Interest.” In FY 2018, we reversed $660 million of foregone interest accrued in FY 2017 as part of

other financing sources on the Consolidated Statement of Changes in Net Position in connection with the actual payment of

interest. 
DEPARTMENT OF THE TREASURY 107 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

During the period from March 4, 2019 through August 1, 2019, we again departed from our normal debt management

operations and undertook extraordinary measures to avoid exceeding the statutory debt limit. On August 2, 2019 when

Congress temporarily suspended the debt limit, we discontinued the use of extraordinary measures and resumed normal

debt management operations. On this date, we restored unissued securities totaling $263.4 billion, of which $159.4 billion

and $104.0 billion was restored to the G Fund and the two OPM Funds, respectively. We also restored foregone interest of

$1.7 billion to the G Fund on August 5, 2019. Foregone interest totaling $696 million related to the unissued securities owed

to the two OPM funds for the period from March 4, 2019 through August 1, 2019, will be restored on the next semi-annual

interest payable date of December 31, 2019. The foregone interest was reported in FY 2019 as a current year, non-entity

expense on the Consolidated Statements of Net Costs within the line item “Restoration of Foregone Federal Debt Interest.”

16. OTHER DEBT AND INTEREST PAYABLE

Through FFB, we have outstanding borrowings and related accrued interest owed to the Civil Service Fund. At

September 30, 2019 and 2018, FFB had outstanding borrowings of $8.9 billion and $10.4 billion, inclusive of $60 million and

$75 million of accrued interest payable, respectively. The outstanding borrowings at September 30, 2019 had stated interest

rates that ranged from 2.25 percent to 2.88 percent per annum, and an effective interest rate of 2.69 percent. The

outstanding borrowings at September 30, 2018 had stated interest rates that ranged from 2.25 percent to 4.63 percent per

annum, and an effective interest rate of 2.86 percent. Maturity dates ranged from June 30, 2020 to June 30, 2029 for

outstanding borrowings at September 30, 2019, and from June 30, 2019 to June 30, 2029 for outstanding borrowings at

September 30, 2018.

 
108 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

17. D.C. FEDERAL PENSION AND JUDICIAL RETIREMENT ACTUARIAL

LIABILITY

Title XI of the Balanced Budget Act of 1997, as amended, intended to relieve the D.C. government of the burden of unfunded

pension liabilities transferred to the District by the U.S. government in 1979. To fulfill our responsibility, we manage two

funds ― the District of Columbia Teachers, Police Officers, and Firefighters Federal Pension Fund (the D.C. Federal Pension

Fund) and the District of Columbia Judicial Retirement and Survivors Annuity Fund (the Judicial Retirement Fund). We

are required to make annual amortized payments from the General Fund to the D.C. Federal Pension Fund and the Judicial

Retirement Fund. The D.C. Federal Pension Fund benefit payments relate to creditable service performed on or before

June 30, 1997, while the Judicial Retirement Fund benefit payments relate to all creditable service. 

A reconciliation of the combined actuarial pension liability for the D.C. Federal Pension Fund and the Judicial Retirement

Fund as of September 30, 2019 and 2018 is as follows: 

(in millions) 2019 2018 

Beginning Liability Balance $ 8,372 $ 8,682 

Pension Expense:

Normal Cost 6 6 

Interest on Pension Liability During the Year 55 66 

Actuarial (Gains) Losses During the Year:

From Experience 34 55 

From Discount Rate Assumption Change 290 377 

From Other Assumption Changes 133 (177) 

From Non-Economic Changes 64 (84) 

Total Pension Expense 582 243 

Less Amounts Paid (556) (553) 

Ending Liability Balance $ 8,398 $ 8,372 
DEPARTMENT OF THE TREASURY 109 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

D.C. Federal Judicial 2019 

Additional Information ($ in millions): Pension Fund Retirement Fund Total 

Amount Received from the General Fund $ 498 $ 17 $ 515 

Annual Rate of Investment Return Assumption 0.74% - 3.84% 0.74% - 3.84% 

Future Annual Rate of Inflation and Cost-Of- 

 Living Adjustment:

 Police Officers 1.80% N/A

 Firefighters 1.80% N/A

 Teachers 1.82% N/A

 Judicial N/A 1.36% 

Future Annual Rate of Salary Increases:

 Police Officers 1.95% N/A

 Firefighters 2.00% N/A

 Teachers 2.30% N/A

 Judicial N/A 0.83% 

D.C. Federal Judicial 2018 

Additional Information ($ in millions): Pension Fund Retirement Fund Total 

Amount Received from the General Fund $ 467 $ 16 $ 483 

Annual Rate of Investment Return Assumption 0.59% - 3.89% 0.59% - 3.89% 

Future Annual Rate of Inflation and Cost-Of- 

 Living Adjustment:

 Police Officers 1.62% N/A

 Firefighters 1.62% N/A

 Teachers 1.64% N/A

 Judicial N/A 1.66% 

Future Annual Rate of Salary Increases: 

 Police Officers 1.80% N/A

 Firefighters 2.20% N/A

 Teachers 2.36% N/A

 Judicial N/A 0.97% 
110 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

18. LIABILITIES

LIABILITIES NOT COVERED BY BUDGETARY RESOURCES 

As of September 30, 2019 and 2018, liabilities not covered by budgetary resources consisted of the following: 

(in millions) 2019 2018 

Intra-governmental Liabilities Not Covered by Budgetary Resources

Federal Debt Principal, Premium/Discount (Note 15) $ 5,942,206 $ 5,782,380 

Other Intra-governmental Liabilities 90 125 

Total Intra-governmental Liabilities Not Covered by Budgetary Resources 5,942,296 5,782,505 

Federal Debt Principal, Premium/Discount (Note 15) 16,766,404 15,716,389 

Other Liabilities 1,049 1,025 

Total Liabilities Not Covered by Budgetary Resources 22,709,749 21,499,919 

Total Liabilities Covered by or Not Requiring Budgetary Resources 2,415,211 2,278,023 

Total Liabilities $ 25,124,960 $ 23,777,942 

OTHER LIABILITIES

Total “Other Liabilities” displayed on the Consolidated Balance Sheets consists of liabilities that are covered by, not covered

by, and not requiring budgetary resources. “Other Liabilities” at September 30, 2019 and 2018, consisted of the following: 

Non- 2019 Non- 2018 

(in millions) Current Current Total Current Current Total 

Intra-governmental 

Accounts Payable $ 76 $ - $ 76 $ 86 $ - $ 86 

Unfunded Federal Workers Compensation 

 Program Liability (FECA) 41 48 89 41 51 92 

Other Accrued Liabilities 446 21 467 452 1 453 

Total Intra-governmental $ 563 $ 69 $ 632 $ 579 $ 52 $ 631 

With the Public

Liability for Deposit Funds (Held by the

 U.S. government for Others)

 and Suspense Accounts $ 1,437 $ - $ 1,437 $ 1,398 $ - $ 1,398 

Actuarial Federal Workers Compensation 

 Program Liability (FECA) - 576 576 - 584 584 

Accrued Funded Payroll and Benefits 462 - 462 428 - 428 

Accounts Payable and Other Accrued

 Liabilities 2,902 90 2,992 3,047 87 3,134 

Total With the Public $ 4,801 $ 666 $ 5,467 $ 4,873 $ 671 $ 5,544 
DEPARTMENT OF THE TREASURY 111 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

19. NET POSITION

Unexpended Appropriations represents the amount of spending authorized as of year-end that is unliquidated or unobligated

and has not lapsed, been rescinded, or withdrawn. No-year appropriations remain available for obligation until expended. 

Annual appropriations remain available for upward or downward adjustment of obligations until canceled. We report

adjustments related to unexpended appropriations, such as cancellations of expired funds or rescissions, as “Other

Adjustments” on the Consolidated Statements of Changes in Net Position.

Cumulative Results of Operations represents the net results of operations since inception, and includes cumulative amounts

related to investments in capitalized assets and donations and transfers of assets in and out without reimbursement. Also

included as a reduction in Cumulative Results of Operations are accruals for which the related expenses require funding

from future appropriations and assessments. These future funding requirements include, among others: (a) accumulated

annual leave earned but not taken; (b) accrued FECA; (c) credit reform cost re-estimates; (d) unfunded D.C. Federal pension;

and (e) expenses for contingent liabilities.

APPROPRIATIONS RECEIVED

Congress appropriates the amount reported as “Appropriations Received” from the General Fund receipts, such as income

taxes, that are not dedicated by law for a specific purpose. This amount will not necessarily agree with the “Appropriations

(discretionary and mandatory)” amount reported on the Combined Statements of Budgetary Resources because of differences

between proprietary and budgetary accounting concepts and reporting requirements. For example, certain dedicated

receipts are recorded as “Appropriations (discretionary and mandatory)” on the Combined Statements of Budgetary

Resources, but are recognized as exchange or non-exchange revenue (i.e., typically in revolving, special, and non-revolving

trust funds) and reported on the Consolidated Statements of Changes in Net Position in accordance with SFFAS No. 7.

TRANSFERS TO THE GENERAL FUND AND OTHER

The amount reported as “Transfers to the General Fund and Other” on the Consolidated Statements of Changes in Net

Position under “Other Financing Sources” includes the following for the years ended September 30, 2019 and 2018: 

(in millions) 2019 2018 

Categories of Transfers to the General Fund and Other

Interest Revenue $ (46,616) $ (44,835) 

Increase in Liquidation Preference of GSEs Preferred Stock, 

 GSEs Preferred Stock Dividends and Valuation Changes (Note 10) (14,199) (30,391) 

Other (2,359) (2,242) 

Total $ (63,174) $ (77,468) 

Included in “Transfers to the General Fund and Other” is the annual valuation adjustment on the GSE Senior Preferred

Stock investments and related dividends. These transfers also include distribution of interest revenue to the General Fund. 

We accrue interest revenue on inter-agency loans held on behalf of the U.S. government. We report a corresponding amount

on the Consolidated Statements of Net Cost under “Non-Entity Costs: Less Interest Revenue from Loans.” Eliminations

between our bureaus reduce the amount reported on the Consolidated Statements of Net Cost.
112 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

The “Other” line generally includes collections from other federal agencies for reimbursement of costs we incurred for our

administration of trust funds established within the Social Security Act. We execute these administrative services as

directed by statute. Seigniorage and numismatic profits also are included in the “Other” line. Seigniorage is the face value

of newly minted circulating coins less the cost of production. Numismatic profit is any profit on the sale of proof coins,

uncirculated coins, commemorative coins, and related products and accessories. The Mint is required to distribute

seigniorage and numismatic profits in excess of operating expenses to the General Fund (refer to Note 21). In any given

year, the amount recognized as seigniorage may differ from the amount distributed to the General Fund by an insignificant

amount due to timing differences. The “Other” line also includes the credit reform downward re-estimate subsidies

transferred to the General Fund resulting from a change in forecasts of future cash flows. 

20. CONSOLIDATED STATEMENTS OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS

Our Consolidated Statements of Net Cost display information on a consolidated basis. We consist of DO and seven operating

bureaus that we provide supporting schedules for Net Cost in the notes to the financial statements (refer to Note 1). These

supporting schedules provide consolidating information, which fully displays the costs, revenues, and net cost of DO and

each operating bureau.

The classification of sub-organizations has been determined in accordance with SFFAS No. 4, Managerial Cost Accounting

Standards and Concepts which states that the predominant factor is the reporting entity’s organization structure and

existing responsibility components, such as bureaus, administrations, offices, and divisions within a department.

Each sub-organization is responsible for accumulating costs. The assignment of the costs to Department-wide programs is

the result of using the following cost assignment methods: (1) direct costs, (2) cause and effect, and (3) cost allocation.

INTRA-DEPARTMENTAL COSTS/REVENUES

We report intra-departmental costs/revenues resulting from the provision of goods and/or services on a reimbursable basis

among our sub-organizations as costs by providing sub-organizations and as revenues by receiving sub-organizations. We

recognized intra-departmental imputed costs, such as un-reimbursed payments made from the Treasury Judgment Fund on

our behalf, on the Consolidated Statements of Net Cost of $912 million and $931 million during FY 2019 and 2018,

respectively. Accordingly, we eliminated such costs or revenues in the consolidation process.

INTRA-GOVERNMENTAL COSTS

Intra-governmental costs relate to the source of goods and services we purchased and not to the classification of the related

intra-governmental revenue.

In certain cases, other federal agencies incur costs that are directly identifiable to our operations. In accordance with SFFAS 

No. 4, as amended, we recognize identified costs paid on our behalf by other agencies. The imputed intra-governmental

financing sources we currently recognize include the actual cost of future benefits for the federal pension plans, and the

Federal Employees Health Benefits Program that other federal entities pay on our behalf. We reflect the funding for these

costs as costs on the Consolidated Statements of Net Cost, and as imputed financing sources on the Consolidated Statements
DEPARTMENT OF THE TREASURY 113 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

of Changes in Net Position. Costs paid by other agencies on our behalf were $807 million and $779 million for the fiscal

years ended September 30, 2019 and 2018, respectively.

CONSOLIDATED STATEMENTS OF NET COST PRESENTATION

OMB Circular No. A-136, as revised, requires that the Consolidated Statements of Net Cost present the net cost of

operations by major programs, which may describe an agency’s mission, strategic goals, functions, or other meaningful

grouping. We have presented the gross costs and earned revenues by major program categories aligned with our strategic

goals identified in Treasury’s FY 2018 – 2022 Strategic Plan. The majority of our bureaus’ and reporting entities’ gross costs 

and earned revenues falls within a single program category in the Consolidated Statements of Net Cost. DO allocates gross

costs and earned revenues to multiple programs using a net cost percentage calculation. All of our management offices 

coordinate, on a Treasury-wide basis, their efforts to achieve the Management program-related strategic goals. For financial

statement presentation purposes, we combine the gross costs and earned revenues associated with our Management

program-related goals with those costs and revenues associated with our Financial program-related strategic goals.

Our Consolidated Statements of Net Cost also present interest expense on the federal debt and other federal costs incurred

on behalf of the U.S. government. We do not reflect these costs as program costs related to our strategic plan missions. We

eliminate these costs in the consolidation process to the extent that they involve transactions with our sub-organizations. 

Non-entity other federal costs shown on the Consolidated Statements of Net Cost for the fiscal years ended

September 30, 2019 and 2018 consisted of the following: 

(in millions) 2019 2018 

Credit Reform Interest on Uninvested Funds (Intra-governmental) $ 7,109 $ 7,879 

Resolution Funding Corporation 2,628 2,628 

Judgment Claims and Contract Disputes 1,299 1,418 

Corporation for Public Broadcasting 465 465 

All Other Payments 515 550 

Total $ 12,016 $ 12,940 
114 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

20. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS (IN MILLIONS) 

For Fiscal Year Ended September 30, 2019 

Program Costs

Bureau of

Engraving &

Printing

Bureau of the

Fiscal

Service

Departmental 

Office(a)

Financial 

Crimes 

Enforcement 

Network

Internal 

Revenue 

Service U.S. Mint

FINANCIAL PROGRAM

Gross Cost $ - $ 2,246 $ 6,478 $ - $ - $ - 

Less Earned Revenue - (401) (3,858) - - - 

Net Program Cost - 1,845 2,620 - - - 

ECONOMIC PROGRAM

Gross Cost 730 - 6,727 - 13,591 1,548 

Less Earned Revenue (802) - (6,147) - (517) (1,503) 

Net Program Cost (72) - 580 - 13,074 45 

SECURITY PROGRAM

Gross Cost - - 424 125 - - 

Less Earned Revenue - - (12) (2) - - 

Net Program Cost - - 412 123 - - 

Total Net Program Cost (Revenue)

 Before Changes in Actuarial

 Assumptions (72) 1,845 3,612 123 13,074 45 

(Gain)/Loss on Pension, ORB, or OPEB

 Assumption Changes - - 487 - - - 

Total Net Cost of (Revenue From)

 Treasury Operations $ (72) $ 1,845 $ 4,099 $ 123 $ 13,074 $ 45 

(a) The total $2.6 billion of the Financial Program net costs reported by DO consisted of $1.5 billion of net costs from OAS and $1.4 billion of net costs from

OFS. The remaining net costs consisted of net costs from other DO programs or offices. 
DEPARTMENT OF THE TREASURY 115 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

20. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T): 

For Fiscal Year Ended September 30, 2019 

Program Costs

Office of the 

Comptroller of the 

Currency

Alcohol

and

Tobacco

Tax and

Trade

Bureau 

Combined 

Total Eliminations

2019 

Consolidated

FINANCIAL PROGRAM

Gross Cost $ - $ - $ 8,724 $ 2,510 $ 6,214 

Less Earned Revenue - - (4,259) (813) (3,446) 

Net Program Cost - - 4,465 1,697 2,768 

ECONOMIC PROGRAM

Gross Cost 1,081 128 23,805 1,382 22,423 

Less Earned Revenue (1,196) (6) (10,171) (683) (9,488) 

Net Program Cost (115) 122 13,634 699 12,935 

SECURITY PROGRAM

Gross Cost - - 549 117 432 

Less Earned Revenue - - (14) (9) (5) 

Net Program Cost - - 535 108 427 

Total Net Program Cost (Revenue)

 Before Changes in Actuarial

 Assumptions (115) 122 18,634 2,504 16,130 

(Gain)/Loss on Pension, ORB, or OPEB

 Assumption Changes 13 - 500 - 500 

Total Net Cost of (Revenue From)

 Treasury Operations $ (102) $ 122 $ 19,134 $ 2,504 $ 16,630 
116 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

20. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T): 

For Fiscal Year Ended September 30, 2018 

Program Costs

Bureau of

Engraving &

Printing

Bureau of the

Fiscal

Service

Departmental 

Office(a)

Financial 

Crimes 

Enforcement 

Network

Internal 

Revenue 

Service U.S. Mint

FINANCIAL PROGRAM

Gross Cost $ - $ 2,216 $ 6,909 $ - $ - $ - 

Less Earned Revenue - (363) (3,290) - - - 

Net Program Cost - 1,853 3,619 - - - 

ECONOMIC PROGRAM

Gross Cost 774 - 12,693 - 13,214 1,711 

Less Earned Revenue (772) - (7,860) - (566) (1,652) 

Net Program Cost 2 - 4,833 - 12,648 59 

SECURITY PROGRAM

Gross Cost - - 408 124 - - 

Less Earned Revenue - - (32) (3) - - 

Net Program Cost - - 376 121 - - 

Total Net Program Cost (Revenue)

 Before Changes in Actuarial

 Assumptions 2 1,853 8,828 121 12,648 59 

(Gain)/Loss on Pension, ORB, or OPEB

 Assumption Changes - - 116 - - - 

Total Net Cost of (Revenue From)

 Treasury Operations $ 2 $ 1,853 $ 8,944 $ 121 $ 12,648 $ 59 

(a) The total $4.8 billion of net cost reported by DO for the Economic Program consisted of $4.0 billion from GSEs. The remaining net costs consisted of net

costs from other DO programs or offices. 
DEPARTMENT OF THE TREASURY 117 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

20. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS OF

TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T): 

For Fiscal Year Ended September 30, 2018 

Program Costs

Office of the 

Comptroller of the 

Currency

Alcohol

and

Tobacco

Tax and

Trade

Bureau 

Combined 

Total Eliminations

2018 

Consolidated

FINANCIAL PROGRAM

Gross Cost $ - $ - $ 9,125 $ 2,141 $ 6,984 

Less Earned Revenue - - (3,653) (699) (2,954) 

Net Program Cost - - 5,472 1,442 4,030 

ECONOMIC PROGRAM

Gross Cost 1,282 123 29,797 1,395 28,402 

Less Earned Revenue (1,247) (6) (12,103) (505) (11,598) 

Net Program Cost 35 117 17,694 890 16,804 

SECURITY PROGRAM

Gross Cost - - 532 66 466 

Less Earned Revenue - - (35) (28) (7) 

Net Program Cost - - 497 38 459 

Total Net Program Cost (Revenue)

 Before Changes in Actuarial

 Assumptions 35 117 23,663 2,370 21,293 

(Gain)/Loss on Pension, ORB, or OPEB

 Assumption Changes (3) - 113 - 113 

Total Net Cost of (Revenue From)

 Treasury Operations $ 32 $ 117 $ 23,776 $ 2,370 $ 21,406 
118 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

21. ADDITIONAL INFORMATION RELATED TO THE COMBINED 

STATEMENTS OF BUDGETARY RESOURCES

UNDELIVERED ORDERS

Undelivered orders represent goods and services ordered and obligated which have not been received. This includes any

orders for which we have paid in advance, but for which delivery or performance has not yet occurred. Undelivered orders as

of September 30, 2019 and 2018 consisted of the following: 

2019 2018 

(in millions) Federal Non-Federal Total Federal Non-Federal Total 

Paid $ 4 $ 9 $ 13 $ 4 $ 10 $ 14 

Unpaid 471 6,478 6,949 436 8,443 8,879 

Undelivered Orders at the End of the Year $ 475 $ 6,487 $ 6,962 $ 440 $ 8,453 $ 8,893 

CONTRIBUTED CAPITAL

Contributed capital represents the current year authority and prior year balances of amounts actually transferred through

non-expenditure transfers to miscellaneous receipt accounts of the General Fund to repay a portion of a capital investment

or transfer seigniorage and numismatic profits (refer to Note 19). Contributed capital for the fiscal years ended September

30, 2019 and 2018 was $9 million and $48 million, respectively. 

TERMS OF BORROWING AUTHORITY USED

Several of our programs have authority to borrow under the FCRA, as amended. The FCRA provides indefinite borrowing

authority to financing accounts to fund the unsubsidized portion of direct loans and to satisfy obligations in the event the

financing account’s resources are insufficient. OMB Circular No. A-11 defines repayment requirements. Interest expense

due is calculated based on the beginning balance of borrowings outstanding and the borrowings/repayments activity that

occurred during the fiscal year. Undisbursed Departmental borrowings earn interest at the same rate as the financing

account pays on its debt owed to the Fiscal Service. In the event that principal and interest collections exceed the interest

expense due, we receive the excess payment. If principal and interest do not exceed interest expense due, we will borrow the

difference. We make periodic principal repayments based on the analysis of cash balances and future disbursement needs. 

All interest on borrowings is due on September 30. Interest rates on FCRA borrowings range from 1.92 percent to

6.36 percent.

AVAILABLE BORROWING

The available borrowing authority and related changes in available borrowing authority as of and for the fiscal years ended

September 30, 2019 and 2018 are shown below: 

(in millions) 2019 2018 

Beginning Balance $ 6,523 $ 6,600 

Current Authority 125 265 

Borrowing Authority Withdrawn (20) - 

Borrowing Authority Converted to Cash (380) (342) 

Ending Balance $ 6,248 $ 6,523 
DEPARTMENT OF THE TREASURY 119 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

RECONCILIATION OF THE PRESIDENT’S BUDGET

The Budget of the United States (also known as the President’s Budget), with actual numbers for FY 2019, was not

published at the time that these financial statements were issued. The FY 2021 President’s Budget is expected to be

published in February 2020, will be located on the OMB website, and will be available from the U.S. Government Publishing

Office. The following chart displays the differences between the Combined Statement of Budgetary Resources (SBR) in the

FY 2018 AFR and the actual FY 2018 balances included in the FY 2020 President’s Budget.

Reconciliation of FY 2018 Combined Statement of Budgetary Resources

to the FY 2020 President’s Budget

New

Obligations Outlays (net Distributed

Budgetary and Upward of offsetting Offsetting Net

(in millions) Resources Adjustments collections) Receipts Outlays 

Combined Statement of Budgetary Resources (SBR) Amounts $ 882,312 $ 568,651 $ 559,767 $ (61,467) $ 498,300 

IRS non-entity tax credit payments and other outlays not in SBR (1) 142,217 142,217 133,829 - 133,829 

Tax and Trade Bureau (TTB) non-entity collections for Puerto Rico not in SBR 446 446 446 - 446 

Expired funds in SBR (481) - - - - 

Non-Treasury offsetting receipts - - - (258) (258) 

Other (314) (313) (2) - (2) 

President's Budget Amounts $ 1,024,180 $ 711,001 $ 694,040 $ (61,725) $ 632,315 

(1) These are primarily refundable Earned Income Tax Credit, Refundable Premium Tax Credit and Child Tax Credit, reported with refunds as

custodial activities in our financial statements and thus are not reported as budgetary resources.

LEGAL ARRANGEMENTS AFFECTING USE OF UNOBLIGATED BALANCES

The use of unobligated balances is restricted based on annual legislation requirements or enabling authorities. Funds are

presumed to be available for only one fiscal year unless otherwise noted in the annual appropriation language. Unobligated

balances in unexpired Treasury account fund symbols are available in the next fiscal year for new obligations unless some

restrictions have been placed on those funds by law. In those situations, the restricted funding will be temporarily

unavailable until such time as the reasons for the restriction have been satisfied or legislation has been enacted to remove

the restriction.

Amounts in expired Treasury account fund symbols are not available for new obligations, but may be used to make

adjustments to reflect, and make disbursements to liquidate, obligations that were created before the budgetary authority

expired.

 
120 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

22. SOURCES AND DISPOSITION OF CUSTODIAL REVENUE 

We collect the majority of federal revenue from income and excise taxes. The table below shows collection activity, by

revenue type and tax year, for the fiscal years ended September 30, 2019 and 2018: 

Tax Year

Pre- 2019 

(in millions) 2019 2018 2017 2017 Collections

Individual Income and FICA Taxes $ 2,022,987 $ 1,087,931 $ 37,286 $ 28,202 $ 3,176,406 

Corporate Income Taxes 181,559 85,323 4,116 6,060 277,058 

Estate and Gift Taxes 809 13,683 1,483 1,590 17,565 

Excise Taxes 65,221 34,960 63 322 100,566 

Railroad Retirement Taxes 4,850 1,368 - 1 6,219 

Unemployment Taxes 4,479 1,800 43 116 6,438 

Fines, Penalties, Interest & Other Revenue - 

 Tax Related 144 - - 1 145 

Tax Related Revenue Received 2,280,049 1,225,065 42,991 36,292 3,584,397 

Deposit of Earnings, Federal Reserve System 39,373 13,420 - - 52,793 

Fines, Penalties, Interest & Other Revenue - 

 Non-Tax Related 4,394 1,052 - - 5,446 

Non-Tax Related Revenue Received 43,767 14,472 - - 58,239 

Total Revenue Received $ 2,323,816 $ 1,239,537 $ 42,991 $ 36,292 $ 3,642,636 

Less Amounts Collected for Non-Federal Entities 454 

Total $ 3,642,182 

Tax Year

 Pre- 2018 

(in millions) 2018 2017 2016 2016 Collections

Individual Income and FICA Taxes $ 1,932,522 $ 1,096,726 $ 33,528 $ 26,982 $ 3,089,758 

Corporate Income Taxes 150,279 99,699 1,725 11,039 262,742 

Estate and Gift Taxes 82 20,874 1,146 1,764 23,866 

Excise Taxes 69,071 24,917 64 215 94,267 

Railroad Retirement Taxes 4,929 1,390 1 4 6,324 

Unemployment Taxes 4,554 4,103 40 110 8,807 

Fines, Penalties, Interest & Other Revenue - 

 Tax Related 255 1 - - 256 

Tax Related Revenue Received 2,161,692 1,247,710 36,504 40,114 3,486,020 

Deposit of Earnings, Federal Reserve System 52,639 18,111 - - 70,750 

Fines, Penalties, Interest & Other Revenue - 

 Non-Tax Related 4,555 901 - - 5,456 

Non-Tax Related Revenue Received 57,194 19,012 - - 76,206 

Total Revenue Received $ 2,218,886 $ 1,266,722 $ 36,504 $ 40,114 $ 3,562,226 

Less Amounts Collected for Non-Federal Entities 455 

Total $ 3,561,771 
DEPARTMENT OF THE TREASURY 121 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

AMOUNTS PROVIDED TO FUND THE U.S. GOVERNMENT 

For the fiscal years ended September 30, 2019 and 2018, collections of custodial revenue transferred to other federal entities

were as follows: 

(in millions) 2019 2018 

General Fund $ 3,188,795 $ 3,096,941 

Other Federal Agencies 953 663 

Total $ 3,189,748 $ 3,097,604 

FEDERAL TAX REFUNDS AND OTHER PAYMENTS 

Federal tax refunds and other payments include amounts paid to taxpayers who have paid more than the actual taxes they

owe, as well as payments for various refundable tax credits. Refunds and other payments, by revenue type and tax year,

were as follows for the years ended September 30, 2019 and 2018: 

Tax Year

2019 

Pre- Refunds/

(in millions) 2019 2018 2017 2017 Payments 

Individual Income and FICA Taxes $ 58,150 $ 301,039 $ 30,051 $ 8,580 $ 397,820 

Corporate Income Taxes 3,919 14,769 10,737 21,867 51,292 

Estate and Gift Taxes - 218 441 269 928 

Excise Taxes 617 850 250 244 1,961 

Railroad Retirement Taxes - 2 10 154 166 

Unemployment Taxes - 230 13 24 267 

Total $ 62,686 $ 317,108 $ 41,502 $ 31,138 $ 452,434 

Tax Year

2018 

Pre- Refunds/

(in millions) 2018 2017 2016 2016 Payments 

Individual Income and FICA Taxes $ 54,368 $ 307,878 $ 29,831 $ 9,314 $ 401,391 

Corporate Income Taxes 4,827 25,870 9,197 20,195 60,089 

Estate and Gift Taxes - 279 353 290 922 

Excise Taxes 410 642 140 443 1,635 

Railroad Retirement Taxes - 4 (1) 1 4 

Unemployment Taxes - 84 17 24 125 

Fines, Penalties, Interest & Other Revenue - - - 1 1 

Total $ 59,605 $ 334,757 $ 39,537 $ 30,268 $ 464,167 

FEDERAL TAX REFUNDS AND OTHER AMOUNTS PAYABLE

As of September 30, 2019 and 2018, refunds and other amounts payable consisted of the following:

(in millions) 2019 2018 

Internal Revenue Service $ 2,923 $ 2,975 

Alcohol and Tobacco Tax and Trade Bureau 16 19 

Total $ 2,939 $ 2,994 
122 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

23. FUNDS FROM DEDICATED COLLECTIONS

The ESF represents the majority of our FDC activities. In addition, such funds managed by BEP, Mint, and OCC (our nonappropriated bureaus) and certain funds managed by the IRS are public enterprise (or revolving) funds and receive no

appropriations from the Congress. Fiscal Service, DO, IRS, OFR, TFF, and the CDFI Fund manage other miscellaneous

FDCs.

The following is a list of FDCs and a brief description of the purpose, accounting, and uses of these funds.

Bureau Fund Code Fund Title/Description

Exchange Stabilization Fund (ESF)

ESF 020X4444 Exchange Stabilization Fund

Public Enterprise/Revolving Funds

BEP 020X4502 Bureau of Engraving and Printing Fund

Mint 020X4159 United States Mint Public Enterprise Fund

OCC 020X8413 Assessment Funds

IRS 020X4413 Federal Tax Lien Revolving Fund

Other FDC Funds

Fiscal Service 020X5080 Gifts to Reduce Public Debt

Fiscal Service 020X5081 Presidential Election Campaign

Fiscal Service 020X8625 Gulf Coast Restoration Trust Fund

Fiscal Service 020X8902 Esther Cattell Schmitt Gift Fund

Fiscal Service 5805585 Travel Promotion Fund, Corp for Travel Promotion

Fiscal Service 580X5585 Travel Promotion Fund, Corp for Travel Promotion

Fiscal Service 020X5581 HOPE Reserve Fund

Fiscal Service 0205445002 Debt Collection Special Fund

Fiscal Service 0205445003 Debt Collection Special Fund

Fiscal Service 0203/45445 Debt Collection Special Fund 

Fiscal Service 0204/55445 Debt Collection Special Fund

Fiscal Service 0205/65445 Debt Collection Special Fund

Fiscal Service 0206/75445 Debt Collection Special Fund

Fiscal Service 0207/85445 Debt Collection Special Fund

Fiscal Service 0208/95445 Debt Collection Special Fund

Fiscal Service 0209/05445 Debt Collection Special Fund

Fiscal Service 0205680001 Taxes, Duties and Fees, Guam World War II Claims Fund

DO 020X8790 Gifts and Bequests Trust Fund

IRS 020X5510 Private Collection Agency Program

IRS 020X5433 Informant Reimbursement

IRS 020X5622 Special Compliance Personnel Program Account

OFR 020X5590 Financial Research Fund

TFF 020X5697 Treasury Forfeiture Fund

CDFI 020X8524 Capital Magnet Fund
DEPARTMENT OF THE TREASURY 123 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Pursuant to the legal authority found in Section 10 of the Gold Reserve Act of 1934, as amended, the Secretary, through the

ESF, may purchase or sell foreign currencies, hold foreign exchange investments and SDR assets, and may provide financing

to foreign governments and foreign entities. The ESF accounts for and reports its holdings to the Fiscal Service on the

Standard Form 224, “Statement of Transactions,” and provides other reports to Congress. Interest on SDRs in the IMF,

investments in Treasury securities, and investments in foreign currency assets are the ESF’s primary sources of revenue. 

The ESF’s earnings and realized gains on foreign currency assets represent inflows of resources to the government, and the

interest revenues earned from Treasury securities are the result of intra-departmental flows.

The BEP, Mint, OCC, and IRS operate “public enterprise/revolving funds” to account for all or some of their respective

revenues and expenses. 31 USC 5142 established the Bureau of Engraving and Printing Fund for BEP to account for

revenue and expenses related to the currency printing activities. P.L. 104-52 (31 USC 5136) established the Public

Enterprise Fund for the Mint to account for all revenue and expenses related to the production and sale of numismatic

products and circulating coinage. Revenues and other financing sources at the Mint are mainly from the sale of numismatic

and bullion products and the sale of circulating coins to the FRB system. These revenues represent inflows of resources to

the government. 12 USC 481 established the Assessment Funds for OCC. Revenue and financing sources are from the bank

assessments for the oversight of the national banks, federal savings associations, and federal branches and agencies of

foreign banks. These non-appropriated funds contribute to the inflows of resources to the government to specifically fund

these entities’ operations. 26 USC 7810 established the Federal Tax Lien Revolving Fund to account for revenue and

expenses from the sale of property foreclosed upon by a holder of a lien. Such revenue represents inflows of resources to the

U.S. government. There are minimal transactions with other government agencies.

There are other FDCs at several of our bureaus, such as donations to the Presidential Election Campaign Fund, gifts to

reduce the public debt, and other enforcement related activities. Public laws and the U.S. Code established and authorized

the use of these funds. Sources of revenues and other financing sources include contributions, cash and property forfeited in

enforcement activities, public donations, and other allocations, all which represent inflows to the government.

INTRA-GOVERNMENTAL INVESTMENTS IN TREASURY SECURITIES

The U.S. government does not set aside assets to pay future benefits or other expenditures associated with FDCs. Our

bureaus and other federal agencies invest some of the funds that they collect from the public, if they have the statutory

authority to do so, in Treasury securities. The Fiscal Service collects cash and makes deposits in the General Fund, which is

then available for general government purposes.

When our bureaus or other federal agencies redeem these securities to make expenditures, the government finances those

redemptions out of accumulated cash balances, by collecting taxes or other receipts, by borrowing from the public, or by

curtailing expenditures. This is the same way that the government finances all other expenditures.

The securities are an asset to our bureaus and other federal agencies and a liability of the General Fund. Because our

bureaus and other federal agencies are parts of the U.S. government, these assets and liabilities offset each other from the

standpoint of the government as a whole. For this reason, they do not represent an asset or a liability in the U.S.

government-wide financial statements.

Our financial statements do not display the balances related to the investments made by our bureaus because the bureaus

are subcomponents of the Department. However, the General Fund remains liable to the Fiscal Service for the invested

balances and the Fiscal Service remains liable to the investing bureaus (refer to Note 4).
124 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Summary Information for Funds from Dedicated Collections

as of and for the Fiscal Year Ended September 30, 2019

 Public

 Exchange Enterprise/

Stabilization Revolving Other FDC Combined

(in millions) Fund Funds Funds FDC Funds

ASSETS

Fund Balance $ - $ 1,141 $ 1,274 $ 2,415 

Investments and Related Interest - Intra-governmental 22,622 1,967 2,749 27,338 

Cash, Foreign Currency and Other Monetary Assets 64,086 - 61 64,147 

Investments and Related Interest 6,614 - - 6,614 

Other Assets - 1,363 200 1,563 

Total Assets $ 93,322 $ 4,471 $ 4,284 $ 102,077 

LIABILITIES 

Intra-governmental Liabilities $ - $ 28 $ 1,243 $ 1,271 

Certificates Issued to the Federal Reserve 5,200 - - 5,200 

Allocation of Special Drawing Rights 48,146 - - 48,146 

Other Liabilities 75 698 136 909 

Total Liabilities 53,421 726 1,379 55,526 

Net Position

Unexpended Appropriations 200 - - 200 

Cumulative Results of Operations 39,701 3,745 2,905 46,351 

Total Liabilities and Net Position $ 93,322 $ 4,471 $ 4,284 $ 102,077 

Statement of Net Cost

Gross Cost $ 5,670 $ 3,359 $ 816 $ 9,845 

Less: Earned Revenue (5,932) (3,501) (376) (9,809) 

Gains/Losses on Pension, ORB, or OPEB Assumption Changes - 13 - 13 

Total Net Cost of (Revenue From) Operations $ (262) $ (129) $ 440 $ 49 

Statement of Changes in Net Position

Cumulative Results of Operations:

Beginning Balance $ 39,439 $ 3,756 $ 2,968 $ 46,163 

Budgetary Financing Sources - - 157 157 

Other Financing Sources - (140) 220 80 

Total Financing Sources - (140) 377 237 

Revenue From (Net Cost of) Operations 262 129 (440) (49) 

Change in Net Position 262 (11) (63) 188 

Ending Balance $ 39,701 $ 3,745 $ 2,905 $ 46,351 
DEPARTMENT OF THE TREASURY 125 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Summary Information for Funds from Dedicated Collections

as of and for the Fiscal Year Ended September 30, 2018

 Public

 Exchange Enterprise/

 Stabilization Revolving Other FDC Combined

(in millions) Fund Funds Funds FDC Funds

ASSETS

Fund Balance $ - $ 1,328 $ 1,175 $ 2,503 

Investments and Related Interest - Intra-governmental 22,314 1,834 2,899 27,047 

Cash, Foreign Currency and Other Monetary Assets 64,834 - 39 64,873 

Investments and Related Interest 7,045 - - 7,045 

Other Assets - 1,351 194 1,545 

Total Assets $ 94,193 $ 4,513 $ 4,307 $ 103,013 

LIABILITIES 

Intra-governmental Liabilities $ - $ 30 $ 1,205 $ 1,235 

Certificates Issued to the Federal Reserve 5,200 - - 5,200 

Allocation of Special Drawing Rights 49,274 - - 49,274 

Other Liabilities 80 727 134 941 

Total Liabilities 54,554 757 1,339 56,650 

Net Position

Unexpended Appropriations 200 - - 200 

Cumulative Results of Operations 39,439 3,756 2,968 46,163 

Total Liabilities and Net Position $ 94,193 $ 4,513 $ 4,307 $ 103,013 

Statement of Net Cost

Gross Cost $ 7,596 $ 3,767 $ 772 $ 12,135 

Less: Earned Revenue (7,619) (3,671) (325) (11,615) 

Gains/Losses on Pension, ORB, or OPEB Assumption Changes - (3) - (3) 

Total Net Cost of (Revenue From) Operations $ (23) $ 93 $ 447 $ 517 

Statement of Changes in Net Position

Cumulative Results of Operations:

Beginning Balance $ 39,416 $ 3,717 $ 3,718 $ 46,851 

Budgetary Financing Sources - - (594) (594) 

Other Financing Sources - 132 291 423 

Total Financing Sources - 132 (303) (171) 

Revenue From (Net Cost of) Operations 23 (93) (447) (517) 

Change in Net Position 23 39 (750) (688) 

Ending Balance $ 39,439 $ 3,756 $ 2,968 $ 46,163 
126 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

24. RECONCILIATION OF NET COST OF TREASURY OPERATIONS AND

NON-ENTITY COSTS TO AGENCY OUTLAYS, NET

The Reconciliation of Net Cost of Treasury Operations and Non-Entity Costs (referred to as “Net Cost” for purposes of this

note) to Agency Outlays, Net (referred to as “Net Outlays” for purposes of this note) depicts the difference between

proprietary information and budgetary accounting information. Proprietary financial accounting information is intended to

depict the U.S. government’s financial operations and financial position presented on an accrual basis in accordance with

GAAP, which includes the recognition of assets and liabilities for which collections and payments, respectively, have or have

not been made. In contrast, budgetary accounting information is used for planning and control purposes, and includes net

outlays that reflect both the receipt and use of cash, as well as reporting of the federal deficit. “Agency Outlays, Net” also

includes $73.2 billion of interest accrued on outstanding public debt and $61.4 billion of net amortization of discounts on

outstanding public debt. These amounts represent non-cash outlays that have not yet been disbursed. The reconciliation of

Net Cost (presented on an accrual basis) and Net Outlays (presented on a budgetary basis) reflects the relationship between

proprietary accounting and budgetary information. The reconciliation serves not only to identify costs paid in the past and

those that will be paid in the future, but also to assure integrity between financial and budgetary accounting. The following

is a description of principal transactions that result in differences between the Department’s proprietary net costs and

budgetary net outlays:

• Net unrealized loss on investments in GSEs – cost related to unrealized loss from the valuation adjustment of the

preferred and common stock investments in the GSEs, partially offset by gains from increase in liquidation preference in

GSE preferred stock. They represent cost as a component of Net Cost which is not part of Net Outlays.

• GSEs guarantee fee collections – fees collected on behalf of the U.S. government in accordance with P.L. 112-78 (refer to

Note 10). They represent custodial collections recognized as a component of Net Outlays but not a component of Net

Cost.
DEPARTMENT OF THE TREASURY 127

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

For the fiscal year ended September 30, 2019, the Reconciliation of Net Cost of Treasury Operations and Non-Entity Costs to

Agency Outlays, Net consisted of the following:

(in millions)

IntragovernmentalWith the 

Public

FY 2019 

Total

Total Net Cost of Treasury Operations and Non-Entity Costs $ 133,093 $ 409,527 $ 542,620

Components of Net Cost Not Part of Net Outlays

Net Unrealized Loss on Investments in GSEs - (1,080) (1,080)

Property, Plant, and Equipment Depreciation - (551) (551)

Other 56 514 570

Increase/(Decrease) in Assets Not Affecting Net Outlays:

 Accounts Receivable 486 (14) 472

 Loans Receivable - (113) (113)

 Other Assets (9) 27 18

(Increase)/Decrease in Liabilities Not Affecting Net Outlays:

 Interest Payable 440 - 440 

 Other Liabilities (327) (461) (788)

Other Financing Sources:

 Imputed Financing Sources (807) - (807)

 Transfers Out (In) Without Reimbursement 766 - 766

 Other Financing Sources (217) - (217)

Total Components of Net Cost Not Part of Net Outlays 388 (1,678) (1,290)

Components of Net Outlays That Are Not Part of Net Cost 

1 259 260

- (3,903) (3,903)

 Acquisition of Capital Assets

 GSEs Guarantee Fee Collections

 Other 200 51 251

Total Components of Net Outlays That Are Not Part of Net Cost 201 (3,593) (3,392)

Agency Outlays, Net $ 133,682 $ 404,256 $ 537,938
128 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

25. SCHEDULE OF FIDUCIARY ACTIVITY

We have identified the following 22 funds as meeting the criteria for fiduciary activity. Details of the funds are provided

below.

Bureau Fund Code Authority Fund Title/Description

Fiscal Service 020X6133 31 USC 1322 Payment of Unclaimed Monies

BEP 020X6513.013 31 USC 5119 Mutilated Currency Claims Funds

Fiscal Service 020X6045 31 USC 3328 Proceeds, Payments of Unpaid Checks

Fiscal Service 020X6048 31 USC 3329, 3330 Proceeds of Withheld Foreign Checks

Fiscal Service 020015X6078 50 APP. USC 2012 War Claims Fund, Foreign Claims Settlement Commission

Fiscal Service 020X6092 31 USC 1321 Debt Management Operations

Fiscal Service 020X6104 22 USC 1627 Albanian Claims Fund, Treasury

Fiscal Service 020X6210 22 USC 1623 Iraq Claims Settlement Fund

Fiscal Service 020X6309 22 USC 1627(a) Libyan Claims Settlement Fund

Fiscal Service 020X6310 22 USC 1627(a) Libyan Claims Settlement Fund

Fiscal Service 020X6312 22 USC 1627 Iranian Claims Settlement Fund

Fiscal Service 020X6314 22 USC 1644g German Democrat Settlement Fund

Fiscal Service 020X6315 22 USC 1645h Vietnam Claims Settlement Fund

Fiscal Service 020X6501.018 31 USC 3513 Small Escrow Amounts

Fiscal Service 020X6720 31 USC 3513 Small Difference Account for Deposit and Check Adjustments

Fiscal Service 020X6830 104 Stat. 1061 Net Interest Payments to/from State

Fiscal Service 020X6999 31 USC 3513 Accounts Payable, Check Issue Underdrafts

Fiscal Service 020X6317.001 22 USC 2431 Belize Escrow, Debt Reduction

IRS 020X6737 90 Stat. 269-270 Internal Revenue Collections for Northern Mariana Island

IRS 020X6738 31 USC 3513 Coverover Withholdings-U.S. Virgin Islands

IRS 020X6740 31 USC 3515 Coverover Withholdings-Guam

IRS 020X6741 31 USC 3513 Coverover Withholdings-American Samoa

“Payment of Unclaimed Monies” is a fund authorized by 31 USC 1322, permitting the Fiscal Service to collect unclaimed

monies on behalf of the public. Our other fiduciary activities as listed above are included in All Other Fiduciary Funds.

Schedule of Fiduciary Activity

2019 2018 

Payment of All Payment of All

Unclaimed Other Total Unclaimed Other Total 

Monies Fiduciary Fiduciary Monies Fiduciary Fiduciary

(in millions) Fund Funds Funds Fund Funds Funds

Fiduciary Net Assets, Beginning of

 the Year $ 749 $ 55 $ 804 $ 696 $ 98 $ 794 

Increases:

 Contributions to Fiduciary Net Assets 54 609 663 54 448 502 

 Investment earnings - - - - 1 1 

Total Increases 54 609 663 54 449 503 

Decreases:

 Disbursements to and on behalf

 of beneficiaries - (498) (498) (1) (492) (493) 

Total Decreases - (498) (498) (1) (492) (493) 

Net Increase (Decrease) in

 Fiduciary Assets 54 111 165 53 (43) 10 

Fiduciary Net Assets, End of Year $ 803 $ 166 $ 969 $ 749 $ 55 $ 804 
DEPARTMENT OF THE TREASURY 129 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Schedule of Fiduciary Net Assets

2019 2018 

Payment of All Payment of All

Unclaimed Other Total Unclaimed Other Total 

Monies Fiduciary Fiduciary Monies Fiduciary Fiduciary

(in millions) Fund Funds Funds Fund Funds Funds

Fiduciary Net Assets

Cash and Cash Equivalents

 Fund Balance with Treasury $ 803 $ 54 $ 857 $ 749 $ 46 $ 795 

Investments

 Investments in Treasury Securities - 112 112 - 14 14 

Total Fiduciary Assets 803 166 969 749 60 809 

Less: Fiduciary Liabilities - - - - (5) (5) 

Total Fiduciary Net Assets $ 803 $ 166 $ 969 $ 749 $ 55 $ 804 

26. COMMITMENTS AND CONTINGENCIES

LEGAL CONTINGENCIES

We are a party in various administrative proceedings, legal actions, and claims, which may ultimately result in settlements

or decisions adverse to the U.S. government. These contingent liabilities arise in the normal course of operations, and their

ultimate disposition is unknown. We disclose contingent liabilities where the conditions for liability recognition have not

been met and the likelihood of unfavorable outcome is more than remote. We do not accrue for possible losses related to

cases where we cannot estimate the potential loss or the likelihood of an unfavorable outcome is less than probable.

In some cases, a portion of any loss that may occur may be paid by our Judgment Fund, which is separate from our operating

resources. For cases related to the Contract Disputes Act of 1978 (P.L. 95-563) and awards under federal anti-discrimination

and whistle-blower protection acts, we must reimburse the Judgment Fund from future appropriations.

In the opinion of our management and legal counsel, based on information available as of the date of this report, the

expected outcome of other legal actions, individually or in the aggregate, will not have a materially adverse effect on our

consolidated financial statements, except for the pending legal actions described below which may have a materially adverse

impact on our consolidated financial statements depending on the outcomes of the cases.

Pending Legal Actions

• Tribal Trust Fund Cases: Native American tribes have filed numerous cases in the U.S. District Courts seeking a 

declaration that the U.S. has not provided the tribes with a full and complete accounting of their trust funds, and also

seeking an order requiring the U.S. government to provide such an accounting. In addition, there are a number of other

related cases seeking damages in the U.S. Court of Federal Claims, which do not name us as a defendant. The U.S.

government is currently in discussion with counsel representing most of the remaining plaintiff tribes with tribal trust

fund cases pending against the U. S. about the feasibility of an out-of-court settlement. Plaintiff tribes in several of the

pending cases have chosen to pursue active litigation, rather than settlement discussion, and the U.S. government is
130 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

litigating those cases vigorously. We are unable to determine the likelihood of an unfavorable outcome or an estimate of

potential loss at this time.

• GSE Related Cases: A number of cases were filed in the U.S. Court of Federal Claims and U.S. District Courts in which

the plaintiffs allege, among other things, that the U.S. government took their property, breached contractual rights of

preferred and common stockholders, and breached fiduciary duties when the third amendments to the SPSPAs between

us and each GSE were executed in August 2012 (refer to Note 10). One case also alleges that the U.S. government took

plaintiffs’ property and contractual rights when the GSEs were placed into conservatorship and entered into the SPSPAs

with us in September 2008. In the U.S. Court of Federal Claims, the plaintiffs seek just compensation and other

damages from the U.S. government. In the U.S. District Courts, the plaintiffs seek to set aside the third amendments to

the SPSPAs as well as damages, and in some cases a declaration that the FHFA’s structure violates the separation of

powers. Cases in the U.S. District Court for the District of Delaware and the U.S. District Court for the Northern

District of Iowa have been dismissed by those District Courts, and the Third and Eighth Circuit Courts of Appeals

affirmed the dismissals. A case in the U.S. District Court for the Southern District of Texas was dismissed by that

District Court; and the Fifth Circuit Court of Appeals affirmed dismissal of all claims against the Department but

allowed one claim against the FHFA to proceed. The plaintiffs have sought review in the Supreme Court of their claim

that the FHFA’s structure violates the separation of powers, and the Solicitor General is considering whether to seek

further review in the Supreme Court of the claim the court of appeals allowed to proceed. A case in the U.S. District

Court for the District of Minnesota was dismissed by that District Court, and an appeal is pending. Cases in the

Western District of Michigan and Eastern District of Pennsylvania remain in litigation, and motions to dismiss are

pending. We are unable to determine the likelihood of an unfavorable outcome or an estimate of potential loss in these

cases at this time.

• Unredeemed Savings Bonds Related Cases: A number of plaintiffs filed claims in the U.S. Court of Federal Claims

requesting that we redeem matured savings bonds not possessed by the applicable states, but which have registered

owners with last known addresses in those states. We informed the applicable states we would not redeem these

savings bonds since those states were not the registered owners of the bonds. On August 20, 2015, the U.S. Court of

Federal Claims partially dismissed one claim and denied the U.S. government’s motion to dismiss with respect to other

claims. On August 8, 2017, the court ruled in favor of two states, and the U.S. government appealed. On

August 13, 2019, the Court of Appeals for the Federal Circuit reversed the August 8, 2017 ruling, and the two states

filed a petition for a rehearing on September 27, 2019. We are unable to determine the likelihood of an unfavorable

outcome or an estimate of potential loss at this time.

• Adam Steele, Brittany Montrois, and Joseph Henchman v. United States: The plaintiffs filed a class claim in the U.S.

District Court for the District of Columbia seeking refunds of all user fees paid, plus interest, to obtain a preparer tax

identification number (PTIN). Additionally, the plaintiffs seek to force us to cease charging a user fee to obtain a PTIN

and asking for more information than is necessary to issue a PTIN. On June 1, 2017, the U.S. District Court for the

District of Columbia found for the plaintiffs in the previously mentioned matters, and the U.S. government appealed. In

March 2019, the U.S. Court of Appeals for the District of Columbia Circuit reversed the lower court’s opinion and

determined that we are entitled to charge a PTIN user fee. The case was remanded back to the lower court to determine
DEPARTMENT OF THE TREASURY 131 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

the appropriate amount of the fee. We are unable to determine the likelihood of an unfavorable outcome or an estimate

of potential loss at this time.

• Anonymous Whistleblower Cases: A number of whistleblower cases were filed in the U.S. Tax Court under seal,

appealing the denial of an award by the IRS Whistleblower Office. The anonymous claimants allegedly provided

confidential information about tax fraud committed by multiple taxpayers to the IRS. The U.S. Tax Court is currently

holding these cases in abeyance until it determines the scope and standard of review it will follow. We are unable to

determine the likelihood of an unfavorable outcome or an estimate of potential loss at this time. 

• American Recovery and Reinvestment Tax Act of 2009 (ARRA) Related Cases: A number of cases were filed in the U.S.

Court of Federal Claims alleging that the U.S. government violated statutory and regulatory mandates to make proper

payments to plaintiffs under ARRA, Section 1603, for having placed certain energy properties into service. As of

September 30, 2019 and 2018, we have determined there is a reasonably possible likelihood of an unfavorable outcome

in some of the cases totaling $460 million and $489 million, respectively. On October 28, 2016, the U.S. Court of Federal

Claims entered judgment against the U. S. in the amount of $207 million in one of the cases. The U.S. government

appealed the judgment, and on July 27, 2018, the Federal Circuit reversed the trial court’s decision, vacated judgment,

and remanded the case to the U.S. Court of Federal Claims for reassignment to a new judge. The case remains in

litigation. Additional related cases with alleged damages of approximately $58 million have been filed. Two additional

unrelated cases with alleged damages totaling $195 million remain in litigation. 

• Other Legal Actions: We are also involved in employment related legal actions (e.g., matters alleging discrimination and

other claims before federal courts, the Equal Employment Opportunity Commission, and the Merit Systems Protection

Board) for which an unfavorable outcome is reasonably possible, but for which an estimate of potential loss cannot be

determined at this time. We do not expect that these cases will have a material adverse effect on our consolidated

financial position or results. 

OTHER COMMITMENTS AND CONTINGENCIES

Loan Commitments 

Through the FFB, we make loan commitments with federal agencies, or private sector borrowers with loans guaranteed by

federal agencies, to extend them credit for their own use (refer to Notes 1L and 3). As of September 30, 2019 and 2018, we

had remaining loan commitments totaling $17.8 billion and $14.4 billion, respectively.

In addition to the loan commitments, the FFB has agreements with agencies that permit FFB to issue loans up to amounts

authorized in those agencies’ annual program appropriations. The FFB also has agreements with the Federal Deposit

Insurance Corporation (FDIC) and the Farm Credit System Insurance Corporation that permit FFB to issue loans up to a 

specified amount of $100 billion and $10 billion, respectively. 

Multilateral Development Banks

On behalf of the U.S., we have subscribed to shares of certain MDBs, of which some shares represent capital commitments

that are callable under certain limited circumstances to meet the obligations of the respective MDB. There has never been,

nor is there anticipated, a call on the U.S. commitment for these subscriptions. As of September 30, 2019 and 2018, U.S.

callable capital in MDBs was as follows:
132 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

 

(in millions) 2019 2018 

Inter-American Development Bank $ 49,181 $ 49,181 

International Bank for Reconstruction and Development 43,521 43,521 

Asian Development Bank 18,702 18,702 

African Development Bank 5,608 5,100 

European Bank for Reconstruction and Development 3,055 3,055 

North American Development Bank 1,275 1,275 

Multilateral Investment Guarantee Agency(1) 315 315 

Total $ 121,657 $ 121,149 

(1) Both FY 2019 and 2018 include commitments of $22 million for the undisbursed portion of the subscription to paid-in capital

investments. 

Terrorism Risk Insurance Program

Congress originally enacted the Terrorism Risk Insurance Act in November 2002, to address market disruptions resulting

from terrorist attacks on September 11, 2001. Most recently, the Terrorism Risk Insurance Program Reauthorization Act of

2015 (P.L. 114-1) extended the Terrorism Risk Insurance Program (TRIP) until December 31, 2020. The TRIP helps to

ensure available and affordable commercial property and casualty insurance for terrorism risk, and simultaneously allows

private markets to stabilize. The authority to pay claims under the TRIP is activated when the Secretary (in consultation

with the Secretary of the Department of Homeland Security and the Attorney General of the United States) certifies an “act

of terrorism.” In the event of certification of an “act of terrorism,” insurers may be eligible to receive reimbursement from

the U.S. government for associated insured losses – assuming an aggregate insured loss threshold (“program trigger”) has

been reached – once a particular insurer has satisfied its designated deductible amount. For calendar years 2019 and 2018,

the program trigger amount was $180 million and $160 million, respectively. This amount will increase by $20 million

annually through calendar year 2020. Insured losses above insurer deductibles will be shared between insurance companies

and the U.S. government. The TRIP includes both mandatory and discretionary authority for Treasury to recoup federal

payments made under the TRIP through policyholder surcharges under certain circumstances, and contains provisions

designed to manage litigation arising from or relating to a certified act of terrorism. There were no claims under the TRIP as

of September 30, 2019 or 2018.

Exchange Stabilization Agreement

The North American Framework Agreement (NAFA), which we signed in 1994 and renew annually, is implemented by

Treasury through the Exchange Stabilization Agreement (ESA) with Mexico. Treasury, through the ESF, offers Mexico a 

swap line with drawings contingent on certain conditions being met. Effective November 30, 2018, an amended and restated

ESA increased the potential size of the swap line from $3.0 billion to $9.0 billion. The amounts and terms (including the

assured source of repayment) of any swap arrangement under the NAFA and/or the ESA will have to be negotiated and

agreed to before any actual drawing can occur. There were no drawings outstanding on the ESF swap line as of September

30, 2019 and 2018. 

IMF Commitments 

The U.S. participates in the IMF through a quota subscription and the NAB which is a borrowing arrangement that

supplements IMF resources. As of September 30, 2019 and 2018, the U. S. financial commitment under the U.S. quota was

SDR 83.0 billion, which was equivalent to $113.0 billion and $115.6 billion, respectively. Its financial commitment under the
DEPARTMENT OF THE TREASURY 133 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

NAB was SDR 28.2 billion as of September 30, 2019 and 2018, which was equivalent to $38.4 billion and $39.3 billion,

respectively. Refer to Note 7 for further information.

Housing Programs Under TARP 

We design housing programs under TARP to provide stability for both the housing market and homeowners. These

programs assist homeowners who are experiencing financial hardships to remain in their homes until their financial position

improves or they relocate to a more sustainable living situation, and to obtain other assistance designed to prevent

foreclosures. As of September 30, 2019 and 2018, we had committed up to $33.1 billion and $33.4 billion, respectively, for 

these programs. Outstanding commitments totaled $3.0 billion and $4.7 billion as of September 30, 2019 and 2018,

respectively. For FY 2019 and 2018, payments made on behalf of the housing programs under TARP totaled $1.5 billion and

$2.2 billion, respectively, reported within the Financial Program on our Consolidated Statements of Net Cost. 

Commitment to GSEs

The SPSPAs between us and each GSE, which have no expiration date, provide for us to disburse funds to the GSEs if, at the

end of any quarter, the FHFA determines that the liabilities exceed the GSE’s assets. At September 30, 2019 and 2018, our

maximum remaining potential commitment to the GSEs was $254.1 billion. Refer to Note 10 for further information. 

 
134 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

27. RECLASSIFICATION OF AGENCY FINANCIAL STATEMENTS TO

FINANCIAL REPORT OF THE U.S. GOVERNMENT FORMAT

To prepare the Financial Report of the U.S. Government (FR), federal agencies submit to Fiscal Service a trial balance

containing financial statement account ending balances and activity. Fiscal Service uses this trial balance information to

reclassify agencies’ account balances and activity in a manner that conforms to the format of the financial statement

presentation in the FR. Our reclassified financial statements—including the Reclassified Balance Sheet, Reclassified

Statement of Net Cost, and Reclassified Statement of Operations and Changes in Net Position—are accessed using the

Government-wide Treasury Account Symbol Adjusted Trial Balance System. Fiscal Service eliminates all

intragovernmental balances and activity between federal agencies in generating the FR consolidated financial statements. 

This note depicts how our AFR consolidated financial statements are adjusted to derive the FR reclassified financial

statements prior to the elimination of intragovernmental balances and prior to the aggregation of repeated FR line items. A 

copy of the FY 2018 FR can be found on the Fiscal Service website and a copy of the FY 2019 FR will be posted to the site as

soon as it is released.

 
DEPARTMENT OF THE TREASURY 135 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Consolidated Balance Sheet 

As of September 30, 2019

AFR Financial Statement Line

Amounts

(in millions)

Amounts

(in millions) Reclassified Financial Statement Line

ASSETS

Intra-governmental Assets

Fund Balance $ 415,327 $ 415,327 Fund Balance with Treasury

Loans and Interest Receivable 1,581,019 1,580,275 Loans Receivable 

744 Interest Receivable - Loans and Not Otherwise Classified

 Total Loans and Interest Receivable 1,581,019 1,581,019 Total 

Advances to Federal Supplementary Medical 

Insurance Trust Fund 

3,152 3,152 Loans Receivable

 

Due From the General Fund 22,855,331 22,855,331 Other Assets 

Other Intra-governmental Assets 1,011 1,008 Accounts Receivable 

3 Advances to Others and Prepayments

 Total Other Intra-governmental Assets 1,011 1,011 Total 

Total Intra-governmental Assets 24,855,840 24,855,840 Total Intra-governmental Assets

Cash, Foreign Currency, and Other Monetary Assets 441,365 441,365 Cash and Other Monetary Assets 

Gold and Silver Reserves 11,062 11,062 Cash and Other Monetary Assets 

Reserve Position in the International Monetary Fund 22,955 22,955 Cash and Other Monetary Assets 

Taxes, Interest, and Other Receivables, Net 145,878 145,878 Accounts and Taxes Receivable

Credit Program Receivables, Net 4,867 4,867 Loans Receivable 

Loans and Interest Receivable, Net 2,525 2,525 Loans Receivable 

Investments in Government Sponsored Enterprises 

(GSEs) 

112,070 112,070 Investment in GSEs

Investments in Multilateral Development Banks 7,773 7,773 Other Assets

Other Investments and Related Interest 6,631 6,631 Debt and Equity Securities 

Property, Plant, and Equipment, Net 2,870 2,870 Property, Plant and Equipment

Other Assets 700 691 Inventory and Related Property 

9 Other Assets

 Total Other Assets 700 700 Total 

Total Assets $ 25,614,536 $ 25,614,536 Total Assets 

LIABILITIES 

Intra-governmental Liabilities

Federal Debt and Interest Payable $ 5,981,029 $ 5,942,206 Federal Debt

38,823 Interest Payable - Debt

 Total Federal Debt and Interest Payable 5,981,029 5,981,029 Total 

Other Debt and Interest Payable 8,869 8,809 Federal Debt

60 Interest Payable - Debt

 Total Other Debt and Interest Payable 8,869 8,869 Total 

Due To the General Fund

 

2,213,616 2,213,616 Liability to the General Fund for Custodial and Other NonEntity Assets
136 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Consolidated Balance Sheet

As of September 30, 2019

AFR Financial Statement Line

Amounts

(in millions)

Amounts

(in millions) Reclassified Financial Statement Line

Other Intra-governmental Liabilities 632 102 Accounts Payable

289 Transfers Payable 

180 Benefit Program Contributions Payable 

35 Advances from Others and Deferred Credits 

6 Liability to Agency Other Than the General Fund for Custodial 

and Other Non-Entity Assets

20 Other Liabilities (without Reciprocals)

 Total Other Intra-governmental Liabilities 632 632 Total 

Total Intra-governmental Liabilities 8,204,146 8,204,146 Total Intra-governmental Liabilities

Federal Debt and Interest Payable

 

16,839,627 16,839,627 Federal Debt Securities Held by the Public and Accrued 

Interest

Special Drawing Right Certificates Issued to the 

Federal Reserve 

5,200 5,200 Other Liabilities

Allocation of Special Drawing Rights 48,146 48,146 Other Liabilities

Gold Certificates Issued to the Federal Reserve 

Banks 

11,037 11,037 Other Liabilities

Refunds Payable 2,939 2,939 Accounts Payable

D.C. Federal Pension and Judicial Retirement 

Actuarial Liability 

8,398 8,398 Other Liabilities

Other Liabilities 5,467 621 Accounts Payable 

684 Federal Employee and Veteran Benefits Payable

1 Loan Guarantee Liabilities 

4,161 Other Liabilities

 Total Other Liabilities 5,467 5,467 Total 

Total Liabilities 25,124,960 25,124,960 Total Liabilities

NET POSITION

Unexpended Appropriations: 

Funds from Dedicated Collections 200 200 Net Position - Funds from Dedicated Collections

Other Funds 419,396 419,396 Net Position - Funds Other than Those from Dedicated 

Collections

Cumulative Results of Operations: 

Funds from Dedicated Collections 46,351 46,351 Net Position - Funds from Dedicated Collections

Other Funds 23,629 23,629 Net Position - Funds Other than Those from Dedicated 

Collections

Total Net Position (Combined Totals) 489,576 489,576 Total Net Position

Total Liabilities and Net Position $ 25,614,536 $ 25,614,536 Total Liabilities and Net Position
DEPARTMENT OF THE TREASURY 137 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Consolidated Statement of Net Cost

For the Fiscal Year Ended September 30, 2019

AFR Financial Statement Line

Amounts

(in millions)

Amounts

(in millions) Reclassified Financial Statement Line

Cost of Treasury Operations: 

Total Program Gross Costs $ 29,069 $ 24,219 Non-Federal Gross Costs

Intra-governmental Costs

1,860 Benefit Program Costs

807 Imputed Costs

1,416 Buy/Sell Cost

1 Purchase of Assets 

281 Federal Securities Interest Expense

486 Other Expenses (without Reciprocals) 

(1) Purchase of Assets Offset

4,850 Total Intra-governmental Costs

Total Program Gross Costs 29,069 29,069 Total 

Total Program Gross Earned Revenues (12,939) (9,865) Non-Federal Earned Revenue

Intra-governmental Revenue

(279) Buy/Sell Revenue

(2,257) Borrowing and Other Interest Revenue

(538) Borrowing Gains

(3,074) Total Intra-governmental Earned Revenue

Total Program Gross Earned Revenues (12,939) (12,939) Total 

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

Changes

500 

 

500 

 

Non-Federal Gross Costs

Total Net Cost of Treasury Operations $ 16,630 $ 16,630 Total 
138 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Consolidated Statement of Net Cost

For the Fiscal Year Ended September 30, 2019

AFR Financial Statement Line

Amounts

(in millions)

Amounts

(in millions) Reclassified Financial Statement Line

Non-Entity Costs:

Federal Debt Interest $ 570,948 $ 401,887 Interest on Debt Held by the Public (Non-Federal)

169,061 Federal Securities Interest Expense (Federal)

 Total Federal Debt Interest 570,948 570,948 Total 

Restoration of Foregone Federal Debt Interest 2,371 1,675 Interest on Debt Held by the Public (Non-Federal)

696 Federal Securities Interest Expense (Federal)

 Total Restoration of Foregone Federal Debt Interest 2,371 2,371 Total 

Less Interest Revenue from Loans (44,385) (44,385) Borrowing and Other Interest Revenue (Federal)

Other Federal Costs, Net 12,016 5,441 Non-Federal Gross Costs

Intra-governmental Costs

93 Buy/Sell Cost

7,109 Borrowing and Other Interest Expenses

7,202 Total Intra-governmental Costs

(152) Non-Federal Earned Revenue

(475) Buy/Sell Revenue (Federal)

 Total Other Federal Costs, Net 12,016 12,016 Total 

GSEs Non-Entity Revenue, Net (14,199) (14,199) Non-Federal Earned Revenue

Other, Net (761) 23 Non-Federal Gross Costs

(2) Non-Federal Earned Revenue

(782) Buy/Sell Revenue (Federal)

 Total Other, Net (761) (761) Total 

Total Net Non-Entity Costs 525,990 525,990 Total 

154,252 Non-Federal Gross Costs(1)

Total Net Cost of Treasury Operations and Non-Entity 

Costs $ 542,620 $ 696,872 Total Net Cost (1)

(1) Includes income tax credits of $154.3 billion, which are reported on the Treasury Statement of Custodial Activity within the “Less Refunds and Other Payments”

line item. These costs are reported as part of net cost on the reclassified financial statements for the purpose of presenting these costs in the manner presented

in the FR.
DEPARTMENT OF THE TREASURY 139 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Consolidated Statement of Changes in Net Position and Statement of Custodial Activity

For the Fiscal Year Ended September 30, 2019

AFR Financial Statement Line

Amounts 

(in millions)

Amounts 

(in millions) Reclassified Financial Statement Line

STATEMENT OF CHANGES IN NET POSITION

UNEXPENDED APPROPRIATIONS

Beginning Balance $ 425,992 $ 425,992 Net Position, Beginning of Period

Budgetary Financing Sources

Appropriations Received 600,585 600,585 Appropriations Received as adjusted

Other Adjustments (10,433) (10,433) Appropriations Received as adjusted

Appropriations Used (596,548) (596,548) Appropriations Used

Total Unexpended Appropriations 419,596 419,596 Total 

CUMULATIVE RESULTS OF OPERATIONS

Beginning Balance 69,821 69,821 Net Position, Beginning of Period

Budgetary Financing Sources

Appropriations Used 596,548 596,548 Appropriations Expended

Non-Exchange Revenue 427 401 Collections Transferred into Another TAS other 

than the General Fund of the U.S. Government

26 Individual Income Tax and Tax Withholdings

 Total Non-Exchange Revenue 427 427 Total

Donations and Forfeitures of Cash/Equivalent 600 600 Other Taxes and Receipts

Transfers In/Out Without Reimbursement (766) (770) Expenditure Transfers-Out of Financing Sources

4 Expenditure Transfers-in of Financing Sources

 Total Transfers In/Out Without Reimbursement (766) (766) Total

Other 233 233 Other Budgetary Financing Sources

Other Financing Sources (Non-Exchange)

Donation/Forfeiture of Property 74 74 Other Taxes and Receipts

Accrued Interest and Discount on Debt 8,030 8,030 Other Non-Budgetary Financing Sources for Debt 

Accruals/Amortization

Imputed Financing Sources 807 807 Imputed Financing Sources

Transfers to the General Fund and Other (63,174) (696) Accrual for Non-Entity Amounts to be Collected 

and Transferred to the General Fund of the U.S. 

Government

(62,511) Non-Entity Collections Transferred to the General 

Fund

(5) Other Non-Budgetary Financing Sources

38 Other Taxes and Receipts

 Total Transfers to the General Fund and Other (63,174) (63,174) Total

Net Cost of Treasury Operations and Non-Entity 

Costs

(542,620) (696,872) Net Cost of Operations(2)

Total Cumulative Results of Operations 69,980 (84,272) Total 

(2) Includes income tax credits of $154.3 billion, which are reported on the Treasury Statement of Custodial Activity within the “Less Refunds and Other Payments”

line item. These tax credits are reported as part of net cost on the reclassified financial statements for the purpose of presenting these costs in the manner

presented in the FR.
140 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Consolidated Statement of Changes in Net Position and Statement of Custodial Activity

For the Fiscal Year Ended September 30, 2019

AFR Financial Statement Line

Amounts

(in millions)

Amounts

(in millions) Reclassified Financial Statement Line

STATEMENT OF CUSTODIAL ACTIVITY

Sources of Custodial Revenue

Individual Income and FICA Taxes $ 3,176,406 $ 3,176,406 Individual Income Tax and Tax Withholdings

Corporate Income Taxes 277,058 277,058 Corporation Income Taxes

Estate and Gift Taxes 17,565 17,565 Estate and Gift Taxes

Excise Taxes 100,566 100,566 Excise Taxes

Railroad Retirement Taxes 6,219 6,219 Other Taxes and Receipts

Unemployment Taxes 6,438 6,438 Unemployment Taxes

Deposit of Earnings, Federal Reserve System 52,793 52,793 Other Taxes and Receipts

Fines, Penalties, Interest and Other Revenue 5,591 5,589 Other Taxes and Receipts

2 Borrowing and Other Interest Revenue

 Total Fines, Penalties, Interest and Other Revenue 5,591 5,591 Total

Less Refunds and Other Payments (452,434) (256,957) Individual Income Tax and Tax Withholdings

(37,990) Corporation Income Taxes

(264) Unemployment Taxes

(1,942) Excise Taxes

(893) Estate and Gift Taxes

(136) Other Taxes and Receipts

 Total Less Refunds and Other Payments (452,434) (298,182) Total (3)

Non-Cash Accrual Adjustment 86,298 86,250 Other Taxes and Receipts

(7) Excise Taxes

55 Accrual for Non-Entity Amounts to be Collected and 

Transferred to the General Fund of the U.S. Gov't

 Total Non-Cash Accrual Adjustment 86,298 86,298 Total

Disposition of Custodial Revenue

Amounts Provided to Fund Non-Federal Entities (454) (454) Other Taxes and Receipts

Amounts Provided to Fund the Federal Government (3,189,748) (3,188,795) Non-Entity Collections Transferred to the General Fund

(953) Collections Transferred to a TAS Other Than the General 

Fund of the U.S. Government

 Total Amounts Provided to Fund the Federal 

Government

(3,189,748) (3,189,748) Total

Non-Cash Accrual Adjustment (86,298) (86,298) Accrual for Non-Entity Amounts to be Collected and 

Transferred to the General Fund of the U.S. Gov't

Total Statement of Changes in Net Position and 

Statement of Custodial Activity $ 489,576 $ 489,576 

Total Reclassified Statement of Changes in Operations 

and Net Position

(3) Income tax credits totaling $154.3 billion are excluded from the line items that sum to this Total amount. These tax credits which are reported on the Treasury

Statement of Custodial Activity within the “Less Refunds and Other Payments” line item, are reported as a net cost on the reclassified financial statements for

the purpose of presenting these costs in the manner presented in the FR.
DEPARTMENT OF THE TREASURY 141

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED – SEE ACCOMPANYING

AUDITORS’ REPORT) 

INTRODUCTION

This section provides the Required Supplementary Information as prescribed by accounting standards.

OTHER CLAIMS FOR REFUNDS

We estimated that $10.1 billion and $12.9 billion as of September 30, 2019 and 2018, respectively, may be payable as other

claims for tax refunds. This estimate represents amounts (principal and interest) that we may pay for claims pending

judicial review by the federal courts or internally, by Appeals. In FY 2019, the total estimated payout (including principal

and interest) for claims pending judicial review by the federal courts and appeals courts is $7.8 billion and $2.3 billion,

respectively. In FY 2018, the total estimated payout (including principal and interest) for claims pending judicial review by

the federal courts and appeals courts was $11.1 billion and $1.8 billion, respectively. To the extent judgments against the

government in these cases prompt other similarly situated taxpayers to file similar refund claims, these amounts could

become significantly greater.

IRS FEDERAL TAXES RECEIVABLE, NET

In accordance with SFFAS No. 7, some unpaid tax assessments do not meet the criteria for financial statement recognition. 

Internal Revenue Code (IRC) 6201 authorizes and requires us to make inquiries, determinations, and assessments of all

taxes which taxpayers have not duly paid (including interest, additions to the tax, and assessable penalties) under the law. 

Unpaid assessments result from taxpayers filing returns without sufficient payment, as well as from tax compliance

programs such as examination, under-reporter, substitute for return, and combined annual wage reporting. We also have

authority to abate the paid or unpaid portion of an assessed tax, interest, and penalty. Abatements occur for a number of

reasons and are a normal part of the tax administration process. Abatements may result in claims for refunds or a reduction

of the unpaid assessed amount.

Under federal accounting standards, we consider unpaid assessments which require taxpayer or court agreement federal

taxes receivable. We consider assessments not agreed to by taxpayers or the courts compliance assessments and not federal

taxes receivable. Due to the lack of agreement, these compliance assessments are less likely to have future collection

potential than those unpaid assessments that we consider federal taxes receivable.

We call assessments with little or no future collection potential write-offs. Write-offs principally consist of amounts owed by

deceased, bankrupt, or defunct taxpayers, including many failed financial institutions liquidated by the FDIC and the former

Resolution Trust Corporation. Write-offs have little or no future collection potential, but statutory provisions require that

we maintain these assessments until the statute for collection expires.

Although we do not consider compliance assessments and write-offs receivables under federal accounting standards, they

represent legally enforceable claims of the U.S. government. 

The components of the total unpaid assessments at September 30, 2019 and 2018, were as follows: 
142 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

(in millions) 2019 2018 

Total Unpaid Assessments $ 550,000 $ 398,000 

Less Compliance Assessments (75,000) (65,000) 

Write Offs (106,000) (115,000) 

Gross Federal Taxes Receivable 369,000 218,000 

Less Allowance for Doubtful Accounts (225,000) (160,000) 

Federal Taxes Receivables, Net $ 144,000 $ 58,000 

Total unpaid assessments include $160 billion of non-delinquent IRC 965(h) tax of which $97.5 billion is collectible based on

the collection history and the type of taxpayer. The non-delinquent IRC 965 (h) component refers to taxpayers who elected to

pay their IRC 965(h) tax on an eight year installment schedule. 

To eliminate double counting, the compliance assessments reported above exclude trust fund recovery penalties assessed

against officers and directors of businesses involved in the non-remittance of federal taxes withheld from their employees. 

The penalties totaled $1.5 billion and $1.4 billion as of September 30, 2019 and 2018, respectively. We report the related

unpaid assessments of those businesses as taxes receivable or write-offs, but we may also recover portions of those

businesses’ unpaid assessments from any and all individual officers and directors against whom we assess a trust fund

recovery penalty.

ALCOHOL AND TOBACCO TAX AND TRADE BUREAU

As an agent of the U.S. government and as authorized by 26 USC, the TTB collects excise taxes from alcohol, tobacco,

firearms, and ammunition industries. In addition, the TTB collects special occupational taxes from certain tobacco

businesses. During FY 2019 and 2018, TTB collected approximately $19.8 billion and $20.6 billion in taxes, interest, and

other revenues, respectively. TTB also collects Federal excise taxes on certain articles produced in Puerto Rico and the

Virgin Islands, and imported into the U.S. In accordance with 26 USC 7652, such taxes collected on rum imported into the

U.S. are “covered over” or paid into the treasuries of Puerto Rico and the Virgin Islands.

TTB remits substantially all of the taxes collected, net of related refund disbursements, to the General Fund. We further

distribute this revenue to Federal agencies in accordance with various laws and regulations. The firearms and ammunition

excise taxes are an exception. TTB remits those revenues to the Fish and Wildlife Restoration Fund under provisions of the

Pittman-Robertson Act of 1937.

DEFERRED MAINTENANCE AND REPAIRS

In FY 2019 and 2018, we had no material amounts of deferred maintenance and repair costs to report on vehicles, buildings,

and structures we owned.

Deferred maintenance and repairs applies to owned PP&E. Deferred maintenance and repairs are maintenance and repair

activity that we had not performed when it should have been, or scheduled to be, and put off or delayed for a future period. 

We define maintenance and repairs as the act of keeping capitalized assets in an “acceptable condition” to serve their

required mission. It includes preventive maintenance, normal repairs, replacement of parts and structural components, and

other activities needed to preserve the asset so that it continues to provide acceptable services and achieves its expected

useful life. Deferred maintenance and repairs excludes activities aimed at expanding the capacity or significantly upgrading

the assets to a different form than it was originally intended (i.e., activities related to capitalized improvements,

modernization, and/or restoration).
DEPARTMENT OF THE TREASURY 143 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Logistic personnel use condition assessment surveys and/or the total life-cycle cost methods to determine if there are any

deferred maintenance and repairs needed to keep an asset in acceptable operating condition. We use periodic condition

assessments, physical inspections, and review of manufacturing and engineering specifications, work orders, and building

and other structure logistics reports under these methodologies. 

STATEMENT OF BUDGETARY RESOURCES DISAGGREGATED BY TREASURY REPORTING ENTITY

The following tables provide the Statement of Budgetary Resources for the fiscal years ended September 30, 2019 and 2018

disaggregated by Treasury reporting entity rather than by Treasury major budget account, since we manage our budget at

the reporting entity level. 
144 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Fiscal Year 2019 Combining Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

Bureau of Bureau of Fin. Crimes Internal

Engraving & the Fiscal Departmental Enforcement Revenue

(in millions): Printing Service Offices (a) Network Service

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net

 (discretionary and mandatory) $ 650 $ 1,598 $ 309,219 $ 44 $ 1,212

Appropriations (discretionary and mandatory) - 590,315 4,571 118 11,789

Borrowing authority (discretionary and mandatory) - - 125 - - 

Spending authority from offsetting collections 

 (discretionary and mandatory) 879 259 4,510 2 135

Total Budgetary Resources $ 1,529 $ 592,172 $ 318,425 $ 164 $ 13,136

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 955 $ 590,586 $ 8,429 $ 132 $ 12,110

Unobligated balance, end of year:

 Apportioned, unexpired accounts 574 1,477 269,740 27 566

 Exempt from apportionment, unexpired accounts - 6 78 - 8 

 Unapportioned, unexpired accounts - 91 40,017 - 257

 Unexpired unobligated balance, end of year 574 1,574 309,835 27 831

 Expired unobligated balance, end of year - 12 161 5 195

Unobligated balance, end of year 574 1,586 309,996 32 1,026

Total Status of Budgetary Resources $ 1,529 $ 592,172 $ 318,425 $ 164 $ 13,136

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ (55)$ 589,472 $ 5,157 $ 119 $ 11,707

Distributed offsetting receipts - (47,671) (20,388) - (627)

Agency Outlays, Net (Discretionary and Mandatory) $ (55)$ 541,801 $ (15,231)$ 119 $ 11,080

(a) Of the $318 billion of Total Budgetary Resources for DO, GSE, ESF, and OAS had $254 billion, $40 billion, and

$14 billion, respectively. The remainder is spread throughout other offices.
DEPARTMENT OF THE TREASURY 145 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Fiscal Year 2019 Combining Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

Alcohol

and

Office of the Tobacco

Comptroller Tax and

of the Trade Non- 

(in millions): U. S. Mint Currency Bureau Budgetary Budgetary

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net

 (discretionary and mandatory) $ 731 $ 1,542 $ 8 $ 314,985 $ 19

Appropriations (discretionary and mandatory) - - 120 606,913 - 

Borrowing authority (discretionary and mandatory) - - - - 125

Spending authority from offsetting collections 

 (discretionary and mandatory) 1,292 1,171 7 7,830 425

Total Budgetary Resources $ 2,023 $ 2,713 $ 135 $ 929,728 $ 569

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 1,555 $ 1,053 $ 128 $ 614,608 $ 340

Unobligated balance, end of year:

 Apportioned, unexpired accounts 468 - 5 272,845 12

 Exempt from apportionment, unexpired accounts - 1,660 - 1,752 - 

 Unapportioned, unexpired accounts - - - 40,148 217

 Unexpired unobligated balance, end of year 468 1,660 5 314,745 229

 Expired unobligated balance, end of year - - 2 375 - 

Unobligated balance, end of year 468 1,660 7 315,120 229

Total Status of Budgetary Resources $ 2,023 $ 2,713 $ 135 $ 929,728 $ 569

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ 241 $ (131)$ 114 $ 606,826 $ (202)

Distributed offsetting receipts - - - (68,686) - 

Agency Outlays, Net (Discretionary and Mandatory) $ 241 $ (131)$ 114 $ 538,140 $ (202)
146 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | FINANCIAL SECTION

Fiscal Year 2018 Combining Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

Bureau of Bureau of Fin. Crimes Internal

Engraving & the Fiscal Departmental Enforcement Revenue

(in millions): Printing Service Offices (a) Network Service

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net $ 83 $ 1,473 $ 312,806 $ 51 $ 1,061

Appropriations (discretionary and mandatory) - 538,475 5,101 115 11,854

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

Spending authority from offsetting collections 

 (discretionary and mandatory) 1,474 256 3,859 2 196

Total Budgetary Resources $ 1,557 $ 540,204 $ 322,031 $ 168 $ 13,111

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 1,039 $ 538,694 $ 13,845 $ 123 $ 11,981

Unobligated balance, end of year:

 Apportioned, unexpired accounts 518 1,396 267,982 39 726

 Exempt from apportionment, unexpired accounts - 9 73 - 7 

 Unapportioned, unexpired accounts - 89 39,966 - 167

 Unexpired unobligated balance, end of year 518 1,494 308,021 39 900

 Expired unobligated balance, end of year - 16 165 6 230

Unobligated balance, end of year 518 1,510 308,186 45 1,130

Total Status of Budgetary Resources $ 1,557 $ 540,204 $ 322,031 $ 168 $ 13,111

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ 24 $ 538,442 $ 10,038 $ 116 $ 11,381

Distributed offsetting receipts - (45,983) (14,584) - (878)

Agency Outlays, Net (Discretionary and Mandatory) $ 24 $ 492,459 $ (4,546)$ 116 $ 10,503

(a) Of the $322 billion of Total Budgetary Resources for DO, GSE, ESF, and OAS had $258 billion, $41 billion, 

and $14 billion, respectively. The remainder is spread throughout other offices. 
DEPARTMENT OF THE TREASURY 147 

FINANCIAL SECTION | FY 2019 AGENCY FINANCIAL REPORT

Fiscal Year 2018 Combining Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

Alcohol

and

Office of the Tobacco

Comptroller Tax and

of the Trade Non- 

(in millions): U. S. Mint Currency Bureau Budgetary Budgetary

BUDGETARY RESOURCES

Unobligated balance from prior year budget authority, net $ 631 $ 1,522 $ 7 $ 317,622 $ 12

Appropriations (discretionary and mandatory) - - 112 555,657 - 

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

Spending authority from offsetting collections 

 (discretionary and mandatory) 1,706 1,256 7 8,459 297

Total Budgetary Resources $ 2,337 $ 2,778 $ 126 $ 881,738 $ 574

STATUS OF BUDGETARY RESOURCES

New obligations and upward adjustments $ 1,614 $ 1,236 $ 119 $ 568,169 $ 482

Unobligated balance, end of year:

 Apportioned, unexpired accounts 723 - 5 271,380 9 

 Exempt from apportionment, unexpired accounts - 1,542 - 1,631 - 

 Unapportioned, unexpired accounts - - - 40,139 83

 Unexpired unobligated balance, end of year 723 1,542 5 313,150 92

 Expired unobligated balance, end of year - - 2 419 - 

Unobligated balance, end of year 723 1,542 7 313,569 92

Total Status of Budgetary Resources $ 2,337 $ 2,778 $ 126 $ 881,738 $ 574

OUTLAYS, NET

Outlays, net (discretionary and mandatory) $ (302)$ (43)$ 111 $ 560,008 $ (241)

Distributed offsetting receipts - (22) - (61,467) - 

Agency Outlays, Net (Discretionary and Mandatory) $ (302)$ (65)$ 111 $ 498,541 $ (241)
[Page intentionally left blank]
PART 3: 

OTHER INFORMATION 

(UNAUDITED)

SECTION A: TAX GAP AND TAX BURDEN .............................151

SECTION B: REDUCE THE FOOTPRINT..................................161

SECTION C: MANAGEMENT CHALLENGES AND

TREASURY RESPONSE...................................................162

SECTION D: SUMMARY OF FINANCIAL STATEMENT

AUDIT AND MANAGEMENT ASSURANCES........................196

SECTION E: PAYMENT INTEGRITY .......................................198

SECTION F: FRAUD REDUCTION REPORT .............................216

SECTION G: CIVIL MONETARY PENALTIES

INFLATION ADJUSTMENT ..............................................220

APPENDIX: GLOSSARY OF ACRONYMS .................................226

DEPARTMENT OF THE TREASURY 151

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

SECTION A: TAX GAP AND TAX BURDEN

TAX GAP

The gross tax gap is the difference between the amount of tax imposed by law and what taxpayers actually pay on time. The

tax gap provides an estimate of the level of overall noncompliance and voluntary compliance during the relevant tax periods

and under the Internal Revenue Code (IRC) provisions in effect at the time. Tax gap estimates provide the Internal Revenue

Service (IRS) with periodic appraisals about the nature and extent of noncompliance for use in formulating tax

administration strategies. 

Measuring and reporting on taxpayer compliance related to various tax provisions is inherently complex and challenging. To 

measure overall compliance with the current tax system, the IRS develops estimates of the tax gap. The IRS also

undertakes analyses of compliance behavior with respect to specific tax provisions, such as refundable and non-refundable

tax credits. The IRS enforcement strategies and legislative proposals are influenced by its National Research Program

(NRP), which involves conducting detailed audits of a statistically representative sample of taxpayers to estimate compliance

with individual income tax provisions, and provides data on misreporting on voluntarily filed returns. To provide greater

reliability and precision of the compliance estimates, the IRS groups multiple years of data together. This results in a timing

difference between the time period from which the reported data is generated and the report issuance date. Misreporting

can be in favor of the taxpayer or the government, although estimates indicate that the majority of misreporting is due to tax

underreporting. This can manifest as either underpayments of the liability due at the time the return is filed, claiming and

receiving an excessive refund, or a combination of both.

New Tax Gap Estimates

The tax gap estimates are prepared on a periodic basis, depending on the availability of the NRP data to produce such

estimates. In Fiscal Year (FY) 2019, the IRS released new estimates covering the Tax Year (TY) 2011 – 2013 timeframe. 

The following is a brief overview of these estimates. A more in-depth discussion of the tax gap can be found on the IRS

website at:

• Federal Tax Compliance Research: Tax Gap Estimates for Tax Years 2011 – 2013 (https://www.irs.gov/pub/irspdf/p1415.pdf); and

• Understanding the Latest Tax Gap Estimates and Overall Taxpayer Compliance

(https://www.irs.gov/newsroom/understanding-the-latest-tax-gap-estimates-and-overall-taxpayer-compliance).

The gross tax gap is the amount of tax liability that is not paid voluntarily and on time. The average annual estimated gross

tax gap for the TY 2011 – 2013 timeframe is $441 billion. The net tax gap is the gross tax gap less tax that will be

subsequently paid, either paid voluntarily but late, or collected as a result of IRS administrative and enforcement activities. 

In effect, the net tax gap is the portion of the gross tax gap that will not be paid. It is estimated that $60 billion of the gross

tax gap will eventually be paid, resulting in a net tax gap of $381 billion.
152 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

The tax gap structure separates noncompliance into components by the type of tax and source of noncompliance. The three

primary sources of noncompliance that result in payment of less than the tax owed are: (1) the non-filing tax gap (the tax not

paid on time by those who do not file required returns on time); (2) the underreporting tax gap (the net understatement of

tax on timely filed returns); and (3) the underpayment tax gap (the amount of tax reported on timely filed returns that is not

paid on time). These components comprise $39 billion, $352 billion, and $50 billion, respectively, of the $441 billion

estimated annual average gross tax gap. The gross tax gap estimates can also be grouped by type of tax. The estimated

gross tax gap for individual income tax, corporate income tax, employment tax, and estate and excise tax is $314 billion,

$42 billion, $81 billion, and $3 billion, respectively. These estimates are displayed below in an excerpt from the schematic

representation of the estimates, known as the tax gap “map” from the FY 2011 – 2013 tax gap estimates document.

TAX GAP MAP: TAX GAP ESTIMATES FOR TAX YEARS 2011 – 2013 (EXCERPT) ($ IN BILLIONS)

Source: Federal Tax Compliance Research: Tax Gap Estimates for Tax Years 2011 - 2013

# - No estimate.

The percentage reported is the share of enforced and other late payments from the four different types of taxes.

The estimates are the annual averages for the TY 2011 – 2013 timeframe.

[1] Includes adjustments, deductions, and exemptions.

[2] Includes the Alternative Minimum Tax and taxes reported in the “Other Taxes” section of the Form 1040 except for self-employment tax and unreported

Social Security and Medicare tax (which are included in the employment tax gap estimates).

[3] Is the difference between (1) the estimate of the individual income tax underreporting tax gap where underreported tax is calculated based on all

misreporting combined and (2) the estimate of the individual income tax underreporting tax gap based on the sum of the tax gaps associated with each line

item where the line item tax gap is calculated based on the misreporting of that item only. There may be differences if the marginal tax rates are different in

these two situations.

[4] Self-employment tax only.

Note: Individual amounts may not add to totals due to rounding.
DEPARTMENT OF THE TREASURY 153

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Tax Gap Estimation Methodology

Estimating the tax gap is inherently challenging and requires assessing alternative methods, assumptions, and data sources. 

There is no single approach for estimating all the components of the tax gap. Each approach to estimating the tax gap is

subject to non-sampling error. The component estimates that are based on statistical samples are further subject to

sampling error. The uncertainty of the estimates is not readily captured by standard errors that typically accompany

estimates based on sample data. For that reason, standard errors, confidence intervals, and statistical comparisons across

years are not reported.

These estimates reflect an estimated average compliance rate and associated average annual tax gap for the TY 2011 – 2013

timeframe. The IRS estimates tax gap using a three year timeframe to provide greater reliability and precision on the

estimates. For individual income tax compliance, the tax gap is estimated using pooled data from several tax years because

the aggregated data provides more information upon which to base estimates of individual income tax underreporting,

categorized by sources of noncompliance. The individual income tax NRP reporting compliance studies are the foundation

for the individual income tax underreporting tax gap estimates. The methodology incorporates additional data and

analytical techniques designed to account for income that is not detected by the NRP audits. The IRS audits tax returns to

produce the compliance estimates for the individual income tax underreporting tax gap estimate. The timeframe needed to

audit tax returns to obtain actual compliance data on which to base the tax gap estimates results in estimates that are not

contemporaneous with the tax year being estimated. 

Individual Income Tax Underreporting Tax Gap Estimates for Tax Years 2011 – 2013

The estimates in the table below provide a breakout of the components of the individual income tax underreporting tax gap,

the largest single contributor to the gross tax gap. For each income component, the table shows the component’s share of the

individual income tax underreporting tax gap. The table also shows each component’s share of the gross tax gap. Business

income accounts for 45 percent of the total individual income tax underreporting tax gap for TY 2011 – 2013. This primarily

consists of nonfarm proprietor income which accounts for 28 percent, flow-through income (partnerships, S corporations, and

estates and trusts) which accounts for eight percent, rent and royalty income which accounts for seven percent, and farm

income which accounts for two percent.
154 DEPARTMENT OF THE TREASURY

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INDIVIDUAL INCOME TAX UNDERREPORTING TAX GAP BY SOURCE: TAX YEARS 2011–2013 (1)

($ IN BILLIONS)

Tax Line Item Amount

Tax Return Line Items Tax Gap

Share of Gross Tax 

Gap 

Share of Individual 

Income Tax 

Underreporting 

Tax Gap

Net Misreporting 

Percentage (2)

Gross Tax Gap $ 441 100% N/A N/A

Individual Income Tax Underreporting Tax Gap $ 245 56% 100% 18% 

Items Subject to Substantial Information Reporting and 

Withholding $ 9 2% 4% 1% 

Wages, salaries, tips $ 9 2% 4% 1% 

Items Subject to Substantial Information Reporting $ 12 3% 5% 5% 

Interest income (3) (3) (3) 1% 

Dividend income $ 1 (3) 1% 5% 

State income tax refunds $ 1 (3) (3) 12% 

Pension & annuities $ 5 1% 2% 3% 

Unemployment Compensation (3) (3) (3) 7% 

Taxable Social Security benefits $ 4 1% 2% 11% 

Items Subject to Some Information Reporting $ 36 8% 15% 17% 

Partnership, S-Corp, Estate & Trust, etc. $ 19 4% 8% 11% 

Alimony income (4) (4) (4) (4)

Capital Gains(5) $ 17 4% 7% 23% 

Short-term Capital Gains $ 7 2% 3% 24% 

Long-Term Capital Gains $ 10 2% 4% 15% 

Items Subject to Little or No Information Reporting $ 109 25% 45% 55% 

Form 4797 income $ 2 1% 1% 36% 

Other income $ 16 4% 6% 42% 

Nonfarm proprietor income $ 68 15% 28% 56% 

Farm income $ 6 1% 2% 62% 

Rents and royalties $ 17 4% 7% 51% 

Other Taxes $ 1 (3) 1% 3% 

Unallocated Marginal Effects $ 10 2% 4% N/A

Income Offsets (Adjustments, Deductions, Exemptions) $ 20 4% 8% 5% 

Total Tax Credits $ 42 10% 17% 38% 

Filing Status $ 5 1% 2% N/A (1) The estimates are the annual averages for the TY 2011 – 2013 timeframe.

(2) The net misreporting percentage is the net misreported amount divided by the sum of the absolute values of the amounts that should have been reported,

expressed as a percentage.

(3) Less than 0.5 percent or $0.5 billion.

(4) Estimate is based on very small sample size. Estimated tax gap is less than $0.5 billion and Net Misreporting Percentage is less than 0.5%.

(5) The TY 2008 – 2010 Net Misreporting Percentage for capital gains was incorrectly reported as 27%. The correct Net Misreporting Percentage for TY 2008 – 

2010 was 21%.

Note: Individual amounts may not add to total due to rounding.

Individual Income Tax Credits

The IRS is responsible for administering 21 refundable and non-refundable individual income tax credits. Total tax credits

account for 17 percent of the individual income tax underreporting tax gap. The Earned Income Tax Credit (EITC), 

American Opportunity Tax Credit (AOTC), and Additional Child Tax Credit (ACTC) are three of the most widely claimed
DEPARTMENT OF THE TREASURY 155

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refundable tax credits. EITC accounts for 11 percent of the individual income tax underreporting tax gap, followed by the

refundable and non-refundable Child Tax Credit (CTC) (three percent), and the refundable and non-refundable education

credits which includes AOTC (two percent). 

INDIVIDUAL INCOME TAX UNDERREPORTING TAX GAP ESTIMATES FOR TAX CREDITS: TY 2011 – 2013

($ IN BILLIONS) (1)

Tax Return Line Items Tax Gap Share of Gross Tax Gap

Share of Individual 

Income Tax 

Underreporting Tax 

Gap 

Gross Tax Gap $441 100% N/A

Individual Income Tax Underreporting Tax Gap $245 56% 100% 

Total Credits $42 10% 17% 

Child Tax Credit and Additional Child Tax Credit $9 2% 3% 

Earned Income Tax Credit $27 6% 11% 

Education Credits (Including AOTC) $5 1% 2% 

All Other Credits $1 (2) 1% (1) The estimates are the annual averages for the TY 2011 – 2013 timeframe.

(2) Less than 0.5 percent.

Note: Individual amounts may not add to total due to rounding.

Earned Income Tax Credit 

Congress enacted the EITC in 1975 through the Tax Reduction Act (Public Law (P.L.) 94-12) as a temporary anti-poverty

measure to offset inflation and rising Social Security payroll taxes. In addition to encouraging work and reducing

dependence on cash welfare, the credit was also viewed as a means to encourage economic growth in the face of the 1974

recession and rising food and energy prices.1 Since then, the EITC has undergone numerous legislative changes, most

notably by the Revenue Act of 1978, which made the EITC a permanent refundable tax credit. Congress believed the EITC

would be an effective way to provide financial assistance to working families, with or without children, who might otherwise

rely on government subsidized welfare payments. For TY 2017, over 26 million taxpayers received more than $64 billion in

EITCs, making the EITC one of the largest anti-poverty programs in America. 

American Opportunity Tax Credit

Education tax credits have generally been intended to provide federal financial assistance to students from middle-income

families who may not benefit from other forms of traditional student aid.2 Congress enacted the AOTC as part of P.L. 111-5 

in 2009 to replace the Hope Credit and to expand the education tax credit to lower and upper-income students. The AOTC is

a partially refundable tax credit that provides financial assistance to taxpayers (or their children) with qualified educational

expenses who are pursuing a higher education. Like other education tax credits, the AOTC was enacted with the goal of

making higher education more affordable. 

1 Congressional Research Report, The Earned Income Tax Credit (EITC): A Brief Legislative History, March 20, 2018.

2 Congressional Research Report, The American Opportunity Tax Credit: Overview, Analysis, and Policy Options, Updated June 4, 2018.
156 DEPARTMENT OF THE TREASURY

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Additional Child Tax Credit

Congress enacted the CTC to help ease the financial burdens for families with children as part of P.L. 105-34, the Taxpayer

Relief Act of 1997. If the CTC exceeds the tax liability, taxpayers may receive some or all of the credit as a refund, known as

the Additional Child Tax Credit. Various legislative changes over the past 20 years have made significant changes to the

CTC, which have expanded it from a generally nonrefundable credit available only to the middle and upper-middle class, to a 

partially refundable credit that more low-income families are eligible to claim. Notably, the Tax Cuts and Jobs Act of 2017

(P.L. 115-97) doubled the CTC, increased the amount that could be claimed as a refund, and allowed it to include more

upper-middle class families.

Relationship of Tax Compliance Estimation to Improper Payments

The Improper Payments Elimination and Recovery Act of 2010 (IPERA) requires certain reporting for payment programs

determined to be susceptible to significant improper payments. The focus of IPERA, as amended, as well as related guidance

issued by the Office of Management and Budget (OMB), is on implementing internal controls to prevent and detect improper

payments. IPERA does not take into consideration all aspects of administering tax provisions in a system that relies heavily

on voluntary reporting. In keeping with IPERA requirements, the IRS reports risk assessments for refundable tax credits,

as well as improper payment estimates for the EITC, AOTC, and ACTC (refer to Part 3, Section E: Payment Integrity, of this

report).

The IRS has followed this practice largely because refundable tax credits may result in a payment to the taxpayer in excess

of tax liability. However, the distinction between the portion of a credit that offsets tax liability and the portion that is

refundable is governed by multiple variables, including other return elements and information provided by the taxpayer,

some of which are unrelated to the refundable tax credit in question. 

The same features of the tax system and taxpayer behaviors that create the compliance problems with refundable tax credits

also create the risk of noncompliance with other tax provisions. Several credits passed into law by Congress to promote

social and economic objectives (e.g., assisting particular groups of individuals or businesses) have eligibility rules that are

often complex and lead to high overclaim rates.

Tax refunds, which constitute a transfer of cash from the federal government to a taxpayer, are an integral part of the tax

system as a whole. The IRS tax gap estimation measures compliance with the current tax system and always includes

noncompliance with refundable and non-refundable tax credits. Whether a tax credit results in a refund instead of a 

reduction in tax liability depends on all of the taxpayers' characteristics, such as income, deductions, and other credits

claimed, and is not simply driven by the credit itself.

The IRS’s risk assessments on refundable tax credits have consistently concluded that improper payments are not rooted in

internal control deficiencies, but instead are due to the complexities of verifying eligibility, including unavailability of

relevant third-party data, for refundable tax credits within the time periods prescribed by the tax system. Therefore, as

explained further in Part 3, Section E, it is Treasury’s position that refundable tax credit overclaims resulting in payment

errors should not be reported under the improper payments framework. Rather, errors in taxpayer claims for credits are

more appropriately included in analyses of tax compliance.

Refundable Tax Credits and the Challenges of Compliance

Refundable tax credits generally have different eligibility rules, often relating to personal family and living arrangements,

which determine eligibility. Complexity in the form of differing rules is a contributor to tax credit errors. Additionally, these

credits are difficult for the IRS to verify due to the lack of available, relevant third-party data. 
DEPARTMENT OF THE TREASURY 157

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Eligibility rules for refundable tax credits contribute to the compliance burden for taxpayers and administrative costs for the

IRS. These rules differ by credit and are often complex because they must address complicated family relationships and

residency arrangements to determine eligibility. The relatively high overclaim error rates for these credits are a result, in

part, of this complexity. The lack of third-party data to verify eligibility requirements for these refundable credits also

complicates the ability of the IRS to administer these credits. Such data may not exist, may be unreliable or inaccurate, or

may be reported to the IRS too late to be useful during tax return processing. The IRS also has limited authority to correct

mismatches at filing and must use audits to correct errors, which increases taxpayer burden. The IRS continually looks for 

complete and accurate data sources to verify eligibility for claimed refundable credits in order to reduce the burden on

compliant taxpayers.

Faced with the complexities of claiming certain refundable credits, many potential credit recipients seek help filing their tax

returns from paid preparers. Over 50 percent of taxpayers claiming refundable credits use paid preparers. Unenrolled

return preparers, who prepare a significant number of EITC returns, are not subject to the same level of training and

certification requirements as other tax professionals and have higher error rates for EITC returns than taxpayers who

prepare their own returns or who hire enrolled return preparers. 

The IRS has a responsibility to detect and address errors and misreporting on tax returns, including those claiming the

refundable credits. Filters and other detection tools are frequently being enhanced to improve the accuracy of the tax return

and reduce taxpayer burden, but in some instances, enforcement activities must take place. The IRS rejects millions of

electronically filed returns claiming refundable credits for a variety of reasons, such as missing forms, incorrect Social

Security Numbers (SSNs), or if another taxpayer has claimed the same child. Most taxpayers can correct their electronic

returns and successfully re-file with little burden. In some cases, a taxpayer must print and submit a paper return,

resulting in refund delays and possible audits with the associated costs. Despite the compliance burden and costs to the

government associated with these refundable tax credits, the burden to taxpayers may be lower than with other payment or

benefit programs. For example, tax credit recipients can self-certify eligibility; they do not need to meet with caseworkers,

nor submit upfront documentation as is required with some direct service anti-poverty programs, such as Supplemental

Security Income or Temporary Assistance for Needy Families. 

The IRS may initiate a correspondence audit if it identifies, through its scoring and selection process, potential

noncompliance with eligibility requirements. Most refundable credit audits are conducted pre-refund, meaning the IRS

holds the credit refund until the taxpayer substantiates eligibility. The IRS sends a letter to the taxpayer requesting

documentation showing that the taxpayer meets credit eligibility requirements. In addition to the refund delay, taxpayers

face the burden of gathering and sending in the requested information. In FY 2019, the IRS conducted approximately

256,768 EITC exams, the majority through correspondence audits. 

Sustained annual budget reductions at the IRS have heightened the importance of determining how best to allocate finite,

declining resources to ensure the IRS can still meet agency-wide strategic goals of increasing taxpayer compliance, using

resources more efficiently, and minimizing taxpayer burden.

TAX BURDEN

The IRC creates the basis for a progressive tax system that applies higher rates of taxation to progressively higher levels of

income. For TY 2019, individual income tax rates ranged from 10.0 percent for the lowest income filers to 37.0 percent for 

the highest income brackets. The amount of taxable income can be adjusted through the application of exemptions and

deductions, which will influence the amount of taxes owed. In addition, many taxpayers qualify for one or more refundable

tax credits, which collectively have a significant impact on tax administration and federal tax revenues and refund

payments.
158 DEPARTMENT OF THE TREASURY

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The IRS measures tax liability by income level for individuals and by revenue and assets for corporations. Using these data,

it is possible to illustrate how tax liability rises with increases in Adjusted Gross Income (AGI) for individuals (Figures 1.1

and 1.2 and Table 1). Similar data for corporations shows the tax burden based on the percentage of taxable income (Figure

2 and Table 2). This information is the most recent data available for individuals (TY 2017) and corporations (TY 2016).
DEPARTMENT OF THE TREASURY 159

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INDIVIDUAL INCOME TAX LIABILITY

FIGURE 1.1: AVERAGE AGI REPORTED AND AVERAGE INDIVIDUAL INCOME TAX LIABILITY FOR TY 2017

FIGURE 1.2: INDIVIDUAL INCOME TAX LIABILITY AS A PERCENTAGE OF AGI FOR TY 2017

TABLE 1: INDIVIDUAL INCOME TAX DATA BY AGI FOR TY 2017

Average

Average AGI Income tax Income tax

Adjusted Gross Number of Total per return per return as a

Income taxable returns AGI income tax (in whole (in whole) percentage

(AGI) (in thousands) (in millions) (in millions) dollars) dollars) of AGI

Under $15,000 34,167 $ 19,440 $ 1,990 $ 569 $ 58 10.2% 

$15,000 under 

$30,000 29,474 652,767 18,925 22,147 642 2.9% 

$30,000 under 

$50,000 27,125 1,062,968 59,757 39,188 2,203 5.6% 

$50,000 under 

$100,000 34,467 2,457,203 218,619 71,291 6,343 8.9% 

$100,000 under 

$200,000 19,951 2,707,841 340,993 135,725 17,092 12.6% 

$200,000 under 

$500,000 6,215 1,770,816 339,963 284,926 54,700 19.2% 

$500,000 or more 1,505 2,338,866 625,034 1,554,064 415,305 26.7% 

Total 152,904 $ 11,009,901 $ 1,605,281 

$569 $22,147

$39,188 $71,291

$135,725 $284,926

$1,554,064

$58 $642 $2,203 $6,343 $17,092 $54,700

$415,305

Under $15,000 $15,000 to

under $30,000

$30,000 to

under $50,000

$50,000 to

under $100,000

$100,000 to

under $200,000

$200,000 to

under $500,000

$500,000

or more

Average AGI per return Average income tax per return

10.2%

2.9%

5.6%

8.9%

12.6%

19.2%

26.7%

Under $15,000 $15,000 to

under $30,000

$30,000 to

under $50,000

$50,000 to

under $100,000

$100,000 to

under $200,000

$200,000 to

under $500,000

$500,000

or more
160 DEPARTMENT OF THE TREASURY

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CORPORATION TAX LIABILITY

FIGURE 2: CORPORATION TAX LIABILITY AS A PERCENTAGE OF TAXABLE INCOME FOR TY 2016

TABLE 2: CORPORATION TAX DATA BY TOTAL ASSETS FOR TY 2016

Total Assets Income subject to tax Total income tax after credits Percentage of income tax 

(in thousands) (in millions) (in millions) after credits to taxable income

Zero Assets $ 32,008 $ 10,314 32.2% 

$1 under $500 7,032 1,337 19.0% 

$500 under $1,000 3,716 901 24.2% 

$1,000 under $5,000 13,109 3,879 29.6% 

$5,000 under $10,000 8,362 2,678 32.0% 

$10,000 under $25,000 13,270 4,309 32.5% 

$25,000 under $50,000 12,686 4,163 32.8% 

$50,000 under $100,000 14,401 4,630 32.2% 

$100,000 under $250,000 24,546 7,883 32.1% 

$250,000 under $500,000 26,100 7,715 29.6% 

$500,000 under $2,500,000 105,577 31,259 29.6% 

$2,500,000 or more 1,010,414 237,291 23.5% 

Total $ 1,271,221 $ 316,359 

32.2%

19.0%

24.2%

29.6%

32.0% 32.5% 32.8% 32.2% 32.1%

29.6% 29.6%

23.5%

Zero

Assets

$1

to under

$500

$500

to under

$1,000

$1,000

to under

$5,000

$5,000

to under

$10,000

$10,000

to under

$25,000

$25,000

to under

$50,000

$50,000

to under

$100,000

$100,000

to under

$250,000

$250,000

to under

$500,000

$500,000

to under

$2,500,000

$2,500,000

or more
DEPARTMENT OF THE TREASURY 161

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SECTION B: REDUCE THE FOOTPRINT

One of our key goals is the efficient and effective acquisition, utilization, management, and disposal of our real property

assets. The Assistant Secretary for Management (ASM) is responsible for ensuring that we develop and maintain

appropriate procedures, reviews, and reporting requirements in accordance with Treasury directives, and applicable OMB

(Office of Management and Budget) and General Services Administration (GSA) regulations that pertain to the acquisition,

utilization and disposal of real property.

The ASM is responsible for tracking our real property square footage footprint and developing the annual agency evaluation

of compliance for the implementation of the Reduce the Footprint Policy. To ensure the optimal utilization of our existing

space inventory, and to achieve real property cost saving and footprint reductions, we direct our components to pursue

consolidation or co-location opportunities into existing inventory before pursuing any new space acquisitions.

Additionally, we are taking other actions to reduce overall square footage and reduce the related costs associated with real

property, including:

• Better utilizing real property by undertaking space realignment;

• Encouraging responsible teleworking, hoteling, and workspace sharing; and

• Maximizing utilization through improved work station standards.

Our total square footage and related operation and maintenance costs associated with real property assets subject to the

Reduce the Footprint Policy (from the latest available reporting year of FY 2018 compared to the FY 2015 Reduce the

Footprint baseline, as assigned by GSA) are shown in the table below. We did not have excess domestic office or warehouse

assets, as reflected in the below table:

2015 

(in millions) (Baseline) 2018 Change

Square Footage 26.9 25.1 (1.8) 

Operation and Maintenance Costs $ 93.0 $ 96.3 $ 3.3 
162 DEPARTMENT OF THE TREASURY

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SECTION C: MANAGEMENT CHALLENGES AND TREASURY RESPONSE

In accordance with the Reports Consolidation Act of 2000, the Inspectors General are required to identify specific

management and performance challenges facing the Department. At the end of each fiscal year, the Treasury Office of

Inspector General (OIG) and Treasury Inspector General for Tax Administration (TIGTA) send an update of these

management challenges to the Secretary of the Treasury (hereafter referred to as “Secretary”) and cite any new challenges

for the upcoming fiscal year. The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) identifies

their management or performance challenges for the Office of Financial Stability (OFS) separately in their quarterly report

to Congress. This section contains the OIG and TIGTA identified management and performance challenges and

management’s response.
DEPARTMENT OF THE TREASURY 163

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OFFICE OF

INSPECTOR GENERAL

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

TREASURY INSPECTOR GENERAL MANAGEMENT CHALLENGES

October 15, 2019 

INFORMATION MEMORANDUM FOR SECRETARY MNUCHIN

FROM: Richard K. Delmar /s/

Acting Inspector General

SUBJECT: Management and Performance Challenges Facing the 

Department of the Treasury (OIG-CA-20-005) 

In accordance with the Reports Consolidation Act of 2000, we are providing you with our perspective on 

the most serious management and performance challenges facing the Department of the Treasury

(hereinafter Treasury or the Department). In this year’s memorandum, my office is reporting five challenges

of which one is new and four are repeated and updated from last year.

• Operating in an Uncertain Environment (Repeat)

• Cyber Threats (Repeat)

• Anti-Money Laundering/ Terrorist Financing and Bank Secrecy Act Enforcement (Repeat)

• Efforts to Promote Spending Transparency and to Prevent and Detect Improper Payments (Repeat)

• Information Technology Acquisition and Project Management (New)

We identified challenges based on the threat they pose to Treasury’s mission and stakeholders’ interests.

That said, we acknowledge the Department’s accomplishments and efforts over the past year to address the 

most critical matters as noted within each challenge discussed. In addition to the above challenges, we are

reporting our elevated concerns about the following matters: (1) the coin redemption program at the United

States Mint (Mint) and (2) managerial cost accounting. 

2020 Management and Performance Challenges

Challenge 1: Operating in an Uncertain Environment (Repeat)

As reported in the prior year’s memorandum, we remain mindful of external factors and future uncertainties

that affect the Department’s programs and operations. Among the most notable was the 35-day partial

Federal government shutdown from December 22, 2018 through January 25, 2019 that affected all of

government including Treasury. Like other components of Treasury subject to a lapse in appropriation, the 

Bureau of the Fiscal Service (Fiscal Service) developed its 2019 Lapse Plan as directed by the Office of 

Management and Budget (OMB). According to Fiscal Service officials, its 2019 Lapse Plan was based on 

assumptions that the shutdown would be of a short duration consistent with OMB’s guidelines. 

Assumptions included a shutdown that would (1) last one week at most including weekend operations 

because 7 of the last 10 shutdowns were 5 days or less; and (2) be a full operational shutdown and not a 

partial one. Fiscal Service’s 2019 Lapse Plan did not contemplate a shutdown of the nature and duration as

that of the fiscal year 2019 shutdown. Given the central role that Fiscal Service serves in providing financial
164 DEPARTMENT OF THE TREASURY

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and administrative services government-wide and to the American public, management had to make

adjustments to meet the bureau’s obligations.

Fiscal Service only avoided impacts to its services through proactive and decisive management and the 

support of the Department. Since the fiscal year 2019 shutdown was partial, many Federal agencies required

ongoing support. According to Fiscal Service officials, this increased the workload for Fiscal Service’s

government-wide operations above those planned in the approved Lapse Plan and required modifications to

the plan during the appropriation lapse. Fiscal Service officials stated that they revised the 2019 Lapse Plan

to provide critical government-wide support services under different scenarios (e.g. short vs. long-term

shutdown, partial vs. full shutdown). 

Also reported in prior years, the Department continues to await discussions with OMB and Congress on the 

proposed changes included in OMB’s comprehensive “Government–wide Reform Plan and Reorganization 

Recommendations” (Government–wide Reform Plan) to reorganize the Executive Branch.1 In the plan, 

OMB made agency-specific recommendations that would merge functions with similar missions across

agencies. Specific to Treasury, OMB proposed the transfer of alcohol and tobacco responsibilities from the 

Bureau of Alcohol, Tobacco, Firearms and Explosives within the Department of Justice to the Alcohol and

Tobacco Tax and Trade Bureau (TTB) in order to leverage the expertise and resources of TTB. Other

potential impacts on Treasury include OMB’s recommendations to increase coordination between agencies

and avoid duplication of roles in the areas of small business programs, the housing finance market, and

financial literacy and education. Furthermore, the plan also includes a proposal to privatize the United

States Postal Service, which is estimated to be insolvent, yet continues to hold a $15 billion unfunded 

liability to the Treasury’s Federal Financing Bank. Although no decisions have been made, Treasury started

to prepare for the potential long-term restructuring of certain functions of offices/bureaus and expected

budget cuts.

Tackling OMB’s proposed reformations and other critical matters at hand could be more challenging as

Senate confirmed leadership positions and other key senior level positions within the Department remain

vacant. As of this writing, there are several vacant positions. Even though some positions in the nomination 

process have been confirmed, other key positions such as the Chief Financial Officer (vacant since July 

2013) and the Under Secretary for Domestic Finance (vacant since September 2014) remain unfilled. 

Although progress was made in filling other positions, it is important that any remaining vacancies and new

ones across Treasury be filled as quickly as possible to avoid potential skill gaps. This could pose risks to

Treasury meeting key program missions and impact succession planning. Human capital management

overall remains a high risk area as the lengthy security clearance process and backlog of background 

investigations cause significant delays onboarding highly-skilled individuals to fill critical positions across

Treasury. Due to substantial increases in appropriation and staffing levels, the two offices most impacted

are the Office of International Affairs, which is working to increase its staffing level from 22 to 65 

employees by the end of calendar year 2019 and to 90 employees by the end of calendar year 2020; and the 

Office of Terrorism and Financial Intelligence (TFI), which requested approximately 50 new positions for

fiscal year 2020. These positions could be difficult to fill if approved because of the expertise required for

these positions and length of time to process required security clearances.

Most recently, Treasury has had to manage the increasing demands placed on the Committee on Foreign

Investments in the United States2 (CFIUS), which is charged with reviewing transactions involving foreign

investments in the United States to determine national security risks. There is an anticipated increase in both 

volume and complexity of transactions. The Office of International Affairs carries out the Secretary’s role

1 OMB, Delivering Government Solutions in the 21st Century, Reform Plan and Reorganization Recommendations (June 2018) 2 CFIUS is an interagency committee comprised of the departments of Commerce, Defense, Energy, Homeland Security, Justice, State, Treasury and the Office of

the U.S. Trade Representative and the Office of Science and Technology.
DEPARTMENT OF THE TREASURY 165

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as Chair of CFIUS and coordinates the interagency review process. While the Foreign Investment Risk

Review Modernization Act of 20183 modernized the review process, it also expanded CFIUS’s jurisdiction

to address growing concerns over certain investment structures that were not within CFIUS’s jurisdiction

such as investments involving U.S. businesses in close proximity to U.S. military bases and investments 

with impacts to critical infrastructure and personally identifiable information (PII). Treasury estimated that

the number of transactions for review will increase from 200 to over 1,000 transactions per calendar year. It

will be a challenge onboarding personnel with the specialized skills to review complex investment 

structures as the security clearance process continues to be a contributing factor in recruiting highly skilled

personnel that require access to programs and information systems dealing with national security. As the 

office builds staff capacity, it plans to utilize contractor support. 

The lengthy security clearance process continues to hamper the recruitment of cybersecurity personnel 

government-wide. Our previous audits of select Treasury bureaus found that the cause for many of our 

findings related to information systems’ security measures involved a lack of resources and/or management

oversight, which echoed the Government Accountability Office’s (GAO) observations of agencies’

impairments. In its April 3, 2019 letter to the Department regarding its top open recommendations, GAO

included a recommendation from 2016 that emphasized the need for Treasury to address shortfalls in

information technology (IT) workforce planning. While GAO acknowledged that some progress was made,

Treasury had yet to develop an IT workforce plan that contained the key actions to address workforce skill

gaps. 4 The security clearance process is still a culprit in the recruiting process and remained on GAO’s 2019 

high-risk list.5

Effective June 24, 2019, the responsibility for conducting background investigations was transferred from

OPM’s National Background Investigations Bureau to the Department of Defense’s (DOD) Defense

Counterintelligence and Security Agency. Although the intent of this transfer was to develop a unified 

approach for the security clearance process, there is uncertainty as to whether the transfer will reduce the 

delays in the clearance process for Treasury. In an effort to reduce the wait time for onboarding new 

personnel to fill special- sensitive and critical-sensitive positions, the Department implemented an

investigative waiver request. If approved on a case by case basis, the Department may grant secret level

clearance with the conditions that the employee has access to information at the secret level only. 

Employment is also conditioned on the favorable completion of an investigation and issuance of an

approved clearance. While this may bring staff on faster, it will not address the delay in the clearance

process and meet the mission critical need to fill positions dealing with programs and materials of the 

highest sensitivity.

To further complicate matters, Treasury must also operate in the repeated cycle of budget and debt ceiling

stopgaps. Legislation was passed in February 2018 to suspend the statutory debt limit through March 1, 

2019.6 Because no long-term solution had been found, the U.S. debt limit was reinstated at $22 trillion on 

March 2, 2019. When the statutory debt limit was reinstated, Treasury immediately implemented

extraordinary measures to prevent the United States from defaulting on its obligations. Measures included 

(1) suspending State and Local Government Series securities sales, (2) declaring a “debt issuance

suspension period” which suspended additional investments in the Civil Service Retirement and Disability

Fund and Postal Retiree Health Benefits Fund, and (3) suspending investment in the Government Securities

Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan. In July 2019, Treasury

informed Congress that these extraordinary measures would be exhausted before September 2019. 

3 Public Law 115-232 (August 13, 2018). 4 GAO, Treasury Priority Recommendations (GAO-19-325SP; April 3, 2019), 5 GAO, High-Risk Series, Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas

(GAO-19-157SP: March 2019). 6 Public Law 115-123 (February 8, 2018).
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Consequently, legislation was passed to suspend the statutory debt limit through July 31, 2021.7 While the 

debt ceiling has been lifted, it is only temporary as Congress has yet to resolve unfinished business when it

comes to the Nation’s debt, and the long-term sustainability of the large programs. Although not included as

a top open recommendation in its April 2019 letter to the Department, GAO raised the same concerns to

Congress in its July 2015 report8 with the approach to managing the federal debt limit and its impact on 

Treasury’s borrowing costs and the need for alternative approaches. 

The impact of this challenge and the uncertainties require the Department to focus its resources on programs

that are in the highest need to citizens and/or where there is a unique federal role. It is essential that new

programs and reforms be managed and communicated effectively for achieving performance and

accountability.

Challenge 2: Cyber Threats (Repeat)

Cybersecurity remains a long-standing and serious challenge facing the Nation. A reliable critical

infrastructure, including information systems and networks, is vital to our national security and economic

stability. Cyber threats are a persistent concern as Treasury’s information systems are critical to the core

functions of government and the Nation’s financial infrastructure. As cyber threats continue to evolve and

become more sophisticated and subtle, they pose ongoing challenges for Treasury to fortify and safeguard

its internal systems and operations along with the financial sector it oversees. Attackers frequently exploit 

vulnerable networks or systems in a string of trusted connections to gain access to government systems.

Attempted cyber-attacks against Federal agencies, including Treasury, and financial institutions continue to

increase in frequency and severity, in addition to continuously evolving. Organized hacking groups leverage

published and unpublished vulnerabilities and vary their methods to make attacks hard to detect and even

harder to prevent. Criminal groups and nation-states are constantly seeking to steal information; commit

fraud; disrupt, degrade, or deny access to information systems; or infiltrate information systems and

maintain a presence to enable future actions. Through cyber information sharing, Federal agencies are better

prepared to thwart potential attacks to the cyber infrastructure of the Federal government and the financial

sector that it serves. Ensuring the nations’ cybersecurity continues to be reported as a government-wide

issue on GAO’s 2019 high-risk list.

As the tools used to perpetrate cyber-attacks become easier to use and more widespread, the less

technological knowledge and fewer resources that are needed to launch successful attacks of increasing

sophistication. Such attacks include distributed denial of service attacks, phishing or whaling attacks, 

fraudulent wire payments, malicious spam (malspam), ransomware, and compromise of supply chains. 

There has been growing concern with foreign adversaries creating and exploiting vulnerabilities in

information and communication technology and services. To secure the supply technology and services

chain, an Executive Order was issued on May 15, 2019 that bans the import, use, or sale of technology or 

services designed, developed, manufactured, or supplied from persons or companies that are owned or 

controlled by governments defined as hostile to the United States.9 There are risks that Treasury’s systems

and resources already in use, including critical infrastructure, contain components from sources that have 

yet to be designated as threats. Once a source is designated as such, repairs and/or upgrades of key system

components may no longer be available. Therefore, there is risk of disruption of critical operations. The

Department will need to monitor developments in this area closely and plan for the possibility that its

current supply chain may no longer be available in the near future. 

7 Public Law 116-37 (August 2, 2019). 8 GAO, Debt Limit: Market Response to Recent Impasses Underscores Need to Consider Alternative Approaches (GAO-15-476; July 9, 2015). 9 Executive Order on Securing the Information and Communications Technology and Services Supply Chain (May 15, 2019).
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In addition to Treasury’s own networks and systems, management must be cognizant of, and mitigate, the 

risks posed by attacks made against other agencies and Treasury contractors and subcontractors. Treasury

frequently enters into interconnection agreements with other Federal, State, and local agencies, and service

providers, to conduct its business. Treasury management must exercise due care when authorizing such

internetwork connections and verify that third parties comply with Federal policies and standards. 

Management is also challenged with ensuring that critical data and information maintained by third-party

cloud service providers are properly protected. Issues related to management of cloud systems have been

reported in four consecutive Federal Information Security Modernization Act of 2014 10 audits (fiscal years

2015, 2016, 2017, and 2018). 

Additionally, effective public-private coordination continues to be required to address the cyber threat

against the Nation’s critical infrastructure. In this regard, Treasury is looked upon to provide effective 

leadership to financial institutions in particular, and the financial sector in general, to strengthen awareness

and preparedness against cyber threats. The Office of Critical Infrastructure Protection and Compliance 

Policy coordinates Treasury’s efforts to enhance the security and resilience of the financial services sector

critical infrastructure and reduce operational risk including risks associated with cybersecurity. The

National Institute of Standards and Technology (NIST) updated its guidance to assist Federal agencies in

managing cybersecurity risks.11 In its 2018 report on adoption of the NIST framework by critical

infrastructure sectors, GAO reported that the extent of adoption was unknown since agencies were not 

measuring framework implementation. With respect to Treasury, GAO recommended that steps be taken to

consult with respective sector partners to develop methods for determining the level and type of adoption by

entities across the financial services sector. In its April 2019 letter regarding its top open recommendations, 

GAO noted that Treasury had begun discussion with NIST to identify and develop methods for determining 

the level and type of framework adoption; however the recommendation remained open. 

The Department reported steady progress over the past year to implement higher security settings for

websites, web services, and e-mail. The Department also reported that it completed the first phase of 

implementing the Federal government-wide Continuous Diagnostics and Mitigation program aimed at

providing agencies with the capabilities and tools needed to identify and prioritize cybersecurity risks on an

ongoing basis and mitigate the most significant risks first. While progress was reported, resource constraints

were noted. For example, the Department reported that evaluating and prioritizing remediation activities

related to cybersecurity assessments of High Value Assets 12 had funding constraints. In response to our prior 

year memorandum, the Department acknowledged that six of its High Value Assets reside at Fiscal Service

which is an inherent concentrated risk of cyber-attacks for Treasury. As discussed in challenge 1, we

reported in prior audits that the cause for many of our information systems’ findings involved a lack of 

resources and/or management oversight. 

As an ongoing challenge, Treasury will need to balance cybersecurity demands while modernizing and 

maintaining IT systems. To this end, Treasury must ensure that cyber security is fully integrated into to its

IT investment decisions as discussed in challenge 5. 

Challenge 3: Anti-Money Laundering/ Terrorist Financing and Bank Secrecy Act Enforcement

(Repeat)

10 Public Law 113-283 (December 18, 2014). 11 NIST, Framework for Improving Critical Infrastructure Cybersecurity (Version 1.0, February 12, 2014; superseded by Version 1.1; April 16, 2018). 12 High Value Assets are assets, information systems information, and data for which an unauthorized access, use, disclosure, disruption, modification, or

destruction could cause a significant impact to the U S.’ national security interests, foreign relations, economy, or to the public confidence, civil liberties, or public

health and safety.
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Over the past year, TFI has remained dedicated to countering the ability of the financial networks that 

support terrorists, organized transnational crime, weapons of mass destruction proliferators, and other

threats to international security through intelligence analysis, sanctions, and international private-sector

cooperation. As previously reported, identifying, disrupting, and dismantling the financial networks that

support rogue regimes, terrorist organizations, transnational criminal organizations, and other threats to the 

national security of the United States and our allies continues to be challenging as TFI’s role to counter

these financial networks and threats has grown because its economic authorities are key tools to carry out 

U.S. policy. In 2018, the Office of Foreign Assets Control (OFAC) designated approximately 1,500 persons 

to the list of Specially Designated Nationals and Blocked Persons (SDN)13 which is approximately

50 percent more than it has ever added to the list in any single year. Additionally, criminals and other bad

actors evolve and continue to develop more sophisticated money laundering methods in an attempt to avoid 

detection. As noted in challenge 1, TFI requested approximately 50 new positions for fiscal year 2020 to

address this growing demand. 

TFI’s authorities are key tools in implementing U.S. policy to pressure foreign countries and regimes, such

as North Korea, Russia, and Iran, and terrorist groups, such as the Islamic State of Iraq and Syria (ISIS)

through the use of designations and economic sanctions. TFI has significantly increased sanctions against

North Korea for missile testing and it serves a critical role in the U.S.’s maximum economic pressure

campaign. TFI also increased sanctions against Russia related to malign activities, such as interfering with

the 2016 U.S. election, and support of the Government of Syria. As a result of the U.S. decision to withdraw 

from the Joint Comprehensive Plan of Action (JCPOA),14 TFI re-imposed nuclear related primary and

secondary sanctions, subject to certain 90 and 180 day wind-down periods for activities involving Iran. TFI

continues to designate Iranian individuals and entities related to its ballistic missile program, terrorist

activities, and human rights violations. 

TFI’s counter-terrorism designations disrupt the financial networks that support terrorist organizations. 

Disrupting terrorist financing depends on a whole-of-government approach and requires collaboration and

coordination within Treasury and with other Federal agencies. Collaboration and coordination are key to

successfully identifying and disrupting all of these financial networks and meeting TFI’s mission. This

effort requires effective and efficient working relationships among components within TFI and the 

Intelligence Community. In an effort to effectively implement U.S. policy and disrupt these financial

networks, officials stated that TFI is moving towards a more collaborative approach to achieve its mission.

Effective coordination and collaboration and TFI’s ability to effectively gather and analyze intelligence

information requires a stable cadre of experienced staff. As of this writing, TFI management stated that 81 

of the 100 positions approved in fiscal year 2019 were filled. The office requested another 50 new positions 

for fiscal year 2020. The security clearance process has significantly impacted Treasury’s human capital

management as noted in our first challenge and is a systemic issue government-wide. If approved, the 

additional TFI positions may be difficult to fill because of the expertise needed and length of time to process

13 SDN list includes individuals and entities designated in connection with activity involving sanctioned countries. It also lists individuals, groups, and entities

such as terrorists and narcotics traffickers designated under sanctions programs that are not country-specific. Unless an exemption from regulation applies or

OFAC authorizes a transaction under a license, all transactions by U.S. persons, including U.S. depository institutions, or transactions in or involving the United

States are prohibited if they involve an individual or entity on the SDN list. U.S. persons must also block designated persons’ property and interests in property

within their possession or control. 14 In July 2015, an international coalition, comprised of China, France, Germany, Russia, the United Kingdom, and

the United States, reached the JCPOA to ensure that Iran’s nuclear program would be exclusively peaceful. The JCPOA provides a long-term, multiphase

commitment that deters Iran’s path to build a nuclear weapon and imposes rigorous inspections and transparency measures to verify that Iran cannot pursue a 

nuclear weapon. In May 2018, it was announced that the United States would cease participation in the JCPOA.
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required security clearances. As of this writing, it remains unknown if the transfer of background 

investigations from OPM to DOD’s Defense Counterintelligence and Security Agency will decrease

Treasury’s wait time for onboarding skilled personnel to fill special- sensitive and critical-sensitive

positions. 

Data security and information sharing are challenges for the Financial Crimes Enforcement Network

(FinCEN), which has experienced unauthorized disclosures of Bank Secrecy Act information. FinCEN is

required to maintain a highly secure database for financial institutions to report suspicious activity. FinCEN

has previously identified that the success of that system depends on the financial sector’s confidence that

those reports are adequately protected, but recent data breaches threaten to undermine that confidence.

FinCEN is also required to maintain a government-wide data access service to make information available

and useful to Federal, State, local, and foreign law enforcement agencies and appropriate regulators and to

support intelligence and counterintelligence activities and anti-money laundering initiatives. The challenge

for FinCEN is to ensure the Bank Secrecy Act data remains secure in order to maintain the confidence of 

the financial sector while meeting the access needs of law enforcement, regulatory, and intelligence

partners. 

Given the criticality of Treasury’s mission and its role to carry out U.S. policy, we continue to consider antimoney laundering and combating terrorist financing programs and operations as inherently high-risk.

Challenge 4: Efforts to Promote Spending Transparency and to Prevent and Detect Improper

Payments (Repeat)

Given the broad implications and critical roles assigned to Treasury by the Digital Accountability and

Transparency Act of 2014 (DATA Act), we consider this project a management challenge. Since last year’s

memorandum, the Department continued to align its systems and execute a comprehensive governance 

framework to meet the submission and certification requirements of the DATA Act. Treasury's DATA Act

Project Management Office continued to refine its processes to address Government-wide implementation

challenges through corrective actions to improve data quality for Federal spending transparency.

In its efforts to promote spending transparency and use of federal financial data in order to strengthen

government-wide decision-making, Treasury launched the Data Lab. The Data Lab is designed to increase

the public understanding of Federal spending using interactive data visualizations and analyses on 

USASpending.gov. Further, Treasury’s Office of the Deputy Chief Financial Officer, working together with

the Office of the Procurement Executive, developed and executed remediation efforts focused on training

and other related activities, including the development of a more comprehensive remediation plan. In May

2019, the Department released its Data Quality Plan which outlines the control environment for DATA Act

reporting, provides a framework for remediating data quality issues, and documents initial remediation

strategies and targeted timeframes for implementing such strategies to improve its reporting of Federal

spending and award data. 

Since 2014, we have engaged in a series of ongoing audits of Treasury’s efforts to meet its responsibilities

under the DATA Act. As of this writing, we are performing an audit focusing on the Department’s
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continued efforts to report financial and award data and address data quality concerns we identified in our 

November 2017 report.15

Within the next fiscal year, the Department must implement government-wide reforms for making data

accessible and useful for decision-making as authorized by the Foundations for Evidence-Based

Policymaking Act of 2018 16 (Evidence Act). Among several requirements, departments and agencies must 

submit annually to Congress and OMB, an evidence-building plan for identifying and addressing policy 

questions relevant to programs, policies, and regulations. In addition, agencies must develop a plan to

evaluate the activities pursuant to their evidence-based plans. Under Title II of the Evidence Act, also

known as the Open, Public, Electronic, and Necessary Government Data Act or the “OPEN Government

Data Act,” Federal agencies must develop a strategic information resources management plan that includes,

among other things, an open data plan that requires agencies to develop processes and procedures making 

data collection mechanisms created on or after enactment to be available in an open format. The strategic

information resources management plan and open data plan must be updated annually and made publicly 

available on agency websites. Federal agencies must also develop and maintain a data inventory to be 

included in the Federal Data Catalogue17 (www.Data.gov) developed and maintained by the General

Services Administration. 

The Evidence Act is a comprehensive government-wide undertaking with several moving parts to

implementation that requires Treasury to work closely with OMB. 

Detect Improper Payments

In light of the continuing government-wide problem with improper payments (estimated at $151 billion or 

3.7 percent of all program outlays for fiscal year 2018),18 the Federal Government intensified efforts to

reduce improper payments in major Federal programs. The Do Not Pay (DNP) Initiative and the Fiscal

Service’s DNP Business Center are chief components of efforts designed to prevent and detect improper 

payments to individuals and entities. 

The DNP Business Center provides two services to agencies: the DNP Portal and the DNP Data Analytics

Service. The DNP Portal is intended to provide users with a single entry point to search data sources such as

the Social Security Administration’s (SSA) publicly available Death Master File, the Department of Health

and Human Service Office of Inspector General’s List of Excluded Individuals/Entities, the General

Services Administration’s System for Award Management, and Treasury’s Debt Check Database. However,

as we reported in November 2014, the effectiveness of the DNP Business Center as a tool to prevent and

detect improper payments is hindered because the center does not have access to, among other things,

SSA’s full death data.19 Since our May 2016 report, that challenge continues to exist in obtaining better

15 OIG, Treasury Continues to Make Progress in Meeting DATA Act Reporting Requirements, But Data Quality Concerns Remain (OIG-18-010R; November 8,

2017).

16 Public Law 115-435; (January 14, 2019). 17 A single public interface on-line as a point of entry for sharing data assets with the public. 18 GAO, The Nation’s Fiscal Health: Action Is Needed to Address the Federal Government's Fiscal Future

(GAO-19-314SP; April 10, 2019); percentage based on total Government outlays of 4.1 billion (https://www.fiscal.treasury.gov/files/reportsstatements/mts/mts0918.pdf). 19 OIG, Fiscal Service Successfully Established the Do Not Pay Business Center But Challenges Remain

(OIG-15-006; November 6, 2014).
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death information.20 In October 2016, GAO reported that restrictions on the center’s access to SSA’s full

death data remained in place.21 

In response to the Federal Improper Payments Coordination Act of 2015,

22 Fiscal Service entered into

agreements with DOD and the Department of State in 2016 to incorporate death data collected by these

agencies into the DNP Business Center Working System, which began receiving data in September 2017. In

November 2017, OMB designated six additional databases for inclusion in the DNP Business Center

Working System to help agencies address a broader range of improper payments beyond what can be

detected through DNP Business Center's previously existing data sources.23 There have been legislative

proposals in January 2017, February 2017, February 2018, and May 2019 to obtain authorization to use both 

the SSA's full death file as well as the National Directory of New Hires. 24

The DNP Data Analytics Service supports agencies’ efforts to identify and prevent improper payments by

identifying trends and patterns in agency payment and other information that may be indicative of improper 

payments. The results of these analyses are provided to agencies at no cost for further study so they can

prevent future improper payments. We have an audit in progress to assess the services provided to agencies

by the DNP Data Analytics Service. 

With its potential to reduce improper payments, the DNP Business Center is a major and important 

undertaking by Treasury. As part of our ongoing audit work in this area, we will continue to monitor the 

steps taken by Fiscal Service to improve the effectiveness of the DNP Business Center. 

Challenge 5: Information Technology Acquisition and Project Management (New) 

The Federal Information Technology Acquisition Reform Act (FITARA), enacted in December 2014, was

the first major overhaul of Federal IT management since the passage of the Clinger-Cohen Act of 1996 25

which was designed to improve the Federal Government’s acquisition and management of its resources to

include IT investment. Among other things, it expanded the involvement of Chief Information Officers

(CIO) of Federal agencies in IT decision making, including annual and multi-year planning, programming, 

budgeting, execution, reporting, management, governance, and oversight functions.26 FITARA was

intended to improve how Federal agencies acquire and manage IT, as well as, enable Congress to monitor 

progress and hold Federal agencies accountable for reducing duplication and achieving cost savings.

FITARA includes specific requirements related to seven areas: (1) the Federal data center consolidation 

initiative, (2) enhanced transparency and improved risk management, (3) agency CIO authority 

enhancements, (4) portfolio review, (5) expansion of training and use of IT acquisition cadres,

20 OIG, Fiscal Service Faces Challenges in Obtaining Better Death Information for the Do Not Pay Business

Center, but Alternatives Exist (OIG-16-042; May 18, 2016) 21 GAO, Improper Payments, Strategy and Additional Actions Needed to Help Ensure Agencies Use the Do Not

Pay Working System as Intended (GAO-17-15; October 14, 2016). 22 Public Law 114-109 (December 18, 2015). 23 The following databases were added: (1) Treasury’s Office of Foreign Assets Control’s SDN list (OFAC List), (2) the General Services Administration’s

System for Award Management (SAM), (3) the Internal Revenue Service’s (IRS) Automatic Revocation of Exemption List, (4) the IRS’s Exempt Organizations

Select Check, (5) the IRS’s e-Postcard database, and (6) the commercial database American InfoSource (AIS) Deceased Data. 24 The National Directory of New Hires (NDNH) is a national database of wage and employment information operated by the Federal Office of Child Support

Enforcement (OCSE). OCSE uses the NDNH primarily to assist states administering programs that improve States’ abilities to locate parents, establish paternity,

and collect child support. The information in this database is only available to authorized persons or entities for authorized purposes. 25 Public Law 104-106 (February 10, 1996). 26 Public Law 113-291 (December 19, 2014).
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(6) government-wide software purchasing, and (7) maximizing the benefit of the Federal strategic sourcing 

initiative. 

While FITARA was intended for agencies to better manage their IT investments, implementation continues 

to be a government-wide challenge. Since February 2015, GAO has included the management of IT

acquisitions and operations on its high-risk list as cost overruns and schedule delays impact mission related

outcomes government-wide.27 In its March 2019 high risk report, GAO acknowledged that the executive

branch has undertaken numerous initiatives to better manage the more than $90 billion that is invested

annually in IT. However, GAO reported that more needed to be done to improve overall management of IT

acquisitions and operations and recommended that, in general, agencies needed to improve CIO’s

authorities, establish action plans to modernize and replace obsolete IT investment, and address weaknesses

in IT Dashboard28 reporting of IT investment risk and incremental development implementation. 29 For

example, none of the 24 major Federal agencies, including Treasury, had IT management policies that fully

addressed the role of their CIOs. Further, the majority of the agencies did not assess the CIO role in

assessing agency IT workforce needs, and developing strategies and plans for meeting those needs. 

The House Oversight and Reform Committee worked with GAO to develop a biannual scorecard to assess

Federal agencies’ efforts in implementing FITARA by assigning a grade from A to F based on self-reported

data at the agency level. Agencies are scored on areas of CIO authority enhancements, transparency and risk

management, portfolio review, data optimization, software licensing and modernizing government 

technology. Since the first scorecard was issued in November 2015 Treasury’s overall FITARA score has

wavered between a D- and C-. Areas needing most improvement were enhanced transparency and risk

management (i.e. IT investment risk) and improved cybersecurity. The FITARA Enhancement Act of 2017 30

extended the sunset date for full implementation of the data center optimization requirements of FITARA

from October 1, 2018 to October 1, 2020. As of the end of fiscal year 2018, Treasury met its data center

closure target, but did not achieve its other targets in the data center optimization initiative.

In fiscal year 2019, Treasury reported $1.8 billion in non-Internal Revenue Service (IRS) IT investment,

which is expected to increase in fiscal year 2020. Given this sizable investment, we are reporting the

Department’s IT acquisition and project management as a new management and performance challenge

distinct from challenge 2 that addresses cybersecurity concerns. 

A more recent initiative to manage and monitor IT investments includes the government-wide adoption of 

the Technology Business Management (TBM) framework as reported in the fiscal year 2018 President’s

Management Agenda: Modernizing Government for the 21st Century (March 20, 2018). The goal is to

improve outcomes through Federal IT spending transparency with the adoption of TBM government-wide

by fiscal year 2022. TBM is expected to improve IT spending data accountability and transparency,

empowering agency executive suite leadership from across the enterprise to drive mission value and

improve customer experience through technology. This initiative will be led by OMB with General Services

Administration’s Office of Government-Wide Policy team and with Executive Councils. 

 

27 GAO, High- Risk Series, An Update (GAO-15-290; February 11, 2015). 28 IT Dashboard was launched in June 2009 to provide agencies and the public the ability to view details of Federal IT investments and track progress over time. 29 GAO, High-Risk Series, Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas

(GAO-19-157SP: March 2019). 30 Public Law 115-88 (November 21, 2017).
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In fiscal year 2019, Treasury’s non-IRS bureaus reported 23 major IT projects. Treasury’s CIO assessed 20 

projects as having moderately low or low risk to accomplishing their goals. The remaining three IT projects,

which reside at Fiscal Service, were assessed as having medium risk31 to accomplishing their goals:

• Electronic Federal Tax Payment System (EFTPS),

• Post Payment Services (PPS), and

• Wholesale Securities Services (WSS).

Select projects within EFTPS and PPS were behind schedule and over budget, while WSS had select

projects that were behind schedule. Although projects identified with medium overall risk in cost and

scheduling require special attention from the highest level of agency management, they are not necessarily

at risk for failure. We plan to initiate an audit of these IT acquisitions. Overall, 80 percent of Treasury’s

total IT projects were on schedule and 56 percent were on budget. During fiscal year 2019, Treasury spent 

33 percent of its total IT spending on 41 major investments.

Non-IT related acquisitions also require attention to ensure timely delivery and minimize cost overruns for

achieving cost savings. The Program Management Improvement Accountability Act32 was intended to

improve program and project management practices across the Federal Government. Similar to IT projects,

other major acquisitions need to be monitored so that the project goals are met in a timely manner and costs

are not allowed to significantly exceed established budgets. In prior years, we have reported our ongoing 

concern over the Bureau of Engraving and Printing’s (BEP) outdated Washington D.C. facility with limited

capabilities to produce $100 notes and the need for a new facility to ensure continuity of operations at the 

bureau. With recent passage of the Agriculture Act of 2018, the Secretary of Agriculture will transfer to the 

Secretary of the Treasury administrative jurisdiction over a parcel of real property in Beltsville, Maryland,

for a new BEP facility. The Secretary of Agriculture entered into a binding memorandum of agreement with

the Secretary of the Treasury regarding the responsibilities, including financial responsibilities, of each

party for evaluating and, if necessary, remediating or otherwise addressing hazardous substances, pollutants,

or contaminants found at the parcel. BEP has requested $30 million in its FY 2020 budget to begin

preparation of the site for BEP’s new facility. This money is for BEP to provide to the General Services

Administration for surveys, environmental studies, transportation, and employment of construction and

management contractors. BEP will need to ensure it employs effective contract and project oversight for

preparation of the land, construction of the building, purchase of equipment and machinery, and

employment of a workforce to ensure continuity of operations at the bureau. We have included an audit of 

BEP’s management of this large construction project in our Annual Plan for Fiscal Year 2020. 

Other Matters of Concern

Although we are not reporting these as management and performance challenges, we are highlighting two

areas of concern: (1) coin redemption and (2) managerial cost accounting. 

Coin Redemption 

31 IT Dashboard, “the Agency CIO rates each investment based on his/her judgment using a set of pre-established criteria. As a rule the evaluation should reflect

the CIO’s assessment of risk and the investment’s ability to accomplish goals.” Evaluation ratings are based on five-point risk scale as follows: 5-low risk, 4=

moderately low risk, 3= medium risk, 2= moderately high risk, and 1=high risk. 32 Public Law 114-264 (December 14, 2016).
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On January 19, 2018, the Mint recommenced its mutilated coin redemption program, which was

suspended in 2016, with procedures to enhance the validation of the sources of these coins. However, as

of April 24, 2019, the Mint temporarily ceased processing applications and material submitted to its

mutilated coin redemption program pending the development of additional program safeguards to

mitigate risks identified in our current audit. The Mint’s internal control related to safeguarding and

ensuring the integrity of U.S. coinage is a concern. As of this writing, the Director of the Mint 

confirmed that plans are being implemented to address this concern. 

Managerial Cost Accounting

Managerial cost accounting is a fundamental part of a financial performance management system. It

involves the accumulation and analysis of financial and nonfinancial data, resulting in the allocation of 

costs to organizational pursuits, such as performance goals, programs, activities, and outputs. As of this

writing, we are auditing Departmental Offices’ (DO) Office of Budget and Travel’s (OBT) controls over 

its overhead 33 process and compliance with the Economy Act.

34 Early in our audit, we communicated

with OBT management our concerns related to internal control weaknesses identified within OBT’s

overhead process used to charge reimbursable customers. That is, OBT’s methodology to accumulate,

allocate, and charge overhead costs to reimbursable customers was not appropriate or consistently 

followed. Therefore, we expressed concern of a potential Economy Act violation in fiscal year 2015 by

OBT not recovering actual costs from reimbursable customers. Further, OBT potentially augmented its

fiscal year 2015 appropriation by recovering indirect costs in excess of actual costs from reimbursable 

customers. OBT followed the same overhead process for fiscal years 2015 through 2018, which was

recently changed in fiscal year 2019. Our office has an ongoing audit that is reviewing this new process.

We are available to discuss our views on the management and performance challenges and the other matters

expressed in this memorandum in more detail. 

cc: David Eisner

Assistant Secretary for Management

33 Overhead, also known as indirect costs, are items which are commonly recognized as elements of cost that may not have resulted in direct expenditures. It

covers the cost of administrative expenses associated with financial management, human resources, information technology, general counsel and other support

related to providing reimbursable services to customers. 34 Public Law 73-2 (March 20, 1933)
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TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION MANAGEMENT CHALLENGES

MEMORANDUM FOR SECRETARY MNUCHIN

FROM: J. Russell George

Inspector General

SUBJECT: Management and Performance Challenges Facing the Internal Revenue

Service for Fiscal Year 2020

The Reports Consolidation Act of 20001 requires that the Treasury Inspector General for Tax

Administration (TIGTA) summarize, for inclusion in the annual Department of the Treasury Agency

Financial Report, its perspective on the most serious management and performance challenges

confronting the Internal Revenue Service (IRS).

Each year, TIGTA evaluates IRS programs, operations, and management functions to identify the

areas of highest vulnerability to the Nation’s tax system. For Fiscal Year (FY) 2020, the IRS’s top

management and performance challenges, in order of priority, are:

1. Security Over Taxpayer Data and Protection of IRS Resources;

2. Implementing Tax Law Changes;

3. Addressing Emerging Threats to Tax Administration;

4. Supporting an Enhanced Taxpayer Experience;

5. Modernizing IRS Operations;

6. Improving Tax Reporting and Payment Compliance;

7. Reducing Fraudulent Claims and Improper Payments;

8. Impact of Global Economies;

9. Protecting Taxpayer Rights; and

10.Achieving Operational Efficiencies.

TIGTA’s assessment of the major IRS management challenge areas for FY 2020 is similar to the

prior fiscal year. Where we have made changes, it is to reflect the broader scope of certain

challenges. For example, last year’s challenge of “Identity Theft and Impersonation Fraud” was

changed to “Addressing Emerging Threats to Tax Administration” to more fully encompass the

issues that have wide-ranging implications for both the IRS and taxpayers.

1 31 U.S.C. § 3516(d) (2006).

INSPECTOR GENERAL

FOR TAX 

ADMINISTRATION

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20005

October 15, 2019
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Human capital remains a serious underlying issue that impacts all 10 of the Major Management

Challenges. Between Fiscal Years 2014 and 2018, the IRS budget increased slightly from $11.2

billion to $11.4 billion. However, cost increases over this time period have resulted in a significant

reduction in the number of full-time employees, with a corresponding impact on institutional

knowledge and technical expertise. TIGTA has reported how this trend of reduced staffing has

affected the IRS’s ability to deliver its priority program areas, including customer service and

enforcement activities. In FY 2020, it is likely that the IRS will continue to face these staffing

issues. 

The following information detailing these management and performance challenges is being

provided to promote economy, efficiency, and effectiveness in the IRS’s administration of the

Nation’s tax laws.

SECURITY OVER TAXPAYER DATA AND PROTECTION OF IRS RESOURCES

Taxpayers have the right to expect that information they provide to the IRS will not be disclosed 

unless authorized by law. To achieve its mission, the IRS has developed Internet-accessible, 

public-facing applications to interact with taxpayers for various tax administrative purposes. 

These applications collect, process, and store large amounts of Personally Identifiable Information

and tax data. Because this information is considered extremely valuable, the IRS is a target of

criminals and identity thieves. As such, the IRS must ensure that its applications are secure

against threats on the Internet.

Attacks against IRS online portals can have wide-ranging negative ramifications. This was clearly

demonstrated in recent years through high-profile attacks against the IRS eAuthentication web

portal and the IRS Data Retrieval Tool within the U.S. Department of Education Free Application

for Federal Student Aid website, which caused both applications to be taken offline. The absence

of these resources affected taxpayers’ ability to timely file annual tax returns and, in the case of

the latter application, negatively affected the spring college enrollment process nationwide.

TIGTA works continually with the IRS to identify, investigate, and combat threats to the IRS’s

cyberinfrastructure, both through internal threat vectors and through external manipulations and

attacks against online IRS applications. Of particular concern is how the IRS ensures that only

authorized taxpayers can access their information on these public-facing applications. Strong

electronic authentication controls are needed to prevent identity thieves from succeeding at

impersonating taxpayers and gaining improper access to tax records.

TIGTA reported that the IRS is making progress at improving electronic authentication controls on

its public-facing applications.2 However, the IRS’s 52 public-facing applications are not yet

compliant with the National Institute of Standards and Technology guidelines issued in June

2017,3 even though the Office of Management and Budget required compliance within one year of

publication. Without full compliance with the new guidelines, the IRS increases the risk of using

inappropriate authentication controls, which could allow unauthorized access and activities,

compromise taxpayer records, and cause revenue to be lost due to identity theft refund fraud.

The IRS must also ensure that contractors or other third parties adequately protect taxpayer data

to prevent its unauthorized disclosure. Administration of the U.S. tax system has become

increasingly reliant on the use of information returns provided by third parties. For example, the

IRS uses the data from information returns to ensure compliance with Federal tax withholding

2 TIGTA, Ref. No. 2019-20-017, Electronic Authentication Security Controls Have Improved, but Continued Progress Is Needed to Ensure the

Protection of Public-Facing Applications (Apr. 2019). 3 NIST SP 800-63-3, Digital Identity Guidelines (June 2017).
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requirements, to identify unreported income or overstated credits and deductions, and to identify

potentially fraudulent returns.

TIGTA found4 that processes and procedures to authenticate users of the Filing Information

Returns Electronically (FIRE) system5 do not comply with Federal Government information

security standards. For example, our review identified that the IRS currently does not perform any

type of identity proofing prior to providing users with access to the FIRE system. It is important

that the IRS has strong authentication controls to ensure the validity of each payer’s identity prior

to submission of information returns that are then used for return validation, compliance matching,

and fraud detection purposes.

TIGTA also reported significant vulnerabilities within the IRS Bring Your Own Device (BYOD)

program, which allows its employees to access work resources using their personal mobile

devices.6 For example, the risk of data leakage with personally owned iPhones® is increased

because iPhones enable the screen capture functionality. In addition, the BYOD servers also

contain critical and high-risk vulnerabilities. Of the 68 critical and high-risk vulnerabilities identified

in one month, 18 (26 percent) were classified as easily exploitable.

In addition to external threats, the IRS must ensure that its systems and data are protected

against internal threats. It is particularly troubling when IRS employees, who are entrusted with

the sensitive personal and financial information of taxpayers, misuse their positions to commit

identity theft and other fraud. This breach of trust negatively affects our Nation’s voluntary tax

system and erodes confidence in the IRS. TIGTA proactively reviews the activities of IRS

employees who access taxpayer accounts for any indication of unauthorized accesses that may

be part of a larger fraud scheme. 

In February 2019, an IRS employee was indicted for the unauthorized disclosure of Suspicious

Activity Reports (SARs), misuse of a Government computer, and misuse of a Social Security

Number in violation of the law. By virtue of his position, the IRS employee intentionally exceeded

authorized access to a computer, obtained information regarding SARs that was not necessary to

fulfill his official duties, and then knowingly disclosed the SARs. If convicted, the employee could

face a maximum of five years’ imprisonment for each violation.7

TIGTA also plays the key role of protecting IRS employees. Threats and assaults directed at IRS

employees, facilities, and infrastructure impede the effective and safe administration of the

Federal tax system and the IRS’s ability to collect tax revenue. In the last several years, threats

directed at the IRS have remained the second largest component of TIGTA’s Office of

Investigations work. Recent incidents involving taxpayers who threatened or assaulted IRS

employees underscore the dangers that these employees face each day.

IMPLEMENTING TAX LAW CHANGES

Implementation of tax law changes will continue to present challenges for the IRS. For example,

the Taxpayer First Act,8 enacted on July 1, 2019, requires the IRS to propose an organizational

redesign, with the goals of improving efficiency, modernizing systems and business processes

and finding ways to better serve taxpayers.

4 TIGTA, Ref. No. 2019-40-071, Strengthened Validation Controls Are Needed to Protect Against Unauthorized Filing and Input of Fraudulent

Information Returns (Sept. 2019). 5 The IRS developed the FIRE system to allow payers (e.g., corporations, partnerships, trusts, individuals, or government entities) to submit various

information returns electronically to the IRS. 6 TIGTA, Ref. No. 2019-20-046, The Bring Your Own Device Program’s Security Controls Need Improvement (Sept. 2019). 7 N.D. Cal. Crim. Compl. filed Feb. 4, 2019; N.D. Cal. Indict. filed Feb. 28, 2019. 8 Pub. L. No. 116-25.
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In addition, the Tax Cuts and Jobs Act of 20179 also made substantial changes to the tax code

that affect individuals, businesses, and tax-exempt organizations. TIGTA has continued to assess 

the IRS’s efforts to implement the provisions of this legislation. Specifically, TIGTA reported that

the IRS had to create 48 new tax products, revise 494 existing tax products, and perform

computer programming changes affecting 128 information technology systems, including

addressing changes in the location of data fields in its fraud detection systems.10 In addition, the

IRS developed an overarching communication outreach strategy that informs stakeholders of tax

law changes related to various tax provisions of the Tax Cuts and Jobs Act and also developed a 

hiring and training plan to support its customer service initiatives.

In addition to the Tax Cuts and Jobs Act, the IRS must administer other tax law provisions such as

those in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).11 The PATH Act

contains a number of provisions referred to as program integrity provisions intended to reduce

fraudulent and improper Earned Income Tax Credit (EITC), Child Tax Credit, Additional Child Tax

Credit (ACTC), and American Opportunity Tax Credit (AOTC) payments. Specifically, the PATH

Act modified the AOTC to require individuals claiming the credit to provide the Employer

Identification Number of the educational institution. In December 2018,12 TIGTA identified

approximately 234,000 tax returns with claims of $209 million in refundable AOTCs that did not

include an educational institution Employer Identification Number as required. 

ADDRESSING EMERGING THREATS TO TAX ADMINISTRATION

TIGTA has issued a number of reports over the years assessing the IRS’s efforts to detect and

prevent the filing of fraudulent individual and business tax returns by identity thieves. Identity theft

tax fraud occurs when an individual uses another person’s or business’ name and Taxpayer

Identification Number (TIN) to file a fraudulent tax return for the purpose of obtaining a tax refund. 

This type of fraudulent activity is constantly evolving and continues to have a significant impact on

tax administration. As such, the IRS must continually adapt its detection and prevention

processes to reject fraudulent electronically filed tax returns and prevent fraudulent paper tax

returns from posting. For the 2019 Filing Season, the IRS is using 193 identity theft filters to

identify potentially fraudulent individual tax returns and prevent the issuance of fraudulent tax

refunds. As of April 30, 2018, the IRS reported that it had identified 2.8 million tax returns with

refunds totaling $16.6 billion for additional review because of identity theft filters.

The IRS continues to work with the Security Summit13 to explore programs and processes to

improve the extent of sharing identity theft information in an effort to further improve the detection

and prevention of tax-related identity theft through the Identity Theft Tax Refund Fraud Information

Sharing and Analysis Center (ISAC).14 According to the April 2018 Identity Theft Tax Refund

Fraud ISAC Annual Report, participation in the ISAC has increased from 18 participating

organizations in Calendar Year 2017 to 60 participating organizations and more than 400

registered users in Calendar Year 2018. The Taxpayer First Act expanded the information the

ISAC can use to detect and prevent tax-related identity theft. This Act modified the IRS’s authority

to allow it to share information on identity theft tax returns the IRS identifies with the ISAC.

9 Pub. L. No. 115-97. 10 TIGTA, Ref. No. 2019-44-027, Tax Cuts and Jobs Act: Assessment of Implementation Efforts 

(Apr. 2019). 11 Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, 129 Stat. 2242 (2015). 12 TIGTA, Ref. No. 2019-40-013, Results of the 2018 Filing Season (Dec. 2018). 13 Partnership between the IRS, State tax agencies, and the private-sector tax industry to form a united and coordinated front against identity theft

tax refund fraud. 14 TIGTA, Ref. No. 2019-40-012, Partnership With State and Industry Leaders Is a Key Focus in Further Reducing Tax-Related Identity Theft (Dec.

2018).
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In addition, the IRS developed additional filters in response to TIGTA recommendations to

improve the detection of fraudulent tax returns that use Schedule C, Profit or Loss From Business

(Sole Proprietorship), income and foreign addresses. However, because of programming errors

and the use of a dollar tolerance, TIGTA reported that 28,092 potentially fraudulent tax returns

with refunds totaling more than $4.4 million were not identified.

In addition to identity theft, telephone calls from criminals impersonating IRS agents also land

near the top of the IRS’s “Dirty Dozen”15 tax scams and remain an ongoing threat to taxpayers as

con artists threaten taxpayers with arrest, deportation, and license revocation if the victim does

not pay a bogus tax bill. Since the fall of 2013, a significant amount of TIGTA’s Office of

Investigations workload has consisted of investigating these scams in which more than

2.5 million intended victims have received unsolicited telephone calls from individuals falsely

claiming to be IRS or Department of the Treasury employees. To date, more than 15,700 victims

reported that they have paid approximately $79 million to these criminals. The number of

complaints TIGTA has received about this scam has cemented its status as the largest, most

pervasive impersonation scam in the history of the IRS.

SUPPORTING AN ENHANCED TAXPAYER EXPERIENCE

The President’s Management Agenda outlines a goal of improving customer experience with

Federal services. Improving the experience citizens and businesses have with Federal services, 

whether online, in-person, or via telephone, will increase trust in the Federal Government. 

Providing taxpayers with quality customer service is a key component in the IRS’s mission. 

Resolving questions before tax returns are filed helps taxpayers avoid unintentional errors and

noncompliance and also reduces the burden on both taxpayers and the IRS that results from the

issuance of notices and correspondence. Successfully addressing and resolving taxpayer

inquiries through a quality customer service process allows the IRS to direct its limited resources

more efficiently.

Taxpayers have multiple options to choose from when they need assistance from the IRS. These

include toll-free telephone lines, face-to-face assistance at Taxpayer Assistance Centers or

Volunteer Program sites, and self-assistance using IRS.gov and other social media channels

(e.g., Twitter, Facebook, YouTube). To address declining budgets, the IRS continues to increase 

its dependence on technology-based services and external partners in an effort to direct

taxpayers to the most cost-effective method to provide the needed service. The IRS notes that

this approach allows it to focus limited telephone and walk-in resources on customer issues that

can be best resolved with person-to-person interaction.

The IRS provides taxpayers with face-to-face tax assistance throughout the Nation at 359

Taxpayer Assistance Centers, 38 Virtual Service Delivery sites, and five Social Security

Administration offices, as of December 31, 2018. The IRS should place these sites in optimal

locations to service taxpayers who are likely to seek face-to-face assistance. However, TIGTA

reported that the IRS did not use its data-driven Geographic Coverage Model to expand face-toface assistance to new locations. TIGTA’s analysis of this model identified 28 underserved areas

with a high number of taxpayers who are likely to seek face-to-face assistance.16 These

taxpayers have low income or received an IRS letter or notice and live more than 30 miles from a 

Taxpayer Assistance Center.

15 Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter. 16 TIGTA, Ref. No. 2019-40-029, The Internal Revenue Service Did Not Follow Congressional Directives Before Closing Taxpayer Assistance

Centers; a Data-Driven Model Should Be Used to Optimize Locations (May 2019).
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In addition, the IRS did not comply with the congressional directives accompanying the

Consolidated Appropriations Act of 201817 prior to closing Taxpayer Assistance Centers in

Calendar Year 2018. For example, the IRS did not timely provide a report to congressional

committees on the steps being taken to prevent Taxpayer Assistance Center closures. In

addition, the IRS did not conduct a study on the taxpayer impact of closing four Taxpayer

Assistance Centers that the IRS closed after Congress passed the Consolidated Appropriations

Act of 2018.

Each year, millions of taxpayers call the IRS toll-free telephone assistance lines seeking help to

understand the tax laws and meet their tax obligations. However, TIGTA reported that the IRS’s

telephone performance measures do not reflect overall call demand or performance for IRS

telephone assistance.18 The Level of Service19 as calculated by the IRS does not account for total

taxpayer demand, the cost of providing telephone service, the time it takes taxpayers to talk to an

assistor, or the level of resources the IRS is able to devote to telephone service. Further, TIGTA

identified that, in some instances, IRS management does not clearly disclose in congressional

testimony and in reports to external stakeholders that the Level of Service only includes the 30

Accounts Management function’s telephone lines. For FY 2018, the IRS had 110 toll-free

telephone lines but calculated the Level of Service based on taxpayer contacts on only its

Accounts Management function’s 30 (27 percent) telephone lines.

MODERNIZING IRS OPERATIONS

In April 2019, the IRS issued its Integrated Modernization Business Plan, which is a 

six-year road map to improve the taxpayer experience by modernizing core tax administration

systems, IRS operations, and cybersecurity. Successful modernization of systems and the

development and implementation of new information technology applications are critical to

meeting the IRS’s evolving business needs and enhancing services provided to taxpayers. The

IRS’s reliance on legacy (i.e., older) systems and aged hardware and software, and its use of

outdated programming languages, pose significant risks to the IRS’s ability to deliver its mission. 

Modernizing the IRS’s computer systems has been a persistent challenge for many years and will

likely remain a challenge for the foreseeable future.

The IRS’s Information Technology (IT) organization provides and maintains the information

technology products and services needed by the IRS to meet its mission to deliver tax

administration. TIGTA evaluated the effectiveness of IRS efforts to prioritize computer

programming requests to support effective tax administration and identified areas for

improvement.20 Specifically, the allocation of information technology resources is primarily set by

the IT organization with minimal involvement from the IRS’s business operating divisions. The

operating divisions are concerned that their lack of participation limits their input when establishing

agency priorities for determining how to allocate IT organization resources. 

In addition, due to insufficient IT resources, projects are not started that would reduce taxpayer

burden, protect revenue, and save significant IRS resources. For example, there were 82

programming requests denied in Calendar Year 2016. IRS executives informed us that this had

negative impacts on tax administration, such as the potential for billions of dollars in lost revenue,

17 Consolidated Appropriations Act, 2018, Pub. L. No. 115-141, 132 Stat. 348. 18 TIGTA, Ref. No. 2019-40-041, Telephone Performance Measures Do Not Provide an Accurate Assessment of Service to Taxpayers (June 2019). 19 The Level of Service measure represents the relative success rate of taxpayers who call the IRS’s telephone lines seeking assistance from a 

customer service representative. 20 TIGTA, Ref. No. 2019-40-043, Unmet Needs for Information Technology Support Result in Inefficiencies and Higher Tax Administration Costs

(July 2019).
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taxpayers not receiving proper credits, and the IRS having to pay a large amount of interest due to

withholding that was not credited to taxpayer accounts. 

IMPROVING TAX REPORTING AND PAYMENT COMPLIANCE

One of the IRS’s key responsibilities is to ensure that taxpayers comply with the tax law. As such, 

the IRS should ensure that taxpayers understand their filing requirements so that the rate of

voluntary compliance does not decline.

As required by the 2015 Fixing America’s Surface Transportation Act,21 the IRS implemented the

Private Debt Collection (PDC) program to begin using private collection agencies (PCA) to collect

inactive tax receivables that the IRS previously could not collect. The Joint Committee on

Taxation estimated that the current PDC program would yield approximately $2.4 billion in

additional revenue through FY 2025. As of September 2018, the IRS had assigned more than

700,000 taxpayer accounts to private collectors. The PCAs collected approximately $88.8 million

(2 percent) from the balance owed on these accounts. They also established more than

21,000 payment arrangements, but taxpayers later failed to make payments on more than half of

them.22 Both the IRS and the PCAs monitor performance using various attributes such as

procedural accuracy and professionalism. All of the PCAs performed well under these attributes. 

However, the performance attributes focus almost entirely on the PCAs’ telephone conversations

with the taxpayers and do not measure other important aspects of case management, such as

returning cases to the IRS when required and the accuracy of payment arrangements. TIGTA

also reported that PCA payment calculators do not calculate interest and penalties accurately.23

Another area of concern is collecting the tax owed by self-employed individuals. Studies based

on IRS National Research Program data have found that sole proprietors underreported their net

income by 64 percent (based on the average for Tax Years (TY) 2008 through 2010), which is up

from 57 percent in the TY 2001 estimate. With the growth of online platform companies in recent

years, which allow people easy and convenient ways to obtain needed services and others to

work as self-employed individuals providing those services (also known as the “gig economy”), it

is likely that self-employment tax underreporting will continue to be a growing problem if not

addressed. The gig economy is comprised of online platform companies such as Uber, Lyft, Etsy,

Handy, and TaskRabbit.

TIGTA recently reported that billions of dollars in potential tax discrepancies involving taxpayers

who earn income in the gig economy are not worked by the IRS.24 Many cases were not selected

to be worked by IRS programming due to the large volume of discrepancies that were identified. 

In addition, IRS employees removed thousands of cases from inventory without justification or

with justification that was inaccurate. Further, Treasury Regulations do not require certain gig

economy businesses to issue Form 1099-K, Payment Card and Third Party Network

Transactions, unless workers earn at least $20,000 and engage in at least 200 transactions

annually. Consequently, many taxpayers who earn income in the gig economy do not receive a 

Form 1099-K; therefore, their income is not reported to the IRS. When income is not reported to

the IRS, taxpayers are more likely to be noncompliant.

TIGTA also reported that billions of dollars in non-payroll tax withholding discrepancies are not

being addressed.25 A business entity (payer), such as a bank or financial institution, is often

21 Pub. L. No. 114-94. 22 TIGTA, Ref. No. 2019-30-018, Fiscal Year 2019 Biannual Independent Assessment of Private Collection Agency Performance (Dec. 2018). 23 Ibid. 24 TIGTA, Ref. No. 2019-30-016, Expansion of the Gig Economy Warrants Focus on Improving 

Self-Employment Tax Compliance (Feb. 2019). 25 TIGTA, Ref. No. 2019-40-028, Billions of Dollars in Non-Payroll Tax Withholding Discrepancies Are Not Being Addressed (May 2019).
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required to withhold backup withholding or Federal income tax when making payments involving

non-payroll compensation to recipients. The payer of these reportable transactions is required to

provide income and withholding documents to the IRS and recipients. Payers report total backup 

and Federal income tax withheld during the tax year on Form 945, Annual Return of Withheld

Federal Income Tax.

However, TIGTA’s analysis identified instances in which payers did not report backup and Federal

income tax withholding amounts on Form 945 or reported a lesser amount on Form 945 than

reported on the Forms 1099 or Forms W-2G, Certain Gambling Winnings, issued to recipients. 

For example, TIGTA identified 7,265 payers that provided to the IRS TY 2016 Forms 1099 or W2G reporting almost $923 million in withholding but did not file the required TY 2016 Form 945. 

TIGTA also identified 3,163 payers that reported on Form 945 approximately $760 million less in

withholdings than what they reported on associated Forms 1099 and W-2G.

The IRS also needs to improve its processes to address the discrepancies between alimony

deductions claimed and income reported. An alimony income reporting discrepancy occurs when

individuals claim deductions for alimony that they did not pay or individuals do not report alimony

income they received. Apart from examining a small number of tax returns, TIGTA reported in

August 2019 that the IRS still has not developed processes and procedures to address the

substantial compliance gap that results from alimony income reporting discrepancies.26 TIGTA

analyzed TY 2016 tax returns with an alimony deduction processed as of February 8, 2018, and

found that the amount associated with alimony income reporting discrepancies increased 38

percent from $2.3 billion in TY 2010 when we first reported27 this concern to more than $3.2 billion

in TY 2016. Based on TIGTA’s analysis, alimony reporting discrepancies could result in more

than $1.1 billion in unreported tax over the next five years. 

REDUCING FRAUDULENT CLAIMS AND IMPROPER PAYMENTS

The Office of Management and Budget describes an improper payment as any payment that

should not have been made, was made in an incorrect amount, or was made to an ineligible

recipient. Improper payment legislation28 required Federal agencies, including the IRS, to

estimate the amount of their improper payments and report to Congress annually on the causes of

and the steps taken to reduce such improper payments. The EITC has been identified as a highrisk program, and as such, the IRS must include the rate and amount of improper payments in the

Department of the Treasury’s annual Agency Financial Report. The IRS estimates that

approximately 25 percent ($18.4 billion) of EITC payments were issued improperly in FY 2018. 

While refundable credits such as the EITC, ACTC, and AOTC provide benefits to individuals, the

unintended consequence of these credits is that they can be the targets of unscrupulous

individuals who file erroneous claims. Refundable credits can result in tax refunds when no

income tax is paid or withheld because these credits are allowed even if they exceed the amount

of the individual’s tax liability. Consequently, they pose a significant risk as an avenue for those

seeking to defraud the Government. Congress passed the PATH Act with a number of integrity

provisions intended to reduce improper refundable credit claims. These provisions are projected

to save approximately $7 billion over 10 years by reducing fraud, abuse, and improper payments

in refundable tax credit programs.

26 TIGTA, Ref. No. 2019-40-048, Additional Actions Are Needed to Reduce Alimony Reporting Discrepancies on Income Tax Returns (Aug. 2019). 27 TIGTA Ref. No. 2014-40-022, Significant Discrepancies Exist Between Alimony Deductions Claimed by Payers and Income Reported by

Recipients (March 2014). 28 Improper Payment Information Act of 2002 (Pub. L. No. 107-300, 116 Stat. 2350), Improper Payment Elimination and Recovery Act of 2010

(Pub. L. No. 111-204, 124 Stat. 2224), and Improper Payments Elimination and Recovery Improvement Act of 2012 (Pub. L. No. 112-248, 126 Stat.

2390).
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TIGTA believes that the IRS is significantly understating its estimate of improper payments

associated with refundable tax credits in its reports to the Office of Management and Budget and

Congress. TIGTA reported29 that the IRS continues to incorrectly rate the improper payment risk

associated with the ACTC, the AOTC, and the Premium Tax Credit (PTC). As a result, the

incorrect rating allows the IRS to continue to avoid the reporting of required information for these

programs to the Department of the Treasury for inclusion in the Agency Financial Report. The

IRS estimates that nearly 33 percent ($8.7 billion) of ACTC payments made during TYs 2009

through 2011 were likely improper and that over 31 percent ($5.3 billion) of AOTC payments

made during TY 2012 were likely improper.

In addition, the IRS’s own analysis of its compliance data indicates that the estimated error rate

for Net PTC payments was 41 percent ($440 million). This analysis confirmed that Net PTC

improper payments, as defined by the Office of Management and Budget, would likely exceed the

improper payment reporting thresholds used for classification as a high risk. 

IMPACT OF GLOBAL ECONOMIES

Complexity and change in the international tax environment require that the IRS collaborate with

tax administrations of foreign countries to enforce compliance. The IRS must continue to focus

significant efforts on global tax cooperation and tax administration practices that can prevent and

resolve disputes among countries to increase certainty for taxpayers. As of February 2018, the

IRS has 43 active or pending reporting agreements with other countries to cooperate through a 

reciprocal approach to sharing information and enforcing international tax law.30 Virtual

currencies31 also continue to present a significant risk to tax administration, particularly since one

of the attractions to their use is the anonymity of transactions.

Among its many provisions, the Tax Cuts and Jobs Act provides for a tax (subject to special tax

rates) on U.S. shareholders of specified foreign corporations (and U.S. persons that own interests

through domestic pass-through entities that are U.S. shareholders of specified foreign

corporations) through a one-time deemed repatriation of foreign accumulated earnings set forth

under Section 965 of the Internal Revenue Code.

TIGTA reported that the retroactive components of Section 965 presented significant challenges

for the IRS in implementing the provision.32 The IRS made reasonable efforts informing external

stakeholders of Section 965 requirements and the process for filing a tax return reporting a 

Section 965 inclusion amount. However, in issuing guidance, the IRS initially did not specifically

address excess payments of the Section 965 portion of their income liability immediately due and

did not clearly inform taxpayers of the implications of making these excess remittances. This

resulted in at least 115 taxpayers making $2.8 billion in payments on their Section 965 liability that

they did not intend to make. 

To further address taxpayer noncompliance and audit selection, the IRS implemented a new

approach described as “campaigns.” The Form 1120-F, U.S. Income Tax Return of a Foreign

Corporation, Nonfiler Campaign was one of the first campaigns rolled out by the Large Business

and International Division. Form 1120-F nonfilers are foreign entities that are legally required to

29 TIGTA, Ref. No. 2019-40-039, Some Refundable Credits Are Still Not Classified and Reported Correctly as a High-Risk for Improper Payment by

the Internal Revenue Service (May 2019). 30 Internal Revenue Service Strategic Plan – FY 2018 – 2022, IRS Pub. 3744 (Rev. Apr. 2018). 31 Also known as cryptocurrency. 32 TIGTA, Ref. No. 2019-34-033, Implementation of the Tax Cuts and Jobs Act Deemed Repatriation Tax Presented Significant Challenges (May

2019).
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file but fail to do so. The IRS considers nonfiling an egregious problem because it contributes to

the Tax Gap and undermines tax compliance. 

However, TIGTA reported that the Form 1120-F campaign was initiated without establishing

evidence of a significant compliance risk pertaining to Form 1120-F nonfilers.33 Moreover, a 

coordinated strategy was not established to ensure that critical campaign case actions were

performed timely. Furthermore, the Large Business and International Division did not properly

plan for unresponsive taxpayers, and consequently, it was unable to follow up appropriately with

those that failed to respond. Overall, initial campaign case results show low examination referral

and proposed assessment rates. 

PROTECTING TAXPAYER RIGHTS

The IRS must balance tax compliance activities against the rights of taxpayers to receive fair and

equitable treatment. The IRS continues to dedicate significant resources and attention to

complying with the taxpayer rights provisions of the IRS Restructuring and Reform Act of 1998.34 

The IRS provides taxpayers with the Taxpayer Bill of Rights35 in many notices and in-person

interviews to inform taxpayers about their rights with respect to examinations, appeals, collections,

and refunds.

Over the years, TIGTA has audited certain taxpayer rights provisions and reported that, in

general, the IRS has improved its compliance with these statutory provisions and is documenting

its protection of taxpayer rights. However, during the review of the IRS’s process to notify

taxpayers of their rights when requesting an extension of the statute of limitations for assessing 

additional taxes and penalties, TIGTA found36 that some taxpayer audit files lacked documentation

to support that employees followed the IRS’s internal procedures for further explaining the

taxpayers’ rights to the taxpayers. In addition, TIGTA’s review found instances in which the audit

files lacked documentation to support that the IRS complied with procedures requiring the

notification of a taxpayer’s representative when an authorization for third-party representation

existed. 

During the review of the IRS Office of Appeals Collection Due Process Program, TIGTA

determined from a statistical sample that the IRS did not always classify taxpayer requests

properly, and as a result, some taxpayers received the wrong type of hearing.37 The IRS also did

not timely process the hearing requests for some taxpayers and made errors relating to the

determination of the Collection Statute Expiration Date (CSED) on taxpayer accounts. The CSED

is the expiration of the time period established by law to collect taxes. From a statistically valid

sample, TIGTA identified instances in which the IRS incorrectly extended the CSED, allowing the

IRS additional time it should not have had to collect the delinquent taxes. 

TIGTA also evaluated the IRS’s compliance with legal seizure provisions.38 TIGTA reviewed a 

judgmental sample of 52 of the 260 seizures conducted from July 1, 2017, through June 30, 2018,

to determine whether the IRS complied with legal and internal guidelines related to each seizure. 

TIGTA identified instances in which the IRS did not comply with a particular Internal Revenue

33 TIGTA, Ref. No. 2019-30-067, The Internal Revenue Service Should Revise the Approach Used to Identify Foreign Corporations That Do Not

File Required U.S. Income Tax Returns (Sept. 2019). 34 Pub. L. No. 105-206, 112 Stat. 685. 35 IRS Publication 1, Your Rights as a Taxpayer (Rev. 9-2017). 36 TIGTA, Ref. No. 2019-30-054, Fiscal Year 2019 Statutory Audit of Compliance With Notifying Taxpayers of Their Rights When Requested to

Extend the Assessment Statute (Aug. 2019). 37 TIGTA, Ref. No. 2019-10-058, Review of the Office of Appeals Collection Due Process Program 

(Sept. 2019). 38 TIGTA, Ref. No. 2019-30-075, Fiscal Year 2019 Review of Compliance With Legal Guidelines When Conducting Seizures of Taxpayers’ Property

(Sept. 2019).
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Code section or an internal procedure or there was no guidance present. 

ACHIEVING OPERATIONAL EFFICIENCIES

Achieving efficiencies within Federal tax administration requires the IRS to continuously monitor

and effectively manage a wide range of risks that are inherent within a 

fast-paced, changing operational environment. For example, efficient and cost-effective

management and implementation of the IRS’s software assets is crucial to ensure that information

technology services continue to support the IRS’s business operations and help provide services 

to taxpayers efficiently. However, TIGTA reported that the IRS did not effectively manage

software tools acquired to address its software asset management and software development

needs.39 In addition, the IRS did not actively monitor the costs associated with purchasing the

software licenses and software subscription and support. As a result, the IRS purchased software

licenses that it never deployed and purchased software subscription and support for licenses it did

not use. 

Due to potential cost-saving benefits, the IRS made a decision to consolidate platforms and

migrate applications to Linux-based operating systems from Oracle-based proprietary hardware. 

However, TIGTA reported that the IRS did not develop an initial project plan or conduct upfront

assessments and technical analysis on the applications and databases that were to be migrated

to a new operating system.40 As a result, the pilot project took 22 months to complete. In

addition, only eight of the 141 applications in the Linux Migration Project inventory in February

2018 had completed migration. Further, the hardware and support purchased in September 2016

for $6.8 million has been underutilized. 

TIGTA also reported that Criminal Investigation (CI) could improve identification and investigation

of tax-related identity theft cases.41 Many incidents initiated by taxpayers were not placed in CI’s

Scheme Tracking Referral System for consideration in CI’s scheme development process. 

Specifically, 98,773 taxpayer-initiated identity theft returns processed in Calendar Year 2016 were

not placed in CI’s referral system, which is the master list of all schemes developed for the IRS. 

By not including these returns, CI may limit its ability to identify fraud characteristics for returns

that bypass IRS filters for possible investigation. 

Improvement can also be made in the processing of amended tax returns. When taxpayers make

an error on an originally filed Form 1040, U.S. Individual Tax Return, they can file an amended tax

return. However, TIGTA’s analysis found that processing errors by IRS employees continue to

result in erroneous refunds associated with amended returns.42 As a result, we forecast that the

IRS could issue nearly $1.4 billion in potentially erroneous tax refunds claimed on amended tax

returns over the next five years. 

CONCLUSION

This memorandum is provided as our annual summary of the most serious major management

and performance challenges confronting the IRS in FY 2020. TIGTA’s Fiscal Year 2020 Annual

Audit Plan contains our proposed reviews. If you have any questions or wish to discuss our views

on the challenges in greater detail, please contact me at (202) 622-6500.

39 TIGTA, Ref. No. 2019-20-005, Management and Implementation of Information Technology Software Tools Needs Improvement (Feb. 2019). 40 TIGTA, Ref. No. 2019-20-008, The Solaris to Linux Migration Project Was Delayed and Needs Improved Governance (Dec. 2018). 41 TIGTA, Ref. No. 2019-30-047, Criminal Investigation Should Increase Its Role in Enforcement Efforts Against Identity Theft (Aug. 2019). 42 TIGTA, Ref. No. 2019-40-042, Actions Have Not Been Taken to Improve Amended Tax Return Review Procedures to Reduce Erroneous and

Fraudulent Refunds (July 2019).
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cc: Assistant Secretary for Management

Deputy Chief Financial Officer

Commissioner of Internal Revenue
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RESPONSES TO INSPECTORS GENERAL IDENTIFIED CHALLENGES

Treasury Management Response to OIG Identified Challenges

OIG Challenge 1: Operating in an Uncertain Environment

As previously reported, external factors and future uncertainties affect the Department’s programs and operations. The 

most notable was the 35-day partial federal government shutdown in FY 2019 that highlighted Fiscal Service’s need for more

comprehensive lapse planning. Additionally, the Office of Management and Budget’s (OMB) government-wide Reform Plan 

may significantly affect the administration of certain of the Department’s programs and operations. Other uncertainties

facing the Department are the recurring cycle of budget and debt ceiling stopgaps, vacant leadership positions, and delays in

onboarding highly-skilled individuals to fill critical positions across the Department.

We recognize the many risks and uncertainties we face each day in accomplishing our mission and providing services to the

American public. Our Office of Risk Management (ORM) plays a significant role in assisting the Department’s leadership to

identify, assess, and manage these risks. We concur with the Office of Inspector General’s (OIG) assessment of the Fiscal

Service’s need for a more comprehensive lapse plan as reflected in its revised 2019 Lapse Plan to provide critical

government-wide support services under a variety of different scenarios. In fact, we would support such scenario planning

across Treasury and the rest of government. In addition, we strongly support OMB’s government-wide Reform Plan, 

although we recognize the potential uncertainties and risks to Treasury’s programs and operations inherent in certain of the

reforms. To address these risks, we have begun planning for certain aspects of the Reform Plan. Specifically, the Alcohol

and Tobacco Tax and Trade Bureau (TTB) is developing an implementation and staffing plan to administer and enforce the

additional jurisdiction it would be granted under the plan. This plan will help ensure that the bureau can quickly establish

the needed enforcement program and related support functions without detracting from other enforcement and regulatory

priorities. We remain committed to our priority initiatives for fulfilling our mission and achieving our reform goals as set

forth by OMB.

We agree with the OIG that it is important to fill open vacancies and key leadership positions in order to avoid potential

mission impact. The Office of Terrorism and Financial Intelligence (TFI) set a target for hiring 132 employees by 2020. By

the end of FY 2019, 128 employees were on board with an additional 18 selections in the pre-employment process. The Office

of International Affairs, which carries out the Secretary’s role as Chair of the Committee on Foreign Investments in the

United States (CFIUS), set a target for hiring up to 59 employees in FY 2019, and on boarded 33 new employees with 11

selections in the pre-employment process at the end of FY 2019. 

In addition to these hiring initiatives, Treasury is addressing workforce skill gaps by focusing on employee development in

data literacy, which will enhance workforce agility by giving employees enhanced skills that are transferable between

assignments. For example, we are providing training in data science to include data visualization, Big Data, data-driven

decision making, and data and analytics literacy during FY 2020.

OIG Challenge 2: Cyber Threats 

As cyber threats continue to evolve and become more sophisticated and subtle, they pose ongoing challenges for Treasury to 

fortify and safeguard its internal systems and operations along with the financial sector it oversees.
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Treasury employs a risk-based approach to cybersecurity, which includes: (a) assessing the likelihood of exploitation; (b) 

examining the number of dependencies required to exploit a given vulnerability; and (c) calculating the impact to the public

if a system or data is compromised. In accordance with federal-wide guidance, the Department focused efforts on impact

calculation, identifying High Value Assets (HVAs) that would be of likely interest to an adversary seeking to maximize

impact to the public, and examining dependencies by completing Security Architecture Reviews (SAR) and Risk and

Vulnerability Assessments (RVA) with the Department of Homeland Security (DHS). 

Six of Treasury’s HVAs reside in Fiscal Service, resulting in an inherently concentrated risk of cyber-attacks for Treasury. 

Over the last two years, we (and particularly the Fiscal Service) have increased the cybersecurity assessments on the HVAs,

and is further evaluating and prioritizing remediation activities associated with findings and risks identified through the

assessment process, within funding constraints. In coordination with DHS, we completed six RVAs and five SARs on eight of

Treasury’s 15 HVA systems. 

Additionally, Treasury is leveraging the Continuous Diagnostics and Mitigation Program to enable automated monitoring of

information technology vulnerabilities and leveraged new investments in Cybersecurity Enhancement capabilities to

improve outward-facing protections of Treasury data. We deployed Data Loss Prevention (DLP) hardware to reduce the

likelihood of data breaches. DLP tools are deployed within an Information Technology (IT) environment to reduce data

breaches by detecting and blocking attempts (by agency users or malicious actors) to send sensitive data outside of the

organization’s boundary. Furthermore, we have kicked off the Continuous Diagnostics and Mitigation (CDM) Dynamic and

Evolving Federal Enterprise Network Defense (DEFEND) activities across the Department, to include the automated

detection of IT devices connected to Treasury networks as well as capability gap fills for the IT device management and user

authentication management components of the CDM program.

In coordination with DHS, we also made additional investments to improve security for IT users. We are near completion

with the implementation of the default use of Hyper Text Transfer Protocol (HTTP) Secure with HTTP Strict Transport

Security to improve security of websites and web services. We enabled Domain-based Message Authentication, Reporting & 

Conformance on 99.4 percent of our external network domains to provide the strongest protection against spoofed email, and

are working to address the remaining domains early in the first quarter of FY 2020. 

Treasury solely uses National Institute of Science and Technology (NIST)-approved encryption solutions on Internet-facing

email servers to best protect sensitive data. By implementing these email and web security standards, Treasury increased

the integrity and confidentiality of Internet-delivered data, reduced the volume of spam, and better protected IT users. 

Lastly, in FY 2019, Fiscal Service established the Cybersecurity Strategy Center to maintain its cybersecurity strategy, drive

execution of the cybersecurity programs, facilitate risk-based decision making for cybersecurity initiatives, and to monitor

progress of its cybersecurity portfolio. In FY 2020, Fiscal Service plans to implement 90 percent of identified cybersecurity

program initiatives.

OIG Challenge 3: Anti-Money Laundering/Terrorist Financing and Bank Secrecy Act Enforcement

Identifying, disrupting, and dismantling the financial networks that support terrorists, organized transnational crime,

weapons of mass destruction proliferators, and other threats to international security, continue to be challenging for

Treasury. In addition, maintaining a highly secure database for financial institutions to report suspicious activity is critical

to maintaining the confidence of the financial sector while meeting the access needs of law enforcement, regulatory, and

intelligence partners.

While Treasury has taken significant action to identify, disrupt, and dismantle the financial networks that support

terrorists, organized transnational crime, weapons of mass destruction proliferators, and other threats to international
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security, the nature of these threats is ongoing. Maintaining a highly secure database for financial institutions to report

suspicious activity is a key component of this effort. TFI will continue to proactively apply its financial tools and authorities

to counter the malign and illicit activity that underlay these threats. Likewise, TFI continues to address critical systemic

issues in order to combat money laundering and terrorist financing. In FY 2019, we established a new Global Investigations

Division to focus on implementing targeted investigation strategies and initiating actions rooted in FinCEN’s unique

authorities under the Bank Secrecy Act (BSA) and federal laws to combat global and systemic finance threats. Maintaining

a highly secure database for financial institutions to report suspicious activity is a key component of this effort. In addition,

we also issued a series of important advisories addressing critical issues to combat money laundering and terrorist financing,

which included alerting financial institutions on schemes related to fentanyl trafficking, reporting suspicious activity that

may be indicative of political corruption, expanding supervision of non-bank financial institutions, and piloting a project to

collect virtual currency sector data for identifying activity of illicit concern. Regarding the protection of BSA data, we have

several measures in place to safeguard the BSA information we collect. These measures include specific security and other

requirements in Memorandums of Understanding with authorized system users, and required annual training and

recertification to emphasize protection and proper dissemination of BSA information. In addition, FinCEN monitors user

queries in an effort to protect BSA information from unauthorized access and downloads and through a review of query audit

logs by FinCEN’s Office of Special Investigations. 

OIG Challenge 4: Efforts to Promote Spending Transparency and to Prevent and Detect Improper Payments

 The Department faces the continuing challenge related to its critical role in implementing the DATA Act. Within the next

fiscal year, the Department must implement the Evidence Act to make data accessible and useful government-wide, which

will require close collaboration with OMB. Additionally, the Department must continue improvements to its Do Not Pay 

(DNP) Business Center to further prevent and reduce improper payments across the federal government. 

Treasury’s agency-level DATA Act reporting reflects significant improvements in data quality which were driven by our

remediation efforts, coupled with refinements in the audit methodology used by the OIG to assess our data accuracy. The 

OIG assessed in its November 8, 2019 audit report that Treasury’s consolidated reported spending data for the first quarter

of FY 2019 was complete and accurate. We continue to encourage improvements in the audit methodology employed by the

Inspector General community, particularly with regards to deriving overall data quality, to ensure that the assessment

approach is useful. In May 2019, the Department released its agency Data Quality Plan to drive remediation efforts related

to agency information submitted pursuant to the Data Act. We will adapt the plan to address any gaps identified through

the audit process, while continuing our execution of a strong governance and certification framework. Treasury also

continues to work with its government-wide counterparts to influence refinement and clarification of guidance over DATA

Act standards and reporting, as necessary.

On a government-wide basis, Treasury took several steps to promote spending transparency and USAspending.gov data

quality. Treasury worked with the Data Act Working Group of the Chief Financial Officer’s Council to make improvements

to policy and the DATA Act Information Model Schema (DAIMS). Treasury has also taken steps to better disclose known

data limitations on USAspending.gov data over the past year, and released DAIMS version 1.4 in September 2019, which

includes updates based on audit findings, clarifications to aggregate record reporting, and alignment with the federal

hierarchy and integrated data sources. 

The Data Lab, which was designed to increase the public’s understanding of federal spending, published “Your Guide to

America’s Finances” (formerly known as the Citizen’s Guide). The goal of this new guide is to translate the complicated

aspects of the federal government’s revenue, spending, deficit, and debt into a simple, straightforward, and engaging

customer experience. In addition, Fiscal Service provides data to the public through multiple websites, and will launch a 
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beta site to the public in FY 2020 which consolidates the websites into a single point of entry. This will make all data readily

accessible and useful through a user-centered experience with machine-readable data. Finally, Fiscal Service also

established the Payment Integrity Center of Excellence (PICoE), a community of experts from various programs within the

bureau that provide business insight and solutions to assist federal agencies in identifying, preventing, and recovering

improper payments. PICoE partnered with the IRS to prescreen 1.5 million tax refunds and identified 85,000 accounts for 

additional IRS review to reduce the risk of improper payments. 

OIG Challenge 5: Information Technology Acquisition and Project Management: While the Federal Information Technology

Acquisition Reform Act (FITARA), enacted in December 2014, was intended for agencies to better manage their IT

investments, implementation continues to be a government-wide challenge. Specifically, Treasury faces challenges in the

areas of IT acquisition and project management. 

While the FITARA scorecard is a helpful tool in measuring agencies’ progress in implementing FITARA, we believe we have

achieved successes that, while not always captured by the scorecard, are in furtherance of the goals of FITARA. In some

areas of the FITARA scorecard Treasury has scored well, including data center consolidation, portfolio review, and software

asset management. 

While the Department recognizes the challenges it faces in implementing FITARA, we have made progress with several

ongoing initiatives. As part of the Department’s strategy to improve IT investment management, we are implementing a 

plan to aggregate software assets to provide a more comprehensive, enterprise-wide view. To address the roles of our CIO,

Treasury has issued TO-102-10 “Designation of Chief Information Officer for the Department of the Treasury” providing the

Treasury CIO with direct reporting line to the Secretary as required by FITARA. In addition, we issued a policy memo

“Treasury Chief Information Officer Review and Approval of Information Technology Acquisitions,” effective March 15, 2019,

which establishes a process for reviewing and approving acquisition plans. Finally, in addition to establishing commodity

benchmarking in FY 2019, Treasury has implemented Technology Business Management (TBM) IT Tower and Cost Pool

reporting for all bureaus, and requested funding for FY 2021 to support the procurement of a TBM tool to automate the

collection of financial data and the allocation of IT costs.

Matters of Concern

OIG Concern 1: Coin Redemption: The Mint’s internal control related to safeguarding and ensuring the integrity of the U.S.

coinage is a concern.

The Mint concurs with the need for improved internal controls related to the integrity of the mutilated coin redemption

program. The Mint plans to address this concern through: 1) identifying and addressing any vulnerabilities in the current

distribution channel and, 2) identifying any features that can be implemented into circulating coins for authentication

purposes. The Mint is committed to ensuring the integrity of the nation’s coins, and is currently engaged in testing

materials and assessing cost effective ways to improve the security of coinage.

OIG Concern 2: Managerial Cost Accounting: Managerial cost accounting is a fundamental part of a financial performance

management system. It involves the accumulation and analysis of financial and nonfinancial data, resulting in the

allocation of costs to organizational results. The OIG has concerns related to internal control weaknesses identified within

Departmental Offices’ overhead allocation process used to charge reimbursable customers.
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Departmental Offices implemented new overhead allocation procedures for FY 2019 that allow reconciliation against actual

costs at the end of the fiscal year consistent with the procedures used to estimate the costs at the beginning of the fiscal year, 

and provides customers additional transparency into the overhead calculation. The Office of Budget and Travel further

refined its methodology in FY 2020, and developed standard operating procedures and desk guides for use in applying the

methodology. 

IRS Management Response to TIGTA Identified Challenges 

TIGTA Challenge 1: Security Over Taxpayer Data and Protection of IRS Resources

Protecting the confidentiality of taxpayer information from internal and external threats continues to be a top concern for 

the IRS.

Protecting the confidentiality of taxpayer information from internal and external threats continues to be a priority for the

IRS. As such, the IRS continues to improve electronic authentication controls on its public-facing applications. In addition,

the IRS plans to align public-facing legacy applications with the NIST digital identity guidelines through its Digital Identity

Risk Assessment (DIRA) process. The DIRA process is a data-driven approach to comprehensively assess IRS public-facing

application risk; however, the IRS may determine alternatives to the NIST recommended guidance. As part of the DIRA

process, the IRS will document both the justification for any departure from the requirements and detail the compensating

control(s) employed, as well as develop a plan to mitigate this issue in 2023.

The IRS has several initiatives planned to strengthen validation controls to help protect against unauthorized filing and

input of fraudulent information returns. For example, IRS plans to conduct a Digital Identity Risk Assessment for the Filing

Information Returns Electronically (FIRE) system and develop an implementation plan for identity-proofing the FIRE

system's web-based users. The IRS also plans to complete an analysis on returns being filed where the associated non-Form

W-2, Wage and Tax Statement information return reports Federal income tax withholding and the payer appears to be

fabricated.

Finally, the IRS plans to improve security controls in the Bring Your Own Device Program (BYOD) that include: 1)

identifying solutions to prevent data leakage, 2) ensuring management considers employee personally identifiable

information and internal violations prior to approving participation, 3) ensuring that IRM requirements are met and

vulnerabilities found on BYOD servers are remediated timely, 4) ensuring all audit logs for retention program applications

are accurate, and 5) updating procedures for training, documentation development, and lost or stolen devices. The IRS will

develop a plan to complete these improvements in January 2020.

TIGTA Challenge 2: Implementing Tax Law Changes 

Implementation of tax law changes such as the Taxpayer First Act, Tax Cuts and Jobs Act of 2017 (TCJA), and the

Protecting Americans from Tax Hikes Act of 2015 (PATH Act) will continue to present challenges for the IRS.

The IRS continues numerous initiatives to implement the TCJA in FY 2020. For example, the IRS will make necessary

revisions to Form 1040, Schedule 1, Additional Income and Adjustments to Income, and plans to prepare programming

requirements to permit systemic identification of potentially improper deductions. This programming is expected to be

completed by January 2020; however, due to budgetary constraints and competing priorities for programming resources, an

implementation date cannot be provided.

In FY 2019, the IRS also continued to implement the program integrity provisions of the PATH Act. Some of the provisions

addressed include implementation in January 2019 of programming to require the education institution's Employer
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Identification Number (EIN) to validate eligibility for the AOTC, and creation of a business rule to reject Tax Year 2018

electronically filed returns claiming the AOTC when the education institution's EIN is not provided on Form 8863, 

Education Credits. In addition, the IRS created a new Taxpayer Notice Code with specific math error notice language to

notify the taxpayer that the education credit claimed on their return was not allowed because the education institution's EIN

was not provided. In FY 2020, the IRS will continue implementing the program integrity provisions by expanding the

Identity Protection Personal Identification Number to allow Individual Taxpayer Identification Number holders whose

identities have been compromised to participate. While it is anticipated that these changes will be implemented by January

2020, information technology resources are limited and are subject to competing priorities that could affect the

implementation timeline. 

TIGTA Challenge 3: Addressing Emerging Threats to Tax Administration

As fraudulent activity continues to evolve, the IRS must continually adapt its detection and prevention processes to detect

and prevent fraudulent paper and electronically filed tax returns.

In FY 2019, the IRS continued its focus on reducing tax-related identity theft. Because the PATH Act mitigates the taxrelated identity theft risk that the Form W-2 Verification Code Program was intended to address, in July 2019 the IRS

completed an analysis to determine whether the reduction of the risk of tax-related identity theft resulting from the use of

the Form W-2 verification code justifies the cost to fully implement the program. The analysis took into consideration the

reduced benefit of the program as a result of the accelerated receipt of Forms W-2 mandated by the Path Act, which requires

employers to file third party income information to the IRS by January 31, and the IRS to delay the issuance of refunds on

returns claiming EITC and/or ACTC until February 15. These changes allow the IRS additional time to perform document

matching.

TIGTA Challenge 4: Supporting an Enhanced Taxpayer Experience

Providing taxpayers with quality customer service is a key component in the IRS’s mission. Successfully addressing and

resolving taxpayer inquiries through a quality customer service process allows the IRS to direct its limited resources more

efficiently.

In an effort to improve customer experience, the IRS used a data-driven model to optimize Taxpayer Assistance Centers and

Virtual Service Delivery sites. The IRS redesigned its Geographic Coverage Model to support business decisions on the

locations of existing Taxpayer Assistance Centers, Virtual Service Delivery sites, and Social Security Administration offices 

to identify under or unserved locations. Currently underserved taxpayers are within a 51 to 120-minute radius of a 

Taxpayer Assistance Center or Virtual Service Delivery site, and unserved taxpayers are in a radius greater than 120

minutes from a Taxpayer Assistance Center or Virtual Service Delivery site. 

TIGTA Challenge 5: Modernizing IRS Operations

Successful modernization of systems and the development and implementation of new information technology applications

are critical to meeting the IRS’s evolving business needs and enhancing services provided to taxpayers.

As TIGTA noted, in April 2019 the IRS established an Integrated Modernization Business Plan, which is a six-year plan

designed to improve the taxpayer experience by modernizing core tax administration systems, IRS operations, and

Cybersecurity. As part of its systems modernization efforts, the IRS plans to establish procedures for the allocation of

information technology resources to ensure that IT support aligns with the priorities of the functional areas responsible for

delivering tax administration. IRS also plans to revise the service request process to enable the entry of all work requests

before submission and ensure documentation of pre-coordination outcomes. In addition, IRS will verify that the Work
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Request Management System accurately reflects work request status and all internal guidelines are updated. Finally, IRS

will work with suppliers to evaluate and assess the benefits versus costs/burden of establishing processes to further track

estimated and actual resources by systems or applications.

TIGTA Challenge 6: Improving Tax Reporting and Payment Compliance

Ensuring taxpayers understand their filing requirements and comply with tax laws is a key responsibility for the IRS.

The IRS continues to monitor the Private Debt Collection (PDC) program and improve Private Collection Agencies' (PCA)

performance. As of September 2019, the IRS has assigned over 2.4 million cases to PCAs and the PDC program generated

nearly $302 million in revenue compared to under $132 million in costs. The PCAs have assisted more than 224,000

taxpayers with either paying their tax debt in full or establishing a payment arrangement. As part of the PDC program, the

IRS: 1) conducted a “PCA letters consistency review” to ensure that all PCA initial contact letters incorporated the required

language, 2) implemented and reviewed a new payment arrangement estimator tool for PCAs’ use to ensure consistency with

the IRS Integrated Automation Technologies tool, 3) updated the PCA operational plans to ensure minimization of telephone

background noise, and 4) updated the Program and Procedures Guide to require that cellular phone disclosures be given

prior to taxpayer authentication. In addition, under the IRS's guidance, each of the PCAs trained their employees to ensure

hold times are minimized while assistors calculate monthly payment options. The IRS will continue to monitor the PCAs'

performance in all areas to ensure consistency and compliance with the Program and Procedures Guide and will conduct

annual and ad hoc operational reviews of all PCAs. 

Also, in response to the growth of online platform companies who offer services and allow others to work as self-employed

individuals to provide those services, also known as the “gig economy,” the IRS developed and is implementing a compliance

strategy that includes examination and outreach strategies to address noncompliance of these self-employed individuals. 

The IRS revised its Internal Revenue Manual to include information and examples of notes that can be entered in the

Automated Underreporter system to document closing these cases during screening. The IRS also implemented new

business rules specifically focusing on when income is subject to self-employment tax. 

TIGTA Challenge 7: Reducing Fraudulent Claims and Improper Payments

Refundable credits can result in the issuance of tax refunds even if no income tax is withheld or paid and can be the target of

unscrupulous individuals who file erroneous claims.

In FY 2019, the IRS continued its assessment to determine the improper payment risk associated with the Additional Child

Tax Credit, the American Opportunity Tax Credit, and the Premium Tax Credit and will continue the nonwork social

security number pilot to identify and evaluate tax returns for potential inclusion in our annual compliance plan where

nonwork social security numbers are used.

TIGTA Challenge 8: Impact of Global Economies 

Complexity and change in the international tax environment requires that the IRS collaborate with tax administrations of

foreign countries to enforce compliance. The IRS must continue to focus on significant efforts on global tax cooperation and

tax administration practice that can prevent and resolve disputes.

The IRS faced several challenges in the implementation of the retroactive tax provision on U.S. shareholders of specified

foreign corporations (Section 965). Among these challenges was the need to make significant changes to its information

technology systems and processing, developing formal and informal guidance, updating and creating tax forms, instructions

and educational materials, preparing and delivering training for IRS employees, and ensuring stakeholder outreach. In
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FY 2019, the IRS trained employees who will be conducting post filing compliance activities and continued to develop its

compliance strategy. In FY 2020, after the compliance plan is approved, the IRS will deploy a variety of treatment streams

and will monitor compliance and make revisions, as appropriate.

For the 2019 filing season, the IRS automated the process of issuing notices to inform taxpayers of how their payments in

excess of liabilities were applied to their Section 965 balance due. In March 2019 the IRS began issuing installment

payment reminder notices to reach taxpayers before the mid-April payment due date. The IRS will continue to issue those

notices annually until the taxpayer's Section 965 balance is paid or the balance is accelerated, making payment due

immediately. The IRS will develop a methodology to accurately recognize Section 965 liabilities, total Section 965 credits,

and remaining Section 965 taxes deferred. Programming resources will be required to implement the reporting methodology.

We anticipate reports will be available by January 2020; however, budgetary limitations and competing priorities for 

Information Technology resources prevent us from specifying an implementation date.

TIGTA Challenge 9: Protecting Taxpayer Rights

The IRS must balance its tax compliance activities against the rights of taxpayers to receive fair and equitable treatment.

In an effort to protect taxpayer’s rights and ensure equitable treatment, the IRS identified a systemic programming issue

whereby its Integrated Data Retrieval System does not properly update the collection statute expiration date. The collection

expiration date is the expiration of the time period established by law to collect taxes. The IRS corrected all inaccurate

suspension start and stop dates that were identified with collection statute expiration date errors and will continue to correct

these errors as they are identified.

TIGTA Challenge 10: Achieving Operational Efficiencies 

Monitoring and effectively managing a wide range of inherent risks, within a fast-paced, changing operational environment,

is imperative for the IRS to achieve efficiencies.

The IRS took steps in FY 2019 to improve the management and implementation of IT software tools. In April, the IRS

developed a Rational Collaborative Lifecycle Management (CLM) Directive. The directive states that all new and existing

IRS Tier II development programs and projects are expected to use the CLM Tool Suite to define a target timeframe for CLM

migration. IRS plans to continue such improvements in FY 2020 and anticipates improvements including the use of

Software Asset Management (SAM) to implement processes and tools to support increased use of available licenses and

enhanced license compliance. As a part of its SAM role, the IRS will establish policy for the review of software license,

subscription and maintenance purchases. The IRS will also implement control processes and tools to improve license

management and support compliance with licensing agreements.

The IRS defined, documented, and implemented a process for acquisitions using software and service credits. To ensure

future procurements include well developed plans and processes, and are executed timely, the IRS procurement team will

work with IRS-IT’s Delivery Management and Quality Assurance for continued support on acquisition policy, best practices,

and work with governance to determine next steps and/or identify any operational changes that may be needed.

In FY 2019, the IRS Criminal Investigation (CI) requested an assessment of the costs, impact, and time it would take to

create a process to transfer identity theft returns into a holding scheme. Currently, there are systemic limitations that do

not allow for the input of Identity Theft Victim Assistance returns into the Scheme Tracking Referral System database

where they would be considered a part of the scheme identification process. The IRS plans to complete an assessment by

October 2020 that will measure cost, impact, and level of effort needed to ensure all taxpayer-initiated identity theft returns
DEPARTMENT OF THE TREASURY 195 

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

from Identity Theft Victim Assistance are transferred into the Scheme Tracking Referral System database and made

available to the IRS-CI during their scheme-development process.

The IRS is taking steps to improve its amended tax return processing procedures to reduce erroneous and fraudulent

refunds. The IRS plans to evaluate training material and procedural guidance and revise it to address errors identified in

amended return processing, as necessary. In addition, the IRS submitted a funding request on March 29, 2019, to enhance

the Modernized e-File system with the capability to accept electronically filed amended personal income tax returns. If

approved as a FY 2020 expenditure, it is expected the programming and related system modifications will be in place to

permit acceptance of electronically filed amended income tax returns upon the start of the 2021 filing season. The

completion of this work is contingent on both the timely passage of the IRS's FY 2020 funding appropriations and the

availability of limited Information Technology resources, which are subject to competing priorities that could affect the

implementation timeline. 

 
196 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

SECTION D: SUMMARY OF FINANCIAL STATEMENT AUDIT AND

MANAGEMENT ASSURANCES

The following tables summarize the results of Treasury’s financial statement audit, as well as management’s assurances

regarding conformance with the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and compliance with the

Federal Financial Management Improvement Act of 1996 (FFMIA). 

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion: Unmodified

Restatement: No

Beginning Ending

Material Weakness Balance New Resolved Consolidated Balance 

Total Material Weaknesses 0 0 0 0 0 

SUMMARY OF MANAGEMENT ASSURANCES

EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING (FMFIA SECTION 2)

Statement of Assurance: Unmodified

Beginning Ending

Material Weakness Balance New Resolved Consolidated Reassessed Balance 

Total Material Weaknesses 0 0 0 0 0 0 

EFFECTIVENESS OF INTERNAL CONTROL OVER OPERATIONS (FMFIA SECTION 2)

Statement of Assurance: Unmodified

Beginning Ending

Material Weakness Balance New Resolved Consolidated Reassessed Balance 

Total Material Weaknesses 0 0 0 0 0 0 

CONFORMANCE WITH FMFIA SECTION 4 

Statement of Assurance: Federal systems conform, except for instances of non-conformance, to financial management system

requirements

Beginning Ending

Non-Conformances Balance New 1 Resolved Consolidated Reassessed Balance 

Fiscal Service's Cash Management 

Information Systems 2 0 1 0 0 0 1 

Fiscal Service's Federal Debt Information 

Systems 2 0 1 0 0 0 1 

IRS's Unpaid Tax Assessments 2 0 1 0 0 0 1 

IRS's Financial Reporting Systems 2 0 1 0 0 0 1 

Total non-conformances 0 4 0 0 0 4 1 The significant deficiencies have been re-evaluated and determined to be non-conformances with Section 4 of FMFIA this year. Refer to the section on

Systems, Controls and Legal Compliance in Part 1 for additional information on the non-conformances. 2 Refer to Independent Auditors’ Report in Part 2 of this report. 
DEPARTMENT OF THE TREASURY 197

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

COMPLIANCE WITH FFMIA SECTION 803(a) 

Agency Auditor

1. Federal Financial Management System Requirements Lack of compliance noted Lack of compliance noted

2. Applicable Federal Accounting Standards No lack of compliance noted No lack of compliance noted

3. U.S. Standard General Ledger (USSGL) at Transaction Level No lack of compliance noted No lack of compliance noted

FMFIA AND FFMIA REQUIREMENTS

The FMFIA requires agencies to establish and maintain internal control to ensure that federal programs operate efficiently,

effectively, and in compliance with laws and regulations. The Secretary must evaluate and report annually on (a) whether

there is reasonable assurance that the Agency’s controls are achieving their intended objectives, and (b) material weaknesses

in the Agency’s controls (FMFIA Section 2). Additionally, the Secretary must evaluate and report separately on whether the

Agency’s financial management systems comply with government-wide requirements (FMFIA Section 4). The FFMIA 

requires agencies to implement and maintain financial management systems that substantially comply with federal

financial management systems requirements. The requirements of the FMFIA serve as an umbrella under which other

reviews, evaluations, and audits should be coordinated and considered to support management’s assertion about the

effectiveness of internal control over operations, reporting, and compliance with laws and regulations.

As of September 30, 2019, we had no material weaknesses under Section 2 or Section 4 of the FMFIA. However, we reevaluated the two significant deficiencies reported in the Management Assurances section of this AFR, which have been

repeated from the prior year, and determined that they constitute four instances of non-conformance with federal financial

management systems requirements of Section 4 of the FMFIA. We are therefore reporting these four non-conformances in

Section 4 of the Management Assurances table above. These non-conformances also constitute a lack of compliance with

federal financial management system requirements, as reported above under FFMIA Section 803(a). 

Fiscal Service has two non-conformances related to the deficiencies in its cash management and federal debt management

information systems. The IRS has two non-conformances related to the deficiencies in unpaid tax assessments and financial

reporting systems. Refer to the section in Part 1 entitled Systems, Controls and Legal Compliance and the section in Part 2 

entitled Independent Auditors’ Report for additional information on the non-conformances.
198 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

SECTION E: PAYMENT INTEGRITY

Our FY 2019 Payment Integrity reporting includes information required by the Improper Payments Information Act of 2002

(IPIA), as amended by the Improper Payments Elimination and Recovery Act of 2010 and Improper Payments Elimination

and Recovery Improvement Act of 2012 (IPERIA); Executive Order 13520, Reducing Improper Payments and Eliminating

Waste in the Federal Government; Appendix C to OMB Circular A-123, Requirements for Payment Integrity Improvement;

and OMB Circular A-136. Additional information on current and prior year reported improper payments can be found at

https://paymentaccuracy.gov/. 

For FY 2019, in compliance with OMB Circular A-123, Appendix C, we are reporting improper payment estimates for three

refundable tax credits – the EITC, AOTC, and ACTC – which are “susceptible to significant improper payments.” We have

long held that these refundable tax credits are not “payments” as intended under the improper payments legislation. 

Furthermore, any refunds that result from overclaims are not the result of weaknesses in internal controls. As such, it is our

position that refundable tax credit refunds that result in overclaims should not be reported under the improper payments

framework. Rather they are more appropriately addressed in the tax gap (see Part 3, Section A: Tax Gap and Tax Burden, of

this report), which is how we manage noncompliance.

As discussed in the following sections, we do not consider refundable tax credit overclaims to be “payments” as defined under

IPERA as the tax system is a collection system rather than a payment system. Whereas a payment system is generally

designed to implement internal controls that provide for appropriate verification and validation prior to payments being

made, the statutory structure and design for administering refundable tax credit refunds prevents the IRS from verifying or

validating such amounts prior to making the refund payment. Consequently, refundable tax credit overclaims are not the

result of internal control weaknesses that we can remediate internally but are, in fact, the result of factors beyond our

control under current law and existing authority. Even if we could

obtain legislative changes and invest in additional resources and

verification solutions that would ultimately reduce overclaims, the

benefits derived would be marginal relative to the cost of doing so.

REFUNDABLE TAX CREDITS PROVIDE RELIEF TO TAXPAYERS

Tax credits reduce a taxpayer’s tax liability dollar-for-dollar. 

Nonrefundable tax credits can only reduce a taxpayer’s liability to

zero, whereas refundable tax credits can reduce a taxpayer’s tax

liability below zero, and thus result in a refund to the taxpayer. Over

the years, refundable tax credits have been used by Congress to

achieve certain economic and social objectives, from reducing poverty

to increasing higher education affordability. Refundable tax credits

provide meaningful benefits to the low-income population, because

many low-income families are ineligible for other tax-based assistance

due to their lack of tax liability. The EITC, AOTC, and ACTC

(hereafter referred to collectively as “RTCs”) are three of the most

widely claimed refundable tax credits (refer to Part 3, Section A for a 

brief description of each refundable tax credit). 

1 The data for ‘Reduced Severity of Poverty’ is from Center on Budget and Policy Priorities, Policy Basics: The Earned Income Tax Credit, June 21, 2019. The data

for ‘Lifted Out of Poverty’ is from IRS.

DEPARTMENT OF THE TREASURY 1

In Tax Year 2017, it is estimated that American 

taxpayers claimed RTCs totaling

$94.5 BILLION 

Over 26 million taxpayers received more than $64 billion in EITC

Nearly 18 million taxpayers received more than $24 billion in ACTC

Nearly 8 million taxpayers received more than $7 billion in refundable

AOTC

19.5

7.3

8.5

4.6

ALL PERSONS CHILDREN

TY 2017 Earned Income Tax Credit and Child 

Tax Credit Anti-Poverty Impact 1

Reduced Severity of Poverty Lifted Out of Poverty

28.0 million people

11.9 million people
DEPARTMENT OF THE TREASURY 199

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

While refundable tax credits, like many other tax deductions and credits, are used to achieve certain economic and social

objectives, they differ from other social benefit programs in a number of significant ways. Unlike most benefit programs,

which have heavy pre-clearance certification and high administrative costs, RTCs are an integral part of the tax system in

which the IRS relies on taxpayers to self-certify eligibility for the credit claimed and generally have significantly lower

administrative costs. Conversely, other social benefit programs generally require upfront validation of recipient eligibility,

thereby incurring higher administrative costs.

RTC OVERCLAIMS ARE CAUSED BY FACTORS INHERENT TO THE TAX SYSTEM

The IRS reported that in TY 2017, there were approximately

51.6 million claims for RTCs, totaling more than $94.5 billion. For the

same year, the EITC was credited with lifting approximately

5.7 million people out of poverty, including approximately 3 million

children; while the ACTC was credited with lifting approximately

2.8 million people out of poverty, including roughly 1.6 million

children. Although a noteworthy outcome, RTCs, like other items

taxpayers declare on their tax returns, such as income and deductions,

are subject to self-reporting errors, giving rise to overclaims of tax

refunds. 

As noted below, RTC overclaims are caused by factors associated with

how the tax system operates (such as the limited ability to correct tax

returns after filing, and statutory requirement to pay tax refunds

within the prescribed timeframe) and are often beyond our control

under current law and existing authority. RTCs are administered

through the tax system and refunds of credits are provided through

the tax refund process. As such, the disbursement of these credits is

inherently tied to and constrained by the statutory requirements of

tax administration. Accordingly, the administration of RTCs relies on

taxpayer self-assessment of eligibility during the tax filing process. 

However, the eligibility rules for many of these credits are often

complex and difficult to understand by taxpayers and tax practitioners. Taxpayer self-assessments include information

about eligible dependents, residency, custodial arrangements, income, and other variables. For many of these variables, the

IRS does not have access to independent information to validate taxpayer submissions, if that information exists at all. For 

example, “qualifying child” errors account for the most significant EITC overclaims in terms of dollars; failure to meet the

“residency test” and the “relationship test” are the two primary factors that result in these overclaims. There are no

comprehensive data bases showing where Americans live and how they are related that IRS can use to automatically verify

taxpayer claims. Complicating matters, the IRS is implicitly required by statute and directly required by regulation and

policy to make tax refunds on the basis of tax returns as filed, subject only to certain basic verifications. In addition, the IRS

is required by statute to pay interest on refunded amounts if those refunds are not issued within 45 days of the return filing

deadline. As a result, the IRS does not have the time or resources needed to verify all of the variables on a return. In many

instances, the IRS lacks the statutory authority to address return deficiencies immediately at the point of filing and instead

addresses overclaims through a potentially lengthy audit process after the RTC is claimed and paid (refer to Part 3, Section

A subsection on Refundable Tax Credits and the Challenges of Compliance).

QUOTEINSPECTOR.COM

Primary Causes of RTC Overclaims

• Complex statutory eligibility rules

• Inability to verify taxpayer-provided

information prior to refunding due to lack

of independent data sources

• Lack of correctable error authority

• Statutory requirement to pay tax refunds

within 45 days of the filing deadline

without paying interest
200 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

RTC CLAIMS SHOULD NOT BE CONSIDERED PAYMENTS

RTC refunds are a fundamental part of the U.S. income tax system, and only result when a taxpayer’s liability is reduced

below zero. We believe that RTC refunds are not true “payments” as intended by improper payment statutes. IPERA

defines a payment as “any transfer or commitment for future transfer of federal funds, such as cash, securities, loans, loan

guarantees, and insurance subsidies to any non-federal person or entity, that is made by a federal agency, a federal

contractor, a federal grantee, or a governmental or other organization administering a federal program or activity.” 2 Tax 

refunds are reimbursements of amounts overpaid by the taxpayer, and are not considered “payments” as intended by

improper payment statutes. Similarly, the IRC also considers RTC refunds to be amounts overpaid, stating that if the RTC

amount allowed exceeds the tax imposed, the excess amount of RTC should be considered an overpayment. As such, since

there is no basis to distinguish between tax refunds from RTC refunds, our position is that RTC refunds should also not be

considered a “payment” and accordingly, we do not consider RTC overclaims to be improper payments as intended by IPERA. 

RTCs are an inherent part of the tax system which relies heavily on voluntary reporting. Payment systems are generally

designed to provide for appropriate verification and validation that payments are authorized, paid to the right entity, and

paid in the correct amount. Inherent in these payment systems is the reliance on this verification and validation before

payment is made. By contrast, the U.S. income tax system is fundamentally different from a payment program in numerous

ways. The tax system is a collection system in which the individual taxpayer self-certifies information used to calculate

income tax withholdings. Tax filers then voluntarily declare the amount of tax liability due and pay any remaining balances

or request that any excess amounts withheld be refunded. The IRS issues refunds primarily on the basis of the tax return as

submitted. 

INTERNAL CONTROL ISSUES ARE NOT THE ROOT CAUSE OF RTC OVERCLAIMS

IPIA’s enactment was intended to reduce the U.S. Government’s

wasteful spending by increasing accountability of agencies for 

preventing and recovering improper payments. Improper payment

reporting requirements link the reduction of improper payment rates

with agency efforts to establish or enhance internal controls for 

ensuring payments are accurately calculated and made to the correct

recipient. Appendix C to OMB’s Circular A-123 states that agencies

should approach improper payments with an internal control

framework that is integrated with enterprise risk management for 

purposes of managing payment integrity risk and reducing improper

payment rates.3 However, as we have determined repeatedly through

qualitative risk assessments, RTC overclaims are not primarily rooted

in internal control deficiencies, but instead are the result of factors

beyond Treasury’s control (e.g. statutory design and limitations). 

Audits by the Government Accountability Office (GAO) and TIGTA 

have concluded that RTC overclaims are largely due to the statutory

design and complexity of the RTCs, not internal control weaknesses,

financial management deficiencies, or reporting failures. 

2 Pub. L. No. 111-204, 124 Stat. 2224.

3 OMB, M-18-20, Transmittal of Appendix C to OMB Circular A-123, Requirements for Payment Integrity Improvement, Part 3(B)(1).

DEPARTMENT OF THE TREASURY

Estimated Error Rates Have Remained 

Steady Despite Efforts to Reduce Error Rates 

EITC estimated error rates have ranged from

22.8% to 27.2% between FY 2004 and

FY 2019, with an average annual error rate

estimate of 24.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

2004 2006 2008 2010 2012 2014 2016 2018

Historical EITC Payment Error 

Rates
DEPARTMENT OF THE TREASURY 201

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

The IRS utilizes a variety of compliance tools and activities in an attempt to reduce identified RTC errors rates (e.g., two and

10-year bans from claiming the EITC under certain circumstances, imposing return preparer penalties). However, without

statutory or structural changes to the design of these programs, the IRS is unlikely to significantly resolve refund related

issues and reduce error rates. As evidenced in the chart above, EITC reported estimated error rates have remained within

the same range since we began reporting them in accordance with improper payment guidelines.

Overclaims generally stem from (1) the inherent difficulties of verifying eligibility for RTC benefits through the tax system,

(2) the statutory structure of RTCs, and (3) the lack of available resources and tools to verify data or correct identified issues. 

Based on the root cause analyses performed by the IRS on RTC overclaims, for FY 2019 reporting, an estimated $23.9 billion

(or 90 percent) of the RTC overclaims were due to the inability to authenticate eligibility because the data needed do not

exist, and an estimated $2.8 billion (or 10 percent), of the RTC overclaims were due to program design or structural issues. 

Improving the integrity of refundable credit programs will take actions beyond our control. We have proposed various

legislative changes aimed at providing more effective tools for managing RTCs. For example, we have proposed: (1) granting

the IRS statutory authority to increase oversight to ensure paid preparers effectively assist taxpayers in complying with

their obligations under tax laws; (2) expanding correctible error authority which would give the IRS the ability to deny

erroneous or fraudulent claims prior to issuing refunds under certain specified circumstances; and (3) improving worker

classifications and information reporting by reducing the reporting threshold for third-party settlement organizations and

requiring Form 1099-K, Payment Card and Third Party Network Transactions to be filed with the IRS by January 31st, as

well as eliminating automatic 30-day extensions for the filing of these forms. While these statutory changes would help

reduce RTC overclaims to some degree, without independent data sources through which the IRS can verify taxpayerprovided information and additional time and resources for the IRS to address any issues identified, a meaningful reduction

in the estimated error rate is unlikely.

REDUCING RTC ERRORS DIVERTS VALUABLE RESOURCES FROM OTHER TAX GAP ELEMENTS

In the case of RTCs, much of the information necessary to validate

the accuracy of a refund prior to issuance is not available. Other

than the IRS’s ability to run various automated checks of certain

data on the tax return prior to payment of a refund, the IRS does not

have the ability to validate that the refund is in the proper amount. 

Rather, the IRS must deploy a variety of enforcement tools,

including audits, to verify the information on the tax return and

then collect any additional tax due. As a result, the IRS allocates a 

disproportionate amount of its enforcement resources to audit

returns that claim one or more RTCs, which can create several

problems. By allocating a significant amount of resources to

auditing these returns, the IRS runs the risk of being prevented

from providing an appropriate level of enforcement in other less

compliant (higher potential revenue) areas, thus reducing its overall

effectiveness in maximizing collections. Second, because lowerincome taxpayers make up the majority of those claiming RTCs,

they are subjected to a disproportionate number of audits as

compared with other individual taxpayers (RTC claimants are

audited at twice the rate of other individual taxpayers). This

creates a burden on people with little time or money to comply with potentially expensive audits. Additionally, the IRS does

DEPARTMENT OF THE TREASURY

RTCs Within The Tax Gap 

Tax credits account for approximately 10% of the

gross tax gap (with EITC representing 6%,

refundable and non-refundable child tax credits

representing 2% and refundable and nonrefundable education credits representing 1%). 
202 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

not have the resources to audit every return claiming RTCs, and the adjustments that could feasibly be attained through this

process would be small relative to the amount of improper payments estimated for the RTCs.

As such, we have long held that focusing enforcement resources on the larger tax gap is a more efficient and cost effective

way to minimize the tax gap and maximize tax collections. We further support the reporting of RTC overclaims within the

Tax Gap Analysis to reflect better how the IRS approaches taxpayer compliance relative to the U.S. tax system.

RISK ASSESSMENTS

Each year, bureaus and offices (hereafter referred to as “components”) are required to conduct risk assessments on all

material programs (i.e., programs with total non-federal disbursement amounts equal to or greater than $10 million) to

identify the risk of susceptibility to significant improper payments. OMB defines susceptibility to significant improper

payments as gross annual improper payments exceeding both 1.5 percent and $10 million in total program outlays, or

$100 million at any rate. Components are required to perform a quantitative risk assessment for all programs with a total

non-federal disbursement amount equal to or greater than $5 billion. Components may perform a quantitative or qualitative

risk assessment for all other programs. The quantitative risk assessment consists of a review of a sample of disbursements

to formulate the overall estimated improper payment rate for the program. The qualitative risk assessment is a 

questionnaire used to assess a program’s internal control risks, which could lead to susceptibility to significant improper

payments.

Our risk assessment process incorporates the seven risk factors outlined in OMB Circular A-123, Appendix C. The factors

considered in the determination of risk levels include:

• Whether the program or activity reviewed is new to the agency;

• The complexity of the program or activity reviewed, particularly with respect to determining correct payment amounts;

• The volume of payments made annually;

• Whether payments or payment eligibility decisions are made outside of the agency, for example, by the state or local

government, or a regional federal office;

• Recent major changes in program funding, authorities, practices, or procedures;

• The level, experience, and quality of training for personnel responsible for making program eligibility determinations or

certifying that payments are accurate; and

• Significant deficiencies in the audit reports of the agency including, but not limited to, the agency Inspector General or

the GAO audit report findings, or other relevant management findings that might hinder accurate payment certification.

In FY 2019, we performed risk assessments on 67 programs. Five programs performed quantitative risk assessments, and

62 programs performed qualitative risk assessments. Of the 67 programs, three programs were newly identified as

susceptible to significant improper payments—AOTC, ACTC, and net Premium Tax Credits (PTC). Programs identified as

susceptible have one year to: (1) perform statistical sampling to determine an improper payment rate, and (2) develop and

submit a corrective action plan to OMB for reducing the improper payment rate below the statutory threshold. The risk

assessments conducted in FY 2019 for AOTC and ACTC indicated that they are susceptible to significant improper payments

and, therefore, we are reporting improper payment estimates for these RTCs in this year’s AFR, although we are not

required to do so until FY 2020. While the quantitative risk assessment results for net PTC indicate that it is susceptible to

significant improper payments, we are not reporting an estimate this year as further analysis of the related data is needed. 
DEPARTMENT OF THE TREASURY 203

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

Therefore, we will continue to collect NRP data, as well as to develop an effective methodology to calculate and report an

estimated error rate for net PTC.

A risk assessment was not required to be conducted for the EITC program, since it has been deemed by OMB as a high

priority program. Similar to programs identified as susceptible to significant improper payments, as a high priority

program, EITC is required to perform a statistical sample to determine and report an improper payment rate and develop

and submit a corrective action plan to OMB.

SAMPLING AND ESTIMATION

Beginning with TY 2006, the IRS NRP has been conducting annual studies of individual income tax reporting compliance

(hereafter referred to as the “NRP study”). The IRS uses the examination (audit) data from the NRP study to fulfill improper

payment reporting requirements. OMB defines a statistically valid sample as one that is based on unbiased randomized

sampling and produces valid point estimates and confidence intervals around those estimates. Statistically valid and

rigorous estimates possess a 95 percent confidence interval with a margin of error of plus or minus three percentage points. 

Due to the approximately three years it takes to complete those audits, FY 2019 is the first year in which the TY 2015 NRP

data is available for analysis and improper payment estimation. As such, the improper payment estimates reported this

year include NRP examination results from TY 2015 returns. The sample design and examination of most of the NRP

returns for TY 2015 occurred prior to the determination that the AOTC and ACTC were susceptible to significant improper

payments. Therefore, the TY 2015 NRP sample was not explicitly designed to meet the OMB requirements for a statistically

valid and rigorous estimate. However, the NRP reporting compliance studies of Form 1040 tax returns are capable of

providing statistically valid FY 2019 estimates of improper payments for the AOTC and statistically valid and rigorous

FY 2019 estimates of improper payments for the EITC and ACTC. 

Consistent with prior estimates of EITC improper payments, the refundable portion of the AOTC and ACTC improper

payment estimates are based on overclaims of the refundable credit plus underpayments. Overclaims are defined as the

difference between the amount claimed and allowed per IRS math error processing and the amount that the examiner

determined should have been claimed.4 An underpayment is defined as the amount disallowed in processing (and not

subsequently allowed prior to the examination) that should have been allowed based on an examination of the taxpayer’s

books and records. The improper payment rate is calculated as follows:

Overclaims are different from overpayments in that overclaims are based on the full amount of the RTC, including amounts

used to offset reported tax liability, while overpayments are based on just the outlay portion (i.e., the amount of the

refundable credit paid to the taxpayers as a refund). Therefore, the estimated amount of improper payments is larger than it

would be had the estimate been based on just the outlay portion of the refundable credit.

4 The overclaims of taxpayers who do not show for the audit or respond to the audit notice are assumed to have the same rate of non-compliance as taxpayers

with similar characteristics (e.g., income and filing status) who did participate in the audit.
204 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

In accordance with improper payment reporting requirements, we update the improper payment estimates annually. The 

calculation of the total amount of each refundable tax credit starts with the baseline outlays reported in the FY 2020 federal

budget for the corresponding refundable tax credit and then adds in imputed tax expenditures that reflect the portion of the

refundable tax credit that offsets tax liability. The baseline outlays plus imputed tax expenditures are then adjusted to

reflect the total amount of refundable tax credit claimed. The RTC improper payment amounts are then calculated by

multiplying the improper payment rate estimated from the most recent tax year for NRP data by the estimated total amount

of refundable tax credit claimed.

PAYMENT REPORTING

Improper Payment Estimate

IPIA, as amended, requires agencies each year to identify programs and activities vulnerable to significant improper

payments, to annually estimate the overpayments or underpayments exposure, and to report on steps taken to reduce such

payments. The total estimated FY 2019 RTC claims, improper payment rates, and estimated amounts of improper payments

are provided in the Improper Payment Reduction Outlook table below. Similar to FY 2018, the improper payment amount

includes the overclaims that were paid and later recovered through the IRS post-refund enforcement activities. 

IMPROPER PAYMENT REDUCTION OUTLOOK ($ IN MILLIONS)

Program

FY 2019 

Outlays(1)

FY 2019 Proper 

Payment 

Amount

FY 2019 

Proper 

Payment 

Rate 

FY 2019 

Improper 

Payment 

Amount (2) (3)

FY 2019 

Improper 

Payment 

Rate (4)

FY 2019 

Overpayments 

FY 2019 

Underpayments

FY 2020 

Estimated 

Improper 

Payment 

Rate (5)

EITC $68,688.85 $51,337.24 74.74% $17,351.61 25.26% $17,351.61 (6) 25.26% 

AOTC $7,880.47 $5,828.54 73.96% $2,051.93 26.04% $2,051.93 (6) 26.04% 

ACTC $47,664.01 $40,440.52 84.84% $7,223.49 15.16% $7,223.49 (6) 15.16% 

Total $124,233.33 $97,606.30 $26,627.03 $26,627.03 (6)

(1) FY 2019 Outlays: Consistent with prior improper payment estimates, this table reports estimated claims instead of outlays. FY 2019 estimated totals are

based on outlays reported in the FY 2020 President's Budget plus imputed tax expenditures adjusted to reflect claims. 

(2) FY 2019 Improper Payment Amount: The estimated amount of net improper payments equals the estimated improper payment rate multiplied by the

estimated claims. 

(3) The total FY 2019 Improper Payment Amounts reported were made directly by the government.

(4) FY 2019 Improper Payment Rate: The FY 2019 estimated improper payment rate was estimated using a statistically valid random sample of TY 2015 individual

income tax returns that claimed the EITC, AOTC, or ACTC. Like the FY 2018 improper payment rate estimates, the FY 2019 estimated improper payment 

estimate does not subtract projected recovered improper payments prior to calculating the rate. 

(5) The FY 2020 Estimated Improper Payment Rate is the same as the FY 2019 Improper Payment Rate. The unique nature of tax administration means that

traditional target-setting as a means of approaching reductions in RTC improper payments will be ineffective. The RTC statute is such that IRS has limited

authority to make changes to the claims during return processing. More so, most of the eligibility and credit determination requirements depends on factors

that are not fundamentally known by the IRS at the time of filing. The IRS relies heavily on taxpayer-provided information without verifiability by third-party

sources. The complexity of the law contributes to confusion around eligibility requirements and is one of the major contributing factors of improper payments. 

Error prevention and recoveries are achieved through time-consuming and resource-intensive examinations and other compliance activities. The IRS does not

have the resources to audit every return claiming RTCs, and the adjustments able to be attained through this process are small relative to the amount of

improper payments estimated for the RTCs. Without legislative change to greatly improve effective tools to administer these credits, the improper payment

rate will not drastically change.

(6) Fewer than three returns were identified in the sample with underpayments. To avoid disclosing taxpayer information, the underpayment amount is

reported with the overpayment amount. 
DEPARTMENT OF THE TREASURY 205

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

While these programs identified as susceptible to significant improper payments are generally required to report reduction

targets, setting improper payment reduction targets for RTCs does not create meaningful goals for the IRS. This is due to

the complexity of the tax law related to the RTCs and the lack of independent and verifiable data regarding RTC eligibility. 

Improper Payment Classification

Improper payments can result in a monetary loss to the government. A monetary loss occurs when a payment should not

have been paid and can be recovered. Monetary loss is categorized into two sub-categories, monetary loss within the

agency’s control (e.g., an overpayment due to agency error in program processing or billing), or monetary loss outside the

agency’s control (e.g., an overpayment due to statutory requirements to pay by a certain date or within a certain timeframe). 

However, improper payments do not always result in a monetary loss to the government. For example, underpayments and

payments with insufficient documentation are considered improper payments but may not cause an actual monetary loss to

the government (referred to in the table below as non-monetary losses). 

Consequently, RTC overclaims are not the result of internal control weaknesses that we can remediate internally but are, in

fact, the result of factors beyond our control. Even if we could obtain legislative changes and invest in additional resources

and verification solutions that would ultimately reduce overclaims and error rates, the benefits derived would be marginal

relative to the cost of doing so.

The following table identifies the estimated monetary loss to the government (within and outside of Treasury’s control). 

Non-monetary loss is not included in the table because we do not have any non-monetary losses associated with the RTC

overclaims.

IMPROPER PAYMENT CLASSIFICATION ($ IN MILLIONS)

Program

Actual Monetary Loss Identified in Sample (1) Estimated Monetary Loss Estimated % 

of Monetary 

Within Agency Control Loss

Outside of Agency 

Control

Within Agency 

Control

Outside of Agency 

Control

EITC - $1.51 - $17,351.61 100% 

AOTC - $0.15 - $2,051.93 100% 

ACTC - $0.31 - $7,223.49 100% 

Total - $1.97 - $26,627.03 - 

(1) The actual monetary loss to the government identified in the sample is from a statistically valid random sample of TY 2015 individual income tax returns that

claimed the EITC, AOTC, and ACTC. Those returns were selected as part of the TY 2015 IRS NRP Study and underwent a tax audit to ascertain the accuracy of the

return, including any refundable credit claims. The amount reported here reflects the unweighted results of the audits that had closed at the time of the

development of the improper payments estimate. The weighted results from the TY 2015 study were used to estimate the FY 2019 improper payment rate, 

after adjusting weights to exclude taxpayers who did not show up for audits or respond to audit notices. 

Improper Payment Root Cause(s)

Agencies are required to categorize improper payments using one or more of the following root causes: program design or

structural issue, inability to authenticate eligibility, failure to verify, administrative or process errors, medical necessity,

insufficient documentation to determine, and other. The inability to authenticate eligibility root cause is divided into two

sub-categories: (1) inability to access data, and (2) data needed does not exist. Based on these root cause categories, the IRS

identified the two primary root causes for EITC, AOTC, and ACTC overclaims as: (1) inability to authenticate eligibility – 

data needed does not exist, and (2) program design or structural issues. 
206 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

For both the EITC and ACTC, qualifying child errors account for the highest dollar amount of overclaims. Income

misreporting, specifically self-employment income misreporting, accounts for the second highest amount of overclaim dollars,

with filing status errors being the third largest contributor to overclaims. For AOTC, errors associated with reporting of

qualifying tuition and expenses or credit eligibility account for the largest share of overclaims. 

The chart below illustrates the distribution of RTC improper payments by root causes.

IMPROPER OVERPAYMENT ROOT CAUSE CATEGORY ($ IN MILLIONS)

Inability to Authenticate Eligibility: Data Needed Does Not Exist

Nearly $23.9 billion, or 90 percent, of all RTC overclaims resulted from the inability to authenticate eligibility because the

data needed does not exist. This root cause includes errors associated with the inability to authenticate qualifying child

eligibility requirements due to relationship and residency requirements and the exceptions to the age requirement (full-time

student and disability). Inability to authenticate eligibility is the primary root cause for both EITC and ACTC overclaims

and is the secondary root cause for AOTC overclaims. This root cause includes errors that the IRS can only uncover through

the audit process since no data exists to support automated compliance checks. For the AOTC, most of the errors in this

category are related to eligibility criteria that are not reported on a Form 1098-T, Tuition Statement. Authentication is

difficult because the IRS relies primarily on the self-claimed information from taxpayers and there is a lack of internal and

external databases available with information that would help the IRS make a determination of eligibility.

Another major cause of error in this category is taxpayer income misreporting related to self-employment income, where the

income is not reported to the IRS by a third party. This category of errors also includes filing status errors, when married

couples incorrectly file as single or head of household, and data on marital status and living arrangements are not available. 

Finally, this category includes a small amount of error related to rules for all taxpayers claiming these refundable credits

related to valid SSNs, residency of non-citizens, and when the taxpayer qualifies as a qualifying child of another taxpayer,

none of which can be authenticated by the IRS at the time of filing.

Improper payments reported under this root cause category are essentially beyond Treasury’s control. Although we have

proposed several legislative changes, without the availability of a third-party database to authenticate eligibility, or

additional time and resources for the IRS to address any issues identified during audit, the IRS is unable to reduce the

overclaims reported in this root cause category. 

$16,310.5 

$1,041.1 

$759.2 

$1,292.7 

$6,790.1 

$433.4 

Inability to Authenticate Eligibility: Data Needed Does Not Exist Program Design or Structural Issue

EITC AOTC ACTC

90% of RTC Overclaims
DEPARTMENT OF THE TREASURY 207

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Program Design or Structural Issues

Nearly $2.8 billion, or 10 percent, of all RTC overclaims result from program design limitations. Errors caused by program

design occur when information needed to confirm payment accuracy is not available at the time the return is processed. 

These errors relate to certain income misreporting, tiebreaker errors, and joint return errors of qualifying children. 

Although Form W-2 payer information is now available to the IRS sooner due to integrity provisions of the Protecting

Americans from Tax Hikes (PATH) Act, payer information does not exist in all cases and may not be available to the IRS

until after the filing season. Thus, the IRS is unable to match fully wages and other income sources against the return at

the time of filing. 

A very small portion of errors are attributable to tiebreaker errors, where more than one taxpayer claims the same

qualifying child. The IRS processes returns as they are filed and is unaware that two returns will claim the same qualifying

child at the time the first return is filed, or who is actually qualified in a tiebreaker situation. In addition, situations where

a qualifying child files a joint return also make up a small portion of this category. A child cannot be a qualifying child if he

or she files a joint return for a reason other than claiming a refund. Since returns are filed at various times, the IRS cannot

identify these situations until both returns have been filed.

Program design and structural issues are the primary root cause for refundable AOTC overclaims, and the secondary root

cause for EITC and ACTC overclaims. For AOTC, the main error types are claims that do not have an associated Form

1098-T reported to the IRS and misreporting of qualified education expenses. Although educational institutions send Form

1098-T to the IRS, this data is either not available to confirm eligibility during return processing or the data may be

inconsistent with what the taxpayer reports. Furthermore, the IRS lacks the statutory authority to disallow AOTC claims

that are missing Form 1098-T. Other program design errors include taxpayers that claim students for more than the fouryear statutory limit. For such instances, the IRS does not have congressional authority to disallow the claim.

Corrective Actions

The IRS’s strategy with respect to overclaims is to intervene early to ensure compliance with the law. In FY 2019, the IRS

addressed overclaims through its compliance programs, as well as through expansive outreach and education efforts to

taxpayers and preparers. The table below illustrates the corrective actions implemented by the IRS to address the root

causes identified for the EITC overclaims. Since the refundable portion of the AOTC and ACTC were identified for the first

time this year as being susceptible to significant improper payments, corrective actions have not been developed or

implemented for these two refundable credit programs.

EITC CORRECTIVE ACTION CATEGORIES

Improper Payment Root Causes

Examination Closures

Math Error Notices

Document Matching 

Amended Returns

Two and 10 Year Bans

Identify Theft and Fraud

Criminal Investigations

Soft Notices

Return Preparer Initiatives

Outreach and Education

Software Developer 

Working Group

Inability to Authenticate Eligibility: 

Data Needed Does Not Exist X X X X X X X X X X 

Program Design or Structural Issue X X X X X X X X X 
208 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

The IRS’s EITC enforcement programs protected over $2.4 billion in FY 2019. The revenue includes EITC and other credits

and taxes recovered or prevented from being paid in error in FY 2019, on returns filed in calendar year 2019 or earlier years. 

The chart below shows that the IRS conducted 256,768 audits related to the EITC, issued 138,500 math error notices, and

performed 316,602 document-matching reviews.

COMPLIANCE ACTIVITIES

FY14 FY15 FY16 FY17 FY18 (1) FY19 (2) FY20 (3) FY14-FY20

Total 

Audit Closures 435,638 445,594 380,260 326,503 330,127 256,768 267,700 2,442,590 

Math Error Notices 194,127 166,611 159,906 160,227 144,211 138,500 135,730 1,099,312 

Document Matching 1,053,304 1,710,904 852,733 666,334 457,308 316,602 317,000 5,374,185 

Amended Returns (4) 17,723 24,282 9,895 10,296 8,446 6,376 6,000 83,018 

(1) Restated actual.

(2) Preliminary data.

(3) Estimate based on FY 2019 preliminary data and preliminary FY 2020 plans.

(4) Amended Returns are a subset of Audit Closures. 

These compliance activities have a significant effect, protecting $2.4 billion of revenue in FY 2019. Treasury projects that

continued enforcement efforts will protect a total of nearly $22.7 billion in revenue from FY 2014 through FY 2020, as shown

below.

PROTECTED REVENUE FROM COMPLIANCE ACTIVITIES ($ IN MILLIONS)

FY14 FY15 FY16 FY17 FY18 (1) FY19 (2) FY20 (3) FY14-FY20

Total 

Audit Closures $1,751.32 $1,991.06 $1,826.30 $1,545.39 $1,508.43 $1,123.52 $1,359.45 $11,105.47 

Math Error Notices 243.34 226.82 237.24 250.76 228.05 219.02 214.64 1,619.87 

Document Matching 1,385.06 2,313.96 1,570.54 1,248.26 1,136.20 1,049.32 1,050.00 9,753.34 

Amended Returns (4) 52.42 76.63 34.56 33.38 26.58 21.24 21.00 265.81 

Total $3,432.14 $4,608.47 $3,668.64 $3,077.79 $2,899.26 $2,413.10 $2,645.09 $22,744.49 

(1) Restated actual.

(2) Preliminary data.

(3) Estimate based on FY 2019 preliminary data and preliminary FY 2020 plans.

(4) Amended Returns are a subset of Audit Closures. 

In addition to the compliance activities described above, the following efforts also contributed to the IRS’s strategy of

identifying and reducing RTC overclaims in FY 2019:

• Base Enforcement Efforts: Delivered key compliance activities including 256,768 audits, 316,602 misreported income

cases, and an estimated 138,500 math error adjustments, protecting revenue of over $2.4 billion.

• Two and 10-Year Bans: Imposed 1,770 two-year bans and 152 10-year bans for cases where the IRS determined during

an EITC audit that the taxpayer intentionally disregarded the rules and regulations or committed fraud.

• Identity Theft and Fraud: Detected and stopped over 322,548 fraudulent EITC returns through our fraud detection

filters from being processed, preventing over $1.6 billion in erroneous refunds.

• Criminal Investigations: Continued to stop fraudulent EITC refund claims through our Criminal Investigation (CI)

division indictments. CI issued 106 new EITC Questionable Refund Program scheme indictments and secured 118

convictions. CI also issued 95 new EITC Return Preparer indictments and secured 99 convictions.
DEPARTMENT OF THE TREASURY 209

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• Soft Notices: Sent 67,259 letters to alert taxpayers that a qualifying child for the EITC claimed on their returns had also

been claimed by another person.

• Return Preparer Initiatives: As a part of the FY 2019 Refundable Credits Return Preparer Strategy, the IRS completed

activities associated with a suite of progressive preparer treatments, addressing 23,780 preparers selected through our

risk-based scoring model, before and during the filing season. Approximately 22,400 were EITC preparers.

o The IRS closed 729 pre-filing season Due Diligence Visits (DDVs) with a penalty rate of 93 percent and over

$30 million in proposed penalties. Criminal Investigation and revenue agents completed 95 educational

Knock-and-Talk Visits. The IRS also mailed 17,596 educational notices before the FY 2019 filing season.

o The IRS closed 225 correspondence DDVs with a penalty rate of 96 percent and nearly $10 million in

proposed penalties. The IRS also mailed 12,363 educational notices and successfully made 1,314 of 2,428

calls attempted to preparers during the 2019 filing season.

o The analysis of the FY 2019 Refundable Credits Return Preparer Strategy revealed that, in addition to the

penalties proposed above, the preparer treatments protected approximately $347 million ($256 million in

EITC, $76 million in CTC, and $15 million in AOTC).

• Return Preparer Penalties: The IRS sent 802 warning letters and 14,926 electronic alerts to warn preparers who did not

attach Form 8867, Paid Preparer's Due Diligence Checklist, to TY 2018 taxpayer returns. The IRS subsequently

proposed over $5.7 million in penalties to 263 EITC, AOTC, and ACTC return preparers for failure to exercise due

diligence by attaching the form, as authorized by IRC Section 6695(g) and Treasury Regulation Section 1.6695–2.

• Return Preparer Outreach and Education: Focused outreach and education efforts on EITC return preparers to educate

them on EITC and due diligence requirements. Nearly 12,640 preparers received a certificate of completion for the

English and Spanish interactive EITC Due Diligence Training module. Additionally, over 8,700 preparers attended the

“Learn the Facts about IRS Due Diligence Contacts” and “One Year Later – Tax Cuts and Jobs Act Due Diligence

Update” seminars at the 2019 Nationwide Tax Forums.

• Servicewide EITC Strategy: Continued activities to evaluate potential new solutions identified to address overclaims.

• Key Performance Indicator Scorecard Survey: The IRS continued to report EITC base enforcement efforts (i.e., audits,

misreported income cases, and math error adjustments) as well as other compliance and outreach activities that help

address overclaims.

• Software Developer Working Group: Continued our partnership with members of key tax software associations to reduce

EITC errors and assist preparers in meeting their EITC due diligence requirements.

• PATH Act Integrity Provisions: The IRS continued applying tools provided by the PATH Act to EITC returns as follows:

o Held taxpayers’ refunds until February 15 of the filing year on returns claiming EITC and/or ACTC as

directed in Section 201(b), using the time to identify fraudulent returns.

o Rejected amended and late filed original returns filed by taxpayers retroactively claiming EITC for any

prior year in which he/she did not have a valid social security number as directed in Section 204.

• Legislative Proposals: The FY 2020 budget request included the following legislative proposals that may improve

compliance and reduce erroneous payments:

o Provide greater flexibility to address correctable errors to help the IRS deny certain erroneous EITC claims

before refunds are paid.

o Increase oversight of paid tax return preparers to help promote high quality services and improve

voluntary compliance.
210 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

• Refundable Credit Summit: The IRS hosted a third summit that was attended by over fifty refundable credit

stakeholders, including tax industry professionals, representatives of federal agencies, consumer advocates, and

representatives from non-government organizations. The objective was to share progress on recently implemented

legislative provisions, to provide information on both current program activities and plans for the 2020 filing season, and

to solicit input on ways to increase participation, improve administration and reduce overclaims with respect to

refundable credits.

• Enterprise Research: Assessed the results of the FY 2019 enterprise research strategy and developed the FY 2020

strategy in partnership with internal organizations to better focus compliance and outreach activities using research

data.

BARRIERS

A number of factors continue to serve as barriers to reducing RTC improper payments. These include:

• Complexity and lack of data to verify statutory eligibility requirements: Only taxpayers know whether or not they meet

the eligibility requirements for the RTCs claimed, and a third-party database is not available to independently validate

the data submitted on returns. The only tool available to the IRS to verify eligibility is an audit of the tax return after

filing. The IRS currently performs such audits, with EITC claimants audited at twice the national average for

individual taxpayers. However, due to resource constraints, only a small number of returns can be audited each year.

• Lack of correctable error authority: The IRS has limited ability to make automatic changes to a return (which would

require congressional authorization) and must rely on lengthy deficiency procedures.

• High turnover of eligible taxpayers: The IRS estimates that approximately one-third of the EITC applicants change

each year. This changing population of taxpayers who claim the EITC increases the difficulty of improving EITC

compliance and creates challenges to the IRS’s education, outreach, and enforcement efforts.

• Unscrupulous and/or incompetent return preparers: Unregulated tax return preparers contribute to RTC noncompliance, fraud, and improper payments. The IRS, in coordination with the Treasury, proposed legislation to provide

the IRS and Treasury with the authority to regulate all paid return preparers. In the interim, to remediate this barrier,

the IRS will continue its voluntary training and certificate of completion program for unenrolled return preparers, as

well as provide tools to help taxpayers locate qualified preparers.

• Fraud: Fraudulent tax returns and identity theft continue to be a major barrier to reducing RTC overclaims. To

mitigate fraudulent RTC claims, the IRS uses the Electronic Fraud Detection System to identify schemes and suspicious

patterns. Tax returns identified as questionable are then routed to the IRS employees for review before refunds are

issued.

None of these factors, on their own, can be considered the primary driver of program error. However, these barriers severely

impede the IRS’s dual mission of issuing refunds to those who are entitled, while ensuring refunds are paid only to those who

truly qualify for the RTCs. Additionally, statutory requirements further constrain the IRS’s ability to ensure that RTC

claims are valid before they are processed and paid. 

Since RTCs are administered through the IRC, they are claimed by taxpayers during the filing and processing of their tax

returns. The IRS is required by statute to pay interest on refunded amounts if those refunds are not issued within 45-days

of the return filing deadline. This interest period was unaffected by the PATH Act provision that required the IRS to hold

EITC refunds until February 15 of the filing season.

In FY 2017, the changes enacted under the PATH Act to accelerate the filing of wage and non-employee compensation

information allowed the IRS to use the data to address refund fraud and improper payments. However, delays and
DEPARTMENT OF THE TREASURY 211

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

extensions granted for filing the forms limits the IRS’s ability to use the information at the time of filing or within a 

reasonable period thereafter in which a taxpayer would expect their refund. The IRS continues to face challenges when

attempting to validate the RTC claims of filers with non-wage income that may not have a third-party reporting

requirement. The requirements, expectations, and data accessibility relative to the timely payment of refunds constrain the

IRS’s ability to conduct up-front verification of claims. These conditions distinguish RTCs and their administration through

the tax system from the extensive validity checks conducted by agencies administering other federal programs that typically

establish eligibility prior to the issuance of payments or benefits.

ACCOUNTABILITY

The Secretary has delegated responsibility for addressing improper payments to the Assistant Secretary for Management

(ASM). Improper payments fall under the Department’s management and internal control program. A major component of

the internal control program is risk assessments, which are an extension of each Treasury component’s annual improper

payment elimination and recovery review process, as required under OMB Circular A-123, Appendix C. Under Treasury

Directive 40-04, Treasury Internal Control Program, executives and managers are required to take all necessary steps to

create an environment within their respective organizations or programs to ensure operational efficiency and adherence to 

all applicable statutory and regulatory standards related to internal controls. Managerial responsibility and accountability

in all internal control areas are visible and well documented with our oversight mechanisms, such as the Treasury Chief

Financial Officer (CFO) Council and the Management Controls Executive Steering Committee. We have identified

executives who are responsible and accountable for reducing the level of RTC overclaims, while other senior and mid-level

officials have responsibility for monitoring progress in this area as bureau and program internal control officers.

AGENCY INFORMATION SYSTEMS AND OTHER INFRASTRUCTURE

Overall, we have the internal controls, human capital, and information systems and other infrastructure needed to manage

our improper payments. As noted previously, RTC overclaims are not due to internal control issues, rather overclaims are

due to factors beyond our control under current law and existing authority. 

RECAPTURE OF IMPROPER PAYMENTS REPORTING

In accordance with IPERA and OMB Circular A-123, Appendix C, we perform and report annually on our payment recapture

program. IPERA, as amended, expanded the payment types to be reviewed beyond contracts to include grants, benefits,

loans, and miscellaneous payments.

Our annual risk assessment process includes a review of pre-payment controls that minimize the likelihood and occurrence

of improper payments. We require each Treasury component to conduct post-award audits and report on payment recapture

activities, improper payments made, and recoveries achieved. Our components perform their payment recapture audit and

identify candidates for payment recapture action in accordance with the Treasury-wide guidance. 

We consider pre- and post-reviews to identify improper payments to be a sound management practice that should be

included among basic payment controls. All of our components have a process in place to identify improper payments during

pre- and post-reviews. When applicable, our components may use the results of the Treasury Inspectors General and GAO

reviews to help identify payment anomalies and target areas for improvement. However, we apply extensive payment

controls at the time each payment is processed to minimize recapture activity. The table below illustrates the results from

our payment recapture audit process.
212 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

The improper payments identified through the payment recapture audit are recouped either by payment off-set (i.e., the

outstanding improper payment amount is offset by a future payment) or by establishing an accounts receivable. When an

accounts receivable is established for the improper payment, the accounts receivable is carried forward until payment is

received or a decision is made to write-off the outstanding receivable. 

RECAPTURED OVERPAYMENTS WITH AND WITHOUT RECAPTURE AUDIT PROGRAMS ($ IN MILLIONS)

Program

Total 

Improper 

Payment 

Amount 

Identified for 

Recapture

Total 

Amount 

Recovered 

via Payment 

Recapture (1)

% Recovered 

via Payment 

Recapture

Total 

Amount 

Identified via 

Outside 

Source (2)

Total 

Amount 

Recovered 

via Outside 

Source (2)

% Recovered 

via Outside 

Source

Amount 

Determined 

to be not 

Collectable (3)

% 

Determined 

to not be 

Collectable

CDFI 0.0091 0.0091 100% - - - - - 

DO 0.1239 0.0702 57% 0.0008 0.0001 16% 0.0237 19% 

FinCEN 0.0032 0.0037 115% - - - 0.0003 8% 

Mint 0.0818 0.0646 79% 0.0229 0.0001 1% 0.0093 11% 

ODCP 2.4762 1.5159 61% - - - 0.2688 11% 

OFS 0.1006 0.0952 95% - - - 0.0054 5% 

OIG 0.0161 0.0085 52% - - - 0.0071 44% 

SIGTARP 0.0040 0.0043 107% 0.0000 0.0000 100% - - 

TIGTA 0.0111 0.0047 43% 0.0018 0.0018 99% 0.0050 45% 

TTB 0.0198 0.0194 98% 0.0034 0.0034 100% 0.0003 2% 

Total $2.8458 $1.7956 63% $0.0289 $0.0054 19% $0.3199 11% 

(1) Cumulative total of FY 2019 amount and prior year amount.

(2) All improper payments identified were self-reported by the payee.

(3) Of the total Amount Determined to be not Collectable, approximately $0.3 million is from payments made in FY 2019 (or approximately 11 percent of total

improper payments made in FY 2019).

Of our components reporting an Amount Determined to be not Collectable in the table above, we determined all of the writeoff amounts to be immaterial, with the exception of the Office of D.C. Pensions (ODCP). ODCP’s amount determined not to

be collectable is based on individual debt cases that were deemed uncollectable after thorough reviews resulted in the

determination to cease active collective actions. 

In FY 2019, we determined that conducting a Payment Recapture Audit on the following ten low risk components was not

cost-effective:

• Bureau of Engraving and Printing (BEP) Program;

• Departmental Franchise Fund (DFF) Programs;

• Fiscal Service Administration (FSA) Programs;

• Fiscal Service Debt (FSD) Programs;

• Funds Management Branch (FSM) Programs;

• Fiscal Service Umbrella (FSU) Programs;

• IRS’s Administrative Fund Programs;

• Office of International Assistance (OAS) Programs;
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OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

• Office of the Comptroller of the Currency (OCC); and

• Treasury Executive Office for Asset Forfeiture / Treasury Forfeiture Fund (TEOAF/TFF).

The justification that performing a payment recapture audit would not be cost-effective consists of the following reasons:

• The BEP program is a low risk level program, with little to no improper payments identified in the past five years.

• The DFF programs reflect a low level of risk for all payment type categories assessed.

• The Fiscal Service’s FSA, FSD, FSM, and FSU programs continued to reflect a low level of risk in nearly every group

and payment type assessed, with no audit findings and material weaknesses identified.

• The IRS’s Administrative Fund Programs are low risk level programs, with no GAO or TIGTA identified deficiencies and

no prior payment recapture audit identified improper payments.

• The Treasury International Programs disburse non-federal payments to the Multilateral Development Banks.

Payments are made via payment vouchers on a letter of credit administered by the Federal Reserve Bank of New York,

or direct cash payments through the Secure Payment System. The International Programs also disburse federal

payments for Debt Restructuring via Intra-Governmental Payment and Collection or Standard Form 1081. Internal

reviews are performed before all payments are issued.

• The OCC programs continue to reflect a low level of risk for each payment type assessed, with no deficiencies identified.

• The TEOAF/TFF program is a low risk level program, with no identified prior improper payment issues. In addition,

program payments are made to state and local law enforcement agencies, reducing the risk of improper payments.

Based on the above justifications, payment recapture audits for these programs were not performed. We sent notifications

for the new program justifications to OMB and the Treasury OIG in October 2019.

Through the payment recapture audit, we recaptured approximately $1.8 million, of which approximately $1.7 million was

used for original purposes, and the remaining $0.1 million was returned to Treasury as miscellaneous receipts. The

following table represents the disposition of the recaptured improper payments by our components:
214 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

CDFI DO FinCEN MINT ODCP OFS OIG SIGTARP TIGTA TTB

Original Purpose $0.0091 $0.0376 $0.0007 $0.0646 $1.5159 $0.0952 $0.0027 $0.0004 $0.0031 $0.0139

Returned to Treasury $0.0327 $0.0029 $0.0058 $0.0039 $0.0016 $0.0055

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Returned to Treasury Original Purpose

DISPOSITION OF FUNDS RECAPTURED THROUGH PAYMENT RECAPTURE AUDIT PROGRAMS ($ IN MILLIONS)

As of September 30, 2019, there were approximately $1.4 million identified improper overpayments outstanding, with

approximately $0.8 million identified in FY 2019 and $0.6 million identified in prior fiscal years. The table below shows the

aging of the improper overpayments outstanding.

AGING OF OUTSTANDING OVERPAYMENTS IDENTIFIED IN THE PAYMENT RECAPTURE AUDITS

($ IN MILLIONS)

0 to 6 months 6 months to 1 year Over 1 year

Program or Activity

Total Amount 

Outstanding

Amount 

Outstanding

Percent 

Outstanding

Amount 

Outstanding

Percent 

Outstanding

Amount 

Outstanding

Percent 

Outstanding

CDFI - - - - - - - 

DO $0.0822 $0.0314 2% $0.0004 0% $0.0504 4% 

FinCEN - - - - - - - 

MINT $0.0496 $0.0103 1% $0.0002 0% $0.0391 3% 

ODCP $1.2241 $0.7362 54% $0.0258 2% $0.4621 34% 

OFS - - - - - - - 

OIG $0.0005 $0.0005 - - - - - 

SIGTARP $0.0006 - - - - $0.0006 0% 

TIGTA $0.0015 $0.0015 0% - - - - 

TTB $0.0008 $0.0001 0% $0.0007 0% - - 

Total $1.3593 $0.7800 57% $0.0271 2% $0.5522 41% 
DEPARTMENT OF THE TREASURY 215

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

AGENCY IMPROVEMENT OF PAYMENT ACCURACY WITH THE DO NOT PAY (DNP) INITIATIVE

The IPERIA requires pre-payment and pre-award reviews to determine program or award eligibility and to prevent improper

payments before the release of any federal funds. This review must include the relevant databases as prescribed by IPERIA,

including:

• The death records maintained by the Commissioner of the Social Security Administration (SSA);

• GSA System for Award Management Exclusion Records;

• Treasury’s Offset Program Debt Check Database;

• The Department of Housing and Urban Development’s Credit Alert System or Credit Alert Interactive Voice Response

System;

• The Department of Health and Human Services Office of the Inspector General’s List of Excluded Individuals/Entities;

and

• Prisoner data maintained in the Prisoner Update Processing System by SSA.

In November 2017, OMB designated the following six additional databases for inclusion under the DNP Initiative:

• Treasury’s Office of Foreign Asset Control’s Specially Designated National List;

• Data from the GSA System for Award Management sensitive financial data from entity registration records (including

those records formerly in the legacy Excluded Parties List System);

• The IRS’s Automatic Revocation of Exemption List;

• The IRS’s Exempt Organization Select Check;

• The IRS’s e-Postcard database; and

• The commercial database American InfoSource Deceased Data.

All of our components have incorporated pre-payment and pre-award reviews, as mandated by IPERIA, through established

internal control processes and procedures that require reviews against the databases consolidated within the DNP Business

Center (hereafter referred to as “DNP”), or through their own established databases. In FY 2019, none of the Treasury

components reported significant reductions in improper payments attributable to the DNP Initiative. Treasury components

continue to utilize the DNP portal to review vendor files prior to disbursement to prevent any improper payments.
216 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

SECTION F: FRAUD REDUCTION REPORT

BACKGROUND

The Fraud Reduction and Data Analytics Act (FRDAA) of 2015, mandates agencies to take steps to improve financial and

administrative controls and procedures to assess and mitigate fraud risks, and to improve federal agencies’ development and

use of data analytics for identifying, preventing, and responding to fraud, including those arising from improper payments. 

Each agency is required to report its progress in implementing: (1) the financial and administrative controls; (2) the fraud

risk principle in the GAO Standards for Internal Control in the Federal Government (Green Book); and (3) management of

fraud risk in accordance with OMB Circular A-123. 

In response to FRDAA, GAO issued the Framework for Managing Fraud Risks in Federal Programs in July 2015, based on

leading practices for mitigating fraud risks and enhancing program integrity. The objective of fraud risk management is to

proactively facilitate a program’s mission by continuously and strategically mitigating the likelihood and impact of fraud. 

Whether an act is in fact fraud is a determination made through the judicial or other adjudicative system, and is beyond

management’s professional responsibility for assessing risk.1

FRAUD RISK MANAGEMENT

All of our components have a shared responsibility in preventing, detecting, and responding to potential fraud, including

improper payments. Our components have ownership and responsibility for managing fraud risk. The Office of Risk

Management is responsible for providing expertise and guiding principles to assist our components in the management of

fraud risk. The Office of the Deputy Chief Financial Officer, establishes Treasury-wide guidance designed to ensure that

financial, programmatic, and administrative internal controls provide an appropriate level of assurance towards operational

and fiscal effectiveness and efficiency. The Office of the Procurement Executive (OPE) is responsible for establishing

Treasury-wide policies and procedures for the use of the purchase card in program management and oversight. The OIG

Office of Investigation (OI) is responsible for receiving and assessing complaints, and investigating potential fraud cases. 

First Line of Defense

Our components are the first line of defense to prevent, detect, and respond to potential fraud. They are the risk owners for 

their programs, and have responsibility for mitigating fraud risk and enhancing program integrity, by designing and

implementing processes and controls that effectively prevent and detect potential fraud, both internal and external to

Treasury. Components must establish policies, procedures, techniques, and mechanisms to comply with risk management,

and internal control requirements to manage and respond to fraud risk. Employees who encounter incidents of fraud, waste

and abuse have a responsibility to report the incidents to their respective OIGs.

Mechanism used by individual components to manage fraud risk include:

• Many components ensure key duties and responsibilities are effectively segregated among different people to reduce the

risk of error, waste, or fraud, and systems have controls to limit access and ensure no one individual can control all

aspects of a transaction.

1 GAO-14-704, Standards for Internal Control in the Federal Government.
DEPARTMENT OF THE TREASURY 217

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

The Bureau of the Fiscal Service (Fiscal Service) hired a senior fraud program manager to lead an enterprise fraud risk

management program (EFRMP). The program manager developed the EFRMP framework with mission, vision, goals, and

objectives and launched the program in June 2019 after gaining endorsement from the Fiscal Service executive leadership. 

The program manager is currently in the process of implementing identified priority tasks including conducting fraud risk

assessments, determining bureau’s fraud risk profile and maturity levels. EFRMP also holds quarterly Enterprise Fraud

Forums across the bureau to discuss prevention, detection, and response strategies for fraud activities and events. The

Forum meetings bring together representatives from all business areas that manage fraud, including the senior leadership

and Security Program Office. The Security Program Office manages centralized fraud as part of its role in countering fraud,

waste, and abuse for the Fiscal Service. The Fiscal Service also evaluates fraud risk through an “assessable unit risk

assessment”1 coordinated by the Internal Control Branch, consistent with OMB Circular A-123, Management’s

Responsibility for Enterprise Risk Management and Internal Controls, and the Improper Payments Elimination and

Recovery Improvement Act (IPERIA). Results from the assessable unit risk assessment will be factored into the enterprise

fraud risk analysis. The Office of Enterprise Risk Management will work with the Enterprise Fraud Risk Management

Program (EFRMP) to incorporate any material fraud risks the EFRMP identifies into the Bureau’s enterprise risk profile

• The IRS has implemented programs to reduce issuance of fraudulent refunds and to review fraud trends and patterns to

inform fraud prevention techniques as well as using predictive and forensic analytics to detect and prevent fraudulent

activity.

• The IRS conducted an enterprise-wide fraud risk assessment and developed the IRS’s first Fraud Risk Profile leveraging

best practices contained in the GAO Fraud Risk Framework and the Treasury Anti-Fraud Playbook.

• Components provide in-depth training and monthly audits of all purchase and travel card transactions.
218 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

While the Treasury DNP focuses on identifying, preventing and detecting improper payments, many of the tools and data

analytics implemented through DNP can also serve as a first line of defense against potential fraud (or as a supplement to

other component-specific detection activities). The DNP’s primary methodology for detecting improper payments (some of

which could be due to fraud) is matching payment data to eligibility data. For example, Treasury disbursed payments are

automatically matched to death data. If DNP’s tools detect a payment to a deceased individual, DNP can help agencies stop

future payments or quickly move to reclaim payments. Data matching is used both in the DNP’s online portal as well as in

its analytics reports, and the data matching can be performed at different phases of the payment life cycle. For instance,

DNP can continuously monitor a list of payees against lists of vendors excluded from working with the federal government so

that an agency can take appropriate steps if a contractor has been debarred. In FY 2019, no Treasury program

disbursements were identified as improper as a result of the DNP data matching.

The DNP analytics team also conducts payment integrity checks for customer agencies to detect anomalies through its

Agency Insight Reports, which are an analysis of an agency’s Treasury-disbursed Payment Automation Manager data. The 

results of the analysis are provided to the agency for review. The agency must then make a determination regarding

whether the high risk payments or trends identified by DNP correspond to actual improper payments. The agency is also

responsible for following up on any payments or trends that they believe are due to potential fraud. 

Internal Controls

Through our OMB Circular A-123 internal control assessments, controls are monitored and evaluated to provide assurances

that our components are effectively preventing, detecting, and responding to potential fraud. Our Treasury Implementation

Guide for OMB Circular A-123, Appendix A incorporates GAO’s Green Book Principle 8, Assess Fraud Risk. Each year

components evaluate their adherence to this principle during their assessments of internal control. For FY 2019, all

components reported that they are in compliance with Principle 8.

All of our components are required to integrate the GAO definitions for fraud, and consider risks for fraudulent financial

reporting, misappropriation of assets, and corruption during their risk assessment process. Additionally, leading practices

for mitigating fraud risk are required to be incorporated into our component’s internal control system design to prevent,

detect, and respond to fraud.

OPE developed Treasury’s Charge Card Management Plan for Government-wide Commercial Purchase Cards to incorporate

management controls in accordance with OMB Appendix B, Improving the Management of Government Charge Card

Programs. The purchase card program includes a variety of risk management controls designed to meet program objectives

including the reduction of fraud, waste, and abuse.

We also assess fraud risk during our improper payment reporting and recovery activities as part of Appendix C to OMB

Circular A-123, Requirements for Effective Estimation and Remediation of Improper Payment. Through our improper

payment reporting efforts, our components identify the programs deemed most susceptible to improper payments, based on

total program disbursements and inherent risks to the integrity of the program. Additional assessments are performed on

those susceptible programs to identify improper payments and determine potential fraud cases.

Additional information on Payment Integrity can be found in Part 3, Section E, of this report.
DEPARTMENT OF THE TREASURY 219

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

Enterprise Risk Management

Fraud risk is addressed in the course of the Office of Risk Management’s (ORM’s) general risk advisory work. Our

leadership team has the opportunity to discuss potential fraud and other types of risks during regular meetings led by the

Chief Risk Officer or Deputy Chief Risk Officer. The ORM conducts regular Enterprise Risk Management Council meetings

with the bureau-level risk management contacts to discuss various risk topics, including fraud risk. Fraud risk is considered

when our components develop and update their annual risk profiles, or top risk lists, to share with the ORM. 

Investigations

Complaints come to the OIG’s OI from Treasury components, the public, and other government agencies by telephone,

facsimile, U.S. mail, electronic mail, online complaint forms, referrals from other law enforcement agencies, and referrals

from prosecutorial offices (U.S. Attorney’s Offices and District or State Attorney’s Offices). The following factors are used to

determine if a complaint is investigated:

• The impact on Treasury’s programs and operations;

• Alleged participation in the fraud, waste, or abuse by Treasury employees or contract employees;

• Financial loss to Treasury or the government; and

• Criminal allegations or activity that would be accepted for prosecution by the U.S. Attorney’s Offices or State Attorney’s

Offices.

o OI will investigate if there is a loss to Treasury that is prosecutable by subjects that are not employees of

Treasury.

o OI will also investigate all criminal activity alleged against Treasury employees, particularly senior

Treasury employees.
220 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

SECTION G: CIVIL MONETARY PENALTIES INFLATION ADJUSTMENT

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (2015 Act) amended the Federal Civil

Penalties Inflation Adjustment Act of 1990 (Inflation Adjustment Act), to improve the effectiveness of civil monetary

penalties (CMPs) and to maintain their deterrent effect. The 2015 Act requires agencies to annually adjustment the level of

civil monetary penalties for inflation and report annually in AFRs. The 2015 Act requires that agencies make annual

inflation adjustments based on annual OMB guidance and publish the latest penalty levels in the Federal Register no later

than January 15 each year. The Inflation Adjustment Act and the 2015 Act exclude penalties under the IRC and the Tariff 

Act of 1930. The table below depicts the covered CMPs that are under our purview.

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty 

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

50 USC App. 16(b)(1)

Trading with the Enemy Act, 

Section 16(b)

Sanctions violation 1917 2019 $89,170 DO (OFAC)

84 Federal Register

27714 (June 14, 2019)

https://www.govinfo.g

ov/content/pkg/FR2019-06-14/pdf/2019-

12475.pdf

50 USC 1705

International Emergency

Economic Powers Act, Section

206

Sanctions violation 1977 2019 

The greater of

$302,584 or

twice the value

of the

underlying

transaction

DO (OFAC) Same as above

18 USC 2339B(b)

Antiterrorism and Effective

Death Penalty Act of 1996

Sanctions violation 1996 2019

The greater of

$79,874 or twice

the amount of

which a financial

institution was

required to

retain

possession or

control

DO (OFAC) Same as above

21 USC 1906(b)

Foreign Narcotics Kingpin

Designation Act, Section 807

Sanctions violation 1999 2019 $1,503,470 DO (OFAC) Same as above

19 USC 3901-3913

Clean Diamond Trade Act Sanctions violation 2003 2019 $13,669 DO (OFAC) Same as above

15 USC 6701 note

Terrorism Risk Insurance Act, as

amended

Civil Penalty 2002 2019 $1,394,837

DO (Federal

Insurance

Office)

84 Federal Register

15955 (April 17, 2019) 

https://www.govinfo.g

ov/content/pkg/FR2019-04-17/pdf/2019-

07664.pdf

12 USC 1829b(j)

Bank Secrecy Act, as amended

Recordkeeping Violations

for Funds Transfers 1988 2019 $21,039 FinCEN

84 Federal Register

54495 (October 10, 

2019)

https://www.govinfo.g

ov/content/pkg/FR-
DEPARTMENT OF THE TREASURY 221

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty 

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

2019-10-10/pdf/2019-

22094.pdf

12 USC 1955

Bank Secrecy Act, as amended

Willful/Grossly Negligent

Recordkeeping Violations 1988 2019 $21,039 FinCEN Same as above

31 USC 5318(k)(3)(C) 

Bank Secrecy Act, as amended

Failure to Terminate

Correspondent Relationship

with Foreign Bank

2001 2019 $14,231 FinCEN Same as above

31 USC 5321(a)(1) 

Bank Secrecy Act, as amended

General Civil Penalty

Provision for Willful

Violations of Bank Secrecy 

Act Requirements 

1986 2019 $57,317 to

$229,269 FinCEN Same as above

31 USC 5321(a)(5)(B)(i) 

Bank Secrecy Act, as amended

Foreign Financial Agency

Transaction - Non-Willful

Violation of Transaction

2004 2019 $13,247 FinCEN Same as above

31 USC 5321(a)(5)(C) 

Bank Secrecy Act, as amended

Foreign Financial Agency

Transaction - Willful

Violation of Transaction

2004 2019 $132,469 FinCEN Same as above

31 USC 5321(a)(6)(A) 

Bank Secrecy Act, as amended

Negligent Violation by

Financial Institution or NonFinancial Trade or Business1986 2019 $1,146 FinCEN Same as above

31 USC 5321(a)(6)(B) 

Bank Secrecy Act, as amended

Pattern of Negligent Activity

by Financial Institution or

Non-Financial Trade or

Business 

1992 2019 $89,170 FinCEN Same as above

31 USC 5321(a)(7) 

Bank Secrecy Act, as amended

Violation of Certain Due

Diligence Requirements, 

Prohibition on

Correspondent Accounts for

Shell Banks, and Special

Measures

2001 2019 $1,423,088 FinCEN Same as above

31 USC 5330(e)

Bank Secrecy Act, as amended

Civil Penalty for Failure to

Register as Money

Transmitting Business 

1994 2019 $8,457 FinCEN Same as above

12 USC 93(b)

Section 5239(b) of the Revised

Statutes

Tier 1 Violation of Various

Provisions of the National

Bank Act

1978 2019 $10,067 OCC 

83 Federal Register

66599 (December 27, 

2018) 

https://www.govinfo.g

ov/content/pkg/FR2018-12-27/pdf/2018-

27784.pdf

12 USC 93(b)

Section 5239(b) of the Revised

Statutes

Tier 2 Violation of Various

Provisions of the National

Bank Act

1978 2019 $50,334 OCC Same as above

12 USC 93(b)

Section 5239(b) of the Revised

Statutes

Tier 3 Violation of Various

Provisions of the National

Bank Act

1978 2019 $2,013,399 OCC Same as above

12 USC 164

Section 5213 of the Revised

Statutes

Tier 1 Violation of Reporting

Requirements 1869(2) 2019 $4,027 OCC Same as above
222 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty 

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

12 USC 164

Section 5213 of the Revised

Statutes

Tier 2 Violation of Reporting

Requirements 1869(2) 2019 $40,269 OCC Same as above

12 USC 164

Section 5213 of the Revised

Statutes

Tier 3 Violation of Reporting

Requirements 1869(2) 2019 $2,013,399 OCC Same as above

12 USC 481

Section 5240 of the Revised

Statutes

Refusal of Affiliate to

Cooperate in Examination

(National Banks) 

1864(2) 2019 $10,067 OCC Same as above

12 USC 504

Section 29 of the Revised

Statutes

Tier 1 Violation of Various

Provisions of the Federal

Reserve Act

1978 2019 $10,067 OCC Same as above

12 USC 504

Section 29 of the Revised

Statutes

Tier 2 Violation of Various

Provisions of the Federal

Reserve Act

1978 2019 $50,334 OCC Same as above

12 USC 504

Section 29 of the Revised

Statutes

Tier 3 Violation of Various

Provisions of the Federal

Reserve Act

1978 2019 $2,013,399 OCC Same as above

12 USC 1817(j)(16) 

Section 7(j)(16) of the Federal

Deposit Insurance Act

Tier 1 Violation of Change in

Bank Control Act 1978 2019 $10,067 OCC Same as above

12 USC 1817(j)(16) 

Section 7(j)(16) of the Federal

Deposit Insurance Act

Tier 2 Violation of Change in

Bank Control Act 1978 2019 $50,334 OCC Same as above

12 USC 1817(j)(16) 

Section 7(j)(16) of the Federal

Deposit Insurance Act

Tier 3 Violation of Change in

Bank Control Act 1978 2019 $2,013,399 OCC Same as above

12 USC 1818(i)(2)

Section 8(i)(2) of the Federal

Deposit Insurance Act

Tier 1 Violation of Law,

Unsafe or Unsound

Practice, or Breach of

Fiduciary Duty

1978 2019 $10,067 OCC Same as above

12 USC 1818(i)(2)

Section 8(i)(2) of the Federal

Deposit Insurance Act

Tier 2 Violation of Law,

Unsafe or Unsound

Practice, or Breach of

Fiduciary Duty

1978 2019 $50,334 OCC Same as above

12 USC 1818(i)(2)

Section 8(i)(2) of the Federal

Deposit Insurance Act

Tier 3 Violation of Law,

Unsafe or Unsound

Practice, or Breach of

Fiduciary Duty

1978 2019 $2,013,399 OCC Same as above

12 USC 1820(k)(6)(A)(ii) 

Section 10(k)(6)(A)(ii) of the

Federal Deposit Insurance Act

Violation of PostEmployment Restrictions 2004 2019 $331,174 OCC Same as above

12 USC 1832(c) 

Section 2 of Public Law 93-100

Violation of Withdrawals by

Negotiable or Transferable

Instrument for Transfers to

Third Parties (National

Banks) 

1973 2019 $2,924 OCC Same as above

12 USC 1832(c) 

Section 2 of Public Law 93-100

Violation of Withdrawals by

Negotiable or Transferable

Instrument for Transfers to

Third Parties (Federal

Savings Associations)

1973 2019 $2,658 OCC Same as above
DEPARTMENT OF THE TREASURY 223

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty 

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

12 USC 1884

Section 5 of the Bank

Protection Act of 1968

Violation of the Bank

Protection Act 1968 2019 $292 OCC Same as above

12 USC 1972(2)(F)

Section 106(b)(2)(F) of the Bank

Holding Company Act

Amendments of 1970

Tier 1 Violation of AntiTying Provisions Regarding

Correspondent Accounts,

Unsafe or Unsound

Practices, or Breach of

Fiduciary Duty

1978 2019 $10,067 OCC Same as above

12 USC 1972(2)(F)

Section 106(b)(2)(F) of the Bank

Holding Company Act

Amendments of 1970

Tier 2 Violation of AntiTying Provisions Regarding

Correspondent Accounts,

Unsafe or Unsound

Practices, or Breach of

Fiduciary Duty

1978 2019 $50,334 OCC Same as above

12 USC 1972(2)(F)

Section 106(b)(2)(F) of the Bank

Holding Company Act

Amendments of 1970

Tier 3 Violation of AntiTying Provisions Regarding

Correspondent Accounts,

Unsafe or Unsound

Practices, or Breach of

Fiduciary Duty

1978 2019 $2,013,399 OCC Same as above

12 USC 3110(a)

Section 16(a) of the

International Banking Act of

1978

Violation of Various

Provisions of the

International Banking Act

(Federal Branches and

Agencies)

1991 2019 $46,013 OCC Same as above

12 USC 3110(c) 

Section 16(c) of the

International Banking Act of

1978

Tier 1 Violation of Reporting

Requirements of the

International Banking Act

(Federal Branches and

Agencies)

1991 2019 $3,682 OCC Same as above

12 USC 3110(c) 

Section 16(c) of the

International Banking Act of

1978

Tier 2 Violation of Reporting

Requirements of the

International Banking Act

(Federal Branches and

Agencies)

1991 2019 $36,809 OCC Same as above

12 USC 3110(c) 

Section 16(c) of the

International Banking Act of

1978

Tier 3 Violation of Reporting

Requirements of the

International Banking Act

(Federal Branches and

Agencies)

1991 2019 $1,840,491 OCC Same as above

12 USC 3909(d)(1)

Section 910(d)(1) of the

International Lending

Supervision Act of 1983

Violation of International

Lending Supervision Act 1983 2019 $2,505 OCC Same as above

15 USC 78u-2(b)

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 1 (natural person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2019 $9,472 OCC Same as above
224 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty 

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

15 USC 78u-2(b)

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 1 (other person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2019 $94,713 OCC Same as above

15 USC 78u-2(b)

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 2 (natural person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2019 $94,713 OCC Same as above

15 USC 78u-2(b)

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 2 (other person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2019 $473,566 OCC Same as above

15 USC 78u-2(b)

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 3 (natural person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2019 $189,427 OCC Same as above

15 USC 78u-2(b)

Section 21B(b) of the Securities

Exchange Act of 1934

Tier 3 (other person)

Violation of Various

Provisions of the Securities

Act, the Securities Exchange

Act, the Investment

Company Act, or the

Investment Advisers Act

1990 2019 $947,130 OCC Same as above

15 USC 1639e(k)

Section 129E(k) of the Truth in

Lending Act

First Violation - Violation of

Appraisal Independence

Requirements

2010 2019 $11,563 OCC Same as above

15 USC 1639e(k)

Section 129E(k) of the Truth in

Lending Act

Subsequent Violations - 

Violation of Appraisal

Independence

Requirements

2010 2019 $23,125 OCC Same as above

42 USC 4012a(f)(5)

Section 102(f)(5) of the Flood

Disaster Protection Act of 1973

Flood Insurance 1994 2019 $2,187 OCC Same as above

12 USC 1464(v)

Section 5(v) of the Home

Owners' Loan Act

Tier 1 Reports of Condition - 

Savings Associations 1989 2019 $4,027 OCC Same as above

12 USC 1464(v)

Section 5(v) of the Home

Owners' Loan Act

Tier 2 Reports of Condition - 

Savings Associations 1989 2019 $40,269 OCC Same as above

12 USC 1464(v)

Section 5(v) of the Home

Owners' Loan Act

Tier 3 Reports of Condition - 

Savings Associations 1989 2019 $2,013,399 OCC Same as above
DEPARTMENT OF THE TREASURY 225

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

Statutory Authority Penalty (Name or

Description)

Year 

Enacted 

Latest Year of

Adjustment (via

Statute or

Regulation)

Current Penalty 

Level ($

Amount or

Range)(1)

Sub-Agency

Bureau/

Entity 

Location for Penalty 

Update Details

12 USC 1467(d)

Section 9(d) of the Home

Owners' Loan Act

Refusal of Affiliate to

Cooperate in Examination 1989 2019 $10,067 OCC Same as above

12 USC 1467a(r)

Section 10(r) of the Home

Owners' Loan Act

Tier 1 Late/Inaccurate

Reports (Savings and Loans) 1989 2019 $4,027 OCC Same as above

12 USC 1467a(r)

Section 10(r) of the Home

Owners' Loan Act

Tier 2 Late/Inaccurate

Reports (Savings and Loans) 1989 2019 $40,269 OCC Same as above

12 USC 1467a(r)

Section 10(r) of the Home

Owners' Loan Act

Tier 3 Late/Inaccurate

Reports (Savings and Loans) 1989 2019 $2,013,399 OCC Same as above

27 USC 218

Federal Alcohol Administration

Act, as amended; Section 207 

of the Alcohol Beverage

Labeling Act of 1988, P.L. 100-

690 

Violation 1988 2019 $21,039 TTB

84 Federal Register

14614 (April 11, 2019) 

https://www.govinfo.g

ov/content/pkg/FR2019-04-11/pdf/2019-

07220.pdf

31 USC 333

Prohibition of Misuse of

Department of the Treasury

Names, Symbols, etc.

Misuse of Treasury name or

symbol 1994 2019 $7,975 DepartmentWide

84 Federal Register

15955 (April 17, 2019) 

https://www.govinfo.g

ov/content/pkg/FR2019-04-17/pdf/2019-

07664.pdf

31 USC 333

Prohibition of Misuse of

Department of the Treasury

Names, Symbols, etc.

Misuse of Treasury name or

symbol in broadcast or

telecast

1994 2019 $39,873 Department

Wide Same as above

31 USC 3729

False Claims Act False Claims Act 1986 2018(3)

$11,181 to

$22,363 plus 3 

times the

amount of

damages which

the Government

sustains because

of the act

Department

Wide

Department of Justice

(DOJ) issued

regulations at Federal

Register 83 (January

29, 2018) 3944 – 3947 

31 USC 3802

Program Fraud Civil Remedies

Act

Program Fraud Civil

Remedies Act 1986 2018(3)

Up to $11,181 

for each claim

plus 2 times the

amount of the

claim

Department

Wide

DOJ issued regulations

at Federal Register 83 

(January 29, 2018) 

3944 - 3947 

(1) Current penalty level amounts represent the maximum penalty amounts.

(2) For purposes of calculating the appropriate inflation factor, OMB’s guidance issued February 24, 2016 uses the calendar year 1914 CMP CatchUp Adjustment Multiplier for all penalties enacted prior to 1914.

(3) Department of Justice has not published regulation for 2019 inflation adjustment to this CMP.
226 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

APPENDIX: GLOSSARY OF ACRONYMS

Abbreviation Description 

2015 Act Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015

ACTC Additional Child Tax Credit

AFR Agency Financial Report

AGI Adjusted Gross Income

AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism

AOTC American Opportunity Tax Credit

APG Agency Priority Goal

APR Annual Performance Report

ARC Administrative Resource Center

ARRA American Recovery and Reinvestment Tax Act of 2009

ASM Assistant Secretary for Management

BEP Bureau of Engraving and Printing

BSA Bank Secrecy Act

CDFI Community Development Financial Institutions

CFIUS Committee on Foreign Investment in the United States

CFO Chief Financial Officer

CI Criminal Investigation

Civil Service Fund Civil Service Retirement and Disability Trust Fund

CLM Collaborative Lifecycle Management

CMP Civil Monetary Penalties

CPI Consumer Price Index

CRO Chief Risk Officer

CSRS Civil Service Retirement System

CTC Child Tax Credit

D.C. District of Columbia

D.C. Federal Pension Fund D.C. Teachers’, Police Officers’, and Firefighters’ Federal Pension Fund

DAIMS DATA Act Information Model Schema

DATA Act Digital Accountability and Transparency Act

DDV Due Diligence Visits

DFF Departmental Franchise Fund

DHS Department of Homeland Security

DNP Do Not Pay 

DO Departmental Offices

DOJ Department of Justice

DOL Department of Labor

EFRMP Enterprise Fraud Risk Management Program

EIN Employer Identification Number

EITC Earned Income Tax Credit

ERM Enterprise Risk Management

ESA Exchange Stabilization Agreement
DEPARTMENT OF THE TREASURY 227

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

Abbreviation Description 

ESF Exchange Stabilization Fund

Fannie Mae Federal National Mortgage Association

FARS Financial Analysis and Reporting System

FASAB Federal Accounting Standards Advisory Board

FATF Financial Action Task Force

FCDA Foreign Currency Denominated Assets

FCRA Federal Credit Reform Act

FDC Funds from Dedicated Collections

FECA Federal Employees’ Compensation Act

FEGLI Federal Employees Group Life Insurance

FEHBP Federal Employees Health Benefits Program

FERS Federal Employees’ Retirement System

FEVS Federal Employee Viewpoint Survey

FFB Federal Financing Bank

FFMIA Federal Financial Management Improvement Act of 1996

FHFA Federal Housing Finance Agency

FICA Federal Insurance Contributions Act

FinCEN Financial Crimes Enforcement Network

FIRE Filing Information Returns Electronically

FIRRMA Foreign Investment Risk Review Modernization Act

Fiscal Service Bureau of the Fiscal Service

FISMA Federal Information Security Management Act

FITARA Federal Information Technology Acquisition Reform Act

FMFIA Federal Managers’ Financial Integrity Act

FOMC Federal Open Market Committee

FR Financial Report of the U.S. Government

FR System Federal Reserve System

FRB Federal Reserve Bank

FRBNY Federal Reserve Bank of New York

FRDAA Fraud Reduction and Data Analytics Act of 2015

Freddie Mac Federal Home Loan Mortgage Corporation

FRN Floating Rate Note

FSA Fiscal Service Administration

FSD Fiscal Service Debt

FSM Funds Management Branch

FSSCC Financial Services Sector Coordinating Council

FSU Fiscal Service Umbrella

FTO Fine Troy Ounce

FY Fiscal Year

G Fund Government Securities Investment Fund

G-7 Group of Seven

G-20 Group of 20
228 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Abbreviation Description 

GAAP Generally Accepted Accounting Principles

GAB General Arrangements to Borrow

GAO U.S. Government Accountability Office

General Fund General Fund of the U.S. Government

GDP Gross Domestic Product

GPRA Government Performance and Results Act of 1993

GSA General Services Administration

GSE Government Sponsored Enterprise

HERA Housing and Economic Recovery Act

HFA Housing Finance Agency

HHS Department of Health and Human Services

HVA High Value Assets

IAP International Assistance Programs

IMF International Monetary Fund

Inflation Adjustment Act Federal Civil Penalties Inflation Adjustment Act of 1990

IPERA Improper Payments Elimination and Recovery Act

IPERIA Improper Payments Elimination and Recovery Act Improvement Act of 2012

IPIA Improper Payments Information Act of 2002

IRC Internal Revenue Code

IRS Internal Revenue Service

ISIS Islamic State of Iraq and Syria

IT Information Technology

JCPOA Joint Comprehensive Plan of Action

Judicial Retirement Fund District of Columbia Judicial Retirement and Survivors’ Annuity Fund

MADR Market Adjusted Discount Rate

MDB Multilateral Development Bank

NAB New Arrangements to Borrow

NAFA North American Framework Agreement

NFTL Notice of Federal Tax Lien

NIBP New Issue Bond Program

NIST National Institute of Standards and Technology

NRP National Research Program

OAS International Assistance Programs

OCC Office of the Comptroller of the Currency

ODCP Office of D.C. Pensions

OFAC Office of Foreign Assets Control

OFR Office of Financial Research

OFS Office of Financial Stability

OI Office of Investigation

OIG Office of the Inspector General

OMB Office of Management and Budget

OPE Office of the Procurement Executive
DEPARTMENT OF THE TREASURY 229 

OTHER INFORMATION | FY 2019 AGENCY FINANCIAL REPORT

Abbreviation Description 

OPEB Other Post-Employment Benefits

OPM Office of Personnel Management

OPM Funds Civil Service Fund and Postal Benefits Fund

ORB Other Retirement Benefits

ORM Office of Risk Management 

OTA Office of Technical Assistance

OTC Over-the-Counter

P.L. Public Law 

PATH Act Protecting Americans from Tax Hikes Act

PCA Private Collection Agencies

PDC Private Debt Collection

PICoE Payment Integrity Center of Excellence

PIO Performance Improvement Officer

Postal Benefits Fund Postal Service Retiree Health Benefits Fund

PP&E Property, Plant, and Equipment

PTC Premium Tax Credit

PTIN Preparer Tax Identification Number

QSMO Quality Service Management Organization

RPA Robotic Process Automation

RTC Resolution Trust Corporation

SAM Software Asset Management

SAR Security Architecture Review

SBLF Small Business Lending Fund

SBR Statement of Budgetary Resources

SDR Special Drawing Rights

Secretary Secretary of the Treasury

SFFAS Statement of Federal Financial Accounting Standards

SIGTARP Special Inspector General for the Troubled Asset Relief Program

SLGS State and Local Government Series

SOAR Strategic Objective Annual Review

SOMA System Open Market Account

SPSPA Senior Preferred Stock Purchase Agreements

SSA Social Security Administration

SSN Social Security Number

TARP Troubled Asset Relief Program

TBM Technology Business Management

TCJA Tax Cuts and Jobs Act

TEIS Treasury Enterprise Infrastructure Solutions

TEOAF Treasury Executive Office of Asset Forfeiture

TFF Treasury Forfeiture Fund

TFI Terrorism and Financial Intelligence

TFS TIER Financial Statements
230 DEPARTMENT OF THE TREASURY

FY 2019 AGENCY FINANCIAL REPORT | OTHER INFORMATION

Abbreviation Description 

TGA Treasury General Account

TIER Treasury Information Executive Repository

TIGTA Treasury Inspector General for Tax Administration

TIPS Treasury Inflation-Protected Securities

TRIP Terrorism Risk Insurance Program

TSP Thrift Savings Plan

TTB Alcohol and Tobacco Tax and Trade Bureau

TY Tax Year

U.S. United States

U.S. Mint United States Mint

USA Patriot Act United and Strengthening America by Providing Appropriate Tools Required to

Intercept and Obstruct Terrorism Act of 2001

USC United States Code

USPS United States Postal Service

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